Jacob Franek Profile picture
Aug 18, 2018 22 tweets 7 min read Twitter logo Read on Twitter
1/ Hey #CryptoTwitter, grab a glass of vino and come sit by the fire so we can discuss your narrow-minded views on FAT PROTOCOL THEORY.

See what I did there -- how I juxtaposed "narrow" with "fat"?

No?

Just shut up and drink your wine. 👇
2/ First, let's acknowledge it as a "theory" even though it wasn't clearly labelled as such.

A theory is just a plausible principle offered to explain phenomena.
3/ In Joel's case -- @jmonegro penned the original theory -- he was observing the phenomena that #Bitcoin and #Ethereum both had market caps that far exceeded the value of applications built on top of either protocol.
4/ -- Wait a minute, did you just say #Bitcoin!?

Yes, you steak-huffing ignoramus, Joel's original post considered #Bitcoin a fat procotol or did you not read the thing!?

Don't answer that. We both know you didn't.
5/ So let's define the theory.

"The market cap of the [base] protocol always grows faster than the combined value of the applications built on top, since the success of the application layer drives further speculation at the protocol layer."
6/ Now let's put our steaks down and do some napkin math.

- Is $BTC valued more than apps on top? ✅
- Is $ETH valued more than apps on top? ✅
- Are all other protocols with apps valued more than their apps? ✅
7/ So you mean to tell me that all observable data actually *supports* fat protocol theory!?

I know, fucking awkward right?
8/ Now, this doesn't mean the theory is correct, or that new theoretical or observed data shouldn't force us to re-examine or re-think it.

So how can we refine our theory?
9/ First, let's discuss what we mean by the "combined value of the applications built on top".

Do we mean their token values?
Do we mean the market caps of the companies developing apps?
Do we mean applications in the sense of software apps?
10/

What about apps like decentralized lending that create value but don't necessarily capture it?
What about broader economic or societal value?
Are mining companies like Bitmain "applications"?
What if those companies have other revenue streams unrelated to blockchain?
11/ The answers to these questions will greatly affect the nature of the theory as well as its correctness.

So let's treat these questions as rhetorical for now.

Instead, let's discuss *why* such a theory might be correct.
12/ In doing so, we enter into a broader discussion of value that's being hotly debated in our space.

Here we encounter a few other theories that I'll only briefly touch on:

1. Fat monies theory
2. Utility hypothesis
3. Store of economic security
13/ Let's start with "fat monies":

If we consider base layer protocol tokens like $BTC and $ETH as "base monies", then it follows that the value of base money could be enormous.

tokendaily.co/blog/the-best-…
14/ Note how this isn't actually in-congruent with fat protocol theory. It's simply a re-framing that attempts to explain why what we observe might be correct for certain assets.
15/ There is also a prevalent "utility hypothesis" that I tend to support.

In fact, I think "fat monies" and "utility" are not mutually exclusive and that $ETH is an example of a token that straddles both.

...but that's a whole other discussion.

multicoin.capital/2018/03/15/pat…
16/ Finally, I've also written about the "store of economic security" theory that posits that the security that base protocols -- whether #Bitcoin or #Ethereum -- provide for apps on top might *reinforce* their value and drive future investment.

17/ So, if we really want to re-frame fat protocol theory, it's important to clarify a few things:

1. Clarify what we mean by applications
2. Clarify what we mean by value
3. Attempt to explain why this theory may prove correct
18/ As a general theory, I tend to think that base protocols *may* exceed value in the narrower software application sense but certainly not in the broader societal and economic value sense.
19/ Attempting to explain why is arguably more important and where things get complex so I'll end by saying it seems unlikely that a single theory is going to perfectly capture the complexity of base layer protocol token valuation for several reasons:
20/ Cryptocurrencies

- Are emergent commodity monies wrapped in tech
- Their tech is evolving
- The tech around them is evolving
- They have emergent cryptoeconomic properties that are subject to extra-protocol forces (such as access to hardware and cheap electricity in PoW)
21/ What matters then is to stop treating theories as gospel and refine as new data emerges. We're all learning together and we're all going to be wrong at times.

The open-minded will adapt their thinking based on new evidence.

The close-minded will deride and be forgotten.
22/ Original theory here:

usv.com/blog/fat-proto…

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More from @panekkkk

Sep 8, 2018
1/ A thread on "open finance" lending. 👇

"Open finance" is a simple descriptor that applies broadly across a large class of SC-facilitated crypto-primitive fin protocols + apps.

It has no specific meaning but I think of it as "open source" meets "increased accessibility".
2/ @DharmaProtocol is an "open finance" lending protocol. It lays the foundation for building user-facing crypto lending apps on top.

As a protocol, it is agnostic. It is as open or as closed as the apps (and their underwriters/liquidity providers) on top want or need to be.
3/ Here are some apps that @DharmaProtocol facilitates to make lending more "open" (ie, "more accessible"):

CRYPTO-NATIVE DEBT

Borrowing against NFTs or cryptocurrencies is currently underserviced, too expensive, or not serviced (no one will underwrite it) today.
Read 13 tweets
Jun 18, 2018
A thread on devs + daily active users (DAUs) 👇

- #Ethereum code school CryptoZombies trained 208k+ users and is growing by 30k+/mo
- Truffle has 580k dls, up 56% last 3 mo
- MetaMask has >1m users
- GitHub lists 14k $ETH-based repos and 220k commits
- 1500+ dapps are in dev

/1
- ETH does more tx and active addresses than BTC
- No, batching doesn't make up the dif in tx
- Of the top 100 tokens by MC, 94% are built on Ethereum
- EEA boasts 500+ members
- Brazil, Canada, Zug, Chile, Dubai, and Estonia are experimenting w/ government apps on Ethereum

/2
On the topic of daily act addr (DAA):

Value transfer is a use case and those *transacting value daily* are DAUs you morons.

Fundraising with $ETH = MOE.

By DAA, Ethereum has as many or more users than BTC.

/3
Read 11 tweets
Jun 4, 2018
1/ Holy s&!@ this IMF report is a master class on #crypto macroeconomics. This needs way more attention!

"Monetary Policy in the Digital Age. Crypto assets may one day reduce demand for central bank money."

Dat subtitle tho...

$BTC $ETH

imf.org/external/pubs/…
2/ The premise:

- Crypto has rekindled the debate about whether advances in IT can render central banks obsolete
- Author: "To fend off potential competitive pressure from crypto assets, central banks must continue to carry out effective monetary policies"

Whaaat!?
3/ Current state:

- For now, crypto assets are too volatile and risky to pose a threat to fiat
- And they do not enjoy the same degree of trust that citizens have in fiat
- However, continued innovation and longer track records may reduce volatility and boost adoption
Read 17 tweets
May 31, 2018
1/ Great post about on- vs off-chain governance!

One contention:

I’m not certain exit costs from blockchains are low.

To explain we need to define two types of exits:

1. Individual user exit
2. Group exit by forking
2/ In individual exit, costs are lower but not necessarily “low”.

There needs to be another option. And that option needs to hold enough of the fundamental properties that you value to exit.

And what about network effects?
3/ In a potential future where an SC protocol like #Ethereum hosts 1000s of apps, exiting may mean exiting the entire ecosystem.

Interoperability b/w chains may lower this cost and the cost is lower still for non-SC “currency only” chains, but the cost is not necessarily “low”.
Read 8 tweets
May 30, 2018
Interesting thread! Thoughts:

1. Most usage for all crypto today is value tx due to speculation. Same for $BTC as for $ETH.
2. Value tx is a use case! Expecting early SC platforms w/out mature dapps to have dapp users is like asking why LN isn't being used yet for payments?
3. On-chain tx vol has dropped likely b/c of chilled ICO environment (+ market crash). Can't ignore the broader market contexts.
4. "Next few months" are likely meaningless in terms of competition. New chains need to launch, attract devs, launch apps, etc. Next 12+ months maybe?
5. Indeed, capital raise as a use case will see swifter competition but network effects, security, trust, token standardization, liquidity (fiat pairs) are still barriers that may not be easily overcome.
Read 7 tweets
May 30, 2018
1/ Most don't know this but every tx in $EOS must include a hash of the EOS Constitution.

This binds users to the constitution and failure to include it may be grounds for invalidating a tx. 🤦‍♂️

Here is the most recent draft: bit.ly/2IYjqVa

$BTC $ETH
2/ The 1st draft was written by -- wait for it -- block.one's VP of Product: bit.ly/2L8kYca

Some highlights...
3/

I. No lying. No user of this blockchain shall make knowingly false or misleading statements, nor statements that constitute discrimination or harassment, nor profit thereby.

If you lie about your age anywhere ever you will be in violation.
Read 16 tweets

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