Crypto Legos
Composability is one of the most powerful features of crypto. Crypto projects interconnect and build upon one another to accomplish tasks of greater and greater complexity and at a faster and faster pace. Chris Dixon said it best when he tweeted: “Composability is to software what compound interest is to finance”.
Composability accelerates progress by allowing people to build on the ever expanding set of tools built by others that have come before them. By embracing composability and aligning economic incentives to encourage building on top of others’ work, crypto has brought to the forefront open source ideals that originated decades ago but have not fully materialized until now.
Composability is the property by which constituent parts (aka: primitives), are stitched together to accomplish a greater purpose. A primitive serves a singular purpose. It does one thing and does it well. Just like a well-written function in a computer program, a primitive doesn’t overreach or conflate multiple tasks. Doing so would jeopardize its usefulness and applicability of the function. Like Legos, which can be used to build many things (a bridge, a spaceship, a flower), primitives can be used to build outcomes of widely differing shapes and sizes.
It is interesting to consider any existing crypto project as a set of one or more primitives. Some of the most successful and fastest growing crypto projects are primitives themselves (eg: Chainlink as an oracle, Saber as a stablecoin swap, The Graph as a query layer, Lido for staking, Superfluid for cashflows, Civic for identity, etc). I believe projects that are primitives are best positioned to succeed and grow quickly. This is because, by their nature, primitives are un-opinionated and therefore can span across many different applications and use cases. With increased applicability comes increased usage and thus value appreciation. Such projects are also incredibly resilient. They don’t rely on a single use case or application in order to succeed. Just as Shopify doesn’t live or die based on the success of any one particular merchant or brand, crypto projects that are primitives are as resilient as the diversity of the applications they enable.
If being a primitive increases chances of a good outcome, I argue that the opposite is also true. Crypto projects can get into trouble by mixing primitive. Or at the very least, they don’t capture as much value as possible. Consider Augur, a decentralized betting market. I argue that Augur combines two primitives:
A betting interface, allowing traders to create markets and bet on them.
An oracle, to settle the trades based on information in the real world (eg: An asset price, the results of an election, etc).
With a market cap of $151 million, it is hard to argue that Augur has not been successful (at least by normie standards). But then consider that Chainlink has a market cap of $13 billion, or almost 100x the success of Augur. Interestingly, Augur actually built a fully fledged oracle within their project, and it might even be technically better than Chainlink’s own oracle. What would have happened if Augur launched 2 projects, 1 for each of their primitives? My guess is that they would have captured much more value. Their oracle project would have been well positioned to capture all or most of the value that Chainlink went on to capture 2 years later.
Mathematically, mixing primitives (as Augur did) puts a project at a disadvantage because the success factors are multiplicative. Augur needed to win 2 games, 1 for each of their primitives they contained. First, they needed to be right that the world was ready for a decentralized betting market. Second, they needed to build an accurate oracle. Mathematically speaking, if the chances of success for doing anything is low, then multiplying them together produces an even smaller chance of success. If another team had already offered an oracle primitive, Augur would likely have used it (downsides of being too early). Instead, they had to build their own oracle. In this case, they should have offered it as its own primitive instead of tying it to their betting primitive.
Like Augur, Audius also has mixed primitives. I see Audius as comprised of two primitives:
A music streaming service for consumers (to compete with Spotify, Apple Music, etc)
A data streaming application to get the bits to the user’s device
Although Audius is gaining solid traction, I argue that they would be better off breaking off their data streaming primitive into an independent project, like Livepeer has done for video. Livepeer has amassed $581m in market cap, which is almost the same as the $818m in market cap that Audius has captured so far. Although it appears as if Audius has found product market fit for both their primitives, they may have been able to reduce execution risk and maximize value capture by carving off their second primitive. In an alternate universe, Audius failed to gain consumer traction as a consumer app, but their streaming service went on to power the next generation of music applications in web3.
Perhaps the most exciting and universal primitive of all is “unique humanness”, which Worldcoin is working to create. Worldcoin orbs will scan a human eye and generate an “irishash” that is unique to every human on the planet. They will then use this primitive to distribute a new world currency that is more fairly distributed than any other crypto before it. On the surface, Worldcoin is attempting to create a new world currency based on their primitive, but exposing this primitive separately to developers will have huge and unforeseen implications to how humans coordinate. Irishash would not only solve most bot problems but it could also prevent sybil attacks that are the source of much complexity in the design of crypto networks.
Despite massive appreciation recently, Crypto is still in its formative years. We will look back at this time as a transformative era, where the foundation for the next generation Internet was built. More specifically, this is the era where primitives will be built that give the industry the Legos with which to build increasingly complex and useful applications. This is the time to build primitives. It’s time to play crypto Legos.