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Hashflow & Cashflow

The business models emerging on the interchain

Every business aims to generate positive cashflow at some point. If you are starting a freelance design studio, your goal is to cover your expenses each month and produce enough profit to fund your lifestyle. If you are starting a technology startup, your goal is to grow extremely fast for a decade or more and then extract huge profits. The ambition is the same regardless of the scale. You want your project to have positive cashflow.

Positive cashflow indicates that a company’s liquid assets are increasing, enabling it to settle debts, reinvest in its business, return money to shareholders, pay expenses and provide a buffer against future financial challenges.

Fusion creates light. Electricity powers computers. Algorithms control protocols.

I have started to think of open economic protocols—and the projects that live on them—in a similar way. If you replace the cash that comes from commerce with the hashes that come from algorithms, you can start to follow the flow of value around these open economic networks. Successful protocols and projects will generate positive hashflow over time; unsuccessful ones will not. If a project has negative hashflow for long enough, it will die.

Clearly the team behind bottlecaps were popping too many bottles. The market $CAP is dying.

This mental model is really helping us think about which protocols to support in Balance. There are new business models emerging on these open economic protocols every day. Some of them map to the real world and some of them are totally native to the open source financial system. We want to help increase the amount of positive hashflow moving around the system and capture some of that as we buidl Balance.

The one and only Setoshi sets out the set of projects buidling the open source financial system.

In this post, I hope to highlight some of the ways that projects operating on the interchain are generating positive hashflow.


The Bitcoin protocol rewards the computers that secure the network and confirm all of the transactions with a “hash” with fees and newly mined bitcoin. These transaction hashes flow to the people running the computers, which we call “miners.” These bitcoin are then held for investment or used to pay for the electricity, machinery and labor to run the mining operation.

Follow the flows in this wonderful saga.

We know that the Proof of Work algorithm is generating positive hashflow in the network because the hash rate is increasing exponentially. The protocol has created a fierce global competition for power and profit.

The hashrate turned the corner and broke 1 Petahash in 2013. It has been hitting records ever since.

The price of Bitcoin and the hash rate have an interesting relationship that is often debated. I think one thing is reasonably clear: miners are not charities. If they started losing money for extended periods they would shut down their computers and move onto something else. Positive hashflow eventually leads to positive cashflow.


A lot of new protocols are planning to use staking to support their network. The idea is that people can lock up their coins and validate transactions for a network. The protocol rewards stakers for validating transactions by distributing newly minted coins to stakers. Additionally, stakers received transactions fees set by the market. This is known as Proof of Stake and it is a fascinating new crypto-native business model. People will be able to earn hashflow by signing a transaction and locking up their digital assets similar to earning interest on a bank account. The difference with stakers of cryptocurrency: you are your own bank.

The Casper protocol is aiming to generate positive hashflow for the Ethereum network.

The process of staking and validating is pretty similar. There are lots of variations on Proof of Stake that are being explored and deployed. On the Cosmos Network, validators are expected to maintain and secure specialised hardware:

The validators are determined by who has the most stake delegated to them — the top 100 full nodes with the most stake will become Cosmos validators.

Validators and the parties that delegate stake to them will earn ATOMs as transaction fees and block rewards through execution of the Tendermint consensus protocol.

The Interchain is coming.

The validators that stay in the network will be generating strong hashflow from their investments of time and capital.

There is a lot of work to do to explain staking to folks. Medium rare please!

Similar models are appearing on the Lightning network, which is a layer 2 scaling solution over Bitcoin.

“Bitcoin staked to Lightning is the most unique income producing asset in all of monetary history: income with zero counterparty risk. The historical implications of this on capital markets are tremendous.”


Transacting on the interchain is crucial. Exchanging between different kinds of tokens is also incredibly important. Hashflow around the networks changes shape and moves to where it is needed. The ability to convert one kind of hashed asset (or hashets? Too far 😂) is absolutely crucial. As the sets of services that are offered on the open source financial system explodes, the need for exchange services will grow with it.

The 0x Project has done a great job of building out a robust pipeline of smart contracts that other developers can use to earn hashflow. This is quickly becoming a foundational piece of infrastructure in the Ethereum ecosystem

All of the projects buidling on top of the 0x Project’s protocol are hoping to generate positive hashflow.

Lots of non-custodial exchanges have been built on this system. Developers who need to exchange tokens to make the dapp function are plugging into it too. Hashflow will come from adding fees on top or providing valuable services that make these projects’ tokens accrue value over time.

Radar relays orders through the system.


Open source debt is one of the most exciting trends in the world of open economic protocols. Smart contracts that control credit scores, loan issuance, and interest payments will run on top of protocols like Ethereum. These debt contracts will be hashed into existence and generate hashflow for the lenders. This is a flow of hashflow above the base layer protocol.

The Dharma Protocol makes it easy for borrowers and lenders to connect through a set of smart contracts running on Ethereum. Today, people can lock up any ERC-20 token as collateral and borrow against it. You can go take out a loan today on their demo application called Dharma Plex.

The Dharma Protocol will create a global debt competition. Check out this video.

The relayers, underwriters and creditors will all be incentivised to help the network of debt grow. The fees and token model is still being developed.

Follow the hashflows at

As the volume of debt that is issued on the open source financial system grows, you can expect lots of competition. Lots of projects will seek to serve different niches for credit to generate returns. I think this project is going to generate a lot of positive hashflow for the best teams.


The job of a search engine like Google is to collect and curate data from the Internet. This is one of the most valuable curation projects in the world. The data that they ingest and the way in which they organise it is completely opaque. This is true for lots of data markets. The key with curation markets is to get all of the incentives aligned so that you can trust the underlying data. The term used in the industry is the Token Curated Registry. It’s not just about creating a list. It’s about creating a list you can trust by incentivising curators to do the research for you.

Projects like Ocean Protocol are trying to create data marketplace tools with incentivised participants:

Curators / Referrers — participate in identifying, incentivising and improving the visibility of high quality assets and services on the network. Opportunities exist to earn tokens via participation in curation markets, but also via other means such as marketplace affiliate reward schemes.

For example: if a team knows how to deploy great financial models, they will be able to generate hashflow by exposing those to the Ocean Network. Another specific example is Messari, which is trying to curate all tokens to separate the countless shitcoins from the next Bitcoin.


There are several projects that exist to do work for others in the network. Customers of these projects will pay for their services which will generate hashflow. The services could be things like secure computation, data aggregation, or real-world data feeds.

In the work token model, a service provider stakes (AKA bonding) the native token of the network to earn the right to perform work for the network. For services which are commodities such as Keep (off-chain private computation), Filecoin (distributed file storage), Livepeer (distributed video encoding), Truebit (off-chain verifiable computation), and even “decentralized mechanical Turk” powered by humans such as Gems, the probability that a given service provider is awarded the next job is proportional to the number of tokens staked as a fraction of total tokens staked by all service providers.

The beauty of the work token model is that, absent any speculators, increased usage of the network will cause an increase in the price of the token. As demand for the service grows, more revenue will flow to service providers. Given a fixed supply of tokens, service providers will rationally pay more per token for the right to earn part of a growing cash flow stream.

One example of this is The Graph, which is creating a network to ingest Ethereum’s data and prepare useful sets of metadata that will be available to developers. Preparers of the data will earn hashflow for doing the computationally intensive calculations and making the information public.

Open Protocol Interfaces that cannot be stopped are going to be huge sources of hashflow.


The creation of new things on chains will have value. Selling them to people who want them will generate hashflow. Making these unique tokens takes a lot of effort. You have to get a community of people to agree to their value.

Creating scarcity in the kittie.

CryptoKitties helped accelerate a wave of experimentation around these created items. There are many more models popping up. For example, Nexus Mutual is creating a factory for insurance contracts that will live on Ethereum. The creation process of these agreements will involve a lot of effort. The system will generate hashflow by selling the agreements and processing the payouts.

Mutually assured construction of reassuring insurance.

Exploring the experimentation

There is an explosion of new models on the interchain. I have only listed a few of them here. My hope is that I have convinced you that this is an incredibly exciting and fast-moving area. Lots of large businesses are going to be built on top of these open economic protocols. The next question is: what form will these businesses take?

Discounted Hashflow

As projects earn hashflow, they can convert this into government issued money like dollars to generate cashflow. This can be stored in closed source banks and accounted for using traditional tools for running a company. Today, miners need to convert their hashflow into cash in order to pay for hardware and energy. Over time, I expect that more projects will keep their entire operations on-chain. The flow of hashflow into and out of their project will never touch the closed source financial system. This has really interesting implications for how business on the interchain will be done.

When this happens, you will be able to run a discounted hashflow analysis on the tokens that capture and control the organisation’s revenues. These are typically known as Distributed Autonomous Organisations. I find that this term is very confusing to a lot of new people and it has been irreparably damaged by TheDAO hack.

Joint-Token Communities

The joint-stock company has unlocked a huge amount of human potential. People and capital mixed together to start new companies. Successful projects would deliver a return to investors by delivering positive cashflow. Companies have been the most powerful organising unit for humanity so far. They are incentivised with cash and stock. Today, enormous digital communities are starting to emerge which are more powerful than companies or governments. They are incentivised with tokens.

There is a new “dark matter” rising that manages to coordinate a galaxy of people, and it is the ability to create new schelling points of coordination anchored into a shared, decentralized truth using blockchained tokens.

These communities already exist at the protocol level. The proponents of Bitcoin, Ethereum and all of the other competing protocols have their own cultures.

I think we are going to start seeing more communities developing around products. In the traditional world, you can see this with companies like Apple. They have a rabid fanbase of developers and evangelists who love the objects they make. This is about to be supercharged when any customer of a product can easily buy a share in its future hashflow. These communities will own part of the product and benefit from its improvements and growth.

Share tokens

When you buy shares in a company, you have a claim to its value and future cashflows. If the board decides to pay you a dividend, you will actually receive a portion of that claim as real cash.

Buying into a community-owned product should give you a claim to its future hashflow. Companies are divided up with voting and non-voting stock. Communities could be divided up with governance tokens and share tokens. CEOs of public companies are accountable every three months. The leader of a community project could be subject to the vote from the community every three years.

This tweet was inspired by Lawson Baker’s observation about PDFs on the internet.

There is a big security token boom about to happen. I think it is going to be an enormous distraction from the more interesting trend. On-chain share tokens will have crypto-economically enforceable claims to future hashflows.

Toke: Share Token for interchain hashflow.

These new digital companies will not live in any country’s jurisdiction, they will be started on or uploaded to the public interchain of value. These projects will have a presence in multiple countries in the form of a company but the value will be accruing at the share token level. All of its important revenue-generating functions will begin as hashflow and a portion of that will be converted to cashflow.

He is firmly set on this opinion.

This new kind of organisational structure will blend many of the elements of companies and protocols together. Distributed Autonomous Corporations will be formed and fuelled by online communities creating online companies.

Balance’s Distributed Autonomous Bank

At Balance, we are buidling tools to help people access products on the open source financial system. We want to help our customers transact, store, save, stake, exchange and borrow digital capital. Some of these activities will generate significant hashflow. Today, that capital is being stored in a set of wallets that are controlled by people who are employed by our company. In the future, we hope to migrate the control of that hashflow to a community-owned organisation that lives on a protocol. All of our current investors who own shares of the company will become owners of tokens in the community. This will effectively be a Distributed Autonomous Bank. It will mix properties of protocol governance and credit union decision making to ensure that the customers get great products and the management of the project is held accountable.

We want to create positive hashflow for everyone involved. Like Snoop Dogg.

Owning a share in a distributed autonomous bank should be valuable if customers find the services it provides useful. As the project grows, we hope to offer services across the world in many different languages. We are even dreaming of what a Balance bank branch might someday look like.

Imagine having a beautiful, helpful bank branch.

Free Open Source Bankware

We think that open source software creates enormous amounts of competition for closed source companies. Linux completely knee-capped Microsoft’s growth by offering a free kernel. The combination of GNU, Linux & Apache helped the internet take off. This documentary captures the incredible battle and how it all played out.

We believe that the banking system is going to suffer the same fate as the operating system. Open source software is going to viciously compete with and undercut every single service the banks offer.

We need a password reset protocol.

There are loads of missing pieces to this becoming a reality. Thousands of missionaries are gathering together to take on different parts of the project. Our contribution to this common goal will be to focus on the interface.

We think that exchanging and lending on Ethereum will drive most of our hashflow.

Hopefully this gives you a good overview of how we view the world. We want to make great products for these incredible new protocols.

If you would like to HEPL us, there are loads of ways to do that:

Test our software:

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Thanks to Lawson Baker for sharpening this post.

Full Disclosure: Balance has collaborated with Ocean Protocol, The Graph & Nexus Mutual. We hodl small sums of their tokens on our balance sheet.