Building Super Applications: The Evolution of Fat Applications and Fat Protocols

The concept of the Fat Protocol was proposed by Joel Monegro in 2016. So far, it is a good investment theme, but in the long run, this concept seems not comprehensive enough for the protocols that are creating most of the value.

This article will explore the concept of Fat Application (FAPP), whose core assumption is:

Applications that provide a wide range of products will accumulate the greatest value.

Dominant applications in Web 2 typically start from a specific professional field, and once they gain dominance, they offer a range of different products to leverage network effects and fully capitalize on user advantages. This can be summarized as:

"Attract them with tools, retain them with a network."

In the cryptocurrency space, the killer applications and products so far have performed excellently in many aspects. Certain trading platforms are typical examples; they do not miss any user and gradually provide all crypto-related products on their platform.

From the very beginning, the main Web 2.1 applications were exchanges that provided a multitude of services, which seemed to serve as a gateway to Web 3. We believe that the same logic applies to pure Web 3 on-chain products.

This is the new "paradigm shift"; value accumulators are transitioning from protocols to applications. Ironically, exchanges are not Web 3 applications. They are typical Web 2 products that require permission and are centralized, yet they extract a significant amount of value from the entire ecosystem.

In the future, on the battlefield for value, we believe that the protocol may lose to Web 3 native applications, and there are two possible paths:

1. Application Chain

2. All-encompassing super application

We define a super application as "the all-in-one application in the crypto space." This may sound a bit exaggerated, but this vision does indeed hold the potential to come true. The internet follows a long-tail model: there are one or two dominant players at the front, while a vast number of small players compete for the remaining market share.

Historical Perspective

Many people compare blockchain to a city and Ethereum to modern Manhattan. We have different views. The current construction is still quite primitive; we would compare blockchain to a religion and applications to cities.

We believe that today's applications are like medieval cities, whose historical status is still relatively weak compared to modern Manhattan. In our analogy, blockchain is religion, and Ethereum is the medieval Catholic Church.

Medieval cities were established on the basis of papal protocols, enjoying only half of their autonomy, with papal authority being supreme. The pope participated in the formulation of tax policies and guidelines, with the Bible serving as the main basis for tax law, and various fees flowing to Rome.

In simple terms, a developer named Martin later emerged, who published a white paper on the church door containing 95 lines of code. A few years later, a hard fork occurred. Some validators joined the newly forked protocol, while others decided to stay.

As a result, the applications (cities and principalities) became more independent, and for centuries, the influence of the papacy on the flow of funds gradually diminished. The papacy still played a certain role, but the public began to accept the ideas of nation-states and secularism, giving rise to new economic models.

What we want to say is that the concept of fat protocol has not become obsolete, as we are still in the early stages of the blockchain era (i.e., Web 3). And applications as cities can organize themselves to become powerful value-accumulating entities, similar to nation-states, which weaken the fee-collecting ability of the underlying blockchain.

In other words, over time, applications, mainly super applications or application chains, will accumulate more value.

Application Chain and Super Applications

The concept of application chains is not new; it first appeared in a cross-chain project white paper in 2016. It proposed the idea of heterogeneous chains sharing security through a common set of validators. Another project proposed a different heterogeneous chain approach: each chain is self-contained and unified only through an SDK.

Since then, most people have accepted the concept of shared security. People have concluded that building a high-quality set of validators from scratch is not easy, and doing so before the product finds a market may be pointless. It is clear that low-quality block space is like a parasite, wasting validator resources, and often there are no real use cases.

Application chains are tailor-made: the core chain will be optimized for existing and future use cases built on it. For example, a liquidity chain can support decentralized financial applications through various specific designs. Such application chains do not compete for block space with other applications and can promote execution and fee logic that is most suitable for their use cases.

We believe that the (best) application chain is a candidate to become a super application. The development trajectory is probably as follows:

1. Launch an application on the mainnet of a universal chain, conduct a proof of concept, and demonstrate whether the product fits the market. Tap into an existing user base.

2. After achieving success, expand to multi-chain and even launch your own execution environment (application chain) to exert greater control and obtain more value.

3. Eliminate all on-chain traces and execution environments, providing a seamless super app experience. Attract users gradually by adding features that encourage people to invest more time and money in the product.

4. Ultimately become a super application.

For example, some DeFi projects seem to be trying to build a super application that integrates social and financial aspects. This integration is expected to create a strong moat (think of credit/social scoring for unsecured loans). Other projects are also moving in this direction, customizing their own rollups and lending markets to complement existing products. The key point of these projects is non-fully collateralized lending, which is expected to unlock the true DeFi 2.0.

Some DEXs and NFT trading platforms are currently the largest applications by fees. They all started with a single use case they excelled at, accumulating a significant number of users (and bots) who are willing to pay fees to use these applications. They later also acquired NFT aggregators to strengthen their core products or achieve horizontal expansion of their products.

Regardless of whether the chicken or the egg came first, as long as there is liquidity, users can be obtained. As long as there are users, more products and customized experiences can be provided for them. One way to do this is to offer your own product wallet to the user base and improve the user experience (not only better UI/UX but also wallet functions tailored for the products). Successfully launching a product suite (platform) and seamlessly absorbing consumer-facing applications will stand out.

If we consider not only various financial use cases, liquidity is not the key to the rise of all super applications. However, even so, it must rely on other factors (taking games as an example, it requires engaging gameplay and a vibrant player economy).

Trojan Middleware

The above describes a user-centered approach to developing super applications. Simple DeFi applications with outstanding user experiences can capture market share and improve profit methods through horizontal integration with traditional financial products and/or other on-chain products, while building a moat. On the technical level, these applications will evolve from simple smart contract interfaces into mature super applications with their own application chains.

Trojan Middleware is another option that can pass through the front door of the application amidst a welcoming sound, bringing a better developer experience and various advanced features such as account abstraction, front-running protection, and MEV cashback. Trojan Middleware is a top-tier transaction memory pool (mempool), which can dominate block construction by accessing the order flow from applications.

Through blockchain construction, the Trojan middleware can provide functionalities that the application itself cannot easily replicate, such as on-chain abstract transaction execution. Ultimately, by creating an outstanding wallet/application store experience, control over touchpoints can be achieved. Some blockchain builders have already demonstrated the ability to access exclusive order flows, upon which the things we mentioned can be built.

But aside from being deceived by the Trojan horse, there is another option. We believe that the ultimate state of any ambitious super application is to become a major block builder. This can provide the best experience for super application users and offer the best guarantees for transaction execution in the way that the super application deems appropriate.

In the Web2 domain, major consumer enterprises seek to build their own payment channels to avoid over-reliance on a single provider. Similarly, Web 3 super applications will also seek to exert control over users' financial operations.

Super applications are expected to ultimately become encapsulators of Ethereum and other blockchains, while hosting all other future "applications" as terminals, with these "applications" serving as individual functions of the super application. Even now, exchanges can be seen as applications that encapsulate blockchains to provide a better user experience. Most users do not have to leave the platform to access a wide variety of content.

If native cryptocurrency applications can span all reasonable underlying layers and achieve seamless bridging, extreme homogenization of block space, that is, commoditization, can be effectively realized. The optimal path for best execution will naturally emerge, and users may not even know the specific execution trajectory. Of course, there are limitations here. It relies on the quality (security level) of the deployed blockchain being sufficiently high.

In this sense, a super application requires different blockchains to provide services. Furthermore, application chains are just another way to enhance execution control. However, in this sense, super applications will ultimately be a centralized place.

Users and developers can directly access the blockchain, but super applications, as blockchain abstractions, excel in many ways:

1. Lower transaction fees

2. Smoother application development process

3. Better user experience

Super apps will become Amazon, and in addition, users can still directly use a large number of blockchains, just like vendors and buyers use other e-commerce platforms.

The Block Space War of the 2020s

The power struggle between applications and the base layer is inevitable. The base layer gains value through transaction fees (even as the fees themselves are dwindling and the currency premium becomes increasingly difficult to maintain) and provides security and user base in return.

Successful applications with a loyal user base will also seek their own value acquisition methods and exert greater control over how to best serve users. In other words, applications want to share the successful foundation of blockchain: reflected in the monetary premium found in the demand for native tokens.

There are several key parts in this puzzle: where does the transaction take place (starting point)? Who controls the block construction process (turning externalities into value capture)? What are the user's intentions? And who is setting the currency rules?

The transactions that create value for blockchain begin at the application (or wallet) level. What users need is the application, not the blockchain, because they are not idealists, but primarily pragmatists. This force will inevitably lead to a situation where blockchains specifically designed for applications become an execution option.

This provides a broader capability for value acquisition, allowing for better trade-offs in design, thereby meeting user needs better than the standardized layer. The basic layer currently has advantages only in the last factor, namely monetary rules. However, this advantage is also temporary. Please see another segment of history:

In many ways, we can compare the foundational layer to the British Empire and the pound. In the late 18th century, the American colonies rose up due to heavy taxes.