I think one of the errors of our ecosystem is that we conditioned ourselves to believe that all DApps had to function directly on a L1 mainnet. This has led to most of the problems we have today handling growth in decentralized applications usage.
In part, we can blame this on the fact that there simply weren't options or alternatives to deploying purpose-built applications at the time when smart contracts became a thing, through Ethereum. That said, if we judge by how the industry has evolved since the inception of smart contracts, it's become evident that “scaling” should be application specific and less a burden to L1s.
Don't get me wrong, layer 1 blockchains need to achieve some level of optimization that allows for flawless integration and flexible use by users and developers, but some of the scaling needs have to be pushed off of L1 mainnets and onto specific appchains.
Unlike layer 1 blockchains, which are mostly generic and multi-purpose, appchains are application-specific blockchains, meaning that they are designed to serve a single or specific purpose.
A prominent example of an appchain is dYdX, a decentralized trading platform delivering decentralized perpetual trading, on-chain.
In the wake of debates of Ethereum losing revenue due to the rise of Layer 2 blockchains, I thought it a crucial time to talk about appchains and why their existence essentially makes layer 2 solutions useless.
First off, we have to look at what exactly layer 2 solutions are meant for to be able to decide on its relevance with appchains in the picture.
The purpose of Layer 2 blockchains, as often discussed, is to scale Layer 1 blockchains whilst not compromising on security, through the L1.
This means that each layer 2 blockchain is designed to aid layer 1 blockchains scale efficiency, thereby improving its usability.
Unlike sidechains, which are connected chains via two-way bridges that runs parallel with a L1, layer 2 blockchains directly rely on the layer 1 mainnet for security.
The problem? Layer 2 blockchains, whilst reliant on the L1 for security, can still be viewed as stand alone chains that only enable users enjoy scalability and low cost of operations not present on the L1 when they can get onboarded through centralized channels like exchanges.
This is because Layer 2 blockchains don't really solve the fee or scalability problems if users have to function directly on-chain and they are essentially new environments that need to be learned by both users and developers.
Ultimately, while slowing sucking liquidity away from L1s without giving anything back, L2s also fail at solving the scalability problems it was built for.
Appchains are better alternatives
Layer 1 blockchains are known to be general purpose, meaning that they are designed to enable builders deploy a variety of products and services.
In recent times, it has become evident that this reality may lead to most L1s being unprofitable. The key to profitability lies in having niche apps and/or solutions running on appchains in your ecosystem, rather than trying to be and handle everything all at once, on the mainnet.
Appchains are essential to L1s being profitable because thousands or millions of niche apps or solutions running directly on an L1 is bound to create problems, irrespective of how much goes into building out systems to enable scaling effectively as growth is realized.
This is because the problem isn't the niche apps themselves, but the usage of the niche apps or solutions which very much can be 100-1000x expensive.
With each app or solution having its own appchain, a huge burden is taken away from the L1 mainnet and it can work to scale its connected appchains rather than worry about handling the growth in usage of explosive niche products or services.
That said, it is also crucial that these apps are funded by the decentralized L1, as opposed to being primarily funded by VCs.
Decentralized funding has to be widely adopted by L1 chains as this is an important piece to being profitable.
Think about it. If Ethereum, as a blockchain held a stake through decentralized funding in every L2 that has launched over the years, CT wouldn't be arguing about revenue right now because not only would Ethereum as the mainnet have a say in the development of said L2 chains, it would also directly benefit from its growth making lost fees revenue for allowing transactions happen off its mainnet negligible.
I've seen a lot of opinions on X on how to fix the revenue problem of Ethereum and nobody has thought of decentralized funding for appchains giving the mainnet a stake in whatever runs in its ecosystem.
Layer 1 blockchains need to begin thinking as a business and understand that encouraging and supporting appchains offering valuable niche products and services and acquiring a stake is crucial to effectively maximizing the value generated within its ecosystem.
Appchains make L2s completely useless as they are essentially much better at scaling given the focus on niche solutions, plus, they only need to optionally use the L1 for security unlike L2s.