Fat Protocols are only half the story

David King
Aug 10, 2017 · 3 min read

Fat Protocol thinking

Ever since Joel Monegro coined the phrase “fat protocols” in his astute blog post on blockchain value it has become a useful way for people to reframe thinking about how technology value will be created and captured in the blockchain space. This reframing is important. It is a very different model from the traditional ways to think about how value accrues to builders, investors, and ecosystem participants.

But for builders, it creates a lot of room for confusion about how quality projects will be built. I suspect that early teams building blockchain applications will benefit from investing real time in figuring out the first useful applications and use-cases for their protocols and building those apps with an eye toward the eventual protocol that will support the killer app. I understand that this is at odds with what the market is showcasing and valuing today as success.

Protocol/App thought experiments from history

Outside of blockchain this pattern has shown up in technology in many places. While I’m certain that “this time it’s different” in many ways, I still believe killer apps will dominate the bootstrapping of successful fat protocol ecosystems.

Twitter — How would this get built today? This service is both “a protocol for communication” on the Internet and the killer application for using that protocol. Twitter the company built “Twitter the application” and “Twitter the protocol”. In today’s world they would still launch the application and the protocol would get co-invented along with it to support the application’s needs — not as an independent exercise in whitepaper writing. Monetization would live in the fat protocol and at this point one or more external development teams might actually be leading the frontier of application level development because the bootstrap has already been solved.

SMTP/Gmail — imagine email doesn’t exist and you want to build the SMTP protocol and “Mailcoin” to incentivize nodes to participate in relaying messages around the Internet. Well, that’s a great vision, but unless you also build an email client like Gmail to make it useful it will be hard to get the ecosystem of usage going. In this example, the Gmail application delivers value to end users. This value would cement SMTP as the winning mail protocol. The identities and monetization may get stored in the SMTP layer instead of in the app layer of Gmail, but without the killer app the protocol would not be able to capture the identities. As an aside, it doesn’t take $100m+ (💸) to build version 1.0 of SMTP/Gmail.

A modern example

Ethereum Project — this project invented the token crowdsale phenomenon as the killer app on top of its platform — the platform being a protocol that powers smart contracts. Token crowdsales are the killer app for smart contracts (so far). There are many more possibilities for smart contracts in the future, but they nailed a killer app to bootstrap the network.

So, why should blockchain developers care?

I think it’s important to build early utility before doing a crowdsale or involving massive financial speculation in a protocol token. It becomes harder to change once more people are mining it, using it, etc. Network effects will not come from crowdsales as much as they will come from actual utility. User identities and state (and therefore network value) will live at the protocol layer, but killer apps will bootstrap the success of winning protocols.

I think it would be interesting to provide very early users substantial token incentives for their actual contributions in helping make an application/network successful. There are a lot of new economic levers being invented and lots of experimentation that will take place.

The Winning formula

I believe the winning formula will be to design a new protocol and at least one killer app that uses that protocol. Monetize through protocol value as Joel describes, but bootstrap the actual success of a protocol by building a useful app. Crowdsales work to raise money and in theory create a community with aligned incentives, but the applications people love and get value from will be the crowdsales in which they want to participate.

Thanks to Jen Yip, Matt Huang, Hunter Horsley, and Steve Lee for feedback on this post.

Thanks to Steve Lee

David King

Written by

🌉📈🔥🔎🗝🚵 SF. Startup Investor/Advisor. Crypto. Entrepreneur. Ex-Googler. Cyclist.

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