The inflection point used by the Rollup application may arrive in 6 to 12 months.
Writings: Alana Levin
Compilation: Luffy, Foresight News
Two years ago, application developers faced a rather simple choice when deciding which chain to deploy their applications on: Ethereum, Solana, Cosmos, or other Layer 1 blockchains. At that time, Rollup had not yet launched its mainnet, and few people had heard of the term “modular stack.” The differences between L1s (throughput, fees, etc.) were very clear and relatively easy to understand.
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Today’s situation seems to be very different. Application developers face more choices: L1, general Rollup (Optimistic and zk), IBC infrastructure, Rollup as a service provider, application chain, and so on. More choices bring more problems: should the team deploy the application to a general Rollup or build a specific application Rollup? If they choose a general Rollup, which one to choose; if they go the application Rollup route, which SDK/Rollup as a service to use, which data availability layer to choose, whether EigenLayer can provide help, how to consider the sorter; if they choose to go the OP Stack route, can they have a place in the Optimism Super Chain ecosystem?
In order to narrow the scope of the problem, this article will use the framework of an application that has been deployed on Ethereum and hopes to expand in the Ethereum ecosystem. Therefore, the focus of this article will be on the decision tree that the application team faces when deciding whether to launch their own Rollup, which types of applications are particularly suitable for certain types of infrastructure, and when I think we may reach the critical point of adoption.
High-level framework
The core of the application Rollup decision is actually a simple question: Will users still use it if the application is built on its own chain? Further expansion is two questions:
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If the application is on its own chain, are users more likely to use it?
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If the application is on its own chain, will users still use it?
The benefits of a specific application Rollup are better control: the ability to abstract Gas costs, limit chain congestion caused by other application activities, better experiment with how to use tokens, explore different economic structures (such as Gas rebates), build custom execution environments, implement access control (such as permission deployment), and so on.
However, the cost of this additional control is the loss of connectivity to a wider ecosystem. Applications on a general-purpose chain can access existing liquidity on the chain (for example, without the need for additional bridging between chains), composability with other applications, and user attention on the chain. Building on a general-purpose chain also saves a lot of engineering costs compared to running your own chain.
If it’s free, better control may enhance the user experience. Therefore, the answer to the core question – whether users will still use the application if it is on their own chain – actually depends on the balance between control and connectivity.
How much connectivity can applications sacrifice?
There are many forms of connectivity, the two most important of which are: 1) attention, and 2) capital.
Attention is related to native propagation. If a team’s project is the first project that users need to participate in when entering the ecosystem, it means that the application has native propagation. Applications that can control attention are more suitable for launching their own chains; no matter which chain the application is on, users will use the application. In my opinion, applications with native propagation currently include Mirror, Zora, Manifold, Sound.xyz, and OnCyber. Another view is that applications without strong propagation may choose to launch their own chain to stimulate user interest (but I found that if many chains pursue this route at the same time, it is not so eye-catching).
The second form of connectivity is capital. Usually, the funds deployed by users on an application are transferred from another application in the same ecosystem. I call it “shared liquidity”, and its impact is real. A large number of new applications choose a general Rollup because there are more ETHs bridged to the ecosystem, and existing capital in the ecosystem can help eliminate barriers to user adoption (rather than trying to convince users to enter a new ecosystem). These factors need to be considered for any application that embeds some form of financialization into its product. Examples outside of DeFi may include: collecting NFT papers through Mirror, paying to “steal” images on Stealcam, or anything with a product internal reward function.
Losing this “capital connectivity” means that the application needs to force users to park funds on the chain. One reason may be that consumers frequently use the application, after all, cross-chain is very painful, so keeping a healthy supply of funds on the chain will be easier. But more convincing than idle funds is to provide users with choices that generate income. This looks like a native form of income on the chain, applications that build adjacent products that offer income (such as Blur’s lending agreement), and so on.
Are We at an Inflection Point?
The ideas of application chains and application rollups aren’t new. However, for a long time, it felt like a developing residential area — lots of infrastructure being built, but no residents. In the past few months, we’ve started to see the first wave of residents move in. Lattice built OpCraft, an on-chain autonomous world supported by its own rollup; Lit Protocol and Synapse have announced their own rollups (though both are more infrastructure projects than application-facing ones); and Zora has launched Zorachain. Conversations with mature application teams (especially those considering L2 strategies) have recently begun to explore whether application rollups are right for them.
My hypothesis is that the real inflection point will arrive in (at least) 6 to 12 months. Games and social apps have the most obvious product-market fit with specific application rollups: both social and games depend heavily on indexing, sorting issues (especially in gameplay), and custom functionality (like gasless transactions) that are particularly important for entertainment-focused consumer products. Many application teams, especially in games, are in the early stages of building and may take years to develop and release.
Another takeaway I had is that, for applications with lower degrees of financialization, the most critical thing is to attract attention. So far, this article has defined application rollups as “one application per rollup”. This view may be too narrow. Perhaps multiple applications make up a collective and launch a chain together. Similarly, we may see an application build its own chain and encourage other applications to deploy on top of it.
Finally, I firmly believe we will see more rollups in the future. There will be a surge of projects building infrastructure services for application rollups. Caldera, Sovereign SDK, Eclipse, Dymension, Conduit, AltLayer, and more provide low-barrier-to-entry solutions for application teams to launch their own rollups. Espresso, Astria, and Flashbots’ SUAVE are early explorers in the sorter space. Launch costs are trending downward, and “connectivity” trade-offs are becoming less important. But such a large number of new infrastructure providers also means that application teams may spend time learning about various options and there will be a war among these participants. Again, while the signs indicate adoption, I think we’re still a few months away from the inflection point.
Thanks to Devloper, Jill Gunter, Kyle Samani, Jason Maier, Cem Ozer, and Viktor Bunin for their feedback, comments, and conversations that helped develop many of these ideas.
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