Sustainability was the buzzword of the day when #node protocols were the hot topic. Obviously it was just a buzzword, as no #NaaS protocol has proved to be that.
But what IS sustainability and how do we evaluate it? A thread 👇
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First, the definition of sustainable - able to be maintained at a certain rate or level.
So, sustainability is the ability to uphold that level of maintenance.
What does that mean in the context of #DeFi?
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While the definition may be described differently depending on who you ask, the general consensus is;
sustainable = able to last long term.
Specifically, able to continue paying dividends (in whatever form that takes) or growing in value, long term.
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Ok, so how does a protocol achieve sustainability?
Well, a couple of months ago I was a bit more hard-line about this. I wrote tweets saying sustainability will only happen when utility does, and the utility MUST be necessary.
I'm not so hardcore anymore.
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Truth is, DeFi protocols should be evaluated the same as any business.
That means there doesn't have to be a NEED for their token anymore than there has to be a NEED for luxury watches or sous vide cookers.
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But a protocol MUST have a product.
A product that addresses a need or desire that people will exchange money for.
THAT is what brings about sustainability.
It doesn't necessarily have to exist in the real world. Plenty of products and services don't.
🧵/6
It just has to address a need or desire.
Now...this may ruffle some feathers...but a "Node" is NOT a product. Token miner "beans" are NOT a product. Any imaginary thing that only takes money from new investors to pay old investors is NOT a product...it's a ponzi.
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I don't care about price stability mechanisms or decay models or any of that. It's still not a product and a protocol that aims at being sustainable HAS to have a product.
Check this interview with @Quix_xyz twitter.com/Joncole23/status/1543291855391055872?s=20&t=XX8Kkqoj_5ufLfKOAqJAZQ
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Ok, once we start evaluating protocols like this, there is another step. The product has to be GOOD...not just good, but good enough to actually generate revenue.
The basis for any rewards emissions will be the revenues generated.
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A few protocols have promised games. Gaming is a thriving and lucrative industry...but it's also highly competitive. Even awesome games struggle to generate money sometimes.
A stunning looking game doesn't guarantee revenues that can keep pace with promised rewards.
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Many other protocols have built a #DEX.
That makes sense, since swapping tokens is a critical component of DeFi and yield farmers have proven that plenty of funds are generated in fees.
Except that this is also VERY competitive.
And honestly, unoriginal at this point.
🧵/11
Still others have promised #NFT marketplaces. Another competitive, overly done, and unoriginal idea.
That doesn't mean a new DEX or NFT marketplace or game can't disrupt the industry. Plenty have.
Just be aware that like ANY business, success won't be guaranteed.
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The idea here is that passive income protocols cannot keep paying rewards through ponzinomics as the Defi niche is still so small.
So it will need to generate revenue that it can share with investors.
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Also be wary that MANY protocols make promises and either over-promise and under-deliver or simply don't deliver at all.
And if you're thinking "not MY fave protocol...it has endless use cases" remember almost every failed protocol was someone's fave once too.
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Now it's time to be honest and ask yourself;
Are the projects I'm invested in really sustainable?
What is the product?
What is the promise?
How realistic are the goals in the roadmap?
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After evaluating the projects through this lens...treating it like its an actual business and not some fairytale pot of gold, you can determine how sustainable your passive income actually might be.
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And hey, if you are invested in ponzis or unsustainable protocols THAT'S OK. All of these projects share in creating the rich tapestry that is DeFi.
But definitely prioritize ROI-ing (maybe do that anyway).
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The purpose of this is to help you have a realistic expectation on what your investments may achieve, ideally so you don't end up over-invested and get #rekt.
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I hope this helps you to make more informed investment decisions.
If you liked the thread...you know...do the things (like, follow, RETWEET 👈👈👈)
Cheers mfkers
🧵/finis