Appchain: The ultimate destination of App Roll-up

Louis：

In this exclusive interview, Bnews features Louis, founder of Octopus Network, a veteran researcher in mechanism design and the cryptocurrency market who BTC an early-stage investor. This interview focuses on hot topics such as application chains, multi-chains, Octopus 2.0, and DePIN.

1.How do you think Appchain ensures security?

Appchain’s security has always been a pain point. It is true that doing your own PoS guarantees security, but this is a traditional way of thinking, and it has been proven in practice that standalone PoS is the most expensive. In order to maintain the basic security of the chain, it may be necessary to issue an additional 5%-10% of tokens every year. This will bring very heavy cost pressure to Appchain, which is reflected in the continuous selling pressure of Token in the market.

If you use a shared security mechanism, you only need to issue 1%-2% more tokens per year to ensure the security of the chain, and the security level obtained may be much higher than that of independent PoS. Why is there such a five-fold increase in efficiency? Why haven’t many application chains started using shared security? I think it’s a shift in mindset, and most application development teams still don’t know enough about shared security. There are also some teams that believe that if the token is not staking, there is no value. However, in the future, the market will give a choice, that is, as an application chain token, it should have application value and be able to capture value from the application layer economic system. If the token is only used to keep the chain secure, and the application is not used, it is a useless token.

There are now multiple options for appchain sharing security, including the earliest Polkadot’s slot auctions, Cosmos’ replication security, and Octopus’ rental security. In my opinion, rental security is the most flexible and accessible, and the chain can be launched without the support of the whole ecosystem, and the level of security only depends on the number of token rewards provided. There may be only a dozen validators providing millions of dollars in security at first, but as usage grows, the price of the token grows, the level of Incentive naturally increases, and so does the security. **

In addition to shared security, there is another way of thinking, which is to run Appchain as a Rollup and anchor the security of public chain L1, the most important of which is Ethereum. It’s a complicated question, but in general, the adoption of rollup technology is far less mature than the application chain, and they may end up in the same place. **

2.For Infra, is Appchain able to connect the entire blockchain to some extent?

In the field of infrastructure, the balance between application chains and public chains has always been a topic of concern. Appchains are not a substitute for public chains, and public chains cannot completely replace appchains. Because in computing systems, versatility and efficiency always need to be balanced.

The more general the system, the more difficult it is to optimize for specific requirements, and on the contrary, to optimize the design for a specific requirement, it will naturally be limited to this scenario and lose a certain degree of versatility, which is a basic contradiction. Therefore, for an application, it may be possible to choose a public chain at the beginning. To a certain extent, there will be specific needs, such as fees or user experience, etc., which the public chain sometimes cannot meet, because it is impossible for the public chain to make changes for a specific application. At this time, the application may choose to migrate from the public chain to the application chain, and achieve in-depth optimization by controlling its own Layer 1. A prime example of this is DYDX, whose V4 version uses Cosmos as the appchain.

Appchains also have their own challenges. For example, security needs to be maintained from scratch and needs to be cross-chain, otherwise it becomes an island. After the development of multi-chain network technology and cross-chain technology, we believe that there are already good infrastructure capabilities to support the continuous development of application chains. So I expect that there will be a large number of application chains in the future, and they will explore a lot of application areas and Web3 application areas. These appchains will be connected to each other into a unified network through a secure and powerful cross-chain protocol, which is the blockchain Internet vision proposed by Cosmos in 2015. **

3.How do you see the controversy between multi-chain interconnection and multi-rollup interconnection in the future?

Let me first clarify a problem, Rollup is a blockchain, but currently Rollup does not produce blocks through decentralized consensus. If you rely on a centralized sequencer, you lose some of the fundamental features of the blockchain, such as Byzantine fault-tolerant liveness and censorship resistance. Therefore, in order to implement a decentralized rollup, many nodes are needed to act as sequencers, and these nodes should be permissionless, most likely by using a PoS network. On the other hand, in order to obtain higher security, PoS Appchain can publish blocks to the DA layer and submit the transaction summary to the public chain that does Settlement.

Think about it, although one is App Roll-up and the other is Appchain, is there any essential difference? This is the so-called different paths to the same end, and the core reason is that in the world of modular blockchain, Web3 infrastructure faces the same problems, and the best available technology is the same. **

4.What do you think about the fact that some of the ideas proposed by the market based on ETH2.0 may dilute the ETH consensus?

I’m very much following the blogs and tweets published by V God and have been involved in some discussions. Why do you call him God V? Because he was very forward-looking. He will do the groundwork for the important issues of the next few years, clarify some basic concepts, and have in-depth discussions, which are all long-term issues.

V God proposes not to overload ETH community consensus. To put it bluntly, Code is law, smart contract code solves all the problems of the application layer, handles its own rules, and does not need social consensus to resolve disputes, especially not to expand disputes to the entire ETH community. **

Preventing social consensus overload is a precautionary measure. At present, there does not seem to be a significant ETH project that relies on social consensus to resolve disputes. Because relying on social consensus is inherently bad design, the protocol itself should be self-consistent. The questions and ideas raised by God V are very important and forward-looking. **

5.What kind of ideas do you base your approach to the track?

Some Web3 applications are better suited to run on an appchain. We’ve been looking at non-DeFi applications because DeFi often relies on shared liquidity, as well as combinations with other protocols. Non-DeFi applications, such as chain gaming, the creator economy, and the recent rise of DePIN, are all of a concern for us. DePIN, in particular, is an area that we believe has not been fully explored. The basic idea is to issue tokens through the protocol and then build a network of services through crowdsourcing without permissionless participation. The consumer uses the network service through the protocol, and the service provider and the entire network benefit, so that the organizational form of the company can be skipped. Whether DePIN can be established depends on whether the protocol can coordinate with scattered service providers to form a reliable service network, and whether it is more efficient to coordinate, build and operate the network through protocol coordination than centralized companies.

**DePIN is being explored in areas such as computational storage, wireless communications, energy networks, sensor networks, and more. We hope that Octopus Network will do some specific services for DePIN’s application chain, such as the design of token economy, or provide general modules to help early-stage projects build networks and form service capabilities faster. **

6.How do you think the relationship between the project side, the market and the VC is balanced in the entire industry token?

The first thing I’d like to talk about is the definition of the token itself and its place in Web3, which is hotly debated. In my opinion, although a crypto protocol network can have multiple tokens, there will basically be a primary native token or governance token. The native token is actually a certificate of ownership for a cryptographic protocol network.

Ownership consists of two main aspects of rights. On the one hand, there is the right to income, that is, through the operation of the encrypted network, the built-in value capture mechanism will increase the value of these tokens. On the other hand, there is the right to govern, that is, through the native token or its derivative token, the community can weighted to determine the direction of the evolution of the protocol network. Some might say that if a token is defined in this way, it is a security. Personally, I think it’s unavoidable. Regulation needs to evolve with the Web3 economic phenomenon. A few years ago, Hearst Pierce’s Safe Harbor proposed a waiver period for token issuers to accommodate the new ownership distribution mechanism. If the economic substance of Web3 Token is distorted in order to adapt to the existing regulations, I am afraid that the future detour will become bigger and bigger.

Assuming that we agree that the token is the proof of ownership of the cryptographic protocol network, then the protocol must be designed in such a way as to take into account that there are different types of stakeholders in the network, i.e., participants with different roles, and that there is usually only one role among them that is the long-term network owner, the Owner role. For example, in a two-sided market-based Web3 network, the service provider should be the owner, for example, in a decentralized B2C network, the merchant should be the owner, the driver should be the owner in the decentralized ride-hailing chain, and the creator should be the owner in the decentralized creator economic network. The purpose of determining the Owner is to issue as many tokens to the Owner as possible in the protocol.

In addition to the Owner, the network usually requires other types of contributors to function, such as developers, project owners, community and institutional investors, etc. If there is a concept of Owner, I think that the token rewards of other contributors should be considered as a necessary cost to build a crypto protocol network. The idea behind the incentive design for other contributors is how to exchange the least number of tokens for enough contributions to meet the needs of early builds and cold starts. For example, in the application chain security is a cost, you should consider how to minimize the cost of security while obtaining adequate security. If the concept of owner is wrong, then there will be a big problem, for example, a ride-hailing app chain uses an independent PoS and issues 10% of the token to the validator every year, and it is likely that the governance power of the validator will exceed the governance power of the driver.

In summary, if we think of the Token as a proof of ownership for a cryptographic protocol network, then the owner role is determined before the protocol is designed. Think of other contributors, including teams and investors, as vendors. **

7.Now that the economics of many DePIN projects refer to Helium’s dual-token Burn-Mint model, introducing Data Credits or other credits, which seems to be relatively healthy at present, can you talk about the potential risks of this model?

The BME model you mentioned is a burn-and-cast equilibrium model, which has two main advantages, one is that fiat currency pricing reduces transaction costs, and the other is that the protocol revenue Burn and the protocol cost Mint are separated, which is very clear and convenient for various roles to evaluate and participate.

There are also two potential risks associated with the BME model. First, Burn relies on price oracles and is therefore at risk of oracle attacks, and the second point is about equilibrium. When the token price drops, the service provider’s revenue decreases, and the provider with low operational efficiency will exit first. Then, the provider with the highest efficiency will receive more tokens, thus reaching breakeven. It is equivalent to eliminating inefficient service providers when the price of Token drops, and completing the metabolism of the system. However, it is important to note that if a large number of service providers exit, it may compromise the service capacity of the network and put the system in a death spiral. **

**Disclaimer: This article is for informational purposes only and should not be used as legal, tax, investment, financial or any other advice. **