The Turning Point: Comparing Internet and Blockchain Networks

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The team at @tokenterminal wrote one of the best internet vs blockchain network comparisons in terms of open standards and development phases I've read so far. According to the analogy, we are on the cusp of the Turning Point. Interesting similarities below. 👇

Ethereum in 2015 = "GeoCities of public blockchains". Ethereum made it possible to leverage shared infrastructure to build a blockchain-based application. Before that people were forking blockchains to create new apps, e.g. Namecoin - P2P naming system.

Ethereum as a "network of networks", and L2s & app-specific blockchains leveraging them as AWS. Ethereum serves as the base layer settlement infrastructure, and L2s enable flexibility and scalability while maintaining shared infra.

ZK proofs as HTTPS. ZK brought privacy to public blockchains, just as HTTPS brought encryption to the internet, enabling e-commerce, etc.

Ethereum as Android in OS world (compared to other L1s as iOS). Ethereum having a "modular" tech stack by having settlement (L1) and execution (L2) separated but connected, while e.g. Solana has a more monolithic/integrated architecture.

Turning Point. The hangover from The Frenzy period. Financial leverage wiped out. Consumers hurt. Frauds exposed. Lessons learned. Turning Points are highlighted by regulation & policymaking, marking the end of the Installation Period and the beginning of The Deployment Period.

Value accrual: web2 vs web3. Protocols running the internet didn't accrue any value, were not monetized, development funded via grants, etc. In web3, so far this has been the opposite. The protocols are the ones capturing most of the value.

Value accrual: web2 vs web3. Interestingly, this is something @PaulFrambot brought up recently, with the discussion being continued by @euler_mab and others. I believe the focus should be shifted to more primitive and unopinionated base protocols in the long run.

Value extraction, UX abstraction, product orientation, etc should be added on top of base layer protocols that should act as an infra of value flow, covering various use cases. Having both approaches is not necessarily bad, though, since it accelerates the learning process.

However, DeFi protocols probably should not be compared 1:1 with TCP/IP, SMTP, HTTPS, FTP, UDP, etc since blockchain networks also introduce the incentivization part. We need market makers for most of the financial services. No DEX w/o LPs, no money market w/o suppliers, etc.

Therefore, I'd say that while designing the DeFi base layer, we also need to find a way to ensure the sustainability and long-term resilience of those incentivization schemes. assuming we want to make the protocols immutable, ofc. And this is certainly not an easy task.

A good example of immutable / gov-minimized DEX and lending protocols are @Uniswap and @LiquityProtocol. As an example of how difficult the task of creating something w/o the option to adapt to market conditions is, look no further than the current Liquity "Redemption Phase". twitter.com/definikola/status/1714977976310477055

This is one example of the sequence of events one would need to take into account while creating an immutable incentive scheme: 1. Any reason for excessive $ printing (if needed), e.g. covid 2. Excessive money printing 3. Inflation 4. High US T-bill yields 5. Tokenization of 4.

Liquity is a very good example of an immutable protocol with a well-thought-out incentive design while showing the challenge of neutralizing all (future) external factors.

Several other initiatives aim to establish an immutable system that can be relevant financial infra: - Rico by @delete_shitcoin (RIP): bank.dev/rico - Morpho Blue by @MorphoLabs: github.com/morpho-org/morpho-blue/blob/main/morpho-blue-whitepaper.pdf - Uniswap v4 by @Uniswap: github.com/Uniswap/v4-core/blob/main/docs/whitepaper-v4.pdf

The article covers a lot more, with insightful data, too. - ETH as currency (compared to USD) - Ethereum as infra for global finance An easy addition to the crypto onboarding reading list. Kudos to @tokenterminal for putting this one together! 👏