The Convergence of Fat Protocols, Incentives, and Scaling for Blockchain Success

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Sep 02, 2023

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The Convergence of Fat Protocols, Incentives, and Scaling for Blockchain Success

Introduction:

In the world of blockchain technology, two key concepts have emerged as drivers of success: fat protocols and scaling. Fat protocols refer to the value concentration at the shared protocol layer, while scaling involves increasing revenue without incurring significant costs. This article explores the intersection of these concepts and how they contribute to the growth and adoption of blockchain applications.

Fat Protocols and Incentives:

The traditional internet stack is composed of "thin" protocols and "fat" applications, where value is distributed primarily at the application layer. However, in the blockchain application stack, value concentrates at the shared protocol layer. This shift is facilitated by the combination of shared open data and an incentive system with tokens.

When protocols begin to gain traction, new users are drawn to them, increasing demand for tokens required to access the service. At the same time, existing investors hold onto their tokens, anticipating future price increases. This creates a feedback loop of increased demand and constrained supply, driving the value of the protocol's token.

Furthermore, early adopters who recognize the potential of the protocol build products and services around it, further increasing the value of their tokens. This initial growth is often fueled by speculation, attracting financial capital and fostering innovation. Even during market downturns, the long-term adoption of the technology is supported as stakeholders seek to create value around it.

The combination of shared open data and incentives provided by protocol tokens creates a more vibrant and competitive ecosystem of products and services. By replicating and storing user data across a decentralized network, barriers to entry for new players are reduced, fostering innovation and competition.

Scaling and Growth:

While fat protocols and incentives drive the adoption of blockchain technology, scaling is crucial for sustained growth. Scaling refers to increasing revenue without incurring significant costs, allowing companies to achieve exponential growth with only marginal investment.

For startups and younger companies, there is often a fixation on scale. Growth, on the other hand, is seen as linear, where revenue increases as new resources are added. Scaling, however, is achieved when revenue increases without a substantial increase in resources.

Sustaining constant growth requires significant resources, making scaling an attractive alternative. By adding customers and revenue exponentially, costs should only increase incrementally, if at all. This allows companies to achieve exponential growth with only linear or marginal investments.

To successfully scale, companies need to establish clear processes that can be done en masse without extra effort. By digitizing processes, making information readily available, and avoiding one-to-one communication, companies can ensure scalability. It is also important to consider expense policies, employee onboarding strategies, and the preservation of core values during the scaling process.

Actionable Advice:

  • 1. Establish clear, digitized processes: Document and streamline processes to ensure repeatability and predictability. This allows others to pick up tasks without step-by-step guidance, enabling scalability.
  • 2. Focus on core values during scaling: Renew dedication to core values to attract the best talent and define the company's direction. This will help obtain the necessary technology for managing financial data and guide the scaling process.
  • 3. Delegate operational tasks: As the business grows, shift attention to strategic questions and delegate day-to-day operations to others. This allows leaders to focus on the bigger picture and ensure scalability.

Conclusion:

The convergence of fat protocols, incentives, and scaling is essential for the success of blockchain applications. The combination of shared open data, incentive systems, and reduced barriers to entry fosters a competitive ecosystem of products and services. Additionally, scaling allows companies to achieve exponential growth without incurring significant costs. By implementing clear processes, preserving core values, and delegating operational tasks, companies can navigate the challenges and opportunities of scaling. Ultimately, these factors contribute to the long-term adoption and success of blockchain technology.

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