Ethereum Value Capture — either Asset Pool, or Oracle
Ethereum makes the on-chain information open and transparent. Even if the smart contract can achieve on-chain closed-loop services, how to capture the value (to charge fees) is still an issue for DAPP developers, because the code is open source, the information is visible, and the cost of being copied is almost zero.
We should ask the essence. What unique value does a contract provide and on what basis can it be charged? There are two levels. The first level — whether it is valuable. The second level — why it can be charged.
Looking at the first question. Why is it valuable? A contract is a set of codes. This set of code is deployed on-chain and becomes a tool or function to perform calculations. Here, no new information is generated. It can be simply said that most contracts are performing calculation functions. From the perspective of information theory, information is used to eliminate uncertainty, but the calculation does not. The calculation just changes the state. On the blockchain, the code can be copied so the calculation is not scarce. It is impossible for the contract used for calculation to capture value.
Some people may think that users carry information to make transactions, and there is also new information to enter. But for users, if there is no network utility, it is the same for them to choose any copy of the contract, which means that none of the contracts can be unique.
If a network effect is established between users, it means that there is a dependency between users. This type of contract can indeed capture value. Note that this network value is purely established by contract, not a frontend entry. That is to say, this network effect is inter-address, not inter-individual. So most of this network effect has the property of asset dependence: such as lottery tickets, liquidity pools, etc. If the user’s interaction with the contract depends on the asset size accumulated by the contract, then the contract can capture value.
However, it is still necessary to consider the impact of competitive contracts. If another contract also accumulates assets, the competition between the two will be directly expressed through the comparison of asset size and other parameters (such as charging standards, etc.), forming a completely free market. The market will eventually converge and other contracts die, which may make it very difficult to charge. Once fees can be charged steadily in a certain area, there is often only one contract left.
Another type of value is that the contract provides unique information that is not on-chain to eliminate the uncertainty in the blockchain world, such as the on-chain equilibrium price, the on-chain random number, and so on. Because the former type of contract either has gambling attributes, or it is easy to flow freely and lead to a balance in the entire market (also unable to charge), the value of this type of contract is more worth looking forward to.
There are two difficulties here. The first is the difficulty of manufacturing and maintaining unique information, and the second is how to use the unique information to charge. The first difficulty is that unique information should not be provided by designated individuals, otherwise it will violate decentralization (all discussed here are decentralized design). So the information needs to be provided in a distributed way and its on-chain authenticity should be ensured. This means that it is necessary to establish on-chain consensus and establish an incentive economic model, both of which are very difficult.
Similarly, because the information can be easily copied, it is necessary to control the environment in which the information is used, and to design a special calling mechanism to avoid value dissipation. This is similar to the construction of an on-chain business model, and there are certain difficulties.
Although many on-chain contracts have begun to transform into “pools”, which is also in line with our description of value capture. But the direction that is really worth considering is how to provide unique on-chain information. For example, the oracle machine is an important infrastructure. It will change the structure of the entire industry in the future and bring about the prosperity of DEFI, which fully complies with our description of value capture.
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