What are appchains? - All you need to know

While recently, all the talk has moved on to discussing what constitutes an actual rollup or the degree of Ethereum-alignment of various projects, we shouldn't forget about an entirely different crop of chains: appchains. Especially as quality deteriorates on X and crypto-natives move over to web3 social, it's only a question of time until someone builds an entire chain to accommodate it. 

But let's take a step back and start with appchains more generally. 

What are appchains? 

In short, an appchain is a blockchain built with a specific use case in mind. Unlike general-purpose blockchains, they optimize for one area and do not bother with being a place that welcomes any use case. In that, they're very similar to Soho House. Not everyone can get in, nor should they because they'd probably ruin the vibe.

Appchains are standalone blockchains that offer a high degree of customization and optimization. This allows a streamlined approach to development and a focus on the nuances required to make an app successful. 

Let's take Instagram, the most downloaded app in 2023. Imagine putting that on a blockchain like Ethereum. It couldn't even handle a bunch of kitties being minted; now, imagine if it had to host all those flame emojis 20-somethings send to their crush. Clearly, it'd crash the network - and, on top of that, create an even worse privacy nightmare than social media is today. 

The only way to bring an app of that scale on-chain is likely by giving it its own chain. 

But with Meta quietly dropping the Metaverse/Web3 narrative, it's unlikely they will embark on an onchain version of any of their products. 

Fortunately, we don't need to order appchains from big tech. We have appchains at home.

The concept of appchains was first introduced in 2016 by Polkadot and Cosmos. Nevertheless, it took until 2021 for the first appchains to go live. In 2021, Axie Infinity, a play-to-earn game, realized its high demand was putting strain on Ethereum and its users, leading to lower confirmation times and high fees. 

Consequently, they developed their own sidechain to host their thousands of gaming rewards farmers. DeFi Kingdom went through a similar realization and migrated to an Avalanche subnet. More recently, BAYC members voted in favor of building their own chain, presumably to create a place for the "not so anonymous phishing victim" gatherings.

All of this bears the question, why is it desirable to have your own chain, bragging rights aside? 

Benefits of Appchains 

General smart contract platforms like Ethereum and Solana are great for fostering a multi-app ecosystem and offer benefits such as composability and ease of moving funds around. However, they aren't always the easiest to develop million-user apps since they end up having to compete for block space. 

On top of that, all changes to the base layer require consensus across the entire ecosystem and can take a long time to implement (see Ethereum's track record of delivering significant updates on time). 

https://x.com/pseudotheos/status/1734206463755624547?s=20 

So here are some of the benefits of appchains over deploying one's app directly on a Layer-1 or 2.

• Sovereignty: Because appchains are their own blockchain, they operate entirely independently from other blockchains. 
• Customization: Devs can customize the chain to perfectly suit the needs of one app or a specific use case. 
• Increased efficiency: All resources on an appchain are dedicated to it, increasing transaction throughput and confirmation times. Due to a lack of competition for blockspace, appchains are also more cost-efficient. 
• Value capture: As the fat protocol thesis suggests, successful apps on top of general-purpose blockchains drive much value to the underlying ecosystem without necessarily capturing the full upside. Appchains however get to keep all the value they create, and can even further monetize by forking other protocols and monetizing them inside of their ecosystem. 

Despite the benefits, appchains aren't the right fit for any project, because of challenges facing when bootstrapping one. 

Challenges appchains face

While apps on smart contract platforms have access to the entire userbase of that chain, when building a chain from scratch, things work differently. 

Challenges appchains face include: 

• Limited composability: being sovereign is accompanied by a lack of composability with existing chains. Users from other chains will need to use bridges which doesn't break composability yet introduces significant friction for first-time users. 
• Liquidity: as a stand-alone chain, bootstrapping liquidity is hard. Crypto investors are mercenaries. Funds move where rewards are the highest. Currently, that's multi-sig L2s that accidentally delete their open-source code licenses and re-restaking protocols. Competing in that is a zero-sum game where the deepest pockets or the most meme-d projects win. For teams who have neither, best to not attempt
• Security: chains are only as secure as their weakest part. Standalone Appchains have to build their validator set from scratch since they don't inherit security from anywhere else unlike L2s. 

• Dev work: needless to say, building an entire chain for an app requires more development work than just developing on top of an existing blockchain. 

With all those hefty downsides in mind, you might wonder why people even bother, except for big corporations who love to be in control of their walled gardens. 

It's true that appchains are not a fit for any project. They work best for projects that already have reached scale and some sort of product market-fit. Moving from an L1 to an appchain should offer significant product and performance benefits to make it worth it. Take Axie Infinity. Moving to a sidechain made it a lot cheaper for players to breed their magic internet animals. But, they only moved after establishing a user base - as ephemeral as the P2E trend might have been. 

If you are thinking of building an appchain, below is a graph to help you decide if it's sensible to do so. 

Quick aside on AppRollups 

Since building alt-L1s is out and going up the Layer stack is in, we've also witnessed the emergence of application-specific rollups, aka appRollups. They are similar to appchains but benefit from the modular stack - by relying on security from an existing layer-1 ecosystem and potentially DA from yet another blockchain. 

AppRollups remove some of the friction of standalone appchains by being more ethereum-aligned. Examples of app-specific rollups include Zora Network, a NFT marketplace protocol, and Rhino.Fi, an L2 for earning yield. 

Back to the appchains, if you've decided to build one and don't want to deal with some of the downsides, fortunately, Cosmos and Polkadot have created app-chain-friendly ecosystems that lift a huge part of appchains burden. 

Appchain Ecosystems 

Polkadot 

Polkadot, founded by Gavin Woods, was one of the first to introduce the vision of an ecosystem of chains that specialize in different areas all connected through a Layer-0, called relay chain, to seamlessly communicate. 

Chains building on Polkadot are called parachains and run in parallel with the ecosystem, benefitting from its security. The relay chain uses Proof of Stake with validators staking DOT. Groups of valdiators are responsible for securing parachains, which means, appchains don't have to worry about bootstrapping a validator set for security. Thanks to cross-chain interoperability, parachains can communicate without intermediaries and transfer value. 

While slots for parachains were initially limited to 100, the recent introduction of parathreads has increased the capacity of the system to support further apps. Polkadot's development framework, Substrate, has found adoption beyond Polkadot in Starknet's sequencer. 

One example of a Polkadot parachain is HydraDX. It's a DeFi hub offering trustless swaps, staking, and others liquidity products. Subsquid already offers support to anyone building Substrate chains and powers countless parachains with access to reliable, fast on-chain data. 

Cosmos

The second well-established appchain ecosystem is Cosmos, also known for a host of governance drama. Unlike Polkadot, Cosmos chains are independent and only share that they've all been built using the Cosmos SDK. Still, they are interoperable, facilitated through the Cosmos Hub, the economic center of the Interchain world. 

More recently, the Cosmos ecosystem introduced the concept of shared security allowing prospective appchains to "rent" security rather than bootstrapping it themselves. 

The Cosmos appchains recently received a boast with dydx' successfully launching their perpetual trading platform using the Cosmos SDK and quickly reaching more than $400 million in daily volume. 

And if there's one thing we should all take away from Cosmos, it is building explorers with 3D visualizations. When if not now that Apple Vision Pro is a thing? 

Cosmos, too, is on Subsquid’s roadmap, coming before everyone will be walking around with 3D goggles on their heads. 

In conclusion, appchains are simply chains that are built for specific apps to make up for some of the limitations of building on general-purpose blockchains. While they do offer benefits such as customization and value capture, tradeoffs include fragmentation and friction. Some of the latter can be remedied when building in Polkadot or Cosmos, which support seamless movement of liquidity across chains that form part of their ecosystems.

With Ethereum's pivot to a rollup-centric roadmap and various rollup & sidechain projects like Optimism and Polygon pushing their respective BYOB (build your own blockchain) solutions, chances are we might see more and more app-specific chains. 

My bet is on Social and Gaming. 

For anyone who just wants access to all those chains' data, Subsquid got your back. We support EVM chains, rollups, and Substrate Chains. Soon, Solana also came, and later in the year, Cosmos. 

If you want to see more ecosystems supported, let us know!