From stratos blog by Rennick Palley at January 2024

Stratos co-led Dymension’s seed round back in the summer of 2022. We have been incredibly impressed by Yishay and the team’s execution on their vision. The intent of this piece is to provide information into how Dymension works and to highlight the significance to the overall crypto ecosystem. This is not investment advice.

TLDR

DYM = Modular Money

We believe that DYM will become a new form of internet money. There is a strong network effect between RollApps that will drive this:

Because RollApps are composable and easily share liquidity, each new RollApp on Dymension will increase the total value of the network, and thus create a stronger pull for the next developer to deploy the next RollApp, and so on. We know that this is not the case with Ethereum, and composability across all rollups settling to Ethereum (or using Ethereum for DA) is unlikely to ever occur.

Combine this network effect with the easy deployment of RollApps via the RDK, and the total scale of the market for applications that will benefit from deploying as RollApps vs. dApps or rollups, and you can see how the total amount of economic activity settling on Dymension can begin to compete with Ethereum in the coming years. 

DYM, the Dymension token, is designed to participate in the value creation that the Dymension ecosystem will create, as it is also the key element for economic security via its Proof-of-Stake validator set. More RollApps means more value for DYM, and more value for DYM is more security for RollApps.

DYM will behave similarly to ETH as money for the modular ecosystem, as it works hand in hand with Celestia and other DA layers. RollApp composability creates strong network effects. Combined with the DYM security model, DYM will become “Modular Money”.

RollApps are the largest TAM in Crypto Infrastructure

The area under the curve is largest for RollApps vs Dapps and Appchains. Many if not most Dapps would prefer sovereignty and autonomy by having their own chain. However, very few reach the economic scale where this is feasible. RollApps provide the ideal middle ground where Dapps can maintain their own unique state machine without paying millions of dollars to validators. The unique design of the Dymension Hub makes it the ideal solution for all these applications.

A Technical Introduction to Dymension

Dymension is the first modular settlement hub for rollups. The vision is to make rollups secure, interoperable, scalable, and abundant. This will form the Internet of Rollups.

The architecture Dymension has built to achieve these ends is fairly easy to understand:

Dymension Hub - layer 1 blockchain that provides security, liquidity, and connectivity to RollApps.

RollApps - modular execution layers that are embedded natively into the Hub. RollApps point to the Dymension Hub (the L1) for settlement/consensus.

RollApps will be standardized for IBC (a protocol that standardizes cross chain communication) in order to maintain composability, but still have options for customization. This includes support for multiple VMs including the EVM, SVM, etc. along with autonomy over their economic models. 

Dymension has built the infrastructure and tooling to make RollApp deployment as simple and secure as possible - namely through the Dymension RDK. The RDK, which is inspired by the Cosmos SDK, is an easy to use set of modules required to deploy RollApps on Dymension. For a more detailed breakdown of how these pieces interact see this great post from one of the Dymension team members, Barry.

In many ways, Dymension (in combination with Celestia) represents a merger of Ethereum’s rollup centric vision for scale and security with the Cosmos vision of connectivity and  flexibility. If Ethereum could start from scratch today, it would likely look like Dymension + Celestia (known henceforth as “Dymestia”). RollApps have a number of key advantages over both Ethereum rollups as well as Cosmos appchains. Before diving into these differences, let’s examine why we need RollApps in the first place.

Why we need RollApps

There are a few benefits that all rollups share in - reduced costs, speed, flexibility, etc. Given that there are now dozens of rollup service providers, a reasonable question for developers would be “Why choose Dymension?”

Dymension introduces unique features and advantages with its implementation of RollApps, which differentiate it from other rollup solutions.

Dymension’s goal is to make RollApps as ubiquitous as tokens through standardization and minimizing deployment friction for developers. This standardization is key to enabling coordination and composability between rollups which is really the key to attracting new applications. The strongest argument monolithic chains have over the modular thesis is the breakdown in application composability across rollups. 

Ethereum has dozens of rollups all built on different frameworks requiring their own unique communication standards. Communication across these different standards does not really happen. Meanwhile, IBC has already proven itself as a gold standard in blockchain interoperability - facilitating billions in monthly token transfers across the Cosmos ecosystem.

So, to answer that initial question, developers should opt for Dymension if they want to have an independent state (which ensures consistent performance) without setting up costly validator infrastructure and inflating away their token. At the same time, they benefit from maintaining composability with other RollApps through the Dymension Hub. This setup allows developers to focus on optimizing user experience, while Dymension Hub efficiently handles all underlying security and infrastructure concerns. As a RollApp, this means dedicating your resources to innovation and user engagement, without the overhead of managing complex blockchain infrastructure. 

Problems with Ethereum Rollups

There are a few core issues with today’s Ethereum based rollups like Arbitrum, Optimism, etc. that are not insurmountable but they’re not going to be quick fixes either.

These are issues that the Ethereum ecosystem can and likely will address, but it is uncertain how long this will take. Dymension RollApps will be secure from smart contract/multisig risk, natively composable, and far more scalable on day 1.

RollApps over Appchains

The key issues with Cosmos Zones or appchains boil down to the fragmentation of security. Because each Cosmos Zone is itself a layer 1 chain, it requires a decentralized proof of stake validator set. This means that network security is directly related to the value of the tokens being staked. This has led nearly every Cosmos Zone implementing a highly inflationary monetary system - often incentivizing validators with 15%+ staking rewards. And even if a large share of the tokens are staked, the total market cap of the token needs to be high enough that the chain is not susceptible to economic attacks. While this may not seem like a major issue for large scale chains like Osmosis or dYdX, it presents a significant barrier to adoption for chains that may be niche or less economically oriented.

Dymension completely removes this barrier by consolidating security at the base layer and then sharing it with every RollApp on the network. This makes bootstrapping a rollup both simpler and safer than an appchain. It also removes the need to inflate away their token since security is not dependent on staking it. Rollapp deployment and maintenance offer almost all  of the benefits of appchains without any of the drawbacks.

We expect modular blockchains to be the defining narrative of this cycle in the same way that alt L1s defined the last cycle. And for much the same reason - Ethereum is still not ready for scale and that’s with rollups included. See the recent struggles to handle inscriptions.

Though it seemed crazy last cycle when there were dozens if not hundreds of new chains, we expect to see thousands if not tens of thousands of RollApps in this cycle. “Dymestia” and other base layers are poised to gain much of the value from this trend - they are both forms of modular money. Dymension in particular is positioned to be the liquidity and security hub for thousands of new rollups. There is major reflexivity to being a proof of stake settlement layer. The security of the network is directly proportional to the value staked, thus Dymension becomes more secure and the network more valuable with each new RollApp instance.

Wrap Up

The launch of the Hub is just the beginning in the journey toward the Internet of Rollups. The next step is for RollApps to start deploying. There are already more than 12,000 deployed on Dymension’s Testnet. Undoubtedly, there will be DeFi primitives and NFTs etc., but given what we outlined above, we think Dymension opens up the design space for new types of applications that want the flexibility of an appchain without the need to bootstrap and maintain their own validator infrastructure.

If you’re a builder interested in testing out this powerful new infrastructure stack, check out the docs and join the Discord. And if you’re a degen/user then follow along on Twitter and stay tuned for mainnet launch.