Fat Protocols | Union Square Ventures

“The market cap of the 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. And again, increasing value at the protocol layer attracts and incentivises competition at the application layer.”

In other words, companies are valuable when they continuously extract value for shareholders. Protocols are valuable when they continuously create value for the public. ([View Highlight](https://instapaper.com/read/1492780094/19098815... See more

Presently, the dominant blockchain/Web 3.0 application is decentralized finance, but I think it’s easier to see the value of where things are heading, and to allay worries about hype cycles, pyramid schemes and speculative bubbles, if we look past the purely financial stuff. Once you start to dig into some of the applications that venture capitalis... See more

To rewind a bit, the reason the topic of how consumer applications build businesses is up for debate is because value in crypto has primarily been captured so far on the protocol layer, essentially in transactions that happen behind the scenes of the apps we use.

Early versions of token distributions have led to unsustainable dynamics wherein speculators are rewarded instead of those who are adding consistent value to networks through actual usage.