Fat Protocols

A fun read, but to me it ultimately speaks to why blockchains are best suited to internal use by large enterprises (not consumer, small businesses, etc).

The web flourished due to its lightweight, comparatively easy-to-implement protocols. Applications could be built cheaply and easily on top of it. VCs and many entrepreneurs profited handsomely. Much of the past 20 years in tech has been pushing this concept to literally every person on earth.

Compare to the 'fat protocol': The protocols are tough to write, and tough to implement. The value is captured at the protocol level, not the app level, so there's little incentive to create inventive apps.

Few apps will be created on such systems, so few successful consumer applications will created with them. Seems like the winner here is in business-facing systems. For USV, it strikes me as peculiar to favor the 'fat protocol' and back other types of businesses (e.g. consumer).

What blockchain products, in particular, tend to lack is a complete "economic engine" - there isn't a good or service built in the equation, just a marketing promise that transacting goods and services through the protocol is somehow better, or failing that, some form of investment instrument that is a step removed from goods and services, and consequently less mission-critical for conducting business.

When there is a good or service, you usually find a situation where a centralized monopoly platform - "use our API, use our UI, feed off our database, speak with our sales and CSRs" - is more straightforward to build and more advantageous for the stakeholders who will build and operate such a system. There are only certain niches where there's a definite and ongoing win to build and participate in a decentralized protocol. This rock and hard place has made it hard for the field to break away from purely speculative activity.

While the tech is maturing and growing an impressive set of features, I don't see big breakthroughs coming without a major initiative from a big player.

Reminds me of cult religions where they promise people true purpose in life, but in reality only the ones at the top and the ones who started believing first are the ones who get the benefit. In their case, the rich of the high class always grows faster than the combined value of the group of sheep who start believing later

Is this a fair comparison? How long did it take before the Internet got its first application whose market cap exceeded the cost of the protocol? Have we given blockchain technology long enough to mature?

Yes, let's make all our technologies as "fat" as possible so other people can't "capture" and "re-aggregate" our "value". The VC-oriented approach to protocol design!

What’s significant about this dynamic is the effect it has on how value is distributed along the stack: 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.

That also goes the other way: failure at the application level can bring the token value down as speculators sell, and a lowering token value affects all applications.

This just doesn't make any sense. What was the market cap of protocols before bitcoin? LOL

Love seeing articles like this, attempts at being objective or analyzing the hyped technology. Blockchain land is very peculiar in the way that information amongst market participants exists, where investment is largely necessary to understand the functions available but naturally creates a mental conflict for objective thought. All the while everyone self-segregated from the blockchain arena largely dismisses the mere concept of the available functions.