The Era of Commercialization in Block Space Will Fat Apps Finally Rise

Original author: Mason Nystrom
Translation compiled by: Luffy, Foresight News
In the past 30 days, Ethereum’s order flow volume has surpassed 25 billion US dollars, with nearly half originating from proprietary applications. As the value of block space continues to grow, paving the way for ‘fat applications,’ the privatization of order flow is also set to increase.


Source: Orderflow.art
So, how did we get here, and where are we headed?
The DeFi summer spawned a surge in consumer and retail trading, which in turn led to the emergence of trade aggregators like 1inch. These aggregators offer better price execution for users through private order routing. Wallets, such as MetaMask, quickly followed suit, realizing they could profit by adding in-app exchanges to provide convenience for users. This has proven to be an extremely valuable business model for any application that controls end-user attention (and orders).
Over the past two years, we have seen two other types of participants enter the private order flow space: Telegram bots and solver networks. Telegram bots offer users a convenient way to trade long-tail assets within group chats. As of June, Telegram bots accounted for approximately 21% of the number of trades and 11% of the trading volume, most of which was conducted through private memory pools.


Data source:
Dune
On the other hand, solver networks (such as Cowswap, UniswapX) have become central places for trading high-liquidity pairs (like stablecoins and ETH/BTC). Solver networks have altered the structure of the order flow market by outsourcing the task of finding the best trade paths to solvers (market makers).
As a result, trading venues have diversified, with convenient front-ends (including TG Bots, wallet exchanges, and Uniswap front-end) mainly used for long-tail, low-value (under 100,000 US dollars) trades, while aggregators and solver networks have become the preferred venues for large transactions.


Upon closer observation, you’ll notice that most private order flows originate from front-ends (TG bots, wallets, and front-ends).


When considering that only 15-30% of Ethereum transactions go through private memory pools, the privatization of order flow becomes even more apparent, meaning a significant portion of the private order flow volume is contributed by a minority of trades.


Data source:
Dune
In other words, valuable order flows are more important than the number of order flows. The power-law distribution of users and order flows leads to an inevitable conclusion: applications will occupy the largest proportion of total value. In other words, the fat application theory remains valid.
Towards Fat Applications
Uniswap’s protocol layer is clearly valuable, but the more interesting story is happening at the application layer, as Uniswap strives to become a consumer application: by expanding its interface, mobile wallet, and aggregator layer functionalities, it vertically integrates key components of its stack. For instance, Uniswap Labs’ applications (Uniswap’s front-end, wallet, and aggregator UniswapX) contributed nearly 25% of the 13 billion US dollars in private order flow volume and nearly 40% of the total order flow volume in the past 30 days.
In other areas of cryptocurrency, applications like Worldcoin have accounted for nearly 50% of the activity on the Optimism mainnet, prompting Worldcoin to build its own application chain, further highlighting the power of the fat application theory.
Even top-tier NFT projects with strong brands, such as Pudgy Penguins, are building their own chains, with CEO and Chief Pengu Luca explaining that controlling block space is beneficial for the value accumulation of the Pudgy brand and IP.
Looking ahead, applications should focus on creating new types of order flows, including: creating new assets (such as Pump and memecoins), building applications for new user scenarios (like Worldcoin, ENS), crafting better vertically integrated consumer experiences, and supporting valuable transactions, such as Farcaster and Frames, Solana Blinks, Telegram and TG applications, or on-chain games.
Final Thoughts on Fat Applications
Once the application chain theory becomes industry consensus, fat applications will become a focal point for many.
My current view on the fat application theory is that we will see most value accrue to the application layer, where control over users and order flows puts applications in a privileged position. These applications may combine with on-chain protocols and primitives, similar to today’s UniswapX and Uniswap protocol, Warpcast and Farcaster, Worldcoin and Worldchain. Ultimately, these protocols, especially those with the highest degree of on-chain integration (such as MakerDAO), can still accumulate substantial value, but considering the proximity of applications to users and the off-chain components that provide moats for applications, applications may capture more value.


Finally, I still believe that Layer 1 blockchains (such as Bitcoin, Ethereum, Solana) can gain significant value as non-sovereign reserve assets. Given enough time, applications might attempt to build their own L1, just as they build their own L2. However, building L2 block space is fundamentally different from bootstrapping L1 and transforming governance tokens into commodities and collateral assets, so this may be a relatively distant issue.
The core point is, as more applications create and own valuable order flows, the crypto world will reassess applications, and fat applications are the trend of the future.
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