The Power of Network Effects

I view Ethereum as a sort of massive decentralized & open computer on which anyone can build whatever they want without requiring anyone’s authorization. Additionally, since most of the projects/contracts published on the Ethereum Blockchain are open-source, anyone can decide to build their own app on top of any of the apps previously published without having to ask the anyone’s permission. This creates a cycle of unstoppable and open innovation never seen before.

David Hoffman came up with the great “Money Legos” expression to describe the current state of DeFi apps building on top of each other and I think it fits what Ethereum is pretty well.

The DeFi (Decentralized Finance) movement is a great example of how fast this unstoppable innovation cycle can evolve.

The Unstoppable DeFi movement:

MakerDAO created DAI, a new cryptocurrency pegged to the US Dollar (1 DAI = 1 USD). Compound then integrated DAI in their borrowing protocol and users can now earn +10% interest on their crypto dollars (DAI) by lending them on Compound. Leighton Cusack then came up with PoolTogether, a no-loss lottery built on Ethereum, Maker, and Compound on which anyone can buy a ticket for 20 DAI, the proceeds are locked on Compound to generate interests → one lucky winner earns all of the interest generated by the pool at the end of the cycle. Finally, Decentral.ee created rDAI, a new token built on Maker and Compound as well, allowing anyone to allocate interest earned with their capital to the third party of their choice. Which creates a new opportunity for Ethereum project to finance their development without risking the capital of their “investors”.

This tweet from Anthony Sassano sums it up pretty well.

All of those integrations happened in a few months and none of those developers had to ask anyone’s authorization to build and release those projects additionally, all of those projects are benefiting from those integrations instead of having one major entity like Google, Apple or Facebook owning all of the data and generating most of the revenue. This is how the Internet should look like and this massive Network Effect is one of the reasons why Ethereum will succeed.