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A Summary of

Fat protocols

Joel Monegro
Union Square Ventures
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The Internet stack is composed of “thin” protocols and “fat” applications because in terms of generating revenue, investing in applications has proven to be much more lucrative than investing in protocols. In the blockchain application stack, however, the relationship between applications and protocols is reversed.


The pattern of “fat” protocols and “thin” applications is best illustrated by the two major blockchain networks like Bitcoin and Ethereum, whose market caps are respectively $10B and $1B.


  1. The shared layer data - users can replicate and store data across the decentralized and open network accessible to anybody. This creates a market where, in order to succeed, competing services must reduce costs and build better products.
  2. Cryptographic “access” token - tokens affect value distribution via the token feedback loop; when a token value rises, it attracts the attention of speculators and entrepreneurs. The investors now become the stakeholders in the protocol, becoming financially interested in its success which further increases the value of the tokens.

Key Takeaways

  1. The feedback loop is primarily driven by speculation. Sometimes interest grows faster than the supply of tokens which can create a bubble-style appreciation. Excluding intentionally fraudulent services, it is considered a positive thing as speculation is said to reinforce technological innovation.
  2. The market cap always grows faster than the value of applications because the success of the application drives further speculation at the protocol layer.
  3. The result is a competitive and thriving market of applications and the bulk value distributed to a vast number of shareholders.
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