As a seasoned crypto investor with over a decade of experience navigating the ever-evolving blockchain landscape, I’ve seen my fair share of theories and paradigms come and go. The Fat Protocols thesis initially caught my attention due to its potential to reshape the distribution of value in the blockchain ecosystem. However, as time has passed, I’ve grown increasingly intrigued by the counterarguments, particularly the Fat User model.
In 2016, Joel Monegro proposed the concept of “dominant protocols.” This theory suggests that most value within blockchain systems tends to concentrate at the level of the underlying protocol, as opposed to the level of individual applications.
In simpler terms, a majority of the worth would be held in local currency tokens used for transactions, such as Ethereum (ETH) and Binance Coin (BNB), rather than application tokens like $CAKE and $UNI. As more decentralized applications (dApps) are constructed on these platforms, the stronger the network effects become and the greater the desire for the protocol’s native tokens.
This would drive up their value—a reversal from the traditional internet model, in which companies like Facebook capture most of the value while the underlying protocols (e.g., TCP/IP) do not. There are some opposing ideas to Fat Protocol Thesis, one of which was recently discovered via this X post. It proposes a solution called the “Fat User Model”.
The Debate over Value Capture
Despite the compelling nature of the Fat Protocols theory, critics like Pantera Capital argue that value will concentrate at the application layer.
It’s thought that decentralized applications (dApps) designed for particular purposes can create substantial barriers to entry, such as liquidity, superior user experiences, and strong customer loyalty, which enable them to capture substantial worth.
But What About the Users?
It’s worth noting that Fat Protocols and application layer frameworks tend to disregard the most significant player in the Web3 economy, which is the end-user.
It seems that the main purpose of this novel financial system is to prioritize user advantages above all else. However, I can’t seem to find them included in any of these value distribution schemes.
To foster the growth of Web3, a novel strategy should be adopted – one that recognizes and compensates ongoing participation, while also channeling resources towards emerging participants.
Why the Fat User Idea is Relevant
As a researcher, I find myself delving into the realm of value distribution in digital ecosystems. Here, the Fat User Thesis emerges as a compelling concept. It posits that the existing models for value capture are transient flaws, destined to rectify themselves. Instead, it’s the users of Web3 platforms who are poised to seize the majority of the value in the future.
Competition
In a cutthroat market environment, any attempt to capture value may not endure since it’s likely to be eroded by competition due to the persistent issue of ruthless financial exploitation, a challenge that the cryptocurrency sector has faced for quite some time.
In simpler terms, the Web3 landscape is quite dynamic and packed with various options. This includes multiple levels of blockchain (L1s, L2s) and a multitude of decentralized applications (dApps). Because no one entity can rule for too long due to the open-source nature of the codebase, it’s crucial for protocols and applications to consistently come up with new ideas and deliver value to their users in order to stay relevant.
Low Switching Costs
The concept of self-sovereignty and interoperability implies highly mobile assets. Any token, liquidity provider (LP) position, or user activity can easily transfer to another protocol with minimal switching costs.
By providing this flexibility, users are able to pick the platforms that provide the greatest worth, thereby reinforcing the idea that more users lead to better services (Fat User Theory).
Limited Network Effects
Others might contend that the network effects crucial to the Fat Protocol and its application layer are excessively emphasized.
Building a network in today’s competitive landscape has become more accessible than before due to increased rivalry and minimal costs for switching. This ease of entry enables new networks to swiftly attract users, lowering the initial hurdles and granting individuals the chance to enjoy the advantages of burgeoning platforms sooner.
Programmable Incentives
In simpler terms, programmable incentives act like adjustable rewards that can be activated whenever needed to foster immediate interaction within a network, be it a protocol or decentralized application (dApp). This flexibility promotes a fairer distribution of value, aligning exceptionally well with the fundamental ideas behind the Theory of the Fattened User.
Now, a decentralized application (dApp) has emerged, aiming to unify everything, thereby truly actualizing the concept known as the “Fat User”.
Nudge Believes It Has the Solution
To propel the idea that more users are better for Web3, a catalyst is needed, and Nudge believes they have a solution. This project enables protocols and apps to motivate or guide users to shift their resources such as assets, liquidity, and engagement.
This setup generates a switchable incentive that primarily moves the worth from protocols and decentralized applications towards users. It offers an extendable system for attracting new customers and a durable method for maintaining user engagement.
Most Nudges will not be one-time occurrences but ongoing incentives, rewarding reallocation over time and considering future users.
This method functions similarly to an ongoing business expense (like an advertising budget) for off-chain companies, but here’s the key distinction: Instead of benefiting intermediaries such as Google, this “advertising budget” is directly advantageous to the end-user, not the middleman.
Even before it officially launches, Nudge is projected to revolutionize the on-chain economy by shifting value towards users, thereby expanding the entire system. By providing users with customizable rewards, Nudge adheres to the idea of the Fat User Thesis and fosters a user-driven Web3 economy.
Fat Users Are the Web3 End Game
The discourse surrounding the Fat User Thesis signifies a paradigm shift in the Web3 ecosystem. By challenging the existing value capture models that predominantly favorprotocols and applications, it advocates for a more user-centric approach that prioritizes users’ needs and contributions.
Platforms such as Nudge demonstrate the power of customizable rewards in boosting user interaction and maintaining a fair distribution of benefits among all parties involved. The effectiveness of Web3 relies heavily on its capacity to put users first, positioning them as primary recipients of the advantages offered by this emerging financial system.
Adopting this viewpoint, the Web3 community could construct a vibrant, diverse environment where everyone’s involvement matters significantly, reshaping interaction and worth within the digital realm.
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2024-08-30 00:21