Alex Treece: Intangible Reasons Ethereum and Bitcoin Lead


Decentralized finance (DeFi) is exploding. The amount of capital locked in DeFi, an imperfect yet useful measure of traction, recently hit all time highs of $35 billion. 

Today, Ethereum is the dominant network for DeFi in all important metrics, including capital flows, locked capital, number of projects and developers. 

Alex is a co-founder at Zabo, a platform enabling fintechs and financial services companies to easily connect cryptocurrency accounts to their applications.

The exploding growth in DeFi has stoked an already fierce battle among smart contract platforms, aka “Ethereum-killers,” to win share of the emerging category.  

Tushar Jain, partner at the crypto venture firm Multicoin Capital recently made comments on Twitter calling into question Ethereum’s DeFi dominance:

Jain’s view is held by many smart investors and can be summarized as: eventually higher performance, better designed, less expensive networks will start to eat into Ethereum’s DeFi market share. 

Indeed, investors have poured billions into competing smart contract platforms in support of this exact thesis.

Yet, despite many competing platforms launching and deploying vast amounts of capital in their efforts, Ethereum’s network effects and moat are inexplicably as strong as ever. How is this possible?

It’s possible because Ethereum has powerful intangible assets that are incredibly difficult to reproduce and compete with.

This isn’t a new dynamic – intangible dominance has long been observed and impacted traditional markets and companies too. 

Coca-Cola, Google and… Ethereum?

You can generally split up assets into two categories: tangible and intangible. 

Tangible assets are physical in nature – things like money, equipment and servers. For computer networks, a tangible asset might include how much computational power can be delivered or how fast a query can be run – things based on underlying physical properties of the network. Given tangible assets’ physical nature, they are quite easy to quantify and measure.

By contrast, intangible assets do not exist in physical form – such as intellectual property, brand recognition and trust. Intangible assets can be very difficult to quantify, making it harder to spot their influence on final outputs like earnings or number of connections in a network. Intangible assets can also be incredibly difficult to replicate, because their creation often relies on something far more complex, like the thoughts of a human brain. 

Investors have long known that successful companies have strong intangible qualities giving them the ability to accrue outsized value and stay highly competitive for long periods.

Consider a company like Coca-Cola. Imagine you created a cola that tasted even better than Coke (“higher performance”) and supplied enough capital to build a better world-wide distribution network to rival Coca-Cola’s (“more scalable” and “less expensive”).

Investors have long known that successful companies have strong intangible qualities giving them the ability to accrue outsized value Barbacha

can escape Bitcoin’s intangible gravity. 

Twelve years and thousands of competitors later, Bitcoin continues to convert an outsized portion of the incremental crypto user. See also: Money Reimagined: Bitcoin and Ethereum Are a DeFi Double Act

The only network with a brand, loyal following and network effects similar to Bitcoin is Ethereum. It obtained them by creating completely new categories – smart contracts and DeFi – that did not compete with Bitcoin directly. If Bitcoin and internet businesses with powerful, intangible network effects are any indication, we’re headed towards more dominance for Ethereum, not less, driven by an ever expanding intangible moat. 

So what’s a competing technologist to do? Stop building? Stop investing?

Technologists should keep building and investing in new categories where the authenticity of their product and vision will attract not just users, but loyal followers. 

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