Understanding the Pros and Cons of Appchains: The Trade-off Between Composability and Autonomy

Author: Degen Sensei

Compiled by: TechFlow

The appchain theory has evolved into a counter-narrative to Ethereum's multi-chain future, particularly fueled by the development of Cosmos 2.0 and dYdX’s migration from Ethereum’s Layer-2 solution Starknet to Cosmos.

So, what exactly is the appchain theory?

Appchain Theory

The appchain theory posits that as every blockchain-based protocol seeks to scale, they will eventually transition into sovereign chains—gaining full control over their protocols without relying on an underlying L1.

Why would they do this?

Imagine you’ve built a DeFi protocol on Solana and worked hard to maintain operations, only for the network to repeatedly go down, severely disrupting your business. In such cases, you’d be forced to seek more resilient chains where you can independently choose::

• Maintaining their own consensus;
• Security (potentially exchanging interchain security);
• Validator selection autonomy;
• Uptime;

They gain complete authority to operate their sovereign blockchain instead of depending on a base L1. However, this is a double-edged sword—so let’s dive into the pros and cons, with fair arguments presented for both sides.

Arguments in Favor of Appchains

Sovereign Autonomy

One criticism of appchains is that they sacrifice composability. However, proponents argue that full composability creates domino effects throughout the system, leading to greater systemic risk.

A DeFi protocol lacking demand and users, having observed the Polkadot ecosystem, might take a different path. We’ve already seen examples of sovereign chains functioning well—for instance, Terra’s collapse did not bring down the broader Cosmos ecosystem.

Promotes Interoperability

Appchains enhance interoperability—any relevant data can be transferred from one chain to another. This also means infrastructure providers enabling such connectivity stand to benefit significantly from the appchain trend.

Greater Speculative Potential

One reason L1s accumulate massive value is their rich ecosystems. This complexity makes them harder to evaluate financially—leaving room for more speculation and potential growth. In contrast, standard DeFi apps are relatively easier to value. Becoming an appchain could unlock additional speculative upside.

Enhanced Token Utility

Appchains also offerfurther utility for tokens, as an app’s native token can be used to pay gas fees to validators—an additional token sink that helps mitigate sell pressure caused by incentives.

MEV Resistance

MEV (Maximal Extractable Value) resistance is another core advantage of appchains. With a customizable validator set, you can enforce rules that make MEV extraction significantly harder. We’ve seen this in Cosmos Hub, where transactions must be batched, limiting MEV opportunities (batching forces miners to execute transactions regardless of order).

On L1s, apps compete for block space by paying gas, which—as you know—leads to soaring gas prices during peak demand, degrading user experience. This won’t happen on an appchain since the app controls its own network.

Avoiding Regulatory Hurdles

Finally, one of the strongest arguments for appchains is their higher degree of decentralization. Compared to protocols deployed on L2s like Arbitrum—which rely on centralized sequencers—an appchain with numerous validators is clearly more decentralized. This may explain why protocols fearing regulatory classification as securities might seek refuge in this model.

These are the main cases I see for appchains. Now, let’s examine the counterarguments.

Arguments Against Appchains

Loss of Composability

The premise of appchain theory—that applications don’t need composability—is flawed. Other applications become redundant under this logic, creating a winner-takes-all market.

Composability has been a key driver of DeFi innovation. Moreover, sidechains already exist for specific use cases without inheriting Ethereum’s security. Additionally, many protocols have successfully deployed on L2s—achieving scalability while still benefiting from Ethereum’s security.

By isolating themselves through fragmented liquidity, apps lose access to the very composability that has served them so well. While fragmented liquidity isn't necessarily problematic in a well-functioning ecosystem, in practice, it leads to subpar user experiences and introduces security concerns.

Security Risks

Compared to EVM, Cosmos SDK is often seen as cumbersome to build with, and placing full responsibility for security on individual apps becomes a major risk. Interchain security is clearly one way to mitigate this, making it worth watching closely.

Furthermore, cross-chain bridges have proven notoriously dangerous. While bridges allow users to move assets across chains, they also reduce overall security—given the numerous high-profile hacks in the industry. For crypto to be taken seriously, we must reduce the financial damage caused by these attacks. This isn’t to say IBC is insecure, but after the BNB incident, deeper investigation revealed a vulnerability that could affect all IBC-enabled chains. Credit must be given to the Cosmos team for identifying and patching this issue before wider damage occurred.

In January 2021, Informal Systems audited the Cosmos Go module (used to implement IBC). While I don’t question their competence—they’re far smarter than I am—it would be better to see audits from multiple independent parties. Although Informal Systems didn’t build the module, their business depends heavily on it, creating a potential conflict of interest.

Cannibalization Within the Ecosystem

Internal competition within the ecosystem primarily harms the ATOM token. Multiple protocols are vying for different forms of value capture within Cosmos, especially as the Cosmos Hub progresses slowly in implementation. This isn’t necessarily bad—it can be viewed as opening up value creation rather than gatekeeping it internally.

A key competitor to the new ATOM 2.0 roadmap is:Celestia.

Celestia is a modular blockchain that allows other chains to connect to its existing consensus without requiring them to create their own—providing shared security across connected chains. Its value proposition is that deploying on Celestia is easier compared to using IBC and ICC.

Additionally, Celestia scales with the number of users joining its network via data availability sampling—where light nodes download random samples from blocks instead of entire blocks, proving full block availability and verifiability. Block size can grow with the number of users (light nodes), since the base layer doesn’t require downloading full blocks, avoiding ever-increasing hardware demands.

Developer Complexity

A major reason competitors like Celestia emerge is the clunkiness of Cosmos SDK. Running and maintaining a chain on Cosmos is a much heavier lift for developers compared to simply launching on Ethereum.

For most applications that benefit from the convenience of composability, complexity and isolation may not be ideal.

Moreover,Ethereum’s current roadmap is already moving toward appchains and rollups, prioritizing development in this direction. IMX is one example, as is Arbitrum Nova. Still, competition benefits the industry, as users ultimately gain better experiences from high-quality products.

So, Who Benefits?

The answer is ATOM, as it plans to launch interchain security, enabling stronger value capture. When I argued for appchains earlier, I highlighted their benefits for interoperability—some readers may have guessed that Synapse could be worth watching. The team is well-positioned for a cross-chain future, leveraging capital more efficiently than other bridge protocols.

Synapse has started building the Synapse Chain, preparing a secure cross-chain messaging system capable of transmitting arbitrary data between chains. It will provide an interface to streamline developer efforts in building cross-chain applications.

Synapse also includes cross-chain bridge infrastructure beyond IBC, enabling asset transfers across 18 different L1s and L2s.

Key Takeaways

From a blockchain perspective, appchain theory diverges from mainstream narratives. While there are other PoS blockchains like Solana and Avalanche, they lack clear differentiation beyond speed.

The Cosmos ecosystem offers something different. Despite impressive progress so far, it still has a long journey ahead.

However, there’s no doubt that the infrastructure being built delivers net positive value to the space. From a user standpoint, it doesn’t matter which chain an app is built on—as long as it’s easy to use and meets demand, people will adopt it. In this sense, Cosmos and Ethereum follow the same principle.

That said, I remain cautious about protocols launching without interchain security—especially if they lack substantial experience with mature Cosmos SDK implementations.

Finally, this is just the first iteration of cross-chain infrastructure. Over time, user experiences across chains will undoubtedly become smoother and more seamless.

What are your thoughts on the future of cross-chain?

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