The 0.1% — 0.9% — 99% Rule of Blockchains
Blockchains are businesses. And it’s ok.
Turns out the majority of blockchains are businesses. Some don’t love hearing that. It’s strong language, but it’s true.
We published a post on this topic last week that was met with some pushback from the community. Chris Burniske of Placeholder VC, in particular, wrote in a blog post:
I respect Flipside and what they’re working towards with the Fundamental Crypto Asset Score (FCAS), but fear that encouraging protocols to think of themselves exclusively as businesses will defeat the promise of protocols in the first place.
Protocols provide structure for businesses, but are not businesses themselves; they are systems of logic that coordinate exchange between suppliers (businesses) and consumers of a service. As coordinators of exchange, protocols should be minimally extractive, whereas businesses are incentivized to be maximally extractive (that’s profit, and a business is valued as a multiple of its profit).
To unpack this topic a little further, we want to introduce the 0.1%, 0.9%, and 99% rule of blockchains.
The 0.1% — 0.9% — 99% Rule of Blockchains
Here’s how to think about the blockchain space: 0.1% of blockchains adhere to the fully un-owned, liberated, fully peer to peer, decentralized concept identified in Satoshi Nakamoto’s whitepaper. Bitcoin managed to get there.
0.9% of blockchains are directly focused on TRYING to make a go of this framework, funding development with experiments like inflation funding (
, Zcash), volunteer funding (, Grin), and community-approved mini-dilutions.99% of projects follow a traditional philosophy: Operating like a business. They have employees, they have some form of funding, they have developed some technology and they adhere to some concepts of the promise of blockchain (ie: immutability) but have morphed the rest.
These 99% require revenue in order to fund operations. They have employees they need to pay in order to operate. That means they need customers who use their protocol and generate revenue. If there are no customers, no revenue, and no sustainable business model, there will be no employees.
Adapting traditional growth metrics to new crypto paradigms
Since the vast majority of the 99% have a token, whether minimally or maximally extractive, they need to think of growth. And to grow means to operate like a business.
Protocols need to get beyond just tracking transactions speeds or volume in 24 hours, and instead look at what their users are doing over time. Only by doing that, and really starting to try to get into their customer funnel loops can they meaningfully drive growth. The “if we build it they will come mentality” is not a self fulfilling prophecy, trading speculation is not sustainable, and assigning a new term like “protocol” doesn’t remove the requirement to develop core business metrics. To operate like a business, they will need to:
- Understand their users at different levels (protocol level, network level, application level, consumer levels)
- Segment those users (developer, operator, business, consumer)
- Track the growth of each group (reach, active, engaged, churn, lifetime),
- Track user behaviors (transactions volumes and frequency over time),
- Track cumulative asset flows throughout the network (spending, saving, trading),
- Track overall asset growth (price and economics)
Many of the 99% will fail (like most startups fail), because most don’t have the tenacity to develop sustainable business models, but a number will thrive and become massive businesses.
VCs Invest in Protocols
Many VCs invest in protocols. By nature of how VC works, this generally means protocols are businesses. VCs would not invest if there wasn’t a business.
VCs who invest in protocols will have a decision to make, and it’s a simple one: How do they ensure their investment will generate a return?
As many of the 99% blockchain projects will fail to get full traction, the VCs will do their job: They will push hard to help them find a way to transition into revenue-generating activities without the handcuffs of the .1%. The 99% will charge a toll for activities…to generate revenue…from their customers…so they (and their VCs) can materialize their…business.
The .1% and .9% and 99% all will have value in the blockchain ecosystem — with the 99% the most likely to break through to mass adoption. BTC — the .1% — has managed to do this, but few others will ever reach that viability without transitioning into a full fledged business.
Smart cryptocurrency organizations have already begun operating like traditional businesses. As the crypto market matures, so does the requirement to understand customers, drivers of revenue, and measures of success.
Blockchains: Build a business, or bust.
To learn more about how Flipside enables blockchain organizations to grow, visit https://flipsidecrypto.com/crypto-projects and access your free analytics dashboard today.
