The Future of Value Capture: From Platforms to Protocols

Centralized exchanges and custodial wallets capture ~90% of user fees while providing minimal protocol-layer innovation. This creates misaligned incentives and stifles composability.

• Value Extraction: Platforms like Coinbase earn billions from trading fees, while the underlying protocols (e.g., Ethereum) see a fraction.
• Innovation Tax: Builders must pay rent to gatekeepers for distribution, slowing down the permissionless flywheel.

Protocols like Uniswap, Aave, and MakerDAO are becoming their own liquidity centers, capturing fees directly via treasuries and governance.

• Direct Value Accrual: UNI, AAVE, and MKR tokens accrue value through fee switches and protocol-owned vaults.
• Reduced Rent Seeking: By owning the liquidity layer, protocols cut out intermediary platforms, reducing costs for end-users.

Systems like UniswapX, CowSwap, and Across abstract execution complexity, allowing protocols to compete on outcome quality, not just liquidity depth.

• User Sovereignty: Users express what they want, not how to do it. Solvers (like 1inch Fusion) compete to fulfill the intent.
• Protocol as Conductor: The protocol becomes a coordination layer, capturing value by orchestrating the best execution across fragmented liquidity.

Protocols evolve into full-stack economic engines (e.g., EigenLayer for security, Celestia for data). Value capture shifts from application fees to network security and data availability rents.

• Meta-Protocols: Restaking protocols capture value by selling cryptoeconomic security as a service.
• Infrastructure Primitive: Modular data layers like Celestia monetize block space, not user transactions, creating a more stable fee model.

Centralized platforms like Spotify and App Store capture >30% of creator revenue as rent. Web2's value flow is a leaky pipe where intermediaries siphon the majority of profits.

• Value Leak: Middlemen capture value without adding proportional utility.
• Opacity: Creators have no visibility or control over fee structures.
• Lock-in: Value is trapped within walled gardens, stifling composability.

Smart contracts transform royalties from a policy into a self-executing, on-chain primitive. Protocols like Manifold and Zora enable enforceable splits at the NFT contract level.

• Automatic Enforcement: Royalties are a hard-coded property of the asset, not a marketplace option.
• Composable Splits: Revenue automatically routes to multiple parties (creator, DAO, referrer).
• Transparent Ledger: Every payment is immutably recorded on-chain for full auditability.

Royalties evolve from one-time payments to continuous value streams. Superfluid Finance and Sablier enable real-time, streaming royalties that update with each block.

• Real-Time Cash Flow: Creators earn per second, not per quarter.
• Capital Efficiency: Funds are never locked in escrow; they remain liquid.
• Modular Stacks: Streams can be tokenized, bundled, or used as collateral in DeFi.

The ultimate form of value capture is protocols owning their own economic activity. Models like Blur's bidding pools and Uniswap's fee switch direct value back to the network and its stakeholders.

• Fee Capture: Transaction fees are recycled into the protocol treasury or distributed to token holders.
• Aligned Incentives: Users become economic participants, not just customers.
• Sustainable Flywheel: Revenue funds development and security, creating a defensible moat.

The separation of execution, settlement, and data availability creates a race to the bottom on fees. Specialized rollups and L2s become interchangeable, forcing protocols to compete on thin margins.

• Risk: Core protocol revenue collapses as users route to the cheapest chain.
• Example: An app-specific rollup using Celestia for DA and EigenDA for security can't differentiate on execution alone.
• Outcome: Value accrues to the base layers (Ethereum, Celestia) and restaking pools (EigenLayer), not the application.

Protocols that own order flow (like DEXs) are bypassed by intent-based solvers. Users express a desired outcome, and a network of solvers (UniswapX, CowSwap, Across) competes to fulfill it off-chain.

• Risk: The protocol's liquidity becomes a commoditized backend, with value captured by solver networks and MEV searchers.
• Example: A user's swap intent is filled via a private CEX route, never touching the public AMM's pools.
• Outcome: Protocol fees approach zero; the "application layer" becomes a declarative UI.

Protocols must deploy across Ethereum L2s, Solana, Avalanche, and others, splitting liquidity and community. Omnichain middleware (LayerZero, Axelar, Wormhole) adds complexity but doesn't solve the capital efficiency problem.

• Risk: Protocol governance fails as tokenholders are split across chains; security budgets are diluted.
• Example: A DeFi protocol's $5B TVL is fragmented across 8 chains, each with <$1B, making each instance vulnerable to attacks.
• Outcome: The protocol brand is weakened, and a chain-native competitor on a single, deep liquidity pool (e.g., a Solana native DEX) wins.

Protocols depend on centralized fiat gateways (Stripe, MoonPay) and stablecoin issuers (Circle, Tether). Regulators can strangle growth by targeting these choke points, not the protocol itself.

• Risk: A MiCA-style stablecoin clampdown or banking partner withdrawal collapses usable liquidity.
• Example: USDC minting is restricted to KYC'd entities, making DeFi pools inaccessible to a global user base.
• Outcome: Protocol activity plummets; value capture is irrelevant if users can't enter the system.

Permissionless code allows well-funded teams to fork a protocol, strip the token, and launch with superior incentives. Vampire attacks are a permanent feature, not a bug.

• Risk: A protocol's $1B+ valuation is based on network effects that can be drained in weeks by a $100M incentive program.
• Example: Sushiswap vs. Uniswap, Aerodrome vs. Velodrome. The forked treasury becomes the primary weapon.
• Outcome: Continuous value dilution; protocols must perpetually bribe users to stay, destroying profitability.

No amount of formal verification or auditing eliminates catastrophic bug risk. A single exploit can destroy a protocol's treasury and reputation permanently, as seen with Wormhole, Nomad, and Poly Network.

• Risk: $1B+ in protocol-owned value is a perpetual target for state-level actors and elite hackers.
• Example: A novel vulnerability in a widely-used ZK-SNARK library cascades across dozens of "secure" rollups.
• Outcome: Total loss of user funds erodes trust at a systemic level, reverting value to custodial solutions.

Centralized platforms like AWS or App Store capture 30%+ margins by owning user relationships and infrastructure. Value flows to shareholders, not builders.

• Value Leakage: Builders pay recurring fees for access to their own customers.
• Innovation Tax: Platform changes can destroy business models overnight.
• Captive Audience: Users and data are locked in, stifling competition.

Protocols like OlympusDAO and Frax Finance bootstrap network effects by owning their core assets, turning users into stakeholders.

• Sustainable Yield: Fees accrue to a treasury owned by token holders, not VCs.
• Reduced Mercenary Capital: $1B+ TVL can be secured without unsustainable farm emissions.
• Protocol-Controlled Value: Creates a defensible moat resistant to forking.

Value is trapped in isolated chains and applications. Bridging assets is slow, expensive, and insecure, creating a $5B+ annual opportunity cost.

• Capital Inefficiency: Idle assets on one chain can't be used on another.
• Security Risk: Bridges are prime targets, with >$2B stolen in exploits.
• Poor UX: Users face multiple steps and long wait times for cross-chain actions.

Systems like UniswapX, CowSwap, and Across abstract complexity by letting users declare what they want, not how to do it.

• Optimal Execution: Solvers compete to find the best route across DEXs, bridges, and chains.
• User Sovereignty: No more managing gas tokens or approving infinite allowances.
• MEV Capture Redirection: Value from order flow can be returned to users or the protocol.

Most protocol tokens lack utility beyond governance, leading to >90% price decay from ATHs. Value accrual is disconnected from usage.

• Voting-as-a-Service: Low participation makes governance a facade.
• Inflationary Dumping: Team and investor unlocks create constant sell pressure.
• Zero-Cost Forking: Without sticky value, protocols are easily copied.

Protocols like Ethereum (EIP-1559) and GMX directly tie token value to network usage through fee burning or distribution.

• Deflationary Pressure: A portion of all fees is burned, creating a negative net issuance.
• Real Yield: Stakers earn a share of protocol revenue in real assets (ETH, stablecoins).
• Usage = Demand: Token demand becomes a function of economic activity, not speculation.