Layer-2 Chains vs Appchain L1s: Retaining Value in Your Ecosystem
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Layer-2 chains were hailed as the solution to blockchain scalability issues, offering faster and cheaper transactions while enabling projects to scale rapidly. However, as the initial excitement settles, a critical flaw has emerged: L2s do not retain the value they generate. Instead, they leak it back to the parent chain, liquidity hubs, and governance structures that are not truly their own.
In the current competitive landscape, where numerous projects vie for users, the focus has shifted towards long-term sustainability, sovereignty, and alignment. As a result, many projects are turning to app-specific “appchain” layer 1s as a necessity rather than a novelty.
L2s, while efficient in terms of speed and cost, are economically hollow. They rely on the parent chain for security and transaction settlement, leading to a one-way transfer of value back to the L1. This constant outflow of fees and resources can hinder a project’s growth and sustainability over time.
On the other hand, appchain L1s are designed to retain the value they generate within their ecosystem. By launching a sovereign chain, projects can keep transaction fees, staking rewards, governance power, and other economic activities local, creating a self-sustaining growth model.
Additionally, appchains offer full-stack control, allowing projects to tailor their infrastructure to their specific requirements without being constrained by a parent chain’s limitations. Interoperability solutions like LayerZero and Avalanche Warp Messaging have made it possible for appchains to connect with broader ecosystems while maintaining their independence.
The market is increasingly recognizing the advantages of appchains, with more projects opting for this approach to achieve autonomy, economic sustainability, and infrastructure tailored to their needs. While L2s may be a viable starting point for some projects, they are not built for long-term scalability and value retention.
Investing in L1 infrastructure is crucial for projects looking to build enduring ecosystems that are aligned, sovereign, and sustainable. Building a custom appchain that meets specific requirements and retains value within the ecosystem is becoming a strategic imperative for forward-thinking projects.
In conclusion, while spinning up an L2 chain may offer a quick route to market, investing in appchain L1 infrastructure is essential for long-term success in the rapidly evolving blockchain landscape. Every project will soon be racing to build its own appchain to ensure autonomy and value retention within their ecosystem.
By Steven Gates, Founder of Hypha, a platform for launching blockchains with a focus on configuring validator license sales.