ABCDE Capital: Hong Kong Conference, Rethinking 3 Hot Tracks

Written by: Lao Bai, ABCDE Capital

The recent Hong Kong conference is in full swing, and the primary market is warming up. In Q1, ABCDE reviewed over 100 projects and personally experienced several particularly hot tracks in the market, among which the hottest include Appchain, ZK, and Gaming.

Since the beginning of this year, these three tracks have also undergone some changes, prompting us to rethink and record our thoughts as a memo for everyone's reference.

1. Appchain (especially RAAS, Rollup as a Service)

RAAS is a track that emerged at the end of last year, largely related to the release of OP Stack. However, Appchain as a Service has existed for a long time, represented by Cosmos SDK. It began to gain traction after Celestia proposed modular blockchains, and RAAS can be seen as a recent hot subset of this.

Why might the Appchain as a Service track be overhyped recently?

First, if you are a developer looking to create your own Appchain, your options are as follows:

If your chain is EVM-based, then you can:

1. Create a pure ETH sidechain like Ronin (believed to be rarely done now).
2. Use Skale to create an ETH sidechain.
3. Launch a chain using Avax, connecting to Avax's P-chain.
4. Launch an EVM chain using Polygon Supernet.
5. Create a sidechain based on BNB Chain using BAS.
6. Use OP Stack to create a Rollup Appchain.
7. Use Caldera to create a Rollup Appchain (essentially also Op Stack).
8. Use Zk-Sync to create an L3 (expected to see this year).
9. While writing this, Arbitrum also released their Orbit, which is a similar L3 infrastructure to Opstack.
10. There are also several projects in development, such as Opside, Stackr, Sovereign SDK, etc.

If your chain is non-EVM, then you can:

1. Use Cosmos SDK to create a chain, either independently or sharing ATOM security (the ICS proposal has just passed).
2. Use Substrate to launch a chain, either bidding for a Polkadot slot, connecting to the Octopus network, or going solo.
3. Use Celestia's Rollkit to create a Rollup Appchain, with DA using Celestia and optional settlement.
4. Use Dymension to create a Rollup Appchain.
5. Use Saga to create a Rollup Appchain.
6. Create an L3 based on Starkware (expected to see this year).
7. There will definitely be many more in development that I am unaware of or have overlooked.

Doesn't it feel like there are "too many options?!"

Secondly, which applications are suitable for becoming Appchains? Do you remember the article online a few months ago discussing whether Uniswap should create its own Appchain and the various debates surrounding it?

In general, if Uniswap were to become an Appchain, it would have advantages such as transaction fees, token value capture, anti-MEV, and resource exclusivity, but at the same time, it would face debuffs in user experience, security, and composability.

In short, we have not yet seen any plans or "ambitions" from Uniswap to become an Appchain.

Compound originally wanted to use Substrate to create a chain but later abandoned the idea. Currently, both Compound and Aave V3 are multi-chain deployments, and it seems that the possibility of becoming an Appchain is also low.

As for Curve, it probably never had such intentions.

Only DYDX, which does not rely much on composability, has chosen to go to Cosmos to create an application chain. We should see this in Q3 of this year. Perhaps after Luna, this is the most anticipated Appchain. At that time, DYDX will also show many builders a path—if you dominate a track and have low composability requirements, then it makes sense to create a "sovereign + high-performance" Appchain. Before that, you can choose a general chain ecosystem to develop your Dapp and level up, and once you reach a high enough level, you can go solo.

This path is relatively feasible. For example, if in the future there is a SocialFi DAPP based on Lens Protocol that becomes strong and has high daily active users, and Polygon's throughput cannot meet the demand, it would make complete sense to go solo and use the aforementioned infrastructure to create a Rollup Appchain. However, in the short term, there are likely not many projects that can meet the above conditions to create a chain compared to the number of available infrastructures…

Furthermore, there are tracks that are inherently suitable for launching a chain as an Appchain. These projects will be the largest users of the aforementioned infrastructures. Currently, before the inter-chain heterogeneous composability issue is fully resolved, the possibility of non-Cosmos ecosystem DeFi going this route is low. The most suitable track is undoubtedly GameFi (including Onchain Autonomous World). For example, AVAX-based DFK and Crab, and the recently popular OPcraft, as well as Curio, which launched a chain using Caldera.

Looking at my MetaMask and Keplr wallets, it seems that after Luna's collapse, aside from DFK and Osmosis, I haven't really used other Appchains, which makes me wonder, do we really need "dozens of Appchains or Rollup as a Service" as such a massive infrastructure in this cycle?

Finally, I would like to "slightly complain" about the recently popular RAAS.

1.1. OP Series

The RAAS based on the OP series that I have seen is basically just a fork of OP Stack, which inherently has no technical barriers. The OP code and documentation are very well organized and clear. Our technical experts at ABCDE can set up an OP Rollup Appchain in less than a day by following the documentation, so the value provided by this type of RAAS to customers lies more in sequencers, block explorers, and rapid deployment, with marketing capabilities far exceeding technical capabilities.

Moreover, the TPS, block time, and usage costs of these Appchains are essentially identical to Optimism, with no performance optimization measures in place. Therefore, theoretically, unless OP is congested, you will not get a "better experience" on this AppChain than on the OP general chain. Currently, OP's shortcomings are fully inherited by these RAAS, such as the long-awaited fraud proofs that have yet to go live…

However, I must commend the vision of the OP Stack superchain. The more Rollup Chains launched using OP Stack or OP Stack Fork in the future, the more likely the OP superchain will become a "Polkadot-like" architecture that does not require slot auctions, has built-in communication protocols, and is fully asynchronously composable. Although this vision is still far off, the prospect is indeed appealing. With the narrative of OP Stack, OP has managed to compete evenly with Arbitrum in the booming DeFi innovation space. While I was writing this report, Arbitrum also released Orbit, and I thought there was no way Arb would miss out on such a big opportunity. Sure enough, they launched a token and new projects in one go, and now we have OP vs Arb to look forward to!

1.2. ZK Series

Theoretically, ZK series RAAS has the potential to enhance the Appchain user experience because solutions like ZK-Sync and Scroll that follow the ZKEVM route focus heavily on compatibility. Therefore, circuit design may sacrifice some efficiency and cannot be optimized for specific Dapps. If RAAS can design or optimize circuits specifically for different DAPPs, the performance and experience of ZK Appchains would certainly surpass those of general ZkEVMs.

However, there are too few talents in the world who understand both ZK and blockchain. The few that exist are mostly concentrated in Starknet, Zk-Sync, Scroll, and Polygon. The ZK series RAAS currently available in the market is essentially just forking Zk-Sync's alpha open-source version to create a Zk-Sync fork chain. Once Polygon and Scroll go live and are fully open-sourced, at most they will provide customers with options—do you prefer ZK-Sync, Polygon, or Scroll's EVM? It feels a bit like when you create a Linux virtual machine in AWS and have to choose between Redhat, Centos, or Debian.

Thus, similarly, there are no significant technical barriers, and it remains a BD-driven market, which is not as mature as the OP series. After all, several ZK series Rollup official versions have yet to go live or be fully open-sourced. Currently, what is available are only some open-source test versions, and bugs and experiences are certainly not as smooth as those on the OP side. I hope to see ZK series RAAS that can design or optimize circuits specifically for each Appchain in the future.

2. ZK

If Appchain as a Service is considered a representative track of modular blockchains, then this year, the two major trends in blockchain are modularization and ZK.

The obstacles of ZK can be viewed from several aspects:

2.1 Scalability

This is self-evident. Several major ZK-Rollup mainnets have gone live this year, but despite going live, there are still many issues.

Completeness

Currently, whether it is ZK-Sync, Scroll, or Polygon, the launched mainnets are all EVM-compatible, with the exception of Starknet. However, Starknet has a "child" called Kakarot that is working on ZKEVM. From what I have learned from ZK experts in the industry, the launch of several star ZK-Rollup mainnets has somewhat felt like "rushing to market." The completeness or maturity of each product has not truly reached the traditional level of "mainnet completeness," and after going live, various performance or bug issues are inevitable, likely requiring continuous upgrades and patches. This can be inferred from the delays in the originally planned testnets from last year to this year. The reason for this is that ZKEVM is indeed "too difficult," to the point that even the top engineers in the industry need much longer than originally anticipated to tackle it. As for why everyone is rushing to launch mainnets this year, I believe it is related to the pressure from the continuously enriching OP ecosystem and the ongoing upgrades and stabilization of its mainnet. If ZK does not launch soon, it will be too late. As long as it is basically usable, we can go live first and update and iterate later.

Performance

At least at this stage, the performance of ZK systems is <= that of OP systems. Of course, from the user's perspective, the difference may not be obvious, as both provide confirmations within a few seconds on the sequencer. ZK proofs can actually be done gradually (usually taking 10-20 minutes to complete a block). Users do not care much about the "finality" of transactions on L1 and do not perceive it. The current popular circuit optimizations or hardware accelerations actually speed up that 10-20 minute proof time, but they do not significantly affect user experience.

Costs

The fraud proofs on the OP side are essentially free, while ZK proofs require a significant amount of computational power, which costs money… Of course, you could argue that ZK uploads less data to L1 than OP, resulting in lower gas costs for CallData, but the reduced gas costs are likely outweighed by the additional costs incurred on the prover side, especially once the 4844 blobs come out, significantly lowering the costs of uploading to L1. The cost advantage of OP will become even more apparent than it is now.

Security

This is a subjective issue. The traditional understanding is that ZK is based on mathematical proofs, while OP is based on economic games, and since math > games, ZK is considered more secure than OP.

This is certainly true in the long run.

However, at this stage, it may not be the case.

Security means that transactions must truly "finalize" on ETH L1. Currently, Arb submits every two to three minutes, while OP does so every ten minutes. On the ZK side, due to the time and effort required for proofs, it generally takes about 10-20 minutes, especially when blocks are full. If the ecosystem is not prosperous and blocks are not full, the time will be even longer.

Thus, although math indeed surpasses games, the current finalization time for ZK transactions is still much longer than that of OP. This relies on the evolution of ZK algorithms, circuit optimizations, and hardware accelerations to continually reduce that 10-20 minute timeframe. If one day it can truly be shortened to 10-20 seconds (5-10 years from now?), then ZK will undoubtedly surpass OP in terms of security.

2.2 Middleware and Others

This is actually a track that many people are relatively optimistic about for scalability because using ZK for scalability is a very "heavy" task, as evidenced by the years of effort put into these Rollups without launching a mainnet. Middleware, on the other hand, is relatively lightweight and can perfectly leverage ZK's characteristics.

The hottest middleware track is naturally Interoperability, which significantly enhances bridge security by eliminating the need for third-party witnesses through ZK proofs, and even connects previously fragmented ecosystems that are difficult to interoperate, such as between various Layer 2s or the IBC connection between EVM and Cosmos, etc. Some of the teams currently working on this include Succinct Labs (who recently released their Telepathy product, achieving a one-way ZK bridge for ETH), Electron Labs (who first proposed the concept of ZK-IBC), and Polyhedra (ZK Bridge, ZK DID, the first project initiated by ABCDE).

Although this track is much lighter than Rollups, it is still a super hardcore and time-consuming endeavor. It is unlikely that we will see a satisfactory and secure bidirectional ZK bridge this year. Fully ZK-based interoperability will likely require a timeline of 2-3 years for planning.

As for other ZK tracks, this year has felt like an explosion. Anyone who has been to ETH Denver understands that there are teams working on everything related to ZK, including on-chain safes, DID, oracles, and even AI and machine learning. Some of these indeed make sense, while many others leave you wondering—does this really need ZK? In summary, it feels a bit like the ICO boom in 2017, where blockchain was used as a hammer to find nails everywhere, leading to various decentralized taxi and Airbnb projects that now seem absurd. This time, blockchain has been replaced by ZK, and it feels like we are trying to retrofit everything with ZK…

3. Gamefi

Gamefi is perhaps the hottest track at the moment, without exception. After counting the projects I have seen and discussed over the past few months, if we break it down into each sub-track, Gamefi should have the most.

The reason is not hard to understand. On one hand, Vitalik Buterin stated years ago that finance and gaming would be the first two scenarios for blockchain to land.

On the other hand, attempts in various directions such as DeFi, storage, and SocialFi have made little progress in terms of mass adoption. Although the myth of X2Earn has been shattered, Axie and StepN have shown everyone in the circle the hope of "breaking the circle," and many firmly believe that large-scale breakthroughs still rely on "games."

As a result, both Web2 game developers have begun to frequently turn their attention here, including many technical teams from large companies and well-known game studios, and various native NFT and DeFi ecosystems in Web3 are also considering how to "layer Gamefi" onto their products. A recent relatively successful attempt was Ape's Dookey Dash.

However, the current Gamefi track is actually in a somewhat awkward period. The growing pains and death spiral of X2Earn have just ended, and how to strike a balance between incentives and gameplay is still unknown. Everyone is "feeling their way across the river in the dark." The current consensus is that the Free 2 Play model, like that of running shoes and Axie, where you have to spend money to buy NFTs to play, is no longer viable.

We are currently seeing several forms of exploration:

• AAA Level --- Moving from one extreme to another. If Axie emphasizes Earn, AAA games emphasize Play, with varying degrees of emphasis. The lighter ones focus on attracting Web3 players through NFTs, while the heavier ones target the Web2 crowd, fully adopting traditional internet mobile game models, simply moving the trading system on-chain, and even embedding wallets in a seamless manner…
• Casual Social --- We have all experienced the era of stealing vegetables, farming, and grabbing parking spaces in Web2. Will Web3's Gamefi also have such a period? Social, casual, and a bit of Earn? The future is uncertain, but at least it is a direction that has not been explored much before.
• New X to Earn Model --- The most common model seen now is the Bet to Earn model represented by PSI, also known as Risk to Earn. In simple terms, it links Earn to your skills and proficiency. Imagine a Web3 battle royale game where 100 players must pay $1 to participate, and the winner takes home the $100 prize. This essentially solves the previous Ponzi model that relied on rapid growth of new players and the inevitable death spiral that followed, as the economic model roughly becomes PVP. However, like AAA games, it requires sufficient playability to retain players, as the economic incentives for ordinary users become very small.
• NFT-based Free to Own --- Represented by DigiDaigaku, APE's Dookey Dash also has a somewhat similar feel. In short, it attracts players to hold NFTs for free or at a very low price, and then continuously empowers the NFTs. This requires high levels of suspense, mystery, and marketing ability from the team in the early stages, and equally high game development capabilities later on, making it a route with extremely high barriers. Additionally, the initial number of NFTs is often limited to 10,000, making it a challenge to expand the user base.
• Game Nintendo --- This is naturally represented by TreasureDAO and Gala, with Gala's games being somewhat "heavier" and TreasureDAO's games leaning more towards "mini-game" styles. After the release of a hit like Beacon, it will inevitably attract more similar mini-games into its ecosystem. Mini-games have always been popular in Web2, but whether Web3 can successfully replicate this remains unknown.
• DeFi Gamification --- Here, DeFi Kingdoms stands out as a unique case, with very ambitious goals. Its system is complex, evoking a sense of "on-chain Dream Journey." However, after the hype of 100x in 2021, it has yet to make significant progress, and after the token price returned to its original point, it has remained sluggish. This complex Gamefi deeply integrated with DeFi currently seems to face a rocky road ahead.
• Fully Onchain Game --- This may be the most hyped category of Gamefi at ETH Denver. The reason is simple: the other major categories still carry some Web2.5 shadows, while fully on-chain games are the only Web3 games that possess complete blockchain characteristics. Some of these may not even qualify as games and should be called Onchain Autonomous Worlds. This could be the third truly "blockchain-native" product after DeFi and NFTs. However, just as DeFi (MakerDAO) and NFTs (CryptoKitties) were born in 2017 but exploded in 2020 and 2021 respectively, Fully Onchain Games are also in an extremely early exploratory phase, likely requiring 3-4 years to reach their shining moments.

Currently, it is difficult to say which of these seven directions, or which combination of them, will make it to the end. Furthermore, the development of Gamefi faces a fundamental contradiction: while games are the easiest way to attract users from outside the circle, the essence of games is to create a world detached from reality, allowing people to temporarily escape from their busy work lives and enter a "pure land" of gaming. The connection to Web3 or the underlying blockchain inevitably links Gamefi back to the real world through some form of financialization. Whether this connection will break the most essential "pure land" function of games is a question worth pondering.

Conclusion:

Reassessing these three currently hottest tracks does not mean we are pessimistic about them. On the contrary, ABCDE is optimistic about these three tracks in the long run and has already laid out plans in these areas. We often overestimate the short-term value of some technologies while underestimating the long-term value of others. These tracks may not provide investment returns that align with the first or second markets in the short term. For us, as LPs with a five-year exit period, time will be our best friend.