AppChains, RaaS, and the Future of DeFi - Insights from DevCon Bangkok
The future of DeFi will likely involve a mix of AppChains for specialized applications and general-purpose chains for broader ecosystems
During my time at DevCon in Bangkok, I had the privilege of attending a panel discussion on AppChains for DeFi. The room was electrified with passion and expertise, featuring DeFi luminaries including founders, CEOs, and heads of research from Uniswap, DODO, CoW Protocol, and others. The conversation was as insightful as it was spirited, offering a diverse range of perspectives on the evolving role of AppChains in decentralized finance. Here are the key takeaways from this engaging discussion.
AppChains
An AppChain is an application-specific blockchain designed to serve a single application or protocol. These chains can be built as Layer-1 (L1) blockchains, requiring their own consensus mechanisms and validator networks. Tools like Cosmos SDK enable the creation of such chains.
Alternatively, AppChains can leverage Layer-2 (L2) or Layer-3 (L3) architectures, using rollup technology to build on existing L1 chains like Ethereum. Rollups are particularly attractive for AppChains because they inherit the security of the underlying L1 while offering flexibility and scalability. Public rollup frameworks like Arbitrum, Optimism, ZKSync, and StarkNet also provide tools for creating customized rollups.
Rollup-as-a-Service (RaaS)
Rollups, a specific type of L2 scaling solution, function like independent blockchains and are often EVM-compatible, enabling seamless deployment of Ethereum-based DeFi protocols. Operating a rollup requires infrastructure like sequencers (and provers for ZK rollups) alongside smart contracts on Ethereum.
If setting up this infrastructure feels daunting, RaaS providers like Gelato or QuickNode simplify the process. For as little as $50–$100 per month, you can create your own rollup (in seconds!), complete with the flexibility to customize it to your needs. The question, however, is: when does it make sense to create your own L2?
AppChains: Benefits and Limitations
That said, AppChains , which can (should) be set up via RaaS - do have their place. They can address certain limitations imposed by underlying blockchains, such as:
Block Times: Faster confirmation and lower latency for trading applications.
Finality Confidence: Enhanced certainty in transaction finality, crucial for high-frequency trading.
Risk Management: Custom risk frameworks, particularly for derivatives like perpetual swaps, where the stakes are higher.
Security and Transparency: Dedicated chains can tailor security parameters to specific use cases, ensuring robust protections for users.
For these reasons, AppChains are particularly well-suited to specialized use cases like perpetual exchanges or niche financial applications where custom infrastructure is a priority.
The excellent example for appchain use-case is perpetual exchanges or lending protocols that rely on a central limit order book. Implementation of such an order book is not feasible on public L1 and L2 due to data storage costs and security issues with MEV. Thus, appchains are perfect if you want to operate an order book for lending or trading perps.
However, this power of configuring your chain comes at a price. Despite these benefits, AppChains come with challenges:
Fragmented Liquidity: Each AppChain isolates liquidity, reducing overall composability.
Compromised Interoperability: AppChains can disrupt the seamless interaction between protocols, a hallmark of DeFi.
For general-purpose decentralized exchanges (DEXs), the loss of composability may outweigh the advantages of customizability.
Do AppChains Compromise DeFi Composability?
One of the recurring themes was the impact of AppChains on DeFi composability—the ability for protocols to interact seamlessly within a shared ecosystem. Composability is a cornerstone of DeFi, enabling innovations like yield farming, liquidity aggregation, and protocol integrations. Many panelists emphasized that this interconnectivity is what makes DeFi so powerful.
While AppChains may offer bespoke solutions for specific applications, they inherently fragment liquidity and isolate protocols, which can erode the composable ecosystem that DeFi thrives upon. For general-purpose decentralized exchanges (DEXs), this loss of composability could outweigh the benefits of customizability.
Unichain: A DeFi Chain, Not an AppChain
Unichain is a fascinating exception. While it hosts Uniswap, it functions as a general-purpose chain, not an application-specific chain. Its goal is to attract liquidity by offering superior economics and infrastructure, preserving composability while providing a tailored environment for DeFi users and developers.
Unlike siloed AppChains, Unichain remains interconnected, allowing it to integrate with the broader DeFi ecosystem without sacrificing liquidity or composability. The major rationale for Unichain are:
faster block production,
fair MEV (on L2),
interoperability: with other L2s and Ethereum.
CoW Protocol’s Vision for DeFi’s Multi-Chain Future
CoW Protocol’s perspective was particularly enlightening. Their approach focuses on going where the users are rather than isolating operations on a single AppChain. The future, they argue, isn’t about thousands of AppChains but rather a convergence of key Layer-2 ecosystems that cater to the majority of users.
CoW Protocol operates as a solver—a DEX aggregator that enhances user experience by sourcing the best bids across multiple chains and DEXs. This approach maintains composability and liquidity while ensuring users get the best prices.
This pragmatic outlook envisions a world where most activity consolidates on a handful of efficient, interconnected chains, maintaining the composability and liquidity that underpin DeFi’s success.
Final Thoughts: Are AppChains the Future of DeFi?
The panel discussion provided a balanced perspective on AppChains. While they offer unparalleled customizability and security for specialized use cases, they are not a universal solution for DeFi.
The future of DeFi will likely involve a mix of AppChains for specialized applications and general-purpose chains for broader ecosystems.
Striking the right balance between specialization and interoperability will be key to maintaining DeFi’s growth and innovation.
What do you think? Are AppChains the future, or will composability remain DeFi’s defining strength? Let me know your thoughts in the comments!
I think appchajns which solve for interoperability are emerging and I am betting that way. The point cow made about being where users are is largely correct and solvers which aggregate across pools of liquidity certainly is a thing. But the real winners are those that are where real user demand is.