The Fat protocols thesis first emerged in 2016. This suggests that in the web3 space, protocols (here blockchains) are fat, and applications are thin. That means the value is locked in the protocol layer, and the app layer shares a lower value. Ethereum acquires the most investor's attention. The reason behind this is the vast ecosystem it has created around it. So it's needless to say that a protocol can not be successful without its ecosystem and the adoption of the projects on top of it. You can read more about this theory here.

Fuel is the new cool kid in the town, and everyone's talking about it. Let us see which projects are building on Fuel and how they can make Fuel a fat protocol in future. Defi provides a massive value in the blockchain ecosystem. So we're going to start with them.

Decentralized finance (DeFi)

Poolshark Protocol is a liquidity layer, for Defi that takes place on Fuel Network. This protocol will deliver great control and automation for the Liquidity providers.  Poolshark is introducing some cool new concepts:

1. Directional liquidity is an alternative to the popular bidirectional liquidity, seen in popular AMMs such as Uniswap and Curve.

2. Fungible Queues provide a way to have your LP position at an exact price such that you will receive time priority for your liquidity. This model enables the Liquidity providers to receive 100% fees for the liquidity they provide.

We've seen the Grid trading bots only in Centralized exchanges. But Poolshark's unique liquidity mechanism will end that once and for all. To know more, please read here.

Elix Finance is a new generation hybrid automated decentralized exchange (DEX) based on Fuel. In their words, their value propositions are:

• High capital efficiency

• Flexible pools

• Automatic liquidity and lighting fast transactions

Elix was part of the first-ever batch of Fuel grantees, participating in the newly founded Fuel Grants Program.

Yama Finance is a novel omnichain decentralized stablecoin. Yama Settlement Standard (YAMA) is an over-collateralized stablecoin that unifies liquidity across many protocols and chains. Yama is secured by the Hyperlane interchain messaging protocol, which utilizes PoS consensus. In their word: We’re a collateralized stablecoin, always backed at least 100%. Being omnichain, YAMA can be minted on an established chain with capital-efficient CRs and bridged almost instantaneously to new chains.

Acumen is leveraging Defi to provide sustainable yields. Acumen bridges crypto and traditional assets to provide a stable, uncorrelated yield to the community, enabling lower costs for capital to Small and Medium Enterprises (SMEs) globally. Its initial target market is El Salvador. You can read more about it, here

PEPA Market is an algorithm-driven decentralized all-in-one exchange marketplace built on Fuel Network. Pepa market is going to offer high capital-efficient liquidity pools that support:

• single token provision

• lowers slippage

• decreases impermanent loss for swappers and Liquidity providers

The users can choose either AMM or PMM model. Other notable features are -

1. An Initial DEX Offering Launchpad

2. A Bond marketplace

MicroChain, A low-cost easy-to-use token swapping terminal. They claim to be able to process 10k transactions per minute.

Infrastructure projects are also a major building block for a budding ecosystem. Here we're going to discuss some of the Infra projects on building on Fuel.

Infrastructure

Orao is a next-gen network providing general data on any blockchain. Data that current oracles can sell is very narrow, confined almost entirely to financial data — mostly price feeds. Another thing, financial data oracles provide tends to be very shallow.

ORAO solves this by using Predefined Data Protocols. Instead of having fixed protocols that provide only the same data product over and over. This platform allows data providers to choose between a variety of different protocols — from narrow price feeds to more detailed market data to non-financial data.

In addition, ORAO is built from the ground up to support data transfers from one blockchain to another.

Thunder is an NFT marketplace with superior experience built on the Fuel Network. Thunder supports bulk execution. This feature will allow users to perform a series of operations in one go — streamlining the process of managing and trading NFTs.

Other notable features are:

• Great UX.

• Real-time analytics

• Sweep

• Low fees

Fuel Nomen is the blockchain name system of the building on top of Fuel. Current blockchain domain services possess a major flaw which is the ownership model. As per the current model, the owner of a blockchain domain can hold on to the ownership indefinitely.  Fuel nome is trying to resolve this problem by suggesting a mixture of Harberger taxation and capped demand-based recurring fee models. You can read more about it here.

PlayEstates is a gaming platform, that is backed by Tangible real assets. This platform is aiming to tokenize and fractionalize Real estate. It eliminates the large investment costs that prevent young people from accessing the real estate investment market by allowing users to begin investing for the price of membership to their platform. Members can buy and sell earnings whenever they want without having to go through another entity to do so. To read more about it, check the lite paper here

Here are some of the projects which fall into other categories:

Fuel Names is another decentralized naming registrar on Fuel.

Miscellaneous

Fuelet wallet is a self-custodial crypto wallet for iOS, Android, and Browsers.

Webgump is an online marketplace where you can buy and sell encrypted files.

Although I am not a big fan of NFTS, here are some projects building on Fuel.

Unic  is an NFT 2.0 project and trying to real-world utility to NFTs

Fuel Punks is an NFT project building on Fuel.

Fuel Monkeys is another NFT project building on Fuel.

Future outlook

This is in no way a complete list of the projects. Though I've tried to add as many as I've found. It'll be interesting to see how these projects grow and how the ecosystem matures. Web2 has valued the application layers more than the protocol layers, but we're seeing the opposite in the case of web3. Maybe the scenario will change in future when the space matures. But for now, protocols are the talk of the town, and Fuel has all the potential to lead the race. I've talked about Fuel in more detail here.

Blockchain Architecture

A blockchain has four primary functions: consensus, which handles the order of transactions; data availability, which ensures data can be accessed when requested; execution, which maintains the state of the blockchain and handles transactions; and settlement, which verifies the validity of blocks and handles dispute resolution.

Blockchains like Ethereum, Solana, and Bitcoin have a monolithic design, which means that all functions, such as consensus, data availability, settlement, and execution, are handled on a single layer.

As a result, during peak traffic on the Ethereum network, the network gets clogged. And as we discussed earlier, users encounter high gas fees, slow network, and transactions become very slow.

It clearly shows that scalability is still a big problem in this space. To achieve widespread adoption like web2 and onboard a billion users, we have to think beyond the current design pattern.

Blockchain Trilemma

As mentioned, scalability is a problem. So we need to understand the popular Scalability Trilemma theory that states that a blockchain network can only choose to be two out of three properties: scalable, decentralized, and secure, with our current monolithic architecture, which most of the popular blockchains follow.

What do these terms mean? Let us have a quick look first.

• Decentralized means the network has a large number of participants.

• Scalable means the blockchain can handle a large number of users.

• Secure means the network is safe enough to serve its users without exploits

Ethereum has managed to be secure and reasonably decentralized, but it lacks scalability.

Proposed Solutions

Different blockchains have enabled various scaling solutions to tackle this issue, to name a few Avalanche Subnets: essentially is a split-up network of smaller validators, and these subnets will have their data availability, execution, settlement, and consensus.

Ethereum is working towards becoming a sharded network, with rollups as the primary solution. A sharded network means that the blockchain is split into smaller components.So what’s a rollup, and what is a sharded network? Let us understand it first. Sharding means when a blockchain is split into components horizontally, these split-up components will handle the data availability.

Currently, the rollups are powering the Ethereum blockchain. Rollups essentially are different chains that perform the transactions off-chain and send batches of transaction data or proof of execution to the host chain, (here Ethereum) where the settlement happens. The rollups or the Layer2 solutions acquire the host chain’s security and work seamlessly. Layer 2 or rollups can be differentiated primarily into two categories. These are ZK rollups and Optimistic Rollups. Let's understand how these two solutions work a bit better.

Optimistic rollups execute transactions on Layer2 and provide the transaction data to the L1. The Optimistic solutions assume the transactions are valid without any proof. If there's any reason to believe that the state transition of layer 2 is incorrect, fraud proof is created, and the L2 state transition is then amended and the operator will be penalised. Examples of this solution are: Arbitrum, Optimism, Metis, Boba Network

In the case of the ZK rollups, the execution happens off-chain and then transaction data and L2 state transition data are submitted to Layer1 or the host chain. ZK rollups then create proof that the transaction was correct, using zero-knowledge technology. Unlike an optimistic rollup, the L1 will not accept the L2 state transition is correct until the proof has been verified.

Example: ZkSync, Starknet

The Modular future

Rollups are a great solution towards scalability, but incidents like Yuga Labs Metaverse land sell proved that current Layer2 solutions still haven’t reached there. These solutions are making the Ethereum blockchain even more congested, along with the core Ethereum blockchain users. So the search for a more optimized solution is still in place.

Amongst all these proposed scalability solutions, a new paradigm or design pattern is making the headline nowadays, Modular blockchains.

Monolithic chains handle data availability, settlement, and execution all on their own. But the modular design suggests that each of these functionalities needs to be executed in separate layers.

The modular blockchain design was first adopted and popularized by Celestia, a modular data availability layer. Similar to this, there’s another first mover, Fuel creating the fastest modular execution layer.

In the case of Celestia, it specializes in handling the data availability and consensus while it delegates the rest of the functionalities of a blockchain to other chains. On the other hand, Fuel works as a modular execution layer, and the rest of the functionalities can be executed by the L1 chain or even that can be distributed between more chains.

Fuel

What started as an optimistic rollup solution for Ethereum is now focused on becoming the go-to execution layer for the future of modularity. Although Fuel is an optimistic rollup solution to its core, it has some unique features, that set it apart from other optimistic solutions.

Why Fuel?

Fuel's unique design choices make it one of the most promising flag bearers of the Modular movement. Fuel was built for fraud proofs and that enables trust minimized light clients, high security with minimal hardware resources.

In the case of Ethereum full nodes, the nodes need to be run on consumer-grade hardware due to their high computation requirement. This kind of setup creates a bit of centralization as well, as it's not easy for everyone to run this type of node except a few resourceful entities.

Fuel has achieved to resolve this issue by using trust-minimized light clients. Unlike full nodes, Light clients do not need to download the entire blocks. They only download block headers and check their proof-of-work (PoW), assuming the heaviest chain is valid. The amount of computational resources and storage needed to run a light client is lower than a full node. Light clients don't need to download the entire blocks so its security is relatively low. But Fuel’s design lets light clients say if blocks are valid through fraud proofs. Therefore it eliminates the need for a trusted party while maintaining low resource requirements and achieving high security.

Now, you can ask how's Fuel different and better than a rollup.

Along with the rollup properties, a modular execution layer (here Fuel) has two additional properties:

• With a modular execution layer, users can run an off-chain light client, allowing users to validate the chain without running a full node.

• A modular execution layer is not tightly coupled to a specific layer 1 like the Ethereum layer 2 solutions, allowing for greater flexibility.

The other great features it possesses are:

Parallel transaction execution

Fuel uses the UTXO model like bitcoin, which enables it to do parallel transaction execution. Therefore Fuel can use more threads and cores of a CPU, as a result, Fuel can provide more compute and transaction throughput than other rollups like on Ethereum. As a result, it would increase scalability compared to account-based rollups.

FuelVM

FuelVM is the virtual machine used on Fuel for building out various applications and smart contracts through the Sway language. In the FuelVM, transactions occur through UTXOs. As it proudly features, FuelVM has learned from others like EVM, Solana, Wasm, and Bitcoin and improved upon that learning. It has some unique features, unlike others. To learn more about FuelVM, please refer to the docs.

Sway programming language

Sway is a programming language for building out smart contracts and applications on top of Fuel. Sway is heavily based on Rust, which is already a hugely popular language for building out blockchain applications (primarily used in the Cosmos ecosystem and on Solana and Near as well). So the developers who want to build on Fuel can learn Sway without much friction. It has a toolchain Forc which is similar to the Cargo in Rust.

Another unique thing I’ve found, it’s the token model that Fuel has proposed. All the rollup solutions on Ethereum have chosen some suboptimal token models like;

• A Proof-of-Stake (PoS) token, where most validators sign off on blocks.

• A fee-paying token, where users must pay fees in the token.

• A governance token, where a majority of votes can upgrade the rollup contract

but instead of these models, Fuel has decided to tokenize the rollup space capacity. For Fuel, it’ll be the finite execution capacity. This token model helps solve a major challenge in rollup design: decentralizing block production. The modular architecture is not the whole solution. It's part of the bigger puzzle we're all trying to solve in the web3 space. It will be interesting to see how Fuel and other modular blockchains provide rocket fuel to the web3 rocket's Jet engine.