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THREE MOATS IN WEB3
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the bible for web2 moats is hamilton helmer's 7 Powers.
but these don't totally hold in web3. counter-positioning (lower take rates) and process power (better coordination) are premises of web3 as a whole.
the rest don't totally make sense in open/open-source environments.
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in web3, costs are cheap, tech is open source, and content is platform-agnostic. those kill web2 moats.
so what are the moats of web3?
i think there are just three:
— liquidity
— community
— composability
Replying to
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Moat #1: Liquidity.
the defi playbook is to *limit* liquidity through staking, bonding, memberships. less supply fuels prices—and builds fomo and demand.
that's good for protocols creating value from thin air.
but for exchanges, *increasing* liquidity is the real moat.
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to understand why liquidity is a moat, it's important to understand that no token is totally fungible.
yes, one token is worth the same as another on a micro-level.
but on a macro-level, each token is a specific token one exchange holds that another doesn't.
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exchanges with more tokens—more liquidity—enable faster transactions with more balanced prices.
that draws users, who provide more liquidity, who draw more users in turn.
it's a flywheel: better exchanges get better over time.
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so liquidity is another way of saying "network effects," with a twist.
in web2 fungible marketplaces like uber and lyft, liquidity only matters to a point.
once they have enough cars on the road, the services are interchangeable. it's why they're not winner-takes-all.
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for web3 exchanges, liquidity isn't just about having more of a given token.
it's about having more of every *type* of token, many of which have their own liquidity issues.
the real winners—opensea or genie, coinbase or ftx, uni or sushi—will feature the most token *types*.
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ultimately every web3 marketplace operates more like traditional *non-fungible* markets of individuated items—w individuated metadata.
airbnb, not uber. media, not information.
and buyers become sellers as well, accelerating network effects.
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Moat #2: Community
i've heard a few people in web3 say that "technology isn't the moat, community is."
they're right.
you can replicate technology. but you can't replicate people.
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once again, protocols succeed by cornering what's non-fungible: relationships.
there are two steps to that process.
first, acquisition: great communities draw great people.
second, retention: individuals develop relationships with each other.
daos must prioritize both.
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building a community by appealing to who's already in it is the new form of branding.
this is easy to do on-chain. protocols like and let us see the *people* in a community who draw others in turn.
web2: secret societies
web3: public societies
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the real key to strong communities is alchemy: turning individual people into shared relationships.
to make that happen, DAOs need:
— clear coordination
— clear incentives
— clearly shared interests
these are the 3 pieces of the community moat.
Quote Tweet
![](data:image/svg+xml,<svg xmlns="http://www.w3.org/2000/svg" width="24" height="24"><rect fill-opacity="0"/></svg>)
david phelps (
,)(
,
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book clubs, games, irl events, multiperson bounties: DAOs need stronger social foundations.
these build commitment by building trust, relational rewards, and collaborative routines.
but most of all, they turn DAOs from single-player freelance markets to multiplayer games.
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Moat #3: Composability
composability is the idea that in open-source environments, one person's product is another's tool.
anyone can call on another's smart contract, art, etc. to recompose it as their own.
but isn't that the opposite of a moat?
Quote Tweet
Chris Dixon
@cdixon
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Composability is the ability to mix and match software components like lego bricks. Paraphrasing @naval, it means every software component only needs to be written once, and can thereafter simply be reused. twitter.com/naval/status/1
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actually, composability is a form of network effects.
if you create a module that can plug into 1000 products easily, you'll get attention, validation, and auditing verification that will draw more demand.
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in composable environments, there's less incentive to replicate someone else's work—which is already popular—than to build on top of it.
composability turns all creation, including smart contracts, into works of art whose legitimacy is measured by impact and influence.
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composability defines two tenets of web3.
first, collaboration beats competition.
and second, the best moat is not to have a moat at all. it's to create a sandbox that anyone can play inside—to give everyone else the tools to build.
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final note:
notice what liquidity, community, and composability all have in common.
they enable *non-fungible* markets of individual items—tokens, people, smart contracts, art—that can't be replicated and maintain their provenance.
the moat is in the creations themselves.
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and finally should add that this whole thread is composable as it's building on insights from and amazing discussions with
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and an addendum:
what writes here is totally on-point.
liquidity, community, composability—these are all forms of network effects in networks of resources that seem fungible... but aren't.
Quote Tweet
Ryan Capps
@RyanConCapps
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Basically #Web3 moats are some permutation of network effects. The 3 V’s of big data (Velocity, Variety, Volume) apply to your ability to get to network effects of your Web3 apps twitter.com/divine_economy…
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Replying to
Don’t understand liquidity but yes community and composability. Too imp at this point I guess
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Replying to
“costs are cheap” isn’t necessarily true [not just related to gas]… I’m in multiple DAOs that are running into cost events their treasury can’t cover; nor did they anticipate, and now they have to refactor governance to generate funding [to cover costs]
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