Vertical mobility: how does Web3 network value interconnect?
Transaction is the most basic realization of the value network, pan entertainment is the derivative of the value network based on transaction, and coordination is the ultimate goal of the value network.
Original title: vertical Liquidity: how values are interconnected
Written by: Lewis Liao, senior investment manager of zonff partners
Some people call blockchain the value settlement layer of the Internet, so Web3 based on blockchain technology is called value Internet. As a distributed ledger, the blockchain itself is closely linked with "value". Its most basic value is reflected in:BitcoinThis point-to-point electronic cash system. With the invention of smart contract, people find that its potential is far more than this,Blockchain technology has constructed a brand-new trust system, which enables everything with "value" to be transferred between networks.
The highly decentralized nature of the blockchain makes it difficult to tamper with, and the global consensus recorded in the decentralized ledger is where all values are generated.
Smart contract is the code published on the blockchain. Due to the characteristics of decentralized ledger, it is also difficult to tamper with, but it can be upgraded to a certain extent.The smart contract solidifies the code constraints on the blockchain and enables everyone to follow the same set of governance logic through global consensus. Open source, free and unified standards creatively make smart contracts composable, and the value is connected from now on.
Token often refers to the data unit written on the blockchain defined by a certain contract standard. Through composability, it cooperates with other smart contracts to achieve the purposes of ownership definition and profit distribution through global consensus, thereby financializing the scenario, and then realizing multi-party governance and coordination under the scenario, thus exchanging value.
Carrier of value flow
The value flow carrier of Web3 is the basic element supporting the value flow of the whole network.According to the different levels of abstraction, we divide it into three layers. The lowest layer is the exchange medium and the value storage, which is the medium of value flow; The second layer is identity, relationship and property right, which defines the basic structure of social trust; The top layer is decentralized organization and society, which is based on the second layer and inherits the new human cooperation mode.
1.1 exchange media and value storage
The most direct value of homogeneous token (FT) is "value storage" and "exchange medium". As the value recorded in the distributed ledger, scarcity is the basis for its value storage. The continuous supply of buyers and sellers is the reason why token continues to exert its value. Illiquid currency has no value. Therefore, as a medium of exchange, not all homogeneous tokens are valuable. What needs to be established here is not only a global consensus based on the literal meaning of the ledger, but also a global consensus based on the psychological utility. This psychological utility is also called internal coordination by some people. Internal coordination describes how the digital media as a whole reflects the internal & amp; Organic content verification system.
Contrary to hype driven, narrative driven and meme driven markets, distributed point-to-point learning is the main driver of investment interest. The more meme marketing and publicity, the more people call encryption a Ponzi scheme. But the deeper the content clues and thought fragments, the more outsiders and onlookers will believe its value.
A typical example is eth. At present, BTC's mission is more a better value storage, and eth has gradually become a hard currency in the blockchain world. This is not achieved by hype, narration and meme, but by the content consensus formed around the distributed peer-to-peer learning of eth. The ETH ecosystem is constantly being built and developed, producing more and more utilities, such as smart contract standards and Ethereum login. meanwhile Vitalik As one of the most influential KOLs in the blockchain world, it constantly leads the innovation of blockchain ideas, from blockchain governance to capacity expansion and finally to soul binding. Ethereum soul figures represented by vitalik have a very high influence in driving industry cognition and thought improvement. These in-depth content clues and thought fragments make the outside world full of confidence in the value of Ethereum.
As a homogeneous token, the value flow can either be used as a pure exchange medium like bitcoin, or it can have various functions like Ethereum, or it can be used as a pure stable currency for online circulation like usdt.
The model of bitcoin is the store of value hypothesis (SOV). The SOV system design can be simple and useless but needs to be strong and stable. It flows through the value Internet in the form of value storage media. This flow can be slow and low-frequency, and performance is not its first consideration. It needs to have world-class autonomy, anti censorship and security. Monero, zcash and other monetary assets of this type.
The Ethereum model is the utility hypothesis. The utility system design needs to pursue performance and function. It is based on smart contracts and is oriented to solve real problems in real life or the network world. These utilities include but are not limited to transaction throughput, speed, privacy, price stability, flexibility and programmability of contracts, and so on. Similarly, it is also pursuing world-class autonomy, anti censorship and security. Although some people think that this aspect can be compromised, bitcoin cash is also a currency asset of this type（BCH）Sol, BNB, etc.
Usdt belongs to the category of utility hypothesis, which needs to give full play to the utility of price stability. Its biggest feature is that it turns electronic currency into cryptocurrency, so as to realize platform level or even world-class anti censorship. Anyone can have a cryptocurrency that is always equivalent to legal currency (such as US dollar) as long as he can connect to the network at any place and at any time. This kind of influence is far-reaching,In the traditional world, there are various restrictions and obstacles in converting domestic currency into legal currency such as US dollar. Stable currency breaks these restrictions and makes currency circulation more free. This is a scenario with great potential. This type of currency also includes usdc, Dai, bus, etc.
1.2 identity, relationship and property right
The blockchain will become the only source of truth in the digital world. Tim Sweeney of Epic Games has publicly stated that "the meta universe can only exist after having a real digital native property system. The blockchain is providing such underlying capabilities.". Kevin Kelly mentioned in the book "necessity" that "we can not prevent large-scale free copying, which will not only destroy the power of wealth creation, but also stop the Internet itself.Free flowing replicas have left a mark on the nature of the Internet, the global communication system. Network technology requires unrestricted replication, and replicas must flow. ".
The duplication of the digital world is inevitable, which is one of the essence of the Internet. The Internet adds value to free replicas through its originality, thus making them marketable goods. The blockchain defines the property rights of the original free replicas through global consensus, and derives the definition of identity and relationship.
The technical means to realize these include non homogenous token (NFT), soul bound token (SBT) and decentralized identity (did).
NFT is a revolution in digital ownership. It is defined and "cast" by smart contracts. It cannot be copied or tampered with. It can be used as a "digital fingerprint" of physical collections and virtual assets such as images, music and game props. It defines the property rights, relationships and identities that can be exchanged. People can purchase NFT of encrypted art works to declare their sovereignty, purchase proof collective or bayc to obtain membership of corresponding clubs and enjoy corresponding value-added services. They can also buy NFT of stepn running shoes to own a pair of digital running shoes, and use it to "run" and get corresponding feedback. However, identity, relationship and real right are not all tradable, and it cannot define the whole of social ownership.
SBT realizes the definition of non tradable rights, which is the ladder to a decentralized society. Such identities and relationships as personal contribution, position and skill certification are not tradable. It describes a person's ability, experience and identity, just as it describes a person's "soul". It has many application scenarios, such as social recovery of wallets, skill certificates, unsecured lending on the chain, decentralized governance, and so on. Combined with NFT, they enable all people to decompose, trade, share and own rights in the digital world.
Did defines the identity of individuals in the digital world. It is the basic component of the sociality of the digital world. It makes the flow of value not only stay at the financial level, but also extend to the social credit level.Due to the lack of native Web3 identity, today's defi ecosystem cannot support the activities prevalent in the real economy, such as loans with insufficient collateral or simple contracts such as apartment leasing. SBT is a small step to create this social identity. The construction of composability and composite meaning is the key to the application of did. Composability needs a unified standard, and the construction of composite meaning includes prediction model based on user data, composite artificial intelligence and programmable composite privacy.
The digital construction of identity, relationship and property rights is of far-reaching significance. It enables Web3 to widely transform society, not just the financial system. All of today's social structures can therefore be built in the digital world and avoid witch attacks, conspiracy and material over financing.
1.3 decentralized organization and society
The improvement of social trust level is beneficial to economic development. Its influence mechanism is that trust directly affects the scale, organization mode, transaction scope and transaction form of a social economic entity, as well as the scale and intensity of non direct productive profit seeking activities in society. As a basic technology, blockchain technology has built a value network system of de trust through the successful definition of identity, relationship and property rights, the realization of economic incentives through tokens, and the realization of governance logic through smart contracts. This value network based on cryptography provides a new social organization mechanism. These networks are constrained by protocols and protocols are constrained by mathematics. The relevant parties can participate in the governance of the agreement in a trustless manner in accordance with the provisions of the agreement, and cooperate with each other, jointly produce and distribute profits. For the first time, human beings can coordinate a large number of relevant parties in a real-time and trustless manner on a global scale, greatly reducing the cost of trust seeking by the relevant parties, thus reducing transaction costs, expanding social division of labor, production and transaction scale, stimulating economic vitality and promoting economic development.
Decentralized autonomous organization (DAO) is the embryonic form of this new social organization mechanism, and decentralized Society (desoc) is the end point of this organization mechanism.In 2022, a variety of Dao organizations are springing up. The decentralized cooperation within these organizations needs to improve the organization's incentive rules, reward contributions and punish evil doers, and make decisions on asset disposal and organization development through proposals and voting, so as to ensure that everyone in the organization has the right to speak, all behaviors are open, and rules will be coded into decentralized autonomous organizations.
In the traditional world, literature, thinking, science, laws and regulations and other modern civilizations are all created on the paper media. Every word written in books records the culture and rules of the traditional world. It is difficult to tamper with. A broad consensus has been reached through the dissemination of books. In the digital world, the code logic is the digital laws and regulations. The traditional Internet can only provide platform level centralized credit and security commitments, which is very fragile. The governance rules defined by the blockchain technology, like the legal provisions in the real world, need to be amended by the people's Congress. Even hackers can hardly tamper with the rules. Civilization products such as literature, thinking, science and laws and regulations can exist in the digital world in new forms. It is written on the blockchain, just like written in books. It is real, touchable and inheritable.
At present, many conditions are not satisfied. The lack of infrastructure conditions makes the current Dao still maintain a strong centralized operation. At the same time, although many construction contents are public, they are difficult to trace, verify and tamper with, such as the records of members' contributions, certification and profit distribution. These contents still require a lot of labor costs, are inefficient and still have the possibility of fraud.
There is still a lot of work to be done in this new form of cooperation between decentralized organizations and society. In addition to technology, there is also a need for a lot of exploration and innovation in the governance mode.
1.4 value network stack
We try to describe the stack of Web3 value network:
The bottom layer is the blockchain technology itself,Since its birth, it has been constantly innovating. At present, the most mainstream view is that the first layer blockchain network and the second layer blockchain network are combined to modularize the blockchain, so as to improve the performance of the blockchain.
The second layer is the state converter and middleware,They connect the protocols built on the blockchain and the blockchain itself, and state converters such as EVM and carirovm, zkevm, zkvm of the layer 2 network. Middleware mainly includes storage, index, node and message delivery. Storage solutions are constantly upgraded and innovated, from IPFs to filecoin to arweave to ceramic, and so on; The index tools mainly include the index of data on the chain (such as the graph) and the index of storage tools (such as kwil), whose main purpose is to convert the data that is difficult to be directly used into a data set with friendly format and convenient use; The node provides some hosting services to facilitate developers to quickly test and build their own protocols. It also provides some functional APIs such as storage service APIs to facilitate developers to call directly and improve development speed; The messaging tool is used to open up the communication between the chain and different blockchains. In general, it includes Oracle (such as chainlink) and cross chain protocols (such as connext).
The third layer is token and smart contract,They are the continuation of the value flow scenario. Tokens can be used as a medium for value storage and exchange. The combination of smart contract standards and tokens makes tokens have governance effect. The code contract logic deployed on the blockchain has innovated and optimized the circulation of tokens from the perspective of liquidity, such as AMM based DEX (e.g Uniswap）Mortgage lending (such as AAVE), insurance and derivatives (such as GMX and dydx of the perpetual contract exchange), etc.
The fourth layer is a user terminal,They are the entrances to the value flow scenario, including deposit and withdrawal solutions, wallets and dapps. The difference between DAPP and layer 3 protocol here is mainly that it refers to the application itself, which is not composable, while layer 3 mainly refers to the protocol itself, which is composable. Meanwhile, DAPP also has more complex interaction scenarios, such as gamefi has a lot of playable content and interaction, and socialfi has a lot of user interaction content, which is independent of the protocol.
The fifth layer is decentralized organization,It is not only the use of the value Internet by individuals, but also the collaboration of a group of people under the value Internet. It requires more cooperation between people. These cooperation methods are not clear at present. We call these collaborative dapps Dao tools (such as dework).
Source: zonff partners
The whole value Internet stack supports the value flow scenario. There are still many technical solutions that are not perfect, and the mode of cooperation between each component is constantly changing. We realize that there may be some adjustable places in the classification of some modules, and great innovations are constantly taking place in the encryption field. This chart may be difficult to include. This is a dynamically adjusted version of the stack model for peer exchange and discussion.
Realization scenario of value network
Value flow is generated in the interaction between entities, which can be human, robot, digital goods or even a fixed smart contract code. In this process, it involves the definition of identity, relationship and rights, thus generating sociality. The link connecting this sociality is trust. The blockchain centered value Internet is reducing this trust cost, including investment, consumption, certification and credit endorsement.
Transaction is the most basic realization of value network. When it comes to trading, we will immediately think of consumer behaviors such as food, clothing, housing and transportation, and financial behaviors such as investment and loan in our life. However, the blockchain is not born to accept the financial transaction scenarios in real life. It provides the truth of the digital world. In the short term, real-life legal tokens and financial transactions will not and need not be optimized and replaced. When we examine the protocol or application of a trading scenario, we should think:
Does it solve the transaction scenario problem of real interaction or digital Nativity?
If it is a real interaction, is this issue important at this stage? Will it bring large-scale applications?
If it is digital native, why should this transaction problem be solved?
Is the problem it solves optimized or innovative compared with competitive products?
Is its implementation scheme safe (such as low degree of decentralization and immature technology)?
Does the specific transaction scenario need to guarantee privacy?
Pan entertainment is a derivative of value network based on transaction. The entertainment here includes games, fan economy, content consumption, etc. all the entertainment related to the community and financial behavior can be included. Unlike the transaction, the main services of the entertainment scene are not related to the blockchain, and the blockchain is only used when the financial scene is involved. However, it is often overlooked that the data generated by users in the process of using these applications should also be considered as financial scenarios. As one of the production factors, data's capital attribute determines its financial attribute. The traditional Internet grabs a large number of benefits from the data capital provided by users. The traditional technical architecture and application logic make the centralized entity itself have no power to return the benefits originally belonging to users. The lag of laws and regulations supervision leads to the monopoly of the centralized entity on data and the lack of consciousness. When we examine the application of a pan entertainment scene, we should think:
What kind of financial problem is it solving?
What is its decentralization plan?
How does it handle user data?
Does it provide a new profit distribution mechanism?
What is the distribution of power in the application? How do entities interact?
Coordination is the ultimate goal of value network. By redesigning money, providing a large number of public goods and inventing a governance mechanism based on cryptoeconomics, the blockchain coordinates the division of labor, production and life of people and goods in a new way. This is a medium - and long-term goal, although we have seen a non-standard form - decentralized organization. At present, most decentralized organizations are not standard. They have strong centralized content, but they are not as serious as the company and the government. They are like a gang, with strong leaders and common vision. This is mainly because people have not explored an efficient decentralized cooperation mode at present. This process is an evolutionary process, and it needs to meet problems and solve them, so as to generate more Dao tools and provide weapons for decentralized coordination. When we examine the application of a coordination scenario, we should think:
What kind of coordination problem is it solving?
Is it decentralized and how efficient is it?
How does it handle user data?
Blockchain has brought rules and truth to the digital world. In the modern era when human real society and digital virtual society are further integrated, the changes brought by this technology are predictable. At zonff partners, we believe that Web3 will create a value layer for the Internet. Human beings can truly own and freely dispose of their own assets in the digital world. Data will become mobile assets, and trust between entities will be guaranteed by the network, thus forming a more efficient form of human coordination and improving production efficiency.