Nov 14, 2022
Rejection of fat protocol thesis. A blow to Ethereums of the world.
The idea that the value of a blockchain network is solely dependent on the underlying protocol layer is flawed and short-sighted.
On one side, you have those who believe that creating new protocols is a fool’s errand. Why try to reinvent the wheel when there are already so many great protocols out there that just need to be built upon? On the other side, you have those who believe that the only way to create true value in this space is to build new protocols from scratch.
In case you’re not familiar, the fat protocol thesis posits that the value of a decentralized protocols will be primarily driven by the network effects of its applications (the “fat” in fat protocol), as opposed to the underlying token (the “protocol”).
Cradle of Fat Protocol Thesis
The fat protocol thesis, popularized by University of California, Berkeley professor Balaji Srinivasan, posits that the value in a decentralized network accrues primarily to the underlying protocol layer. The thinking is that, because protocols are open source and anyone can build on them, they are more valuable than applications, which are closed off and siloed.
For a while there, it looked like the fat protocol thesis might actually be true. After all, isn’t that what happened with Bitcoin? The Bitcoin protocol didn’t really have any applications when it launched, but as soon as people started building apps on top of it (e.g. exchanges, wallets, etc.), the price of Bitcoin went through the roof. Surely this would be repeated with other protocols, right? Wrong!
This was a widely-held belief in the early days of web3 and blockchain when many thought that these new protocols would take over the world and render existing applications obsolete.
The Problem with Fat Protocols
The main problem with fat protocols is that they tend to be slow and inefficient. Because they are trying to do too much at once — handle all aspects of an application or service — they often bog down under their own weight. This can lead to poor user experience and ultimately cause users to abandon ship for something that is faster and more streamlined.
In addition, fat protocols tend to suffer from a lack of focus. Because they are responsible for everything from user experience to data storage, they often spread themselves too thin and end up being good at nothing in particular. This lack of focus can be fatal for a protocol; after all, if there is no one use case that a protocol excels at, why would anyone want to use it?
App chains: The New Way Forward?
In contrast to fat protocols, App chains take a much more focused approach. Rather than try to do everything at once, App chains delegate different aspects of an application or service to different layers. This allows each layer to specialize in one particular thing and do it well. As a result, App chains tend to be faster and more efficient than their fat counterparts.
In addition, App chains tend to be easier to develop and deploy than fat ones. Because they are modularized and have well-defined interfaces between different components, they can be developed incrementally without having to wait for everything to be completed before launching. This makes them much more agile than fat protocols and better able to respond to changes in market conditions or user needs.
Why should you build an App chain?
There are some very good reasons to build new protocols.
First and foremost, if you want to create true value in this space, you need to own the underlying protocol.
Second, building new protocols from scratch gives you complete control over the direction and development of the project.
And lastly, it allows you to tap into a whole new pool of users who may be skeptical of using an established protocol.
Ok. So who is leading the race?
An obvious answer to this is Cosmos ecosystem. Cosmos is built on the idea of modularization and sovereign chains. Cosmos solves the problem of firm base by providing the Tendermint BFT stack which is to date one of the best Proof of Stake Algorithms.
Then, the problem of different Blockchains operating in isolation only is solved by IBC or Inter Blockchain Communication — A network of interconnected Blockchains.
Conclusion
The rejection of the fat protocol thesis is a sign that the tech industry is moving away from monolithic architectures and towards more modular ones. This shift could have major implications for the future of decentralized networks as developers begin to realize that real value lies not inprotocols themselves but in how those protocols interact with each other to create powerful applications and services. Only time will tell whether this new way of thinking will stick around or whether it will fizzle out like so many other trends in the tech world. But one thing is certain: the days of bloated, inefficient protocols are numbered.
Thank you for reading. Cheers!
