The evolution of decentralized applications has a rich history. Initially, these applications were deployed on smart contract platforms. Today, users primarily interact with them through Layer 2 (L2) solutions. The next significant milestone will be the transition to appchains—applications running on their own dedicated blockchains. In this article, we will explore how the Partner Chain Framework aligns with this emerging trend.
Uniswap As Trend Proof
Uniswap has announced the development of a new L2 network featuring fast block times, cross-chain interoperability, seamless multi-chain swapping, and a decentralized validator network.
Uniswap, initially launched as a decentralized application on Ethereum, now transforms into a specialized chain focused solely on one activity, known as an appchain. This trend seems reasonable, but it brings many new foods for thought.
Let’s think about why this evolution is inevitable.
The First Generation Of Decentralized Applications
Initially, Ethereum provided a decentralized execution environment for all decentralized applications (dApps).
Third-party teams could simply write smart contracts, such as those for decentralized exchanges (DEXs), without worrying about the underlying infrastructure.
Applications running in a single execution environment have the advantage of easy interaction with each other. When executing a smart contract for one application, it can seamlessly interact with another smart contract.
However, Ethereum’s transaction processing is limited and sequential, creating a bottleneck. Each application may require high throughput, but all applications share the same resources and execution environment. Ethereum can only handle a few dozen transactions per second, making it clear that it cannot meet the demands of every successful application.
Another drawback is the lack of specialization. If a team needs faster transaction settlement or significantly higher scalability for their application, it is impossible to achieve without changing Ethereum’s consensus mechanism.
Efforts to enhance Ethereum’s scalability have led to the development of competing blockchains with sharding or other scalability strategies. These blockchains are still establishing themselves and are competing with L2 solutions within the Ethereum ecosystem. Some users, however, prefer a scalable blockchain over an L2 environment.
Escape Of Applications On L2s
While many projects started to build a highly scalable network consensus, L2 networks have emerged, offering their own execution environments often derived from the parent blockchain. EVM in the case of Ethereum. The Ethereum team even stopped pursuing sharding.
Deploying applications from L1 to L2 is straightforward, and L2s scale well due to their centralized nature. L2s use L1 for data availability and ultimate settlement.
The downside of L2s is their incompatibility with each other, which leads to competition for users and liquidity. While bridges can mitigate this issue to some extent, ensuring secure token transfers between networks remains a significant concern.
Some teams have deployed the same application across all compatible L2s. For example, you can use Uniswap on Arbitrum, Optimism, Polygon, Base, and other networks.
Ethereum is no longer the only smart contract platform. Ecosystems like Cardano, Solana, Avalanche, Binance Smart Chain, Polkadot, and Cosmos have gained traction, and Uniswap is available on many of these L1 networks as well.
The trend is clear: successful Ethereum applications often seek to expand to other platforms, which may require rewriting the application due to different execution environments.
Running the same application separately on different networks can lead to inefficiencies in matching demand with supply. Additionally, the same application (brand) may have different security assumptions on different networks. A failure on one network, such as a centralized L2, can also damage the brand’s reputation.
Thus, while L2s appear to address Ethereum’s scalability issues, they often do so at the expense of decentralization and security. Teams with admin keys retain significant control over user assets. Running the same application on different networks does not provide a definitive solution.
There are two alternative solutions: highly scalable blockchains like Solana, and projects that have pioneered the concept of appchains from the outset, such as Cosmos and Polkadot.
Appchains As The New Go-to Solution
Uniswap’s decision to build an appchain—a blockchain specialized in token swaps across all blockchains—is a strategic move.
This approach ensures that Uniswap’s security, decentralization, and scalability are independent of Ethereum. Or at least, less dependent. Using UNI tokens will likely be necessary to decentralize Uniswap.
Appchains can operate independently from their parent blockchain in terms of both technology and tokens. An appchain team can adopt the execution environment of the parent blockchain or develop an entirely new one, just as it can establish its own network consensus and ledger.
Uniswap will become widely accessible across the blockchain industry through the development of interoperable technologies. The team plans to create a specialized environment for Uniswap and ensures seamless interoperability with other blockchains. This means that users from various blockchains will be able to use the same application.
Consolidating liquidity and users within an appchain will offer a significant advantage.
Partner Chain Framework
The IOG team is developing the Partner Chain Framework, enabling the creation of appchains (partner chains) within the Cardano ecosystem, a concept inspired by Polkadot (and Cosmos).
These appchains will function similarly to Uniswap, serving users across multiple blockchains. Midnight will be the first partner chain of Cardano.
If this trend continues, centralized L2s may become obsolete as teams focus on building appchains and they will want to attract users and liquidity.
Appchains will operate independently from parent blockchains, which will primarily serve as secure settlement layers.
Users will likely hold tokens on blockchains rather than appchains. The minting of real-world assets will probably occur on blockchains rather than appchains. However, for providing liquidity or locking tokens, appchains will be the preferred choice.
Appchains will compete with both L2s and high-TPS blockchains, which often sacrifice decentralization. The network effect is expected to grow where there is the greatest utility, which will be on appchains rather than blockchains.
However, being part of a unified blockchain or L2 environment has its advantages. Similar to the first generation of smart contract platforms, having multiple applications in one environment facilitates easier interaction.
Cardano can offer decentralization as a service. New appchains can benefit from building a partner chain and leveraging Cardano’s infrastructure.
The operation of decentralized infrastructure will become more professional. In the pursuit of high performance, decentralization may be compromised. Appchain teams will need to balance decentralization and performance.
We shouldn’t expect Ethereum applications to migrate to Cardano, as the Uniswap team and other Ethereum projects will continue using Ethereum technologies.
Building a new appchain often means starting from scratch for teams, and they may not choose the EVM as the best solution.
Cardano is on a promising path. With the launch of Midnight’s testnet, the Partner Chain Framework is expected to be available soon. More appchains will be built soon. Interoperability between appchains will be important. This could make Cardano an important hub.
While high scalability is crucial for blockchains, security and decentralization will always be the top priorities. Cardano’s native assets, decentralization, and UTxO accounting model will remain attractive to many builders.
In the near future, most transactions are likely to occur on appchains. Therefore, blockchains must prioritize decentralization and security to stay competitive. It may be time to consider what traditional blockchains can offer users in a world where most utilities and users are on appchains.
Blockchain is still in its infancy, so the trend may change again.