How to Break Out of the Application Layer Dilemma Abandon Infrastructure Projects and Pursue Truly Meaningful New Applications

Breaking the Application Layer Dilemma Moving Beyond Infrastructure Projects and Embracing Truly Meaningful New Applications

Author: polynya, Mirror; Translation: Songxue, LianGuai

In early 2022, I went through a phase where I focused on discussing application layer innovations. Just before that, at the end of 2021, my main focus was scalability, so it was easy to make adjustments and point out that if the user demand for an application doesn’t increase by several orders of magnitude, then all scalability is meaningless.

Unfortunately, in the past few years, the situation has hardly changed. We now have too many L2 and L1 solutions, with almost no utilization of block space, but people are still obsessed with the infrastructure (which can be understood, given the large number of L1/L2 bag holders).

One of my biggest frustrations in the cryptocurrency space is this ongoing sense of entitlement and hope, misguided by irrelevant analogies. Just because you build block space doesn’t mean it will be used – it will only saturate when there are meaningful applications that offer 10x improvement over existing ones and have significant user demand. Now, there are already dozens of smart contract blockchains that have been around for 5-7 years, and almost all of their non-spam activities can be ignored. We already have multiple first-phase Ethereum L2s dedicated to decentralized applications, and even smart contracts (like Arbitrum One) have been around for over 3 years – and still they are far from saturation. At this point, overwhelming evidence suggests that blind entitlement and hope won’t lead to block space saturation.

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I’m always willing to develop my blockchain application framework, but at the moment, all evidence suggests that the use of blockchain is very narrow. Specifically, it must meet all of these criteria:

• Peer-to-peer operations: This includes P2P software like IPFS, BitTorrent, multiplayer games, messaging applications, and of course, blockchain. It’s important to note that if you just want to eliminate centralized entities and decentralize applications, in most cases you can simply use P2P without blockchain.

• Rigorous global consensus: This is the unique attribute that blockchain brings – a rigorous global consensus, so that every node in the world agrees on the exact same output.

• Objectivity: However, the limitation of blockchain is that it can only resolve objective outcomes.

I further speculate that blockchain makes sense in two main categories – objective money and objective identity. Of course, now you can build all sorts of non-blockchain applications, but only using blockchain for objective money and/or objective identity, or hybrid applications. You can also use governance to add subjectivity.

Farcaster is a recent example of a hybrid application. It uses blockchain for achieving objective identity (credentials) and objective money (fees) – while everything else (as far as I know) is coordinated outside of the blockchain. As I discussed before, there is a spectrum where we might see most centralized but with one blockchain element applications.

Today, I checked the application layer and, apart from a few exceptions (like Farcaster), there has been little progress. Meanwhile, existing applications are building themselves. We know that alternative value storage remains the number one application. Stablecoins have solidified their position as the second-largest use case, with a daily trading volume of $25 billion during the bear market. It is now evident that these are the two main use cases for cryptocurrencies, and they will likely account for over 90% of the economic value in the foreseeable future. The distant third largest use case is gambling and speculation, although alternative value storage also plays a role.

A few years ago, I dedicated myself 50/50 to improving the fit between validated products and the market while continuing to drive innovation at the application layer. Over time, it has become clear that we should actually spend more time and capital on validated things, such as improving stablecoins, DeFi, and value storage. For example, apart from Bitcoin and Ethereum, USDT on Tron dominates the application landscape. I wrote an article on how to improve this use case. In short, my suggestion today is to abandon most infrastructure projects and only pursue truly meaningful new applications, while allocating most investments to expanding the use of stablecoins, value storage, etc.

It is important to note that there will be innovation at the application layer, but it is equally important to recognize that most meaningful blockchain applications have already been built.

I will conclude this article by emphasizing one exception – Fractal scaling. Fast chains, whether L1 or L2, can achieve several hundred to several thousand TPS (depending on the complexity of each transaction). However, for certain applications, you would need hundreds or even thousands of such chains. Imagine traditional applications being sharded or mesh deployed across thousands of servers. One example is a multiplayer game fully on-chain. If you have a user base in the millions, you would need tens of thousands of chains running in parallel, which are the fastest today. Currently, the infrastructure for this does not exist, but multiple teams are actively developing it. We know how to do this – using zk rollups/validiums and aggregate proofs. Whether these applications are suitable for the market, I’m not sure, but it’s worth a try. Most other infrastructure projects that only tout scalability have been a waste of billions, if not hundreds of billions, of dollars on relatively insignificant chains. It’s now too late, and it’s time to shift focus to other directions.

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