The DeFi protocol is a global public good, and Ethereum is the protocol basin
In the field of monetary finance, Ethereum is a platform for Global Public Goods.
The relationship between many protocols is described as a protocol pool. Different protocols occupy different depths in the protocol pool according to their densities.
In this article, I talked about how over time, the application has evolved from a financial experiment to a never-ending global financial platform for everyone. The more users of the program, the greater the density, and the deeper it sinks into the protocol pool. And the more accumulated at the bottom of the protocol pool, the stronger the gravity of Ethereum.
protocol sinking
In the paper on protocol sinking, I used a model to describe the scene when the encryption system ecosystem matures.
If an agreement performs better in terms of trustlessness, permissionlessness, and trusted neutrality, the more likely it is to develop into a global platform, and thus attract a greater amount of capital. The protocol used to create the platform will also become heavier and sink to the bottom of the protocol pool, because the more people use the protocol to create applications, the greater the density of the protocol.
Protocols like Uniswap, Compound, and Maker can be called Web3 DeFi protocols. Web3 DeFi protocols will survive the long battle against attacks and gain anti-fragility, allowing them to break through the scale limitations of Web2 applications.
utility
utility
The utility of the protocol lies in the value provided to users and the incentives generated to promote people's acceptance and use of the protocol. The utility of the protocol is reflected in the ability to generate incentives for users to deposit funds and property into the contract of the protocol. The total value of deposited assets is what we often call the locked value in the DeFi protocol.
How to measure the utility of the agreement? For protocols with tokens, it can be measured by the market value of protocol tokens, or by the total amount of locked assets in the contract.
attack surface
The easier the protocol is to be attacked, abused, and manipulated, the larger the attack surface area of the protocol. The attack surface area of a protocol refers to the vulnerability of the protocol when it faces capture, coercion, destruction, and exploitation. If a protocol has a large attack surface, it can be captured, coerced, or exploited to make someone profit from it, invalidating the protocol's trusted neutrality.
The smaller the attackable surface area of the protocol, the less likely it is to put the interests of a particular group above others. If a protocol has the smallest attack surface, then the protocol is trustless, permissionless, and verifiably neutral. These qualities enable it to scale to the largest number of users. In this way, it is possible for the protocol to acquire a wider range of users, attracting more users to deposit assets into the protocol, and the thicker the protocol.
Protocol Density
To estimate the density of a protocol or application on Ethereum, simply divide the utility of the protocol (how useful it is) by its attack surface area (how easy it is to be attacked). Those protocols with strong utility value and not easy to be attacked will sink to the bottom of the protocol pool. The higher the density of the protocol, the more sinking.
Density limitations of the Web2 protocol
On large Web2 platforms such as YouTube, Twitter, and Facebook, we have seen early signs of protocol sinking. Almost all companies and enterprises have created accounts on these platforms and use these platforms.
Taking this a step further, platforms like the iOS App Store and the Android Play Store sit deeper in the pool of protocols because many companies develop and distribute their products on these platforms. Web2 giants like Google, Amazon, Apple, Facebook or Twitter are all in the protocol pool.
These companies are so highly valued because they build platforms for other companies. The Web2 platform becomes a global infrastructure that works for everyone. Whether it is an enterprise, an individual, a non-profit organization or a social organization, all can register and use these services for free. The products created by these companies provide a large number of useful functions, successfully create global platforms, and achieve large-scale growth. At the same time, they are relatively laissez-faire about users' behavior on the platform, and adopt an attitude of doing nothing about what users can or cannot do.
The development of the Web2 movement shows the existence of the same outcomes that we predicted with the protocol sinking model. Global platforms like Instagram, Facebook, Twitter, YouTube, and Medium are non-proprietary, non-exclusive, and available to everyone. The content created by free users has accumulated density for the platform; at the same time, these platforms can expand the audience endlessly. We've seen these platforms acquire users and grow at an unbelievable pace.
However, as products of a for-profit company, the scale of these platforms is limited by state regulators. In order to generate revenue from advertisers, companies try to squeeze as much profit as possible from users. The interests of companies, users, and advertisers are not consistent. Platform size is limited.
The development of Web2 is built on the denser Web1 layer protocol: TCP/IP, HTTP, and FTP are the most densely constructed/discovered protocols in the world, and they represent the bottom layer of the protocol pool. We rarely talk about them because we don't see these agreements. And unlike Web3 protocols, Web1 protocols like TCP/IP cannot be invested in or profited from. They are reliable and neutral.
Twitter, Facebook, and Youtube provide global free services and contribute a lot of value to the world. However, they are the private property of a company after all. These products place the interests of certain groups of people above everyone else and place restrictions and coercive influence on users.
As these platforms have matured, their monopolistic and biased nature has also been discovered and talked about. The fact that people censor content has been shown to be subjective makes it impossible for platforms to remain neutral and unbiased agreements. Additionally, these centralized corporations must obey the legal rules of nation-state governments.
These platforms can be registered and used for free. They provide value, and they are also useful. However, the scale of these platforms is still limited, and their potential for freedom is denied, because centralized profit-making companies create these platforms. No matter how many public goods these companies provide, the value they provide will never be enough to sink to the bottom of the protocol pool. A profitable company will be subject to government regulation and human subjective wishes, and it is difficult to sink to the bottom of the agreement pool.
The bias and reliance on trust and permission on these platforms is their Achilles' heel, making platform operators a bullseye. In order to sink deeper into the protocol pool, it must become a global protocol with self-regulating capabilities, without relying on centralized operators to maintain the system. The agreement must be self-governing.
Protocol Sinking Theory, Forecasting the Future
The core prediction of protocol sinking theory is that centralized businesses and corporations will be free to build on top of trustless, permissionless, and unbiased protocols in order to provide better services to users.
Therefore, in the protocol pool, the cryptoeconomic protocol is destined to sink to the lower layer of the centralized company. Basic game theory knowledge can tell us that in order to increase their value to customers, centralized companies such as Coinbase and crypto banks like Gemini will leverage the power of the underlying decentralized protocols.
Any crypto asset bank can improve its products and services by enabling users to earn the Dai Savings Rate (DSR). If the customer has Dai in the encrypted asset bank account, he can obtain the APR provided by DSR with one click. Encrypted asset banks compete with each other, but no bank will compete with DSR, and no bank will lose anything because of joining DSR. Although Coinbase and Gemini are mutually exclusive competitors, they both have access to DSR. This makes DSR scalable and can be used by any financial institution or individual.
On Ethereum, any protocol or application can apply this same model: Maker, Compound, PoolTogether, Augur…
Global Public Goods (GPG) sit at the bottom of the protocol pool
Air, water, knowledge, and internet protocols are the same across the globe and do not vary by jurisdiction. Accessible to everyone, no matter where they live. The same trustless, unbiased, and permissionless application protocols can also be used by companies, enterprises, banks, and individuals around the world. Global public goods do not respond to (or even recognize) the regulation of nation-states.
Ethereum, provides a platform for global currency and financial public goods.
Protocol Pools: Settling Pools, Attractors and Basins
The concept of protocol pool (Protocol Sink) may be a little strange to you. Let's say a few more words.
The "pool" in the protocol pool (Protocol Sink) does not refer to the pool in your kitchen for washing vegetables and dishes, although they are somewhat similar. But in the sink, the water will merge. The "pool" in the protocol pool is an environment that defines the boundaries and limitations of a closed system. All chaotic and fuzzy individual units within the system will have their trajectories and results affected.
The "settling pond" forces independent, chaotic things to converge into a single ordered reliable model with predictable outcomes.
In a mathematical concept, an attractor (or sink) is a condition or a group of conditions, and the system will evolve in this direction starting from various initial conditions. If the value of the system is close enough to the value of the attractor, it will stay close even if disturbed. Over time, things converge to a stable condition regardless of the initial conditions. The place where things come together (the attractor itself) is not actually a "thing", but a emergent location where many independent things come together.
Sinking forces separate, chaotic things to converge into a single ordered pattern of reliable, predictable outcomes.
image description
The red circle in the picture is the bottom of the Mississippi Basin
If Ethereum is the basin, Ethereum applications are the streams, streams, and rivers within it. Monetary assets and capital are water and flow downstream. At the bottom of the protocol settlement pool there is an attractor that pulls applications and assets closer to it.
image description
Source: Paul Salisbury, Techemy Capital
This image was recently circulated on Twitter, and it perfectly represents the concept of the protocol pool. Things on Ethereum converge. In the agreement pool, they cooperate with each other and sink together. This diagram also illustrates the point that Ethereum is not a bunch of independent applications, but a single aggregate network composed of interconnected applications.
The need for a global platform with user-generated value is ubiquitous and creates a perpetual drive to build applications on Ethereum. Ethereum became such a meeting point: an Internet platform that brings together permissionless, trustless, and unbiased applications in the world of money and finance.
What is the fundamental innovation that Ethereum offers? Ethereum is a system that provides free security and protection for applications that aspire to become global public goods.
protocol pool
Global public goods, located at the bottom of the protocol pool. The basic assumption of the cryptoeconomic revolution is that it will eventually give birth to a series of global public goods in the field of money and finance.
According to the definition, global public goods are our existing infrastructure with the best scalability, the most useful, the most reliable and the most durable, and the formation of a good global public goods is related to promoting an agreement to settle in the agreement pool. The quality requirements are the same.
Two characteristics determine a protocol's place in the protocol pool: attack surface and utility.
attack surface
The concept of attack surface is used to measure whether the protocol has weaknesses and whether it is easy to be captured/controlled. Simply put, a small attack surface means that the protocol has no central point. The characteristics of trust, permission, and bias can determine where the "center" of the agreement is, and how easy it is to capture it.
Distrust
What is the level of trust that users place in others when using the protocol? Will the selfish motives of others affect the results of other users? Is someone obtaining information from users against their wishes or understanding? If trust is not a problem, then in the protocol pool, such agreements will sink.
No permission required
Is the protocol available to everyone? Can someone restrict or censor usage of the protocol? Are there administrative keys that give privileges to a special set of users? If everyone has equal rights to use the protocol and no one can censor everyone else, then in the protocol pool, Such agreements would sink.
reliable neutrality
utility
utility
Utility, which measures the value the protocol provides to the world. The more useful the protocol is, the more individuals, businesses and entities will build value on it.
If the utility value of the agreement is high, more assets and value will be deposited in the application. The resulting mass effect increases the density of the protocol. If the agreement has utility, it will also settle in the agreement pool.
Each of the above features has its own range of distribution, or distribution spectrum. Applications can be scored on a scale of 0 to 100 in terms of attack surface and utility. In addition, the "total score" for these features illustrates the density of the protocol relative to other protocols. This scoring system is mainly used for illustrative purposes, to make the analogy of the protocol settling tank clearer. I'll refer to it as the "GPG Score" later in this article, or the Global Public Goods Score.
Assets and Applications
The protocol pool theory applies not only to applications on Ethereum, but also to assets. On Ethereum, assets are applications. Not all applications have tokens, but all tokens correspond to applications. Applications on Ethereum are defined by smart contracts and addresses.
A contract on Ethereum is an application.
In the glass container above we have liquids and solids with different densities. Like liquids, solids find their proper place in the protocol sedimentation tank corresponding to their natural density. GPG scores apply to both assets and applications.
What are public goods?
Wikipedia's definition is:
non-exclusive
A good is excludable if people cannot use it without paying for it. A good or service is non-exclusive if non-paying users cannot be prevented from using it.
non-competitive
A good is rival if consumption by one consumer prevents consumption by another consumer, or if consumption by one party reduces the ability of another to consume the good. A good is said to be nonrivalrous if, for any level of production, the marginal cost of providing it to individuals is zero.
Public goods are used more and will not be exhausted. Air, water, and sunlight are all public goods. Listening to the radio does not prevent other people from listening to the radio. Street lights illuminate the way for you, so that other people will not walk in the dark.
Like everything, public goods have scope. Streams and lakes are public goods; everyone can use them, and they are hard to deplete. However, they can be consumed.
Although they are "exhaustion resistant", the scale of the human species shows that humans are capable of depleting even the largest stocks of public goods. Rivers have an almost inexhaustible supply of water, thanks to seasonal cycles that migrate precipitation to higher elevations, yet there is a rate limit to the movement of water upstream.
If the rate of consumption exceeds the rate of supply, scarcity takes over and the public good becomes a rival good. The sunlight pours down on the earth continuously, but the space to capture it is limited. Physical space is infinite and inexhaustible, but some spaces will be more valuable than others, making them competitive.
global public goods
Global public goods are a kind of public goods, but global public goods can benefit all countries, all people, and all generations. The scale of global public goods goes far beyond typical public goods.
The reason why certain public goods have the ability to span the globe and across generations is that they are "anti-fragile" in nature. Many different goods can be public goods, but only antifragile public goods become global public goods.
antifragile
Anti-fragility is used to describe such characteristics: After the system is subjected to pressure, fluctuation, suppression, disorder, noise, error, error, attack, and failure, the survivability of the system is improved. This concept was introduced by Nassim Nicholas Taleb in the book Antifragile. As Taleb puts it, antifragility is fundamentally different from resilience, and very different from robustness.
Public goods are generally "resilient" and "robust" (previously, I called them "wear-resistant"), but global public goods are "antifragile": the more people use them, the more Good and stronger. The main characteristic of global public goods is that they benefit from consumer externalities. The more a global public good is consumed/used/leveraged, the stronger it becomes.
Ideas and knowledge are global public goods. When you share an idea, you also retain that idea, and you allow others to use and share it as well. A good idea can extend to the whole world without detracting from the originator of the idea or the idea itself. Thoughts can be passed on from generation to generation and never decay.
Most importantly, the more people think about an idea, the more people think about it, and the idea gets "improved". Ideas can be repeated and expanded. Iterative versions of ideas are as scalable and shareable as the original idea itself. Good ideas are more easily shared, repeated, developed and adopted than bad ones, which is why a single spark can start a prairie fire. Ideas are better if everyone thinks the same way.
The Internet is a global public good. Just because you use the Internet doesn't prevent other people from using it, and the more people use it, the more useful it becomes for other people. If there are more things on the Internet, the Internet will provide more people with higher utility, so more users will come to the Internet, generating stronger motivation to build more products on the Internet.
free rider problem
free rider problem
The "free rider" problem means that people who use or overuse a shared resource do not pay a reasonable cost for it, resulting in a burden on the shared resource. Street lights are public goods that require resources to build and consume energy to operate. This requires users to pay taxes, and anyone who doesn't pay taxes, puts a burden on this public good, making them unable to scale and become more useful. This is why streetlights are not a global public good: the use of streetlights does not make them more scalable.
By definition, global public goods are public goods that are not subject to the free-rider problem. In fact, quite the opposite.
Global public goods (GPG) have a mechanism that enables users to make a minimum contribution. By definition, GPG cannot be used without returning a certain amount of value that needs to exceed a minimum threshold necessary to keep GPG functioning properly. Because of this mechanism, as long as the GPG is used, it can be given the energy it needs to keep it going.
Unlike the Tragedy of the Commons, Global Public Goods, or GPGs, allow for a “Feast of the Commons” where everyone comes together to rejoice in the common use of a commons that is shared by all. The utility resources that are planted and shared will also continue to increase with the development of the "Feast of the Commons".
Bitcoin is a global public good
Bitcoin survives because it is antifragile. The value of the Bitcoin asset comes from this. The anti-fragility of Bitcoin provides a strong guarantee for Bitcoin that it can be settled in any time frame in the future, which in turn improves its utility and motivation for use.
Bitcoin has survived and managed to gain value because it is antifragile. Any other cryptoeconomic blockchain system born in the crypto space must also exhibit anti-fragile properties, or it will eventually be forced to submit to the rules and paradigms that keep the legacy system running: the laws and regulations of the country (see XRP ).
Antifragile items don't need laws or regulations to keep going, they're self-sufficient. Antifragility refers to independence from outside help and support. Bitcoin is the first global public good (GPG) that provides the world with a currency or financial platform that meets the current state of technology and meets the needs of citizens of the planet. Gold used to be a GPG, but as new technology upended its utility, gold gradually became obsolete.
Ethereum is a global public goods (GPG) protocol
Ethereum is a protocol of protocols.
The Ethereum platform creates an environment that enables the application of global public goods. And Ethereum is a platform with security and protection embedded in the protocol, which allows people to build applications without having to think too much about the security and protection of the program itself.
National parks are public goods because they are legally protected by the government. If this protection were to disappear, national parks would either succumb to the tragedy of the commons, or be fragmented as private property, unable to be used or enjoyed by the general public.
Imagine we have the Grand Canyon, but houses, buildings, streets, pipes, sewage systems are all over the canyon. This will not be the beautiful Grand Canyon scenic area, but a tragedy.
In order to maintain the public goods status of national parks, the United States protects them through rules and regulations. Restrict access, restrict use to protect the national park so that the beauty of the Grand Canyon can be enjoyed by everyone and generations to come. Support this good cause with taxpayer money.
Without this protection, national parks would not exist. Public goods such as national parks lack antifragility and require outside assistance. Antifragility is a must for autonomous, self-sustaining public goods. The legal agreement protects and maintains public goods, because it believes that some things should be public goods, but if they are not protected, these items will degenerate into private property.
Ethereum follows a similar model, but instead of local public goods like national parks, it is a platform used to support and protect the creation of global public goods in the monetary and financial spheres.
Uniswap, MakerDAO, Compound are all better financial applications than traditional applications because they are unrestricted and unregulated. A for-profit company under the jurisdiction of a nation-state simply cannot be called Uniswap. Unlicensed secured loans that are not regulated by Wall Street are more useful. Borrowing and lending would be more efficient if rules and regulations were built into the agreement, rather than administered by a central government.
The Ethereum protocol provides protection for public goods, making them global public goods
Thanks to the security provided by Ethereum, application designers can replace the rules and regulations of a nation-state with whatever rules they see fit best. Uniswap, Compound, and Maker are given autonomy by Ethereum; the only rule set by the Ethereum platform for these applications is to abide by the "laws" of the EVM. The Ethereum protocol provides autonomy for financial applications.
How does Uniswap become a GPG (Global Public Goods)?
I recently wrote an article titled Uniswap is Infrastructure, exploring a few key points about Uniswap applications.
The point of this post is to illustrate Uniswap's antifragility and its inherent ability to scale to meet global demand, whatever that demand may be. However, I realize now that I was actually describing how Uniswap became a global public good in the article.
Uniswap keeps itself alive by injecting its own resources into the protocol. The 0.3% transaction fee drives the protocol’s liquidity and creates an environment for Uniswap to expand to a global platform. Transaction fees mean that all Uniswap consumers are also Uniswap producers; you cannot use Uniswap without "giving back" value to the protocol.
This is the antifragility of Uniswap, and the mechanism by which it became GPG.
Is it decentralized?
We have heard this question many times. Many critics of Ethereum, and critics of Ethereum applications, will ask this question. What they really want to ask is whether the project has the ability to be antifragile and achieve global public good status.
An application or protocol cannot be GPG if there is a manager key. The existence of manager privileges demonstrates power and control over something, which is contrary to the role and purpose of GPG. GPG is public and requires no external protection or support. Therefore in GPG, the master key cannot exist.
If there is a manager key, it means that it is possible to reduce trust, and unrestricted and trusted neutrality will also be compromised. If that possibility existed, the protocol couldn't possibly be GPG.
COMP and the Governance Token Revolution
Compound’s recent release of its governance token, COMP, has had a huge impact enabling protocols on Ethereum to move from a public good protected by a centralized entity to a global public good with a decentralized set of maintainers. COMP is the most famous example of this, but it is a model that many Ethereum applications could follow, elevating themselves to the status of GPG.
defend the protector
Ether is a global public good (GPG), and most importantly, it is a GPG that supports the health of the Ethereum ecosystem. Ethereum is an ecosystem that includes more GPGs (Global Public Goods). All GPGs on Ethereum rely on the value of ETH tokens to function.
The higher the price of ETH, the stronger the protection of Ethereum for the GPG running on it. Rejecting the value of ETH will not only hurt those who create applications of value for Ethereum, but also harm the tireless efforts of these people.
This is why I strongly disagree with those who oppose "advocating ETH". I don't think such objections understand the concept of "protecting protectors". They ignore that the price of ETH will inevitably be closely tied to the development and efforts of Ethereum. When the price of ETH rises, the moat that protects the value of various global public goods on Ethereum will also be deeper. Fortunately, ETH itself is a kind of GPG, which is anti-fragile and does not need the support of others to grow.
Ethereum is an emerging construct
Applications on Ethereum can be combined with each other. This composability allows Ethereum applications to converge over time. Ethereum is not a platform of many independent applications, but a single structure of applications fused together. Ether, as the asset with the highest GPG score on the Ethereum platform, is the initial support and the most solid foundation point for this structure. Other assets are welcome and encouraged to assist in supporting and building this structure. In fact, other assets are required. You can't build a structure at a point. Ethereum, due to its dominant position as the native asset of Ethereum, will always provide greater support and foundation for the Ethereum/DeFi architecture. The weight of the structure is directly related to the price of the assets supporting the structure in the secondary market.
The fundamental value proposition of ETH
Joining the agreement update plan (PoS, EIP 1559), ETH will be directly related to the health and development scale of the Ethereum economy. The transaction volume of the Ethereum economy will generate ETH scarcity in the form of EIP1559; the size of the Ethereum economy determines the burning speed of ETH. The scarcity of ETH is directly related to its utility score in the GPG scoring scale. The utility of ETH lies in its scarcity. Whether it is now or in the future, GPG on Ethereum will use ETH as an asset because of its high GPG score. A large number of GPGs on Ethereum will create an endless demand for ETH.
Uniswap is infrastructure
GPG on Ethereum will improve with more users. Each GPG serves as infrastructure for other GPGs, making it easier to create new, more useful GPGs over time. As the new GPG emerges, the original GPG on Ethereum will benefit from it. The greater the number of GPGs, the better the quality, which can produce a synergistic effect and push the agreement to sink in the agreement pool. When there are many high-efficiency GPGs at the bottom of the Ethereum protocol pool, the total market value of all GPG protocols will generate gravity, attracting projects outside the Ethereum ecosystem. in conclusion
in conclusion
Ethereum is an attraction for global public goods.
In Ethereum, antifragility begets antifragility. The above describes the future prospects of Ethereum: becoming an anti-fragile global public goods infrastructure.
Currently at the bottom of the protocol sink, there are only a handful of applications, and the density of the protocol is only a few hundred million dollars. Over time, the more matter accumulates at the bottom of the protocol pool, the stronger the gravitational influence will become. This effect will change the protocols in the higher positions in the protocol pool, making them sink and become global public goods (GPG).
In addition, the quality at the bottom of the agreement settlement pool continues to increase, and it will also generate gravity, beyond the inside of the Ethereum ecosystem, so that capital and assets in the outside world can also feel the value found at the bottom of the agreement pool. Value is a vague thing, and nation-state barriers and restrictions are not enough to prevent value from flowing into the Ethereum ecosystem. Over time, value will be transferred to the world of antifragile GPGs (global public goods).
This quote from Charlie Munger explains why I am so convinced that the Ethereum ecosystem will mature. The incentives provided by global public goods are too powerful to ignore.
Chris Burniske's article "Protocols as Minimal Extraction Coordinators" shows why there is no alternative but the Ethereum-based GPG platform. His article ends as follows:
Ethereum is a melting pot of free markets, where the competition is so fierce and brutal that at the end of the competition, the only thing that survives is the anti-fragile GPG system. All other elements, floating in the protocol pool, find their proper place.
Looking forward to the Web3 world brought by the protocol pool. It will be 100 times more useful than Web2, but with the same fairness and trusted neutrality as Web1.
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. This article has been deleted without changing the original intention.
original:https://bankless.substack.com/
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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. This article has been deleted without changing the original intention.
