The discussion centers around the evolving dynamics of value within the cryptocurrency ecosystem, particularly contrasting the "Fat Protocol Thesis" with a new perspective termed the "Fat App Thesis." The Fat Protocol Thesis posits that protocols, or blockchain networks, capture more value than the applications built on them. This is attributed to the inherent weaknesses of crypto applications, which can be easily forked, and the network effects that drive users to accumulate protocol tokens as they engage with various applications. The author acknowledges the validity of this thesis, noting that over the past decade, the market capitalization of blockchain protocols has significantly outpaced that of applications. However, the author argues that the landscape has shifted, and the value proposition of applications is now more compelling. The first reason for this shift is historical cycles; the author suggests that we are at the end of an infrastructure boom, and applications are poised to gain prominence as they become increasingly undervalued. The second reason highlights a transformation in the relationship between applications and protocols. In the past, applications were largely interchangeable, but now they have developed unique user bases that create real moats, while many protocols have become more similar and less differentiated. The third and most critical reason is the importance of user engagement. As users gravitate towards platforms where their peers are active, the value of applications increases. The author notes that while some applications have dominated the market, the advent of blockchain technology has opened up new possibilities for app development, allowing for innovative experiences that were previously unattainable. This shift suggests that applications can thrive without being solely dependent on rising token prices, as they can now offer genuine utility and engagement. The author expresses optimism about the future of applications, suggesting that they can generate substantial revenue and provide value to users in ways that traditional models cannot. This potential for applications to reclaim blockspace and create new revenue streams raises questions about the traditional hierarchy of value between protocols and applications. The author concludes that while protocols will continue to play a vital role, the next wave of value in the crypto space will likely flow towards applications, which are increasingly seen as the true drivers of innovation and user engagement in the ecosystem. In summary, the conversation emphasizes a paradigm shift in the crypto landscape, where applications are becoming the focal point of value creation, challenging the long-held belief in the supremacy of protocols. The author encourages a reevaluation of where value lies in the crypto space, suggesting that the future may belong to innovative applications that leverage the unique capabilities of blockchain technology.

Nearly half of the $25 billion in orderflow volume over the past month on Ethereum has come from private or proprietary applications. The trend started with DeFi summer, when transaction aggregators, wallet swaps, Telegram bots, and solver networks launched. This development supports the fat app thesis, where applications controlling user attention and order flow would accrue the most value in the ecosystem.

This post compares the concept of Token Toxicity, where stakers don't attack a protocol in fear of depreciating their staked tokens, to Slashing security. Slashing offers stronger security as it individually penalizes malicious actors, resulting in a higher cost of corruption. Protocols stand to gain more from adopting Slashing than relying solely on Token Toxicity.

Protocols are a potential alternative to walled technology gardens. They offer a level of interoperability and customization that platforms don't. A historical look at protocols suggests that their purpose has always been to simplify coordination and communication, leading to conformity over time. Protocols are not owned or mediated by any central authority, so switching protocols isn't as easy as switching platforms. While protocols are not necessarily bad, it is important to acknowledge the dangerous implications of increasingly outsourcing more decisions to them.

Taproot Wizard’s Eric Wall explained why he believes the $10 billion protocol is significantly overvalued in a post that took Crypto Twitter by storm this weekend. In the post, he expressed frustration at the redundancy of the model computations and how they are incentivized to give extremely similar results or otherwise not be rewarded tokens. Wall also noted that the models have similar content filters to ChatGPT and thus offer no benefits over centralized solutions.

The discussion centers around the evolution of smart contract blockchains over the next decade, reflecting on their origins rooted in cypherpunk values such as censorship resistance, open-source principles, and the aspiration for a democratic internet. However, as these technologies gain traction in the mainstream market, they are increasingly influenced by different priorities, including performance, cost, profitability, and compliance. The author notes that the initial vision for smart contract blockchains is often overshadowed by their commercial applications. For instance, while Bitcoin was conceived as a peer-to-peer electronic cash system, it has transformed into a financial asset, exemplified by products like Bitcoin ETFs. This shift indicates a broader trend where the original ideals of decentralization and permissionlessness are being reinterpreted in light of market demands. As smart contract platforms evolve, many emerging use cases—such as fiat stablecoins and decentralized finance (DeFi)—are not fully aligned with the foundational principles of decentralization. Instead, they leverage the underlying blockchain's capabilities for interoperability and settlement while often sacrificing some degree of decentralization. This raises questions about the future value proposition of major cryptocurrencies, as their roles become more abstracted in various applications. The author expresses concern that early adopters may feel disillusioned by these changes, but suggests that this is not the end of the movement. Rather, it marks a transition into a new phase where commercialization of crypto technologies can lead to broader impact. The commercialization process, while potentially diluting original ideals, can also facilitate the dissemination of innovative ideas to a wider audience. The author emphasizes the importance of adapting to market realities and finding ways to influence the direction of commercialization. For example, compromising on decentralization to achieve scalability can enhance user experience and accessibility, ultimately allowing for a future return to more decentralized models as the technology matures. Drawing parallels with the creative scene in Montréal, the author reflects on how cultural movements often blend with mainstream markets, leading to both commercialization and the dilution of original values. However, some artists manage to navigate this landscape successfully, balancing their roots with broader appeal, which can amplify their impact. In conclusion, while the commercialization of crypto may seem like a departure from its foundational values, it presents an opportunity for significant impact. The author plans to explore specific examples of how this opportunity can manifest in future discussions, suggesting that the journey of crypto is just beginning, despite the challenges posed by mainstream market dynamics.

Stacy Muur's recent discussions on social media highlight significant trends and insights within the cryptocurrency and Web3 landscape. One of the key observations is the evolving correlation of Bitcoin, which now aligns more closely with the Nasdaq than with gold. This shift suggests structural changes in the market that may not yet be fully recognized by all participants. Muur emphasizes the importance of privacy as a critical barrier to the widespread adoption of Web3 technologies. She points to various applications, including dark pools, privacy-focused social platforms, and healthcare decentralized applications (dApps), all of which require strong privacy infrastructure. The current method of handling encrypted data—where it must be decrypted for processing and then re-encrypted—creates potential security risks and inefficiencies. Muur highlights how @nillionnetwork is addressing these challenges, indicating a need for improved privacy solutions in the ecosystem. In the realm of gaming, Muur notes that GameFi has been a promising avenue for driving adoption, but recent trends reveal bottlenecks that have hindered growth. She references a report from @Delphi_Digital that assesses the current state of Web3 gaming, revealing that while the sector has seen a decline in market capitalization, it still represents a significant portion of decentralized application activity. Muur also discusses the landscape of airdrop programs, particularly in light of recent disappointments in the market. She provides insights into upcoming airdrop opportunities, emphasizing the potential of platforms like @MorphoLabs, which has quickly risen to prominence in the decentralized finance (DeFi) space. Another topic of interest is the impact of token unlocks on market behavior. Muur shares insights from @MessariCrypto regarding how these events can serve as sell signals, providing a historical context and tools for tracking inflation in token supply. The evolution of the NEAR Protocol is also a focal point, detailing its journey from initial development challenges to becoming a major player in the Layer 1 blockchain space. Muur outlines NEAR's commitment to enhancing developer tools and creating scalable decentralized applications. Lastly, Muur's research on Ethereum Layer 2 solutions reveals a rapidly growing ecosystem, with a significant number of new projects emerging. However, she notes that only a few have gained substantial traction, as indicated by their total value locked (TVL) and user engagement metrics. Overall, Muur's insights reflect a deep engagement with the current dynamics of the cryptocurrency market, emphasizing the importance of privacy, the state of Web3 gaming, and the evolving landscape of blockchain technologies.

Though FIT21 is a momentous step forward for legitimizing the crypto industry, issues with its current form must be addressed in Senate negotiations. The bill's bifurcation of cryptocurrencies into “restricted digital assets” and “digital commodities” ignores tokens' global and fungible nature, leading to fragmentation and regulatory arbitrage. Lawmakers should refine the bill to unify spot markets for tokens that are not otherwise securities.

The world of cryptocurrency is shifting towards the “Attention Theory of Value,” where the price of an asset depends largely on the amount of attention and investment it attracts. "Publisher-Exchanges," apps that combine attention and value, are predicted to rise, essentially becoming marketplaces of attention. These platforms could expand chances for asset creation, allowing inventive interaction and coordination. With embedded asset issuance and trading, "Publisher-Exchanges" have the potential to revolutionize how consumers interact with crypto.

This argument explains why a middle-class American who believes in the current system should support crypto. The government has been aggressively anti-crypto and in some cases criminal, like in the Debt Box case where the SEC was sanctioned for committing perjury. Furthermore, the current financial system penalizes small and medium-sized businesses by not providing adequate protections against the risks the banks take with their money. Change to this system will have to come from the outside, with competitive products that challenge the status quo through low transaction costs, self-custody, and a lower risk profile.

Vitalik Buterin is urging the Ethereum network to implement automated responses to potential 51% attacks to reduce the reliance on social consensus and improve the network's resilience. He also highlighted the importance of adopting light clients, ensuring quantum resistance, and simplifying protocols for enhanced security and usability.

The Primitives Protocol is a system designed to build consumer crypto apps on Solana. The creators exploited Solana's potential for seamless, inexpensive transactions to establish a consumer experience akin to setting up a social media profile. Their system aims to push mainstream adoption of crypto by simplifying the usually complex process. They have started working on a software development kit to support more social applications on Solana, enhancing its infrastructure and facilitating user-friendly minting.

The common practice of redirecting API calls from HTTP to HTTPS should be reconsidered. Many programmatic API clients don't keep browser-like state of things like HSTS headers they have seen. The usability-security tradeoff argument doesn't apply as APIs are mostly consumed by other software. HTTP interfaces should be disabled entirely or return clear error responses for unencrypted requests. API credentials sent over unencrypted connections should be considered compromised and revoked.

App tokens historically have had problems with value capture, proper governance, and regulatory compliance. a16z Crypto has designed a fee tracing mechanism where pools can distribute fees compliant with a token holder's regulatory jurisdiction. A curator entity could handle finding compliant frontends and users for a fee, thus removing any additional burden from protocol governance.

In recent discussions surrounding blockchain technology, a significant concern has emerged regarding the effectiveness of interoperability solutions. Billions of dollars have been invested in interoperability infrastructure over the past few years, yet the progress has been minimal. The primary advancement has been the ability to transfer tokens across different chains, but this has not resolved the underlying issues that developers face. Users continue to bridge tokens to execute actions, and developers are still dedicating substantial resources to create decentralized finance (DeFi) primitives for their rollups. This situation has led to a fragmented ecosystem where applications like Pendle operate across multiple protocols and chains. The current state of rollups is described as intra-operable rather than truly interoperable, which poses a significant challenge for developers building on-chain applications. The risk is that a developer may invest considerable effort into creating an application, only to find that the chosen blockchain lacks adequate bridge connectivity, effectively isolating their project. The critique of traditional interoperability solutions highlights their failure to address fragmentation. True interoperability should eliminate the need for bridges and liquidity bootstrapping, allowing applications to function seamlessly across chains without sacrificing performance or security. However, the expansion of blockchain networks remains slow and costly. Solutions that rely on point-to-point connections, such as LayerZero, impose high costs and lengthy engineering timelines for each new connection. This model is not sustainable as the number of rollups continues to grow rapidly. Hub and spoke protocols, like those offered by Axelar, present some improvements but still suffer from throughput and latency issues. The argument against these solutions is that they often rely on third-party setups or multi-signature arrangements for security, which may not be as robust as leveraging the security of established networks like Ethereum. To address these challenges, the introduction of Polymer Hub is proposed as a solution. Polymer Hub aims to provide applications with high-performance connectivity and minimal overhead. It promises free and rapid expansion, real-time latency, and protection against reorganization, creating a new design space for applications akin to cloud-native environments. The creators of Polymer Hub, including Peter Kim and his collaborator, believe that this approach can alleviate the interoperability concerns that currently plague developers in the blockchain space. They invite developers to reach out for more information on how Polymer Hub can simplify their interoperability needs.

Token Terminal's new Discover Page simplifies data-driven crypto analysis, making it easier to identify profitable opportunities even in a down market. This thread highlights five key insights, including the growth of protocols like Base, Aave, Avalanche, and Celo, and offers guidance on how to leverage these metrics to inform investment strategies in DeFi blue chips such as Lido, Maker, and Uniswap.

This edition of Consumer Notes highlights key developments in consumer crypto, including the rise of innovative platforms like Makememe.now, marginfi's The Arena, and dumpy.fun, which are pushing the boundaries of meme coins. It also covers major updates such as the launch of the Pudgy Penguin Consumer Chain on Abstract's testnet, Telegram's new crypto-integrated browser and mini-app store, and Blackbird's Flynet, a blockchain-based payment system aimed at revolutionizing restaurant loyalty programs.

Web Proofs, a new technology leveraging zkTLS, could unlock mainstream adoption of crypto by enabling verifiable on-chain data from any web2 source. The innovation could revolutionize crypto incentives like airdrops, expanding their reach beyond the current user base, and facilitate seamless integration of on-chain and off-chain activities, potentially disrupting traditional marketplaces.

All successful crypto products are inherently consumer-oriented. Tokens are the true crypto products - this can be seen by examining universal attributes of thriving consumer brands like desire-based pricing, power law consumption, and addictive properties. This challenges the notion of “consumer crypto” as distinct from infrastructure by suggesting that the most successful crypto applications already possess the key traits of consumer adoption.

This thread discusses the decline of on-chain DeFi, attributing it to security vulnerabilities and the rise of CeDeFi protocols. Key issues highlighted include the increased reliance on centralized off-chain infrastructure, the trend towards centralization and control by developers, and the dominance of powerful intermediaries or 'solvers,' which ultimately undermine the decentralized vision of DeFi by creating centralized storefronts that prioritize user experience and profitability over true decentralization.

Electric Capital's Annual Developer Report reveals trends around the increase in multichain development, the U.S. losing developer share, and the growth of new chains like Base and Bitcoin L2s. Infrastructure improvement has enabled the rise of social applications, which are in an experimental stage reminiscent of social media in 2003. NFTs are becoming multichain and are expected to serve as the foundation for various digital assets in the future.