Capturing value or capturing users?
1. "Fat" protocol and "thin" application
In August 2016, Joel Monegro of the famous American fund USV published an article called "fat-protocols", which is called "Fat Protocol" in the Chinese world.
The "fat" protocol theory has aroused widespread discussion and has received a lot of attention. You can even attribute the public chain investment boom to the fat protocol theory.
The "fat" protocol theory believes that blockchain and Internet value capture models are different, and most of the value in the Internet era is captured by the application layer, such as Google, Facebook, Amazon, Ali, Tencent, etc. The underlying protocols such as TCP/IP and HTTP that provide support for the Internet cannot capture value.
In the blockchain era, the value will be concentrated in the shared protocol layer, and only a small part of the value will be distributed in the application layer. From this, "fat" protocols and "thin" applications were born.
For most blockchain-based protocols, two factors lead to this result:
shared data layer
The shared data layer refers to copying and storing user data through an open source and decentralized network, rather than independent applications to access and control different information islands, which reduces the barriers to entry for new participants.
The main meaning is that everyone has equal and free access to the underlying data and blockchain transactions, and no one can force users to stay in their own system by monopolizing data. becauseOn the same and open source protocol, several competing, non-cooperative, but interoperable services can be built, and users can choose the service they think is better at any time. This will force the market to find ways to reduce costs, make better products, or create better ways.
The result of sharing the data layer can be simply understood as low-cost homogeneous competition.
Token Incentives
When the protocol Token appreciates, it will attract the attention of early speculators, developers and entrepreneurs. They become stakeholders in the protocol and financially support its success. Then, some holders who have obtained early benefits will create applications and services around the agreement. They believe that the success of the agreement will further increase the value of their tokens. Some apps will become very successful, bringing in more new users, perhaps VCs or other types of investors. This further increases the value of the token, thereby attracting the attention of entrepreneurs, leading to more applications, etc.
The above are the key points briefly extracted from the "Fat Protocol", and some personal understandings have been introduced in the expression. If you have no friends who have known it, it is recommended to read the original text, and the references at the end of the text can be found.
In January of this year, Joel Monegro published the article "Thin Applications", which explored some interesting concepts based on the previous framework. Of course, it can also be seen from the title that the main discussion is "thin" applications. If you are interested, you can find the link in the references.
The "fat" protocol theory has a lot of market space, and it is indeed correct from now on. But it may be too early for the current blockchain industry to generalize all the situations with one theory.
To analyze protocol issues, it is necessary for us to briefly classify protocols.
2. Does the protocol have to capture value?
We can simply classify the protocols.
A protocol that must capture value
For the protocol at the bottom of the public chain, we can think that it must capture value. The reason why the blockchain is called the Internet of Value is that the value can be directly transmitted on the blockchain, and the value needs strong protection, otherwise the transmission of value cannot be established.
Therefore, the public chain should not capture value, but must capture value, and the captured value should be able to enhance the security of the system, otherwise the foundation of its value transmission will not be solid.In fact, regardless of POW or POS, the conclusion that the higher the currency price is, the higher the security is true. Although this is only a part of capturing value and improving system security.
agreement for commercial purposes
All protocols developed for commercial purposes want to capture value.
But there is still a big distance between wanting and achieving. In fact, not only applications face strong homogeneous competition pressure, but also protocols. Based on the decentralized and open source system, the protocol can also be easily reused, and then optimize products that are more popular with users.
For example, when Compound was still an open source protocol, Lendf reused their code and optimized it. Then Lendf developed by leaps and bounds, and the lock-up volume quickly entered the top ten in the industry, forming a strong competitive pressure on Compound.
In fact, the low-cost and homogeneous competition of applications described in the "fat" protocol theory is also applicable to the protocol. Competitors can build similar products at low cost, and the user experience may be better than the original version.
Therefore, there is a long distance between the protocol wanting to capture value and the ability to really capture value. andSince the protocol does not face users directly, the competition at the protocol level is more low-level and more difficult than the application that can rely on excellent user experience to acquire users.
Agreement for non-commercial purposes
We know that there will definitely be agreements developed to meet our own needs, or purely for the development of ecology, and not for commercial purposes.
These protocols do not need to capture value, so there is no need to laboriously design Token economic models to capture value.
The first two protocol types are often discussed:
One is that value must be captured, but the brutal competition at the public chain level prevents them from capturing value, so their value is relatively low;
One is to capture value, but fierce competition makes their capture road not smooth, and some may appear to have low investment value, but the use value may be very high.
3. What is the basis of agreement competition?
For public chains and protocols, what is the most important thing? Many people will answer that it is safe.
This is for sure.
The blockchain is the carrier of value storage and cannot guarantee security, just like the Internet protocol cannot guarantee the accurate transmission of information, it is rootless duckweed.
The competition of the protocol is to obtain the adoption of as many developers as possible and expand the application ecology on the basis of ensuring security and establishing a suitable value capture model. This is based on the purpose of value capture.
But one thing is doubtful here. Is it really a business model that can be scaled up if you need to pay for the use of the agreement?
Now the processing capacity is limited, and the resources on the chain are precious, which need to be paid to use, but this may also be an important constraint restricting the large-scale expansion of the blockchain in the future.
It can be predicted that the handling fee of the public chain will be very low in the future, and the large-scale adoption of blockchain protocols will become possible. At that stage, will there be giants entering the market, reusing most charging agreements, introducing them to the market for free, and using their own strong marketing and promotion capabilities, resource advantages, and user advantages to kill all charging agreements?
Could this be a serious problem for business agreements seeking value capture?
Perhaps uniqueness is the root of blockchain protocol competition.
4. It is easier for applications to capture value
Uniqueness is not only the basis of protocol competition, because of the low cost of homogeneous competition, applications must also be unique in order to gain a place in the market.
Here comes the title of the article. The "fat" protocol theory believes that it will be difficult for applications to capture value. In fact, if you work hard in the direction of homogeneous competition, that is indeed the case.
To capture value, the application must be unique and able to provide unique value, otherwise it is easy to be surpassed by competitors, even if there are no competitors yet.
The application at this stage is relatively simple. Taking DeFi as an example, many protocols are still making their own applications to directly serve users. This is not a problem, but it does show that the development is still in a very early stage. In addition to the applications made by the protocol itself, the pure applications that face users directly in DeFi are aggregators.
The aggregator can provide the best liquidity, good UI and user experience, so it is welcomed by users, even if the aggregator charges an additional fee separately, it is still loved by users.
There is a view that the aggregator relies on the downstream DEX, and its value is not high. But if the aggregator has gained a large number of users, and even the transaction volume accounts for the vast majority of the DEX transaction volume, who is relying on whom?Just like WeChat is just an application, but if there is an alternative between Apple and WeChat in China, what will be the result?
From a longer-term perspective, future applications will definitely not be the current geek style. Who can provide products that better meet user needs, who can provide users with better user experience, better services, and more unique value? Who can win the favor of users. Whoever has users can better realize value capture.
Apps have a wider user base than protocols, and it is easier to build user trust, strengthen user stickiness, and gain user recognition. Compared with protocols that can only achieve value capture through a set of established rules, the application is more flexible, more humane, and easier to achieve value capture.
To summarize a bit:
To summarize a bit:
The protocol captures value, and the application captures users;
Capture value now, capture users in the future.
5. Some thoughts
Application Steals Protocol Value
When applications occupy most of the traffic of the protocol and must pay a large amount of fees to the protocol, the applications will tend to fork the protocol to obtain greater benefits.
When applications occupy most of the traffic of the protocol and must pay a large amount of fees to the protocol, the applications will tend to fork the protocol to obtain greater benefits.
In the previous part, Brother Zhongqu said that if the aggregator attracts a large number of users, and even accounts for most of the transaction volume of DEX, who will rely on whom at that time? Taking it a step further, if the cost of using the protocol is high, will the aggregator fork the protocol to do it themselves? This is a question to think about.
In fact, the application forking protocol has not happened before. DDEX, which accounts for 50% of the traffic of the 0X protocol, forked the 0X protocol to create its own protocol. But for the specific reasons for the fork, Brother Qu did not understand it, and this is just a supplement to the case of the application of the fork protocol.
The Evolution of Blockchain Value Capture
The current direction of the blockchain is finance, which is in line with the characteristics of the blockchain at this stage.
We know that the cost of maintaining the security of the public chain network is very high, and the storage resources on the chain are very scarce, so only high-value behaviors can bear the high cost of use, and financial behaviors are exactly high-value behaviors. Therefore, finance must be the protagonist of the industry for a period of time.
However, with the evolution of technology, the cost of maintaining network security will become lower, the performance will be greatly improved, the handling fee will be greatly reduced, and the storage of state can also be solved. By then, it will be able to accommodate high-frequency and low-value behaviors. winding.
Disclaimer: This article is the author's independent opinion, and does not represent the position of the Blockchain Institute (public account), nor does it constitute any investment opinion or suggestion.
references:
3、https://multicoin.capital/zh/
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Disclaimer: This article is the author's independent opinion, and does not represent the position of the Blockchain Institute (public account), nor does it constitute any investment opinion or suggestion.
