Table of Contents

1st Question: “Fat Protocol” or “Fat Application” ?

1.1. Why 'Fat Protocol' Previously?

1.2. Core Value Propositions

• 1.2.1. Permissionless Shared Data Layer

• 1.2.2. Positive Feedback Loop for Token Value

• 1.2.3. Value Capture from Application Layer 1.3. Challenges to 'Fat Protocol'

• 1.3.1. Abundance of Blockspace

• 1.3.2. Rise of Modular Blockchains

• 1.3.3. Ease of Multi-Chain Operations 1.4. The 'App Chain Thesis'

• 1.4.1. Value Accrual Mechanism

• 1.4.2. Customizability 1.5. Evolving Blockchain Landscape with Web3

• 1.5.1. Ethereum Layer 2 Popularity

• 1.5.2. Potential Shift in Liquidity Distribution

2nd Question: For dApps, Monolithic chain or Modular Rollups?

2.1. Decision Landscape for dApps

• 2.1.1. Array of Choices

• 2.1.2. Key Decisions

2.2. Control vs. Connectivity

• 2.2.1. Benefits of App-Specific Rollups

• 2.2.2. General-Purpose Chains

• 2.2.3. User Experience Impact

2.3. Economic Considerations

• 2.3.1. Rollup Adoption Factors

• 2.3.2. Future Trends

2.4. Infrastructure Development and Cost Strategies

• 2.4.1. Rise of Infrastructure Services

• 2.4.2. Economizing Rollup Costs

2.5. Appendix: Detailed Economic Analysis

• 2.5.1. Recurring Fee/Revenue Structure

• 2.5.2. Initial Development and Deployment Fee

• 2.5.3. Rollup Operation Fee

3rd Question: Does Rollup has to be on Ethereum? Will Ethereum Dominance challenged by new DA Layer?

3.1. Current Blockchain Landscape

• 3.1.1. Single-threaded Monolithic Blockchain

• 3.1.2. Parallel Processing Monolithic Blockchains

• 3.1.3. Single-threaded Modular Blockchain

• 3.1.4. Parallel Processing Modular Blockchains

3.2. Monolithic vs. Modular Architectures

3.3. Ethereum's Dominance and New DA Layer Challenges

3.4. Implications for Ethereum's Layer 2 and Layer 3

3.5. Conclusion

4th Question: Does dApp need a RaaS? (How) does RaaS make money?

4.1. The Role of RaaS in dApp Ecosystem

4.2. Economic Model of RaaS

• 4.2.1. Execution Layer as a B2C Model

• 4.2.2. Data Availability and Settlement Layers as B2B Models

4.3. Revenue Generation for RaaS

• 4.3.1. Sequencer Hosting

• 4.3.2. Additional Infrastructure Services

• 4.3.3. Technical Support and Consulting

4.4. Cost Structure for RaaS

4.5. Profit Sharing and Framework Value Accrual

4.6. Conclusion

1st Question: “Fat Protocol” or “Fat Application

Why 'Fat Protocol' Previously?

• Core Value Propositions:

  • Permissionless Shared Data Layer: This feature of 'Fat Protocols' significantly lowers the entry barriers for new participants, fostering a more competitive and dynamic ecosystem. It enables composability among protocols, propelling their growth.

  • Positive Feedback Loop for Token Value: The increase in the native token's value attracts developers and investors, leading to more capital and manpower investment in the ecosystem. This cycle enhances the protocol's speculative value.

  • Value Capture from Application Layer: Protocols can capture value generated by application layers, primarily through gas fees. Theoretically, the more transactions applications generate at the protocol level, the more value the protocol captures.

Challenges to 'Fat Protocol':

• Abundance of Blockspace: The proliferation of alternative Layer 1 protocols has led to an abundance of blockspace. This saturation dilutes the value retention capability of any single protocol as competition drives down transaction costs.

• Rise of Modular Blockchains: The modular approach divides blockchain functions into execution, data availability, and settlement. This development offers cheaper solutions for data availability, reducing the fees paid by users and impacting the original value proposition of 'Fat Protocols'.

• Ease of Multi-Chain Operations: The advent of interoperability tools, like LayerZero, allows applications to easily operate across multiple chains, diminishing the once strong loyalty to a single protocol and weakening the positive feedback loop.

The 'App Chain Thesis':

• Value Accrual Mechanism: In the 'App Chain' model, native network tokens can be staked for security purposes, creating a supply sink. This model also derives value from the blockchain's business model, offering a more robust and sustainable economic structure.

• Customizability: Developers have the freedom to customize configurations in the technology stack for specific purposes, such as optimizing throughput and finality. This flexibility allows for better trade-offs tailored to the application's needs.

Evolving Blockchain Landscape with Web3:

• Ethereum Layer 2 Popularity: Ethereum's Layer 2 solutions are currently popular due to widespread recognition and trust in the Ethereum blockchain, leading to abundant liquidity. However, if future Web3 developments, focused on 'Intent', abstract away the underlying infrastructure, new users might not be familiar with specific protocols like Ethereum or Solana.

• Potential Shift in Liquidity Distribution: In such a scenario, liquidity might be directed more by the applications themselves rather than the underlying protocols. This shift implies that the 'Fat Protocol' model might not hold in the future. Instead, in a blockchain world centered around 'Intent' and full-chain operations, users might only interact with the DAPP front-end, leading to a fundamental change in how value and liquidity are distributed across the blockchain ecosystem.

2nd Question: dApps Development - Monolithic or Modular Approaches?

Decision Landscape for dApps:

• Array of Choices: dApp developers now have a broad spectrum of options including Layer 1s (L1s), general-purpose rollups (optimistic and zero-knowledge (zk)), advanced Inter-Blockchain Communication (IBC) infrastructure, Rollup-as-a-Service providers, and appchains. Each option presents unique advantages and challenges.

• Key Decisions: Choosing the right infrastructure involves considering the deployment on a general-purpose rollup vs. an app-specific rollup, selecting the right SDK/rollup-as-a-service, determining the data availability layer, and considering tools like EigenLayer for optimization.

Control vs. Connectivity:

• Benefits of App-Specific Rollups:

  • Greater Control: Allows abstraction of gas costs, minimizes onchain congestion, offers the flexibility to experiment with token utilization, and provides the ability to build custom execution environments and implement access controls.

  • Trade-off: This control comes at the cost of reduced connectivity with the broader ecosystem.

• General-Purpose Chains:

  • Connectivity Advantages: Offer access to existing liquidity, composability with other apps, and attract dedicated user attention.

  • Reduced Engineering Effort: Building on a general-purpose chain often requires less internal engineering compared to running an independent chain.

• User Experience Impact: The decision largely depends on the severity of the trade-off between control and connectivity. The key is balancing enhanced user experiences with the potential loss of ecosystem integration.

Economic Considerations:

• Rollup Adoption Factors:

  • Cost Dynamics: Rollups have both fixed and variable costs. Applications with high transaction volumes or fees are better suited for rollups due to their ability to amortize fixed costs more effectively.

  • Financial Models: Tools like Discounted Cash Flow (DCF) analysis help evaluate the financial viability of launching a rollup.

  • Cost Reduction Initiatives: Efforts to lower both fixed and variable costs of rollups are critical for their wider adoption.

• Future Trends:

  • Inflection Point: The true adoption inflection point for app-specific rollups might occur in 6-12 months, particularly in sectors like gaming and social apps, which benefit from custom rollup features.

  • Collective Adoption: The concept of multiple apps pooling resources to launch a shared chain could emerge as a new trend.

Infrastructure Development and Cost Strategies:

• Rise of Infrastructure Services: The increasing availability of services like Caldera, Sovereign SDK, Eclipse, and others, offering low-lift solutions for rollup creation, indicates a trend towards easier rollup setup and reduced costs.

• Economizing Rollup Costs:

  • Aggregation for Economies of Scale: Collaborating with other rollups to share fees and reduce costs.

  • Outsourcing Tasks: Employing external service providers for specific tasks, leveraging the division of labor principle.

Appendix: Detailed Economic Analysis

• Recurring Fee/Revenue Structure:

  1. Revenue Streams:

     • User Fees: Composed of the Layer 1 (L1) Data Posting Fee, Layer 2 (L2) Operator Fee, and L2 Congestion Fee. The challenge is to balance these fees against expenses to avoid making rollup use prohibitively expensive.

     • Miner Extractable Value (MEV): A significant revenue source derived from the transaction value on the chain. Strategies for optimizing MEV include:

       • Partnering with established MEV searchers.

       • Employing Proposer-Builder Separation (PBS) auctions to foster competitive MEV extraction.

       • Utilizing shared sequencer layers or solutions like SUAVE for aggregating cross-domain order flows, enhancing cross-chain MEV opportunities.

  Expense Breakdown:

  1. Initial Development and Deployment Fee:

     • Setup Complexity: Despite the availability of open-source SDKs like Opstack and Rollkit, rollup development requires substantial time and expertise for installation and debugging.

     • Customization Requirements: Integrating specific Virtual Machines (VMs) into an SDK, aligning them with various interfaces, adds to the complexity and resource demands.

     • Role of RaaS Providers: Services like AltLayer and Caldera can significantly alleviate these challenges, offering streamlined processes and encapsulating the benefits of division of labor.

  2. Rollup Operation Fee:

     • Ordering: The cost of transaction ordering can vary. Decentralized solutions like Proof of Efficiency could lower costs by minimizing operator margins. Centralized solutions, while simpler, might not offer the same cost benefits.

     • Execution: Involves full nodes using VMs/EVMs to execute state changes. Efficiency can be enhanced through alt-VMs like Fuel and Eclipse’s Solana VM, which enable parallel execution. Balancing EVM compatibility and security is critical.

  3. Proving:

     • Prover Market: Utilizing a dedicated prover market, such as Risc0 or =nil, instead of a proprietary network, can be more cost-effective due to increased competition and optimized hardware usage. However, this approach may have downsides like reduced token utility and reliance on external performance.

     • zk Rollup Specifics: Different zk rollups might require varied hardware for proof generation, posing a challenge in a unified prover market.

  4. Layer 1 Data Posting:

     • Cost-Effective DA Layers: Choosing a DA layer other than Ethereum or using a DAC solution can reduce expenses. This is particularly relevant for applications like gaming and social media, where bandwidth and scalability are prioritized over security.

     • Protodanksharding and Dansharding: Utilizing these Ethereum-based solutions can offer cost efficiencies. However, balancing cost against delay is essential, especially considering blob posting fees and transaction arrival rates.

  5. L1 Settlement Fee:

     • Optimistic vs. zk Rollups: The settlement cost varies between rollup types. Optimistic rollups like Optimism have relatively low settlement costs, whereas zk rollups incur higher costs for zk-proof verification.

     • zk-Proof Aggregation: Aggregating proofs from multiple rollups can save on verification costs. This method is most effective when rollups use the same ZKVM or a shared prover scheme.

3rd Question: Does Rollup has to be on Ethereum? Will Ethereum Dominance challenged by new DA Layer?

Current Blockchain Landscape:

1. Single-threaded Monolithic Blockchain: Examples include Ethereum, Polygon, Binance Chain, and Avalanche. These blockchains process transactions sequentially and are evolving towards Rollups or horizontal scaling to address their inherent limitations.

2. Parallel Processing Monolithic Blockchains: Solana, Monad, Aptos, and Sui exemplify this category, processing multiple transactions simultaneously for higher throughput.

3. Single-threaded Modular Blockchain: Projects like Arbitrum, Optimism, zkSync, and Starknet fall into this category, focusing on modular designs while processing transactions one at a time.

4. Parallel Processing Modular Blockchains: Represented by platforms like Eclipse, Fuel, and those built on Celesitia, they combine modular architecture with parallel transaction processing.

Monolithic vs. Modular Architectures:

• The debate between monolithic parallel processing and modular architectures centers on their respective advantages and disadvantages.

• Monolithic architectures, although centralized, provide a unified and streamlined system, while modular architectures offer flexibility and scalability but may have issues like cross-chain insecurity and complex system flows.

Ethereum's Dominance and New DA Layer Challenges:

• Ethereum's Ecological Moat: Ethereum remains dominant due to its massive ecological moat, decentralization advantages, and the vast developer community it has nurtured.

• New Public Chains: Emerging public chains often struggle to differentiate themselves significantly from Ethereum's ecosystem, facing issues like lack of liquidity and homogenization.

• Rollup Flexibility: Ethereum's rollups offer a high degree of adaptability, potentially matching the advantages of non-EVM chains.

• Future Infrastructure Trends: The inclination towards modularity in Ethereum suggests a strategic move towards a more scalable and diverse ecosystem.

DA Layer Debate:

• The discussion around which DA scheme rollups should adopt has gained prominence, with suggestions that rollups not using Ethereum's DA layer might not qualify as true Layer 2 solutions.

• Ethereum vs. Third-Party DA Layers: While Ethereum's DA layer ensures security and consistency, third-party DA layers like Celestia offer alternatives that might reduce costs or provide different functionalities.

• Celestia's Role: Celestia, not following the conventional path, targets Ethereum's ecosystem, potentially altering the dynamics of Ethereum's Layer 2 landscape.

Implications for Ethereum's Layer 2 and Layer 3:

• Shift Towards Diversification: Ethereum's Layer 2 is likely to see a proliferation of diverse solutions, addressing various challenges and needs within the ecosystem.

• Layer 3 Development: The evolution towards Layer 3 application chains, facilitated by platforms like OP Stack and ZK Stack, indicates a move towards a more open and inclusive blockchain environment.

• Celestia's Impact: While Celestia introduces new dynamics, it may ultimately reinforce Ethereum's position by diversifying and expanding the Layer 2 and Layer 3 markets.

Conclusion:

• Ethereum's Continuing Influence: Despite the rise of alternative DA layers and modular architectures, Ethereum is likely to remain a central player in the blockchain ecosystem. Its ability to adapt and integrate new technologies while leveraging its established community and infrastructure positions it to benefit from the evolving blockchain landscape.

• Layer 2 and Layer 3 Market Growth: The ongoing development and diversification of Layer 2 and Layer 3 solutions, whether based on Ethereum's DA layer or alternative platforms, are poised to enrich the overall blockchain ecosystem, with Ethereum likely to remain at its core.

4th Question: Do dApps Need RaaS and How Does RaaS Generate Revenue?

The Role of RaaS in dApp Ecosystem:

Rollups as a Service (RaaS) play a critical role in the dApp ecosystem, particularly in the context of blockchain scalability and efficiency. For dApps, especially those not backed by large teams or resources, RaaS can significantly lower the barrier to entry in implementing complex rollup solutions. RaaS providers offer expertise and infrastructure, allowing dApp developers to focus on their core application rather than the nuances of rollup technology.

Economic Model of RaaS:

1. Execution Layer as a B2C Model:

   • The execution layer, operating in a B2C model, interfaces directly with the end-users, offering them transaction execution services. It generates revenue primarily through transaction fees (gas costs) paid by the users. This layer also incurs costs, including operational overhead, compute costs, and costs related to data posting and proof generation.

2. Data Availability (DA) and Settlement Layers as B2B Models:

   • The DA layer sells block space to the execution layer, while the settlement layer provides necessary verification and bridging services. These layers operate on a B2B model, forming the backend infrastructure that supports the execution layer's direct interaction with users.

Revenue Generation for RaaS:

1. Sequencer Hosting:

   • One of the primary revenue streams for RaaS providers is hosting the sequencer, which is responsible for ordering transactions and posting data. This service is crucial for the operation of rollups and often forms the bulk of RaaS revenue.

2. Additional Infrastructure Services:

   • RaaS providers may also offer additional services like block explorers and bridges, contributing to their revenue streams.

3. Technical Support and Consulting:

   • Providing dedicated support and consultancy on infrastructure decisions further adds to RaaS revenue. This could include advising on sequencing strategies, MEV optimization, and other technical aspects of rollup operation.

Cost Structure for RaaS:

• The costs for RaaS providers primarily involve infrastructure maintenance, development of new features, and support services. These costs are balanced against the revenue from sequencer hosting, additional services, and consultancy fees.

Profit Sharing and Framework Value Accrual:

• While RaaS providers can operate independently without sharing profits with the underlying rollup framework, some arrangements involve revenue sharing, especially when the rollup framework offers unique advantages or network effects.

• Rollup frameworks can accrue value indirectly through increased adoption and ecosystem development, semi-directly through revenue-sharing agreements, and directly through deploying their own rollups or RaaS services.