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

The concept of the Fat Protocol was proposed by Joel Monegro in 2016 and has performed well as an investment theme to date. However, in the long run, this concept seems to be insufficiently comprehensive for the protocols that are creating most of the value.

This article proposes the concept of fat application (FAPP) and makes the following assumptions:

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

The dominant applications of Web 2 often start from a specific professional field, and once they gain a dominant position, they will offer a range of different products to leverage network effects and fully utilize user advantages.

"Use tools to attract them, use the internet to confine them."

In the field of cryptocurrency, killer applications and products have performed excellently in many ways so far. One trading platform stands out as a leader; it spares no effort to cater to every user and has gradually provided all crypto-related products on its custody platform.

From the very beginning, the primary Web 2.1 applications have been exchanges that provide a multitude of services, which seem to form a gateway to Web 3. We believe that the same logic applies to pure Web 3 on-chain products.

The following figure lists the most profitable crypto protocols/applications ( including centralized and decentralized ):

According to the fees:

By profit:

This is the new "paradigm shift"; value accumulators transition from protocol to application ( or a specific application? ). Ironically, exchanges are not Web 3 applications. They are thoroughly Web 2, requiring permission and 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 Chains ( Appchains )

2. All-encompassing super application

We define a super application as "WeChat of the crypto space." This sounds a bit daunting, but this dystopian vision is indeed expected to come true. The internet follows a long-tail model: at the front are one or two Amazon-level dominators, while a massive number of small players compete for the remaining market share.

History Class

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, their historical status remains 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 and enjoyed only half of their autonomy, with papal power being supreme. The pope participated in the formulation of tax policies and guidelines, with the Bible being the main basis for tax law, and various fees flowed to Rome.

In simple terms, a developer named Martin later appeared, nailing a white paper on the church door, which contained 95 lines of code. A few years later, a hard fork occurred. Some validators joined the new protocol that forked off, while others decided to stay.

As a result, the application ( city and duchy ) became more independent, and for centuries, the influence of the papacy on the flow of fees 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 the fat protocol has not become obsolete, as we are still in the early stages of the blockchain era (, that is, Web 3). And applications as cities can organize themselves and become powerful value accumulation entities like nation-states, weakening the clergy's ability to charge on the blockchain (.

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

Application Chain and Super Applications

The concept of application chains is not new; it first appeared in the Polkadot white paper in 2016. It proposed the idea of heterogeneous chains sharing security through a common set of validators. Cosmos proposed another idea for heterogeneous chains: each chain is independent and only unified through an SDK.

Since then, most people have accepted the concept of shared security. Cosmos has also changed its direction. The conclusion drawn is that building a high-quality set of validators from scratch is not easy, and doing so before the product finds a market may also be meaningless. It is clear that low-quality block space acts like a parasite, wasting validator resources, and often there are no real use cases.

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

We believe that the best application chain, ), is to become a candidate for super applications. The development trajectory is roughly as follows:

1. Launch an application on the mainnet of a universal chain to conduct a proof of concept and demonstrate whether the product matches the market. Target 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. A certain platform is currently a model that has reached this step.

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

4. Congratulations on becoming a super application.

For example, a certain platform seems to be trying to build a super application that integrates social and financial aspects. This integration is expected to form a strong moat (. Think of credit/social scoring ) used for unsecured loans. A certain project also seems to be developing in this direction, having customized its own rollup and lending market to complement existing options products. The key point of these two projects is non-fully collateralized lending, which is expected to unlock true DeFi 2.0.

As shown in the chart above, a certain DEX and a certain NFT trading platform are currently the largest applications by fees. They both started with a single use case in which they excelled, accumulating a key user base of ( and bots ), with users willing to pay ETH to use these applications. They later acquired NFT aggregators to strengthen their core products or achieve horizontal expansion of their products.

Whether the chicken or the egg came first, as long as there is liquidity, users can be acquired. As long as there are users, more products and customized experiences can be offered to them. One method is to provide your own product wallet to the user base and improve the user experience. ( This involves not only a better UI/UX but also wallet features tailored for the products. ) Successfully launching a suite of products ( platforms ) and seamlessly absorbing consumer-facing applications will stand out.

If we consider that not only various financialization use cases matter, liquidity is not the key to the rise of all super applications. Even so, it still relies 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 super application development. Simple DeFi applications with outstanding user experiences can gain market share and improve profitability by horizontally integrating with traditional financial products and/or other on-chain products, while establishing a moat. On the technical level, these applications will evolve from simple smart contract interfaces to mature super applications with their own application chains.

Trojan middleware is another option that can pass through the front door of applications with a warm welcome, 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 trading memory pool (mempool), which can dominate block construction by accessing order flows from applications.

Through blockchain construction, Trojan middleware can provide functions 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, on which we can build the things we talk about.

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

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

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

In this sense, a super application requires different blockchains to provide services. Moreover, an application chain is just another way to enhance execution control. But in this sense, a super application will ultimately be a centralized place.

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

1. Lower trading fees

2. A smoother application development process

3. Better user experience

Super apps will become Amazon, and in addition, users can still directly access a large number of blockchains, just like vendors and buyers use Shopify.

The Blockchain Space Wars of the 2020s

The power struggle between applications and the underlying layer is inevitable. The underlying layer derives value from transaction fees ( even though the fees themselves are diminishing, and the currency premium is becoming increasingly difficult to maintain ), while providing security and a user base in return.

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

This puzzle has several key parts: Where does the transaction happen ( starting point )? Who controls the block construction process ( to convert externalities into value capture )? What is the user's intention? And who is setting the monetary rules?

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

This provides a broader ability to acquire value, allowing for better trade-offs in design, thus better meeting user needs than the standardized layer. The base layer currently only has an advantage in the last factor, which is the monetary protocol. And this advantage is also temporary. Please see another historical segment:

In many ways, we can compare the underlying layer to the British Empire and the pound. In the late 18th century, the American colonies rose up against British rulers due to oppressive taxes, leading to the Boston Tea Party and the American War of Independence.