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Fat protocols are not an investment thesis

Jake Brukhman
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Fat Protocols

  • As digital assets enable decentralized value and information networks, the protocols which they implement are now “fat” while the application layer is “thin”
    • “Fat” meaning monetizable at the network level using cryptoeconomics or a token
  • Private equity of centralized companies is usually the sub-optimal method of investing in decentralized networks
    • Investors make informed decisions about how to best structure investments into blockchain when they take time to understand the complexity of it 
    • Examples are cryptofunds, SAFTs, smart contract vesting, etc
  • A solution for need for new investing methodologies is investment for exposure to network’s cryptoeconomics

Problems with investing on base protocols

  • Protocols are general, and every layer of functionality is a protocol for the stack above and an application of the stack below 
  • The intuition that protocols lower in the stack are more applicable is incorrect because of modern decentralization and interoperability
    • In an outcome for protocol market share where many protocols win, an investor is probably better off diversifying across the protocol silos of their competitors
  • Ability of a base protocol to capture value of its higher application stack is situational and has a complicated relationship with protocols underneath
  • As mainstream user bases are introduced to cryptoeconomics, the short to medium term growth lies in successful consumer-proximate applications
    • Value will flow into semi-centralized niches of the functionality stack, off-chain solutions, and managed experiences


  • Diversification needs to happen vertically in the protocol stack, not horizontally in its base layers for most investors
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