A smart contract platform must have a monetary premium, but how to achieve it?

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(ID: chainnewscom), author: Dan Zuller, partner of Vision Hill, a cryptocurrency investment institution, translation: Zhan Juan, reproduced by Odaily with authorization.With the gradual launch of many public chain projects that can support smart contracts, the markets attention has gradually shifted from magical technological breakthroughs to their ability to develop ecology, create value for the ecology, and capture value in the ecology. These capabilities are related to the projects operational level and economic model design.。

The Lianwen public account recently published an article written by Kyle Samani, the co-founder of the well-known blockchain investment institution Multicoin Capital. He proposed a set of theoretical frameworks to

Explain how exactly Layer 1 and Layer 2 protocols capture value

Almost at the same time, Dan Zuller, a partner of the investment agency Vision Hill, also wrote an article discussing how the smart contract platform should create a value premium monetary premium to become the winner in the public chain competition, and pointed out that Ethereum still has advantages in these aspects. Advantage. Dan Zuller used programmable value network in the article to refer to these public chain projects that can support smart contracts.

The purpose of this article is not to analyze the strengths and weaknesses of each of these blockchain networks relative to the others, and to deduce the likelihood that a particular network will win - I dont even think there will be a winner. This article of mine will focus more on one point: currency premium.

I believe this is a necessary component for those programmable value networks that want to achieve mass adoption and be successful.

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What is a currency premium

But how exactly does social scalability work?

We know that monetary assets must be supported by a large amount of physical capital in order to make their endogenous value reasonable and sustainable. But physical capital doesnt just appear in a vacuum; it also requires social capital.

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The interaction between physical capital and social capital

Social capital, or what some call cultural capital, refers to the network of relationships among the people who live and work in a given society. It includes relationships, shared sense of identity, shared understanding, shared norms, shared values, trust, cooperation, and reciprocity.

So, what is the relationship between physical capital and social capital?

A society of people may be reluctant to support a monetary asset without substantial physical capital behind it. However, as we have learned in the past, a crypto network can start off as an early idea with few backers at first, but over time it will be able to attract physical capital. The most typical example of this is Bitcoin. This suggests that social capital initially attracts physical capital.

However, to continue to scale, physical capital needs to attract more social capital over time, which in turn needs to continue to attract more physical capital. This suggests that the relationship between social and physical capital is circular, especially in cryptonetworks. The more people who believe the story, the more people are willing to tell it; the more people tell it, the more often the story spreads, and the cycle repeats.

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How to achieve a forward cycle?

Recall that blockchain creates financial incentives. Under this mechanism, the community is catalyzed to join forces to provide a decentralized digital product or service, and then pay for that digital product or service, or a specific digital product or service on the network.

So, what about developers?

Attract and retain developers

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Attract and retain developers

Developers are the lifeblood of crypto networks and the need for social capital development. Without developers, the network would not be maintained and its future security would be questioned.

It should be clarified that developers do not directly secure the encrypted networks they build; this task is performed by transaction validators, the “workers” above.

Every network has different security mechanisms, some of which may be more secure than others, but this is a separate post for its own analysis. The point is, developers need to maintain, upgrade, and participate in managing the encrypted networks they support socially. Appropriate financial incentives are powerful, but social incentives and interconnectedness are arguably equally powerful.

If developers abandon one network and build another based on a better UI/UX, greater computational efficiency, or simply a better sense of community or belonging, assuming the developers of this early network did not gain Sufficiently replenishing, catching up with or exceeding previous levels, then, it is unlikely that the initial network currency premium will still retain its value over time. In this case, the monetary premium that investors and workers speculate on is nothing more than an illusion.

So, what does this have to do with Ethereum and other programmable value contenders?

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Ethereum is still ahead

There is a lot of controversy surrounding Ethereums 1.x and 2.0 roadmaps, execution plans, and timing. Various complaints from DeFi/open finance enthusiasts pointing out that more than 2% of ETH supply is locked in the MakerDAO smart protocol, but ETH is also used in other DeFi/open finance applications (Dharma, Uniswap, etc.), which shows that ETH Becoming a global store of value and digital reserve asset, there is a bullish trend. However, it is more important to remember: ERC20 tokens are portable and can be transferred to other networks. Therefore, developers activities should continue to be monitored.

According to Electric Capitals March 2019 development report, Ethereum has shown extremely strong and sustained active developer growth over the past year, and among the most valuable public projects, including Bitcoin, its core and The highest number of developers overall. Thus, despite the choppy and uncertain development path of the Ethereum network, and potentially high execution risk, its developer activity continues to increase, suggesting a very broad social capital base.

If these trends hold, over time, Ethereum may command a sustainable and reasonable monetary premium as it attracts more and more physical capital.

However, this is not to say that Ethereum will not face too many challenges in the future. The execution risk inherent in the ETH 2.0 roadmap cannot be ignored, and in addition, attracting more physical capital requires a predictable, stable monetary policy and resistance to censorship. Judging by the current state of the social capital of the network, these trends appear to be headed in the right direction.

We should also remind ourselves that private programmable value networks like DFINITY, Near, Polkadot, etc. are not yet live. If these projects are better technology, will it cause developers to leave Ethereum? Could other programmable value networks generate an equal or greater monetary premium? At present, it seems extremely unlikely that this will happen in the future, but it is impossible to say that it is completely impossible.

Another thing to keep in mind is that we should not lose sight of the fact that Ethereum has a huge regulatory advantage over the upcoming Programmable Value Network because it is not considered a security by regulators.

Still, as these projects hit mainnet and are fully operational, one should keep an eye on the activity of Ethereum developers; so far, with mainnet competition somewhat limited, these developers have had a hard time considering where to build. There may not be many attractive options yet. The real test may be yet to come.