Searching for a Lighthouse
Finding structural competitive advantages in blockchain projects
By James Glasscock, Takashi Yanagi, and Andrew Lee
Warren Buffett famously talks about the importance of the “economic moat,” a business’s sustainable competitive advantage that allows high profits and discourages would-be competitors.
But in this new era of decentralization and blockchain development, discussing castles and moats isn’t enough. That’s why our team at DNA focuses on the lighthouse too.
What’s a lighthouse?
A lighthouse is how we refer to a company that has a structural competitive advantage, like an existing userbase. A base like this can help a decentralized platform capture an inordinate amount of market share right out of the gate. Other kinds of structural competitive advantages that create a lighthouse include relationships, partnerships, inventory, and/or revenue — basically anything that makes it easier to launch a new decentralized ecosystem.
For example, Telegram can leverage its 200M userbase to launch its new TON cryptocurrency and wallet. On day one, the TON platform could have more crypto wallets than Coinbase does after six years of operations. This kind of structural competitive advantage is a gamechanger that can “light the way” for future profits.
Now, you might be saying, “Well, of course companies that have an existing customer base have a leg up.” But it’s more than just the customers. It’s parlaying scale from one proven centralized platform to a new, more open ecosystem another — that scale can be in 1) leveraging customers and inventory one way and 2) cost savings (thanks to the blockchain) in other ways. The openness of the new ecosystem allows businesses and consumers alike to produce and consume far more than in a fragmented silo’d market (read: the market expands).
Let’s look at some examples…
OPSkins is the lighthouse for WAX
About: OPSkins is the world’s largest platform for trading skins (i.e. in-game digital items) operating in a $50B global market with 400M skins traders worldwide.
The problem: As a centralized platform though, OPSkins faces some challenges: it can be susceptible to hacks, there are limited currency trading pairs, and fragmented competition across disparate platforms ultimately creates more friction for servicing consumer needs.
The solution: WAX is a decentralized platform, developed by the founders of OPSkins, that enables anyone to operate a fully functioning virtual marketplace with zero investment in security, infrastructure, or payment processing. WAX allows buyers and sellers to transact directly with each other at lower costs. This improves liquidity so settlement is quicker and prices are efficient. Plus, WAX wallet provides security, the platform is easier to operate with tokens than foreign fiat currencies, and it’s able to support more games and virtual asset trading.
Aptoide is the lighthouse for APPC
About: Aptoide is one of the largest Android App Stores, with over 4 billion downloads, 200 million users and direct engagement with over 12,000 developers. Aptoide has a network of over 70 corporate partners, including OEMs and Telecom companies.
The problem: There’s too much friction and a lack of transparency between developers and users. Plus, app purchases and approvals take longer than they should.
The solution: AppCoins (APPC) is an open and distributed protocol for App Stores using blockchain technology and smart contracts. APPC tokens are the new native currency of the app economy. They reduce friction and increase transparency between the developer/user and streamline in app purchases and the app approval process.
Unikrn is the lighthouse for UKG
About: Unikrn is a market leader in esports betting and already utilizes Unikoin tokens (now UnikoinSilver).
The problem: Unikoin tokens can’t be bought or traded outside the platform. This created friction and limited applications — they could only be given out within the centralized platform.
The solution: UnikoinGold (UKG) is the decentralized token for betting on esports and entering raffles. It can be bought/sold on exchanges and is more transferable than UnikoinSilver. The biggest reason to decentralize was to avoid excessive banking friction and holding foreign currencies.
Omise is the lighthouse for OMG
About: Omise with over 6,000 merchants, was an already successful payment gateway for Southeast Asia, based in Thailand, providing a secure and white label solution to merchants and enterprise businesses.
The problem: As a centralized service provider, Omise had issues with scaling and lack of transparency. This created friction for some market participants making it difficult to openly collaborate.
The solution: The OmiseGO (OMG) Blockchain comprises a decentralized exchange, liquidity provider mechanism, clearinghouse messaging network, and asset-backed blockchain gateway. It is a scalable and totally public (permissionless) blockchain whose Proof-of-Stake consensus is bonded by the activities of the chain itself. The network is designed as a highly performant system leveraging interlinked blockchain construction: while clearing and settlement occurs over the OMG blockchain, the costs of protecting transaction value is externalized to other chains in ways that directly promote the value of those chains.
The future of tokenization
In each of these examples, the lighthouse provides user scale on day one. Plus, it potentially becomes an enabler for the entire competitive ecosystem. The result is a much larger (more than 10x) opportunity than the original centralized business.
The lighthouse provides user scale on day one.
It’s worth noting how these are all a loose coupling of existing businesses with new decentralized platforms, as opposed to startups beginning with zero users. While the majority of recently tokenized platforms are startups, DNA expects the future of tokenization to weigh more heavily towards well established businesses looking to parlay their scale into new, more open ecosystems. If you are building a new blockchain application and do not have a pre-existing lighthouse, consider strategic partnerships that can provide some user scale on day one. Better mousetraps still need mice.
While incumbents (Facebook, Uber, AirBnB) wrestle with the Innovator’s Dilemma, the secondary and tertiary players (Snap, Lyft, VRBO) are well positioned to experiment with decentralized ecosystems. Ideally, this means the core business reduces friction and costs while simultaneously opening up an ecosystem that allows peers and competitors to openly collaborate on innovation without fear of one competitor taking more control from another.
Blockchains allows society to externalize the world’s business processes from single centralized corporations into open, decentralized computing networks. Platforms that have a lighthouse accelerate this.
Bottom line
Being on the lookout for lighthouses means we’re constantly asking:
“What are your structural competitive advantages with respect to pre-existing customers, relationships, strategic partnerships, inventory or revenue to launch the new decentralized ecosystem?”
One day, these lighthouses may be shining over their own moats. The result: “Smooth sailing” for everyone involved.
More on the DNA criteria
Coming soon, we’ll reveal more about what DNA looks for when evaluating projects. FYI, these are the six key criteria we use:
- Structural Competitive Advantages aka “the lighthouse”
- Unique inventive solution or defensible technology
- Clear need for a token and distributed ledger technology
- Management Team & Advisors
- Competitive landscape and opportunities to enable them
- Decentralized Governance Model
