Capturing value in crypto: multi-sided platforms!

Multi-sided platforms are the basis for capturing value in cryptocurrency. They bring together various parties such as founders, investors, miners or validators, developers and end users through smart contracts.

At the first level of the incentive structure, the founding team proposes an idea for the protocol, and the founders and team load the value basis of the token. Investors provide financial capital, miners or validators provide production capital, and third-party developers create useful applications using human capital. Ultimately, end users gain access to the platform's functionality.

The protocol is a common ground for all five parties: founders, investors, miners or validators, developers and end users. All of them are combined using a smart contract.

However, there is a paradox of value capture. If the model works, it can be copied and replicated, but level one security is key. Network effects play an important role because the value of a network to a new user tends to increase in proportion to the number of existing users. The more people use a currency or platform, the more people want to use it.

There are also cross-network effects. The more developers there are, the more useful the platform is for end users. The more financial capital, the more valuable the network is to miners or validators. Network effects also occur within each of these groups.

The business model at the first level includes a multi-sided platform with five components. It should be community-managed and a stand-alone program.

At the second level there are smart contracts. For example, the multi-sided platform Maker provides loans. Lenders offer loans, borrowers take them out, DAI holders use loans, Dai custodians protect the network, and MKR holders manage financial capital.

There are also other platforms such as Uniswap and Compound that also use smart contracts to provide functionality and security.

Layer 2 security is based on network effects and feedback loops. As the protocol's assets grow, the risk to users decreases.

Thus, the main business model in cryptocurrency consists of a multi-sided platform and network effects. This allows you to create value and provide protection for everyone involved.