The Future of Public Goods: Are App-Chains the Answer or the Problem?

App-chains fragment revenue streams. Monolithic chains like Ethereum and Solana consolidate transaction fees into a single, powerful subsidy for public goods like core development and security. App-chains like dYdX and Axie Infinity sequester their own fees, starving the shared infrastructure they rely on.

The modular stack is a tax haven. By outsourcing execution to Arbitrum or Celestia, projects avoid contributing value to a base-layer treasury. This creates a classic free-rider problem where the cost of innovation is socialized while profits are privatized.

Evidence: The Ethereum protocol has a $30M+ annualized public goods fund from priority fees. No major app-chain or L2, from Optimism to Polygon, has established a comparable, sustainable model for funding the shared R&D that enables them.

App-chains fragment shared security. Sovereignty lets projects like dYdX and Aevo optimize performance, but it isolates them from the pooled security of Ethereum L1 or a robust L2 like Arbitrum. This forces each chain to bootstrap its own validator set, a costly and often weaker security model.

Liquidity becomes a zero-sum game. Every new Cosmos zone or Avalanche subnet must attract its own capital, fracturing liquidity across the ecosystem. This increases slippage for users and creates a winner-take-most market for bridges like Axelar and LayerZero.

The sustainability model is broken. App-chains externalize their infrastructure costs. They rely on shared public goods—like core protocol R&D from Ethereum or interoperability standards from IBC—without directly funding them, creating a classic free-rider problem.

Evidence: The Cosmos Hub's struggle to fund development via a dwindling token treasury, despite securing a multi-billion dollar ecosystem of sovereign chains, is a canonical case of this sustainability failure.

App-chains privatize security costs. Each new chain (e.g., dYdX, Aave's GHO chain) replicates the validator set and infrastructure of its host L1 or L2, fragmenting capital and diluting network effects that benefit all applications.

Liquidity becomes a zero-sum game. The winner-take-most dynamics of DeFi mean liquidity migrates to the chain with the highest yields, starving other chains and creating brittle, isolated economies reliant on bridging protocols like Axelar and LayerZero.

The shared data layer erodes. A monolithic chain like Ethereum provides a universal state root for all applications; app-chains force protocols like The Graph to index dozens of siloed environments, increasing integration complexity and audit surface area.

Evidence: The Total Value Locked (TVL) in Ethereum L2s exceeds $40B, but over 60% is concentrated in the top two chains (Arbitrum, Optimism), demonstrating the unsustainable fragmentation of capital.

App-chains fragment voter capital. Quadratic funding requires a large, unified pool of capital and participants to accurately signal value. Projects like Optimism's RetroPGF rely on this concentration. When contributors and voters disperse across Cosmos app-chains, Avalanche subnets, and Arbitrum Orbit chains, the signal-to-noise ratio collapses.

Sovereign treasuries create perverse incentives. Each app-chain operates its own treasury, like dYdX Chain or a Polygon CDK chain. This balkanization incentivizes teams to fund their own ecosystem's projects, not the highest-value global public goods. The result is capital inefficiency masquerading as sovereignty.

Cross-chain identity is unsolved. Effective quadratic voting depends on Sybil resistance through systems like Gitcoin Passport. A multi-chain world fragments identity attestations across different data availability layers and social graphs, making cost-effective Sybil attacks trivial.

Evidence: Gitcoin Grants' matching pool efficiency decreases as activity migrates to L2s and app-chains. The capital required to secure meaningful votes across dozens of chains makes the marginal cost of governance participation prohibitive for the average contributor.

Sovereignty is non-negotiable. An app-chain grants a protocol full control over its stack, from the virtual machine to the fee market. This eliminates the political risk of a shared L1 like Ethereum changing its rules or a competitor L2 like Arbitrum prioritizing its own sequencer revenue. The dApp is the chain.

Economic alignment creates public goods. The fee revenue from an app-chain's execution layer funds its own security and R&D, creating a sustainable flywheel. This is superior to the parasitic model where apps on a shared L1 generate value for the base layer's validators but receive no direct reinvestment. Celestia and EigenLayer exist because this model works.

The modular thesis proves it. The separation of execution, settlement, and data availability via rollups and data availability layers makes app-chains feasible. Teams no longer need to bootstrap a full validator set; they can lease security from Ethereum via optimistic or zk-rollups and use Celestia for cheap data. The public good is the composable, specialized infrastructure this enables.

Evidence: The ecosystem is voting. dYdX migrated from StarkEx on Ethereum to its own Cosmos chain. Aevo runs a custom rollup on the OP Stack. These are not experiments; they are production systems choosing sovereignty over convenience. The traffic and value they generate is the public good.

App-chain fragmentation is a tax on public goods. Isolated ecosystems like dYdX Chain and Arbitrum Nova create funding silos, forcing projects to bootstrap liquidity and security repeatedly. This model is economically inefficient and scales poorly.

Cross-chain state synchronization solves this. Protocols like Hyperlane and LayerZero enable verifiable messaging, allowing a public good on one chain to prove its impact and claim rewards from treasuries on any other. This creates a unified market for impact.

The future is a cross-chain super-DAO. Platforms like Optimism's RetroPGF and Gitcoin Grants will evolve into cross-chain coordination layers. Impact attestations become portable assets, traded and valued across the entire multi-chain economy.

Evidence: The Ethereum L2 ecosystem already demonstrates this need, with over $40B TVL fragmented across dozens of chains, each requiring its own security budget and grant program. Cross-chain attestations collapse this redundancy.