Fat Protocols

The mechanism is about where the token accrues value versus where a company accrues value. An internet application moat comes from hoarding proprietary data that competitors can't access. A blockchain application typically can't hoard its data — it's on a public, shared ledger by design — so a competing application can often just fork the code and data and compete directly, weakening the individual application's moat. But the protocol token itself (Ether, for example) is required to use the network at all, so as more applications launch and succeed on top of a given protocol, demand for the underlying token rises in tandem, meaning value concentrates at the base layer rather than the application layer — an argument that directly justified tens of billions of dollars of 'Layer 1' investing rather than application-layer investing during the 2017-2021 crypto cycles.