Protocol Alliances - The Daily Gwei #221

It's all about the humans.

The “layer 0” of all crypto-networks is humans - they are the ones that decide which node software to run, which network to “align” themselves with, which coins/tokens to buy, which community they want to be apart of and more. Because of this, we see tribal factions emerge across each ecosystem which creates both divides but also alliances.

As the crypto ecosystem grows, one major thing that we’ve been seeing more and more of is this concept that I like to call “protocol alliances”. Now, these alliances aren’t explicit and there are no central parties signing legal documents or anything like that - rather, these alliances are implicit based on how different actors in a given community behave. For example, there are certain “sidechains” or other layer 1 blockchains that the Ethereum community is on good terms with (such as the Matic PoS chain/Polygon), because they are Ethereum-aligned and friendly in various ways (the Matic PoS chain also commits itself to Ethereum for security benefits). Meanwhile, there are plenty of other layer 1 blockchains, commonly referred to as “Ethereum killers”, that are openly hostile and are not shy about their intentions to take market-share away from the Ethereum ecosystem.

On the flip side of all of this is people commonly saying that “the pie is big enough for multiple ecosystems to exist” and while I agree with this statement on the surface, it comes with a rather large caveat that not all communities are going to play nice with each-other. We can draw parallels between real-world nations and crypto-networks to drive this point home a bit further. Let’s say that one particular nation (NationA) is openly hostile to another nation (NationB) and has even gone as far as to sanction NationB. How do you think NationB is going to respond? Do you think they’ll be kind and let NationA walk all over them? Do you think they’ll sign preferential trade deals with NationA? Will they lay down their arms and give up their independence? Well, some nations might if they don’t feel like they can adequately defend themselves, but usually we see some sort of resistance.

Though the beautiful thing about expressive protocols like Ethereum is that they are not like nation states because they are not centralized. Anyone can build a bridge into a decentralized and permissionless crypto-network and anyone can build whatever they want on the network provided that it follows the rules of the protocol. There is no central party saying that a hostile blockchain can’t vampire attack or create bridges out of Ethereum - hell, we’ve seen BSC do just that over the last few months! What this ultimately means is that a protocols defense has to come from its layer 0 in the form of public denouncement & mockery, educational resources to fight back against misinformation, innovation & building to out-compete the “competition” and more.

These “protocol alliances” are not just limited to layer 1 blockchains either - we have been seeing it play out on the application layer as well. Some examples of this include the Iron Bank initiative between Cream and Alpha Finance as well as the recently announced ‘Direct Deposit Dai module’ initiative from Maker and Aave. This should be obvious but just like in the non-crypto world it is far better for humans to cooperate with each-other rather than be hostile for a variety of reasons. Though, in the crypto space, it unfortunately pays to be hostile and drum up competitive narratives as we’ve seen plenty of “Ethereum killers” increase greatly in value on the back of these narratives.

All of the above isn’t to say that the crypto ecosystem is a zero-sum game and that it’ll end up being a “winner takes all” market. My main point is really that we shouldn’t expect people to react in friendly ways to those who are hostile to them - especially when there are very large monetary incentives at play. I strongly believe that crypto-networks live or die over the long-term based on the communities that they are able to cultivate and these communities can only survive & thrive if they are able to defend themselves and stick together to fight off adversaries.

Have a great day everyone,
Anthony Sassano

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All information presented above is for educational purposes only and should not be taken as investment advice.