THELOGICALINDIAN - A showdown amid band one blockchain investors and blockchain appliance investors is underway
A awful accepted crypto-economic theory, which states that abject layers are added admired than the applications congenital on top of them, may anon abatement out of appearance due to the booming DeFi market.
What Is the Fat Protocol Thesis?
In 2016, Joel Monegro, again a affiliate of the blockchain advance aggregation at Union Square Ventures (now a accomplice at Placeholder VC), alien a crypto-economic approach alleged the “fat agreement thesis.”
This approach proposed that abject band blockchains, like Bitcoin or Ethereum, accumulate added amount than their agnate appliance layers.
For example, this would beggarly that the absolute of all applications congenital on Bitcoin cannot accept a bazaar cap that exceeds that of Bitcoin.
Monegro’s cause of this approach in a accessible commodity looked at the top cryptoassets at the time.
Ethereum was aloof a brace of years old with no blemish use case in place, but it allowable a appraisal of a billion dollars. This is eerily agnate to accepted affairs for beginning band one networks like Cardano and Cosmos that are still in their alive bootstrapping appearance but are admired at $4 billion and $750 million, respectively.
Of the top 20 cryptocurrencies by bazaar cap, alone six are on the appliance layer. In the top 10, this reduces to two projects, Chainlink and Tether, both of which are blockchain agnostic.
However, the accepted bazaar cap of all ERC-20 tokens has now overtaken Ethereum’s bazaar capitalization.
According to a spreadsheet created by Cami Russo, the absolute bazaar cap of ERC-20 tokens is $33.2 billion. This cardinal is afterpiece to $29 billion afterwards excluding Binance Chain and VeChain, both of which accept transitioned abroad from Ethereum to their built-in blockchains.
Still, the absolute bulk of ERC-20 tokens exceeds Ethereum’s $26.8 billion bazaar cap. This amount excludes added tokens on Ethereum, such as ERC-777 and ERC-721 tokens.
Does this beggarly that Monegro’s apriorism is no best valuable? Not quite.
Redemption or Destruction of the Thesis
Three accessible outcomes ascendancy the fate of the fat agreement thesis.
First, if the bazaar cap of ERC-20 tokens starts to abatement while ETH stagnates or declines, the apriorism would be accepted as the absolute bazaar cap of Ethereum’s tokens avalanche beneath that of Ethereum.
Analysts could aspect the abrupt aeon area the bazaar cap of ERC-20s exceeded that of Ethereum to bliss on the appliance band that got out of duke and angry into a mini-bubble. Beggarly antique would bang into activity and accompany the amount of Ethereum’s appliance band afterpiece to its mean, which is beneath Ethereum’s absolute bazaar cap.
Second, the amount of ETH could pump, causing its bazaar cap to catch up with the appliance layer.
This is the adopted book for every bazaar participant, as it creates added amount on the aisle to efficiency, rather than acerbic it. It additionally confirms the fat agreement thesis.
If ETH follows its appliance layer, it sets a antecedent that the Ethereum’s absolute amount is not a beam for appliance growth. Instead, as applications abide to prosper, they annoyance ETH forth with it.
For every $1 of amount created by Ethereum’s application, x% of that trickles bottomward to ETH.
Further, this would adhesive the abstraction that badge economics and acceptance is the acceptable blueprint for a acknowledged abject layer. If teams body able incentives on the abject band to actualize alive applications and acquiesce those applications to dribble amount into the abject blockchain by funneling in added users, anybody wins.
Finally, if ETH stays stagnant, and the amount of ERC-20 tokens continues to soar, the fat agreement apriorism will be disproven.
However, for absolute acceptance of this, ERC-20 tokens charge to be account added than Ethereum over a abundant added continued period.
In the end, this would beggarly that ETH is aloof the abject bill that admiral the appliance layer, but appeal is not aerial abundant for it to anatomy a accommodating accord with the articles congenital on top of Ethereum.
This sets a abrogating antecedent that the absolute money is on top of Ethereum and not Ethereum itself.
Such an aftereffect places the cardinal two blockchain activity in jeopardy, too. It could advance investors abroad from allotment abject band improvements like scalability and security, and appear absent altcoins.
Ultimately, the angary of the fat agreement apriorism is key to Ethereum’s connected dominance.
