Building Super Apps: A New Paradigm of Fat Apps and Fat Protocols

The concept of the Fat Protocol was proposed by Joel Monegro in 2016. So far, it has been a good investment theme, but in the long run, this concept seems to be insufficiently comprehensive for the protocols that are creating most of the value.

Here, we propose the concept of Fat Application (FAPP) and assume the following:

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

Web 2.0 dominant applications often start from a specific professional field, and once they gain dominance, they provide a range of different products to leverage network effects and fully utilize user advantages:

"Use tools to attract them, use networks to retain them."

In the crypto space, killer applications and products so far have performed excellently in many aspects. A certain trading platform is a typical representative, as it spares no effort for every user and gradually offers all crypto-related products within its custody platform.

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

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 being centralized, yet they extract a significant amount of value from the entire ecosystem.

In the future, on the battlefield for value, we believe that protocols may lose to Web 3 native applications, with two possible paths:

1. Application Chain

2. All-encompassing super application

We define super applications as "super platforms in the field of cryptocurrency." This sounds a bit daunting, but this vision is indeed hopeful to come true. The internet follows the long tail model: at the front are one or two dominant players, while a massive number of small players compete for the remaining market share.

Historical Review

Many people compare blockchain to a city and Ethereum to modern Manhattan. We have different opinions. 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 fragile compared to modern Manhattan. In our analogy, blockchain is the religion, and Ethereum is the medieval Catholic Church.

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

In simple terms, a developer named Martin later appeared and published 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 was forked, while others decided to stay.

As a result, applications (cities and duchies) 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 the 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 and become powerful value aggregation entities like nation-states, undermining the fee-collecting capability of 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 the Polkadot white paper in 2016. It proposed the idea of heterogeneous chains sharing security through a common set of validators. Cosmos proposed another approach to heterogeneous chains: each chain is self-contained and unified only through an SDK.

After that, most people accepted the concept of shared security. Cosmos also changed its direction. The conclusion drawn was that building a high-quality validator set 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 acts like a parasite, wasting validator resources, and often there are no real use cases.

Application chains are tailor-made: core chains will be optimized for existing and future use cases built upon them. For example, liquidity chains can support decentralized financial applications through various specific designs. Such application chains will not compete for block space with other applications and can promote the execution and cost logic that best suit their use cases.

We believe that the (best) application chain is a candidate for becoming a super application. The development trajectory is likely as follows:

1. Launch an application on the mainnet of a generic chain for proof of concept, demonstrating whether the product matches the market. Target a known user group.

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 DEX derivatives trading platform is currently a model that has reached this step.

3. Eliminate all on-chain traces and execution environments to provide a seamless super application experience. Attract users in a gradual manner by 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 lending protocol seems to be attempting to build a super app that merges social and financial elements. This integration is expected to create a strong moat (think of credit/social scoring used for unsecured loans). Certain options protocol projects also seem to be moving in this direction, as they have customized their own rollup and lending markets 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.

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 critical number of users (and bots) willing to pay ETH to use these applications. They later also acquired NFT aggregators to consolidate 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 acquired. Once there are users, more products and customized experiences can be offered to them. One method is to provide a proprietary product wallet to the user base and improve the user experience (not only better UI/UX but also wallet functions tailored for the product). Successfully launching a product suite (platform) and seamlessly integrating 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, but even so, it must rely on other factors (for example, in games, it requires engaging gameplay and a vibrant player economy).

Trojan Middleware

The above text describes a user-centered approach to developing super apps. 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 also building a moat. On a technical level, these applications will evolve from simple smart contract interfaces to mature super apps with their own application chains.

Trojan Middleware is another option that can pass through the front door of applications amidst a welcome 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) that can dominate block construction by accessing order flows from applications.

Through blockchain construction, Trojan middleware can provide functionalities that applications themselves 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 apart 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 also seek to exert control over users' financial operations.

Super apps are expected to ultimately become encapsulators of Ethereum and other blockchains, while hosting all other future "apps" as terminals, which will become individual functions of the super app. 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 variety of content.

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

In this sense, a super application requires different blockchains to provide services. Additionally, application chains are 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 transaction fees

2. Smoother application development process

3. Better User Experience

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

The Blockchain Space Wars of the 2020s

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

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

This puzzle has several key components: Where does the transaction take place (starting point)? Who controls the block building process (transforming externalities into value capture)? What is the user's intent? And who is setting the monetary rules?

The transactions that create value for blockchain begin at the application (or wallet) level. What users need are applications, not blockchains, 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 base layer currently only has an advantage in the last factor, which is monetary rules. And this advantage is also temporary. Please see another historical segment:

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