The Fat User Thesis 👉️

Dear Nudge Community,

In his influential 2016 piece on “Fat Protocols,” @jmonegro argued that value in blockchain ecosystems would primarily accumulate at the protocol layer rather than at the application layer.

As more dApps are built on these platforms, the network effects and demand for the protocol’s native tokens increase, driving up their value. This dynamic represents a reversal of how value is captured in traditional internet models, where applications like Facebook capture most of the value while the underlying protocols (such as TCP/IP) do not.

However, critics - most recently @PanteraCapital @masonnystrom - argue that value will concentrate at the application layer. They believe that dApps can extract significant value by focusing on specific use cases, building deep moats around these (e.g., liquidity, user experience, brand, etc.), and gaining a loyal following. Examples like Uniswap demonstrate this potential and some apps have even decided to build their own app chains.

Yet, both of these frameworks overlook the most important stakeholder in the Web3 economy: the user. Isn’t the goal of this new financial system to benefit users first and foremost? So why don’t they appear in any of these value capture models?

In some ways, the current approach in crypto reflects a boomer mentality. Much of the crypto value was allocated between 2010 and 2020. While OGs deserve recognition and rewards for their work and belief in the system, what incentivizes new capital to enter the crypto ecosystem when the spoons have already been licked?

We see that DeFi TVL and activity are largely static, which we believe is a consequence of this outdated mindset. This approach might make sense for digital gold or even “ultrasound money,” but it is not conducive to a positive-sum Web3 economy.

For Web3 to thrive, we need a system that continuously rewards users for contributing or re:allocating capital into the crypto sphere. We need a system driven by a FAT USER THESIS.

We believe the current value capture models are temporary mistakes that will self-correct shortly. Going forward, Web3 users will capture the majority of the value. Why?

1. Competition: In a competitive market, significant value capture is unsustainable as it tends to be competed away. The Web3 ecosystem is highly competitive, with forkable open-source code and hundreds of L1s, L2s, and dApps to choose from.

2. Low Switching Costs: The concept of self-sovereignty and interoperability implies highly mobile assets. Any token, liquidity provider (LP) position, or user activity can be easily transferred to another protocol with minimal switching costs.

3. Limited Network Effects: The network effects central to both the fat protocol and app theses are overrated. With high competition and low switching costs, bootstrapping a network is easier than ever before.

4. (and soon) Programmable incentives: Programmable incentives that go beyond merely lowering switching costs but function as switching rewards, generating on-demand network effects for any protocol or dApp.

Web3 needs a catalyst to fuel the Fat User Thesis, and we believe programmable incentives are precisely that.

Say hi to Nudges 👉

Nudge.xyz empowers protocols and applications to incentivize - or “nudge” - users to reallocate their assets, liquidity, and activity. This creates a switching reward that effectively redistributes value from protocols and dApps to users while providing the former with a scalable customer acquisition funnel and a robust retention mechanism.

Notably, this value redistribution can occur in the native tokens of apps and protocols yet be captured by the user, which aligns perfectly with the core principles of the Fat User Thesis.

Most Nudges will not be one-time occurrences but ongoing incentives, rewarding reallocation over time and considering future users.

We liken this to an advertising budget - a recurring expense for off-chain companies - but with the crucial difference that this “advertising budget” directly benefits the end-user, not intermediaries like Google.

We expect Nudge.xyz to transform the onchain economy by re:allocating value to users, ultimately expanding the entire ecosystem.

Yours,
Team Nudge