Understanding how big this is. Tweet from Agoracom
Trying to help everyone connect some dots. Dr Tsai has created something incredible at the protocol level. I can't overstate it enough ... and we have some of it sitting inside
The market cap of the protocol always grows faster than the combined value of the applications built on top, since the success of the application layer drives further speculation at the protocol layer. In Fat Protocols, Joel Monegro predicted that the blockchain will turn where internet value is captured on its head. He showed how in the current internet, HTTP or TCP/IP captured zero value, while FANG (Facebook, Amazon, Netflix, Google) made billions. However, in the new ‘blockchain’ internet, the protocols capture the majority of the value, while companies only capture a slither. Bitcoin is worth over $137 billion, while Coinbase, the most valuable Bitcoin company is only worth $1.6 billion. In fact, in 2015, had DFJ and others invested their $75 million equity investment directly into Bitcoin instead of Coinbase, it would have been worth $2.5 billion, much more than their undisclosed share of $1.6 billion. The Fat Protocol theory has caused many investors to believe ‘the lower the better’ and thus prioritise investing into ‘base protocol’ layer coins (Ethereum, EOS, Tezos, etc.) because this is where they believe major value will be captured.
However, protocols have evolved, this thesis is now outdated. Application Tokens are the Value Trap. This post will show why
Layers of Protocols
The Web 3.0 or the new blockchain stack has projects with multiple layers of protocols. Very few projects have a single layer. One of the layers is the application protocol which encases the token economy of the decentralised application. For example, Civic has multiple layers. The ‘processing layer’, either Ethereum or RSK, a file storage layer (perhaps FileCoin in the future), other critical infrastructure layers (such as inter-protocol connectors) and finally the $CVC layer, which governs the crypto-economies surrounding the identity verification economy. All of these layers are protocols in their own right and will make up the identity verification value stack in this case.
One can answer these questions by applying aggregation theory. The theory states that “the value chain for any given consumer market is divided into three parts: suppliers, distributors, and consumers/users. The best way to make outsize profits in any of these markets is to either gain a horizontal monopoly in one of the three parts or to integrate two of the parts such that you have a competitive advantage in delivering a vertical solution.”
For the new blockchain age, it should be: “the economy for any given decentralised vertical is divided into three parts: base protocols, application protocols, and consumers/users. The best way to capture outsized value in any vertical is to either gain a horizontal monopoly in one of the three parts or to integrate two of the parts such that you have a competitive advantage in delivering a vertical solution.” So, what does that mean? It means in this case that whichever protocol can aggregate two parts of the system or own an entire horizontal layer (e.g. processing smart contracts) will dominate. If it can dominate then it can extract more value and thus maximise its network value.
https://blockchain.works-hub.com/learn/Application-Protocols-are-the-better-investment.-Here-s-why.
To understand the differences between protocol and app blockchain is the railway system in a county. Imagine the railway as a protocol blockchain and all the train service companies running transportation services on it as app blockchain companies.
Protocol blockchain companies are companies that build their own complete blockchain from scratch and do not use any of the existing blockchains. Their blockchain is completely independent and can run on its own without the need for interaction with other blockchains. Protocol blockchain companies are rare and their success rate is significantly low because most do not reach the minimum user base needed for mass adoption.
From day one, a protocol blockchain needs a huge ecosystem for it to survive.
(this is where SX will license their tech out to big players)
Who has a big enough ecosystem to license our tech ?????
https://hackernoon.com/differences-between-protocol-blockchain-and-app-blockchain-companies-802b699eccde