Zaki Manian - Building App Chains for DeFi in 2025 - TOKEN2049 Singapore 2025

Uh people know me for helping launch the Cosmos ecosystem. I've been sort of the onetrick pony about why app chains are good for a decade. Um and uh my argument in this slide deck is that in 2025 is the year that the industry figured out how to do app chains uh in a way that they are viable. Um, and so I'm just going to run through the argument. Okay, so last year was the dark ages for app chains.

Um, Salana dominated DEX volume. Um, basically anytime like Salana was the preeminent argument that like you can't build an app chain. Um, you won't have liquidity, you won't have users. Um, basically every Cosmos chain was slowly spent all of 2024 dying. Um and while I wouldn't say that we are in an app chain full appchain bull market yet, we are starting to see uh things changed.

Um what changed was hyperlquid. Um so the hyperlquid playbook uh was uh native order book with subsecond finality uh revenue generation from day one. um the prioritization of highfrequency trading um vertical integration of the stack and then started minimal and added a framework for building added a framework later. I'll expand on this a little bit. So there are four pillars of the 2025 era app chains.

So native stable coins. Um so I mean the hyper uh liquid USDH politics were very a very vi you know public discussion of what does it mean to have hyper liquid have a naval sta native stable coin. Uh more and more chains are doing a native stable coin where yield goes to the ecosystem rather than to circle or tether. Um then you are seeing more and more uh conversations about transaction lanes. So, Hyperliquid again, great example of transaction lanes.

Uh, they prioritize limit orders. Um, vaults. So, like I've spent the last 5 years building various vault products, continue to build various vault products. I think vaults have product market fit as you've seen with plasma recently u with liquidity bootstrapping. One of the biggest arguments against launching an app chain was you won't have any liquidity.

No market makers will support your liquid your app chain. there won't be any DeFi traders etc. Um what we've seen over and over again now is there is a solution to how do you bootstrap liquidity for your app chain. Um which is you have a vault. Um the vault uh takes deposits.

The vault earns points in whatever your uh system is going to be and that provides the initial liquidity um for users on your system whether it's to a lending market whether it's providing counterparties for uh a perex um or other use cases that are yet to be imagined. Um and then the other thing that again has been like a huge success for app chains is their ability to support collocation. Um so everybody wants to be in AWS Tokyo because or every highfrequency trading use case wants to be in AWS Tokyo. Um big general purpose uh blockchains whether it's Salana or Ethereum uh tend not to be in Tokyo uh for a variety of reasons. Uh this creates an opportunity for app chains.

Um so you have these two players Agora and M0. um they've provided composable building blocks uh for building a native stable coin for your system. Um so you see wallets launching stable coins, you see chains launching stable coins and the biggest thing that it does is it actually gives a chain a way of immediately having revenue from the DeFi activity that you have on the chain. So historically when a new app chain launched uh we saw this over and over again in Cosmos um having USDC USDT was essential to the success of your chain because where else are you going to get liquidity in users? You had to spend an enormous amount in token incentives to bring on uh stable coin liquidity and then this generated zero revenue for your chain.

Um and then just basically started the debt the like downward debt spiral of your token. Um now you have this way of incorporate you know now you can have native yield sharing uh white labable stable coins. Uh you yield comes back to the chain ecosystem generates uh revenue you have revenue for token buybacks. Uh it basically solves this cold start problem. Um you are seeing the advantage of transaction lanes and reserve block space in all kinds of app chains.

Um and this seems to be a thing. So you know you have again you could you could take Hyperlquid as an example 200,000 TPS um for their uh order book transactions but like the uh uh EVM transactions are actually rate limited to a much smaller number of transactions much less than something like B or Ethereum and it seems to work. Um payments are coming up as a use case that require transaction lanes. uh something that you know we have been predicting as a use case for app chains for a long time. Um this gives you reliable solutions for various things.

Okay. So we are now seeing like a Cambrian explosion of frameworks. Um the OG frameworks with the Cosmos SDK and substrate. We have a now a new generation of frameworks. Uh RET from Paradigm has become like essentially an appchain framework.

Initia, commonware, the sovereign SDK, Avalanch's uh app chain SDK all provide like a whole new set of frameworks. Um probably the biggest downside of you know of people who are built for everyone who's building the frameworks is that the success stories so far have actually been fairly minimalist in how much they have used uh a framework. So, Hyperlquid built on Cosmos's ABCI framework um which is the like most minimal thing. ABCI was invented in 2015 um uh and then eventually added RET um and was you know has been the best of both work worlds. The best the thing that is most like a centralized exchange on most like an ETH um an EVM compatible L1 um in both worlds.

Um, lighter has done something similar also a perex uh custom ZK circuits uh and uh they are so they didn't use any of the ZK compatible frameworks instead they built their own system but they are thinking about adding a ZK framework for extensibility and programmability sort of similar to the hyperlquid path um so it's still a little bit unclear like whether or not uh frameworks supporting builders are going to be the future or like winning teams are going to continue to build an extremely custom core application. Um I think the biggest thing that we got wrong in let's say the first decade of app chains um is we didn't prioritize speed above all else. Um so now you are seeing most app chains launching with subund millisecond blockchains. So like 2024 24 was you know uh was the Cosmos the sort of Cosmos standard set of options was the default that most chains chose uh 1 to 6 second block times. Um and it was unclear exactly in 2024 and 2025 has shown that there's a huge amount of demand for uh you know subsecond blocks and cutting edge to go below 100 milliseconds.

Um the other thing that app chains really open up is programmable sequencers. Uh block producing doesn't have to be now you're seeing both this on uh monolithic blockchains like Solana with BAM and Flashbox. Um but very easy to natively integrate into uh your app chain. Um, so again the mistake of Cosmos, the mistake of like what went wrong with the first generation of app chains was we focused on decentralization. Like the argument for app chains at the time was you were seeing all this centralized off-chain infrastructure um on Ethereum.

We were like we could do it better with like truly decentralized applications. Um and no one cared. Um now you are seeing the 2025 era of blockchains they are all high frequency trading oriented applications. Um the the reason you start with HFT everything else follows follows after that your entire go to market is focused around. So one thing that is cool about this is that it enables a lot of innovation on market micro structure.

Um so you have like all of these things um matching algorithms fee structures application specific me protection all of the stuff in market microsstructure in is enabled by an enormous amount of innovation in app chains. Uh the core of this is like the core that makes this really valuable is that on a general purpose system you have to adapt your market like what application market microstructure there is to what is possible within the general purpose system. So you've seen this you've seen things like the emergence of prop amms on Salana which are a market microsstructure innovation but they are constrained by all the builders are constrained by this is what's possible on Salana today. Um if you're building an app chain everyone can have whatever they imagine. So you see things like latency bumps.

So you can be like your transactions are free if you are willing to wait up to like a few hundred milliseconds to a second for inclusion. If you want faster inclusion than not 500 milliseconds, it there's a var varying fee schedule. This allows you to have an environment where like retail players don't pay any fees and HFT firms pay all the fees. All of these things are interesting. Um and we'll see whether or not there are there's like any product market fit that really emerges from it.

But like far more rapid micro market microsstructure innovation is possible within the appchain context. Um the other big thing that app chains are driving demand for is low latency oracle integration. Um so there's like all of these different use cases for uh very fast oracles. Uh, Hyperlquid famously provides oracle updates again sub-second. You can build DeFi things out of these very fast oracles um that you can't build in an environment in which you have to wait um you know hundreds of milliseconds a second uh a minute for an Oracle update.

So we have basically seen the emergence of kind of a gold of like everything that we need for app chains to finally succeed is finally like kind of here. Um infrastructure has matured. You don't need big teams. Seems like the optimal app chain team size is now like five engineers. Um this is a huge change from when app chains needed to raise you know tens of millions of dollars build you know 20 30 person engineering teams um and because of their slow iteration speed would always miss product market fit um and wouldn't really adapt to the market.

Now teams that are basically trading first um so like H uh X market maker teams um can build an app chain pretty much by themselves. Um, stable coins, hyper liquid has shown people it's possible. High frequency trading is the primary use case. Um, the other big thing is the emergence of vaults as a standard industry primitive. Um, more now that there's like sort of widespread adoption of vaults.

This like normal thing where you would get blocked when you're launching an app chain which you're like no market makers support my app chain. Nobody wants to integrate my new protocol. You have an instant solution to all of this which is the team or someone closely associated with the team builds a vault. That vault is adapted to your the specifics of your system and as the as and the vault can be matured in parallel with your sort of application design and basically solves your cold cold start liquidity problem. So I think we are here now at the golden age of app chains once again.

uh and uh I think that we are going to start seeing a lot more exciting things um in the app chain space um and app chains will be a major theme of this bull market. Cool. Thank you very much.