Appchain is a blockchain designed to run a single application for a specific function. This approach allows for transaction processing, fees, smart contract functionalities, and many other factors tailored to the needs of particular applications. This customization can increase efficiency, scalability, and security compared to general-purpose blockchains like Ethereum.^{[1][2][6][7][11][12]}

Overview

Appchains are tailored solutions specifically designed to meet the unique task requirements of a decentralized application or web3 protocol. Appchains are a relatively new concept in web3 designed to enhance blockchain applications' scalability, interoperability, and modularity. Unlike general-purpose chains, appchains are specialized around certain use cases. Specialization generally results in more reliable fees, higher performance, custom-tailored user/developer experience, and higher value capture for the app token.^[1][4][5]

Appchains are said to be self-sovereign because the governance of the consensus layer and the application layer are tightly connected. As such, appchains can recover from implementation bugs on the app layer by hard-forking the underlying chain. Self-sovereignty also protects apps from platform risks. On the other hand, appchains impose a higher need for social coordination. Deploying new dapps on an appchain or establishing secure cross-chain bridges between appchains typically requires involvement from the respective communities. Cross-chain composability is also significantly more complex than composability between smart contracts on a general-purpose chain. ^[4]

Appchains vs. Traditional Blockchains

Appchains can be in the form of Layer 1, Layer 2, Layer 3, and sidechains. What differentiates them is their focus on specific tasks and how they are built for efficiency around those tasks.^[5]

Layer 1 blockchains are main blockchains like Ethereum or Avalanche, on which multiple web3 applications operate. Appchains operate on top of existing Layer 1 blockchain to take advantage of their security and gas fees but improve on the existing Layer 1 blockchain structure to give developers more freedom. ^[1]

Layer 2 blockchains (L2s) are scaling solutions for Layer 1 blockchains like Ethereum, where a separate blockchain completes some tasks of the main blockchain. L2s can simultaneously operate for many different apps and are a generalized scaling solution for the L1 blockchain on which they operate, whereas appchains are app-specific.^[1]

Comparing appchains to traditional blockchains highlights some key distinctions that showcase the advantages and unique capabilities of appchains as follows.^[3]

Key distinctions	Apphcains	Traditional Blockchains
Purpose and Specialization	Purpose-built for specific DApps or groups of related DApps, offering high specialization and customization.	General-purpose networks designed to support a wide range of applications, lacking the same level of specialization.
Consensus Mechanism	Can select consensus mechanisms tailored to their specific needs, optimizing either for speed, security, or other attributes.	Generally use a single consensus mechanism across the entire network, which may not be ideal for every DApp.
Resource Management	Manage their own resources, including network bandwidth, storage, and computational power, preventing resource contention.	Share resources among all DApps, potentially leading to congestion and performance issues during high demand.
Customization	Offer high levels of customization, allowing DApp developers to define token standards, consensus rules, governance structures, and more.	Have standardized rules and protocols that apply uniformly to all applications, limiting customization options.
Security	Inherit security features from the main blockchain and can implement additional security measures tailored to their DApp’s needs.	Provide a baseline level of security but may not be optimized for the specific security requirements of individual DApps.
Decentralization	Can adjust their level of decentralization based on the DApp’s objectives, offering flexibility.	Generally aim for a consistent level of decentralization across the network.[3]

Appchains vs Monolithic Chains

Monolithic chains are all-in-one solutions where all functionality, including applications, is executed on the base layer. Examples of monolithic chains include Bitcoin and Ethereum 1.0. ^[7][9]
These types of chains have several advantages:

• Simplicity: Monolithic chains don't rely on external parties or protocols to operate, reducing network complexity.
• Security: With a smaller attack surface, monolithic chains generally offer greater security.
• Decentralization and Immutability: All nodes follow the same rules and validate the same transactions, ensuring a high degree of decentralization.

However, monolithic chains also come with significant disadvantages:

• Scalability: Limited resources and bandwidth restrict the number of transactions and data storage, leading to network congestion and high fees.
• Flexibility and Innovation: Upgrading or customizing the platform can be difficult without affecting or depending on existing applications.

Appchains vs Modular Chains

Modular chains split their core functions into separate layers or components, including consensus, execution, data availability, and settlement. Examples of modular chains include Ethereum 2.0 and Solana. These chains offer several benefits:^[7]

• Scalability: Modular chains can process more transactions and store more data by using parallelization and specialization techniques.
• Resource Optimization: By outsourcing some tasks to other layers or chains, modular chains can optimize their resources and bandwidth.

However, modular chains also face some drawbacks:

• Complexity: Modular chains depend on external parties or protocols to operate, which increases network complexity.
• Security: The increased attack surface and reliance on external parties can present security concerns.
• Decentralization Trade-offs: Different layers or chains may have varying levels of trust and validation, impacting overall decentralization.

Appchains vs Layer 2 Chains

Layer 2 chains are scaling solutions that operate on top of a layer-1 blockchain, handling some or all of the execution and settlement functions of a network. Examples of layer 2s include Optimism and Arbitrum. Layer 2 chains offer a number of advantages:^[7][9]

• Speed: Compression and aggregation techniques allow layer-2s to process more transactions and charge lower fees.
• Faster finality: Layer 2s can provide faster finality and confirmation times by using optimistic or zero-knowledge proofs.

However, layer 2s also come with some limitations:

• Dependency: Layer 2s rely on the layer-1 blockchain for consensus and data availability, which can limit their autonomy and sovereignty.
• Security Risks: Layer 2s have the potential for fraud or censorship by malicious actors due to their dependence on the layer 1 blockchain.

Appchains vs Sidechains

Sidechains are blockchains that are compatible with another blockchain. They handle all core functions on their own chain but do not use the security or scalability of the other blockchains. Examples of sidechains include Polygon. Sidechains offer several benefits:^[7][9]

• Performance: Sidechains can process more transactions and store more data by using their own resources and bandwidth.
• Flexibility: Sidechains can customize their parameters and features according to their needs and preferences.

However, sidechains also face some challenges:

• Security: Not relying on the security or scalability of the other blockchain exposes sidechains to more attacks and vulnerabilities.
• Interoperability: Sidechains may face difficulties in communicating and exchanging value with the other blockchain, as they require bridges or adapters to enable cross-chain transactions.

Tech

Appchains work by using the L1 blockchain as the anchor or security layer and building a separate chain on top of it that can process transactions more efficiently and with lower fees. It can be designed to offer features such as faster confirmation times, lower transaction fees, or specialized smart contract functionality.

Appchains typically use various techniques to ensure that they remain secure, despite being built on top of an L1 blockchain. For example, they may use sidechains, plasma chains, or similar technologies to enable fast, secure, and low-cost transactions. They may also use various consensus mechanisms, such as Proof of Work (PoW), Proof of Stake(PoS), or Byzantine Fault Tolerance, to ensure that transactions are validated and recorded correctly. For instance, an appchain for a financial application might choose to use a different consensus mechanism than one designed for supply chain management.

Overall, appchains offer a powerful way to scale blockchain technology and enable new use cases and applications while maintaining the security and decentralization of the underlying L1 blockchain.

Each appchain dedicates its resources to a specific task, ensuring that they are not spent on unrelated applications.  In addition, smart contracts on appchains can be specifically designed to meet the demands of individual applications. This allows for more complex contract logic that can enhance the functionality and efficiency of individual applications.^[1][2]

Typically, the architecture of full-fledged appchains is composed of five layers:

1. Network layer: This layer manages the peer-to-peer network functionalities. It enables nodes within the blockchain to communicate, exchange data, and participate in transaction validation processes.
2. Application layer: This layer hosts applications that run on the blockchain. It offers interfaces that developers can utilize to build, deploy, and oversee the operations of decentralized applications (DApps).
3. Data layer: The data layer is responsible for organizing and storing blockchain information. This includes maintaining the blockchain's state, recording transaction details, and handling smart contract data.
4. Consensus layer: This layer implements the consensus algorithm of the appchain. It can incorporate various consensus algorithms, such as Proof of Work (PoW) or Proof of Stake (PoS).
5. Smart contract layer: This layer facilitates the automation, verification, and enforcement of smart contracts.

Benefits of Appchains

Scalability

Appchains allocate resources to focus on a specific task or function. This specialization can result in higher transaction throughput and reduced latency for individual applications. This helps address the scalability challenges of general-purpose blockchains.^[2][7]

Modularity

Appchains are characterized by their modular architecture, distinguishing them from general-purpose blockchains that typically feature a monolithic design. The modular structure provides developers with the flexibility to customize the blockchain's functionalities according to the specific needs of individual DApps.^[2]

Interoperability

Appchains are designed to support interoperability, facilitating communication between different DApps. This enables users of one application to easily access the advantages of another.^[2][7]

Customization

In an appchain system, developers are free to choose a consensus mechanism, governance structures and economic models. This gives developers more freedom and creativity to design their applications.^[7]

Innovation

Developers are free to experiment with new economic and governance models without adversely impacting the main chain. This fosters a more dynamic and collaborative environment for development.^[7]

Popular Appchain Ecosystems

Polkadot Parachains

Polkadot is a multi-chain platform that enables interoperability between different blockchain networks. Its unique architecture allows multiple specialized blockchains, or parachains, to operate in parallel and exchange information.^[8][11]

Litentry

Litentry is a decentralized identity aggregator that enables users to link their identities across different blockchains and platforms. It is an appchain built on Polkadot using Substrate and parachains. Litentry has its own native token (LIT) and governance model, and it leverages the security and interoperability of the Relay Chain. It offers users and developers a privacy-preserving and cross-chain platform for identity verification and reputation management. ^[7]

Acala

Acala is a decentralized finance hub that offers a multi-collateralized stablecoin, a trustless staking derivative, and a decentralized exchange platform. It is an appchain built on Polkadot using Substrate and parachains. It has its own native token (ACA) and governance model and leverages the security and interoperability of the Relay Chain. Acala offers users and developers a fast and low-cost platform for Web3 finance applications and assets. ^[7]

Cosmos Zones

Cosmos is a decentralized network of independent blockchains that can communicate and exchange data with each other. Cosmos uses a hub-and-spoke model where each Cosmos ‘Zone’ is connected to the Cosmos Hub, which is the center of the network.^[8]

Osmosis

Osmosis is a decentralized exchange platform that allows users to create and trade custom liquidity pools across different zones in the Cosmos network. It is an appchain built on Cosmos using the Cosmos SDK and Tendermint. It has its own native token (OSMO) and governance model and leverages the security and interoperability of the Cosmos Hub. Osmosis offers users and developers a high-performance and customizable platform for automated market-making and liquidity provision.

Avalanche Subnets

Avalanche subnets are independent blockchains created within the Avalanche network. These subnets can be customized to meet the specific needs of different decentralized applications (dApps) and can interact with each other seamlessly using the Avalanche consensus mechanism.^[8][11]

SKALE

SKALE is a decentralized network that provides a platform for creating and running high-performance, customizable appchains. It is designed to be scalable, secure, and easy to use, making it a popular choice for developers who want to build decentralized applications quickly and efficiently. One of the unique features of SKALE is its use of "elastic sidechains," which can be dynamically resized to meet changing demand. This allows developers to scale their applications without worrying about performance issues or high transaction fees.

Polygon Supernets

Polygon Supernets is an ecosystem of appchains built on top of the Polygon network, which uses Ethereum as its underlying blockchain. Developers can use Polygon Edge, a blockchain-building platform, to create their own EVM-compatible appchains with customizable features. These appchains can be staked with MATIC tokens and operate under a Proof-of-Stake or Proof-of-Authority model. Each Supernet is serviced by a set of validator nodes, which ensures security and stability.

dYdX

dYdX is a decentralized margin trading platform that allows users to trade perpetual contracts and spot markets with leverage. It is an appchain built on Ethereum using StarkWare's zero-knowledge rollup technology. It has its own native token (DYDX) and governance model and leverages the security and data availability of Ethereum. dYdX offers users and developers a fast and low-cost platform for advanced trading features and derivatives.^[7][11]