Blockchain Business Models
A Blockchain Business Model, according to the FourWeekMBA’s research definition and framework, is made of four main components:
Value Model (Core Philosophy, Core Values, and Value Propositions for the key stakeholders),
Blockchain Model (Protocol Rules, Network Shape, and Applications Layer/Ecosystem),
Distribution Model (the key channels amplifying the protocol and its communities),
and the Economic Model (the dynamics/incentives through which protocol players make money).
Those elements can be the basis for building and analyzing any Blockchain Business Model.
Let’s break them down, step by step, then jump to some practical applications of this framework!
VBDE Blockchain Business Model Template
Keep reading if you want to understand how to use the framework.
Value model
In the value model, we want to answer a few core questions:
Core Philosophy: What's the long-term hard problem the protocol is solving?
Core Values: What key values drive the protocol?
Value Propositions: What set of values each key stakeholder get from the protocol?
When analyzing Blockchain business models, it is critical to understand that these look more like ecosystems with very complex logic than companies with simpler dynamics.
However, those complex systems are born from simple local rules built into the Blockchain protocol.
Blockchain Model
In the Blockchain Model, we want to understand how the protocol connects the value model to everything else and how the rules of the Blockchain make it compelling for the entire ecosystem to form.
In this case, we need to take into account three key layers.
Protocols Rules
What rules govern the Blockchain?
Here, the rules underlying the Blockchain will be critical. Perhaps, on Blockchain protocols like Bitcoin, rules like proof of work (PoW) are fundamental:
Network Shape
What network shape do the protocol rules determine?
A network will form based on the protocol's underlying core rules, and this network can take various forms (from entirely decentralized to distributed or perhaps centralized).
Thus, understanding how the protocol rules make the network evolve is critical to understanding how the balance of power moves along the Blockchain ecosystem.
Applications Ecosystem/Layer
Which applications can be built on top of the protocol?
For a Blockchain to become a business platform, it might be critical for it to be modular or at least allow developers to build applications on top of it.
This would expand the use cases available and allow developers to monetize their presence on the Blockchain.
Distribution Model
Here, we want to understand how the various pieces come together to make the underlying Blockchain ecosystem sustainable and continue growing.
Developer's Community
Is the developer community engaged in developing apps on top of the Blockchain? What does it take to keep it engaged?
Developers play a critical role in developing Blockchain applications, and therefore, it's important to understand how the developers' community is evolving around the protocol and what sort of applications sprout.
Investor Relations
Is the underlying cryptocurrency a valuable asset for investors?
The strong economic incentives underlying blockchain protocols make them work.
Thus, we might want to argue that there might be no Blockchain without Crypto and vice versa.
Therefore, as the Blockchain ecosystem evolves, monitoring how investors are responding to it is also important.
Keep in mind that a Blockchain is much, much more than a simple entity; that is a "super-entity." As such, it needs the support of multiple stakeholders to thrive.
Mining Incentives
What incentives exist for miners to keep contributing to the development and growth of the Blockchain network?
Miners also play a crucial role in the development of the Blockchain.
It's important to notice that some Blockchains, like Bitcoin, are primarily based on Proof of Work, making miners the critical players in mining new coins.
Other players/users can also become miners for other protocols, like Ethereum (which has a Proof of Stake mechanism).
Deal Making
What agreements are in place integrating the protocols through institutional & non-institutional channels?
For a protocol to scale, it needs to be adopted by a large number of individuals and institutions.
Therefore, progress in integrating the protocol within other institutional and non-institutional systems becomes very important.
Economic model
How is the Blockchain crypto-asset gaining value and how the key players part of the ecosystem are monetizing the applications built on top of it?
Blockchain protocols can be built far beyond incentives and economic ones.
However, it's crucial to notice that the powerful financial incentives aligning various players in the ecosystem are keeping the ecosystem sustainable over time.
Thus, it's essential to understand what drives these players to come together.
Key takeaways
A Blockchain Business Model looks more like a dynamic ecosystem around which an entire set of players are
Value Model
Core Philosophy: What's the long-term hard problem the protocol is solving?
Core Values: What key values drive the protocol?
Value Propositions: What set of values each key stakeholder get from the protocol?
Blockchain Model
Protocols Rules: What rules govern the Blockchain?
Network Shape: What network shape do the protocol rules determine?
Applications Rules: Which applications can be built on top of the protocol?
Distribution Model
Developer's Community: Is the developer community engaged in developing apps on top of the Blockchain? What does it take to keep it engaged?
Investor Relations: Is the underlying cryptocurrency a valuable asset for investors?
Mining Incentives: What incentives exist for miners to keep contributing to the development and growth of the Blockchain network?
Economic Model
How is the Blockchain crypto-asset gaining value and how the key players part of the ecosystem are monetizing the applications built on top of it?
Real-World Applications of the Framework
1. Bitcoin (BTC)
Value Model:
Core Philosophy: Solve the problem of centralized financial systems by providing a decentralized digital currency.
Core Values: Decentralization, transparency, immutability, and censorship resistance.
Value Proposition: For users, Bitcoin offers a way to store value and make transactions without relying on intermediaries. For miners, it provides rewards for maintaining the network's security.
Blockchain Model:
Protocol Rules: Bitcoin's Proof of Work (PoW) consensus mechanism.
Network Shape: Highly decentralized, with thousands of nodes globally.
Applications Layer: Primarily a digital currency, with additional applications like Bitcoin-backed financial products (e.g., ETFs, derivatives).
Distribution Model:
Developer Community: Actively developing improvements like the Lightning Network.
Investor Relations: Bitcoin is seen as "digital gold," with a growing investment community.
Mining Incentives: Miners receive block rewards and transaction fees for securing the network.
Economic Model: Value gained through scarcity (limited supply of 21 million BTC), increasing adoption, and speculation.
2. Ethereum (ETH)
Value Model:
Core Philosophy: Build a decentralized computing platform that can execute smart contracts and decentralized applications (dApps).
Core Values: Decentralization, programmability, and innovation.
Value Proposition: For developers, Ethereum offers a flexible platform for creating dApps and decentralized finance (DeFi) projects. For users, it enables new financial services like DeFi and NFTs.
Blockchain Model:
Protocol Rules: Originally Proof of Work, now transitioning to Proof of Stake (PoS) with Ethereum 2.0.
Network Shape: Decentralized, but with more nodes concentrated in specific regions.
Applications Layer: Thousands of dApps and smart contracts running on Ethereum, including DeFi platforms, NFTs, and DAOs.
Distribution Model:
Developer Community: Ethereum has one of the largest and most active developer ecosystems.
Investor Relations: Ethereum is valued both for its cryptocurrency (ETH) and its use cases in DeFi and NFTs.
Mining Incentives: Transitioning from mining to staking rewards with Ethereum 2.0.
Economic Model: Ether (ETH) is used as "gas" to pay for executing transactions and smart contracts, driving demand for the token.
3. Binance Smart Chain (BSC)
Value Model:
Core Philosophy: Provide a more scalable, faster, and cheaper alternative to Ethereum for smart contract execution and dApps.
Core Values: Speed, low cost, and accessibility.
Value Proposition: For developers, BSC offers a platform to build and deploy dApps with lower transaction fees. For users, it provides cheaper DeFi options.
Blockchain Model:
Protocol Rules: Proof of Staked Authority (PoSA), a combination of Proof of Stake and Proof of Authority.
Network Shape: More centralized than Ethereum, with fewer validators, mostly governed by Binance.
Applications Layer: A wide range of DeFi projects, NFT platforms, and gaming dApps built on BSC.
Distribution Model:
Developer Community: Supported by Binance's ecosystem and incentives for developers to build on BSC.
Investor Relations: BNB (Binance Coin) is used for transaction fees and is considered an investment asset.
Mining Incentives: Validators earn transaction fees through staking BNB.
Economic Model: BNB is the native token used for transactions, governance, and staking, driving its value in the ecosystem.
4. Polkadot (DOT)
Value Model:
Core Philosophy: Solve the issue of blockchain interoperability by creating a network of interoperable blockchains.
Core Values: Interoperability, scalability, and security.
Value Proposition: For developers, Polkadot enables building specialized blockchains (parachains) that can interact with each other. For users, it offers a more scalable and connected ecosystem.
Blockchain Model:
Protocol Rules: Proof of Stake (PoS) consensus mechanism, with a relay chain that connects multiple parachains.
Network Shape: A multi-chain network where individual parachains connect to the central relay chain.
Applications Layer: Parachains can host a variety of applications, including DeFi, gaming, and data marketplaces.
Distribution Model:
Developer Community: Rapidly growing, with strong support from the Web3 Foundation.
Investor Relations: DOT is used for governance and staking, with increasing investor interest as Polkadot's ecosystem expands.
Mining Incentives: Validators earn rewards for securing the relay chain and parachains.
Economic Model: DOT is the native token used for staking, governance, and bonding parachains, with value driven by network utility and governance.
5. Uniswap (UNI)
Value Model:
Core Philosophy: Provide decentralized and permissionless trading of tokens through an automated market maker (AMM).
Core Values: Decentralization, transparency, and liquidity.
Value Proposition: For users, Uniswap allows easy token swaps without intermediaries. For liquidity providers, it offers rewards for supplying liquidity.
Blockchain Model:
Protocol Rules: Uniswap uses an Automated Market Maker (AMM) model, where liquidity pools are governed by smart contracts.
Network Shape: Built on Ethereum, so decentralized but subject to Ethereum’s network congestion and fees.
Applications Layer: Primarily used for DeFi applications, enabling decentralized trading and liquidity provision.
Distribution Model:
Developer Community: Actively developing features like Uniswap V3 to improve the efficiency of the AMM.
Investor Relations: UNI token holders participate in governance and can vote on protocol changes.
Mining Incentives: Liquidity providers are incentivized through a share of transaction fees.
Economic Model: UNI tokens are used for governance, and liquidity providers earn fees based on the volume of trades within their pools.
6. Filecoin (FIL)
Value Model:
Core Philosophy: Decentralize data storage and make it accessible to everyone.
Core Values: Data sovereignty, transparency, and decentralization.
Value Proposition: For users, Filecoin offers decentralized data storage services. For storage miners, it provides incentives to offer storage space to the network.
Blockchain Model:
Protocol Rules: Proof of Spacetime (PoSt) and Proof of Replication (PoRep) for verifying storage.
Network Shape: Decentralized network of storage providers and users.
Applications Layer: Applications that require decentralized storage solutions.
Distribution Model:
Developer Community: Supported by Protocol Labs, with growing developer interest in storage solutions.
Investor Relations: FIL token is used to pay for storage and is seen as an investment asset.
Mining Incentives: Storage providers are rewarded with FIL tokens for contributing storage space to the network.
Economic Model: FIL token is used to pay for and verify storage, driving demand as more data is stored on the network.
7. Chainlink (LINK)
Value Model:
Core Philosophy: Bridge the gap between off-chain data and on-chain smart contracts by providing decentralized oracles.
Core Values: Trust, decentralization, and interoperability.
Value Proposition: For smart contract developers, Chainlink provides access to reliable off-chain data, enabling use cases like DeFi, insurance, and more.
Blockchain Model:
Protocol Rules: Decentralized oracle networks where node operators provide data and are rewarded in LINK.
Network Shape: Decentralized network of oracle nodes that connect smart contracts with real-world data.
Applications Layer: Widely used across multiple blockchains to enable data feeds for DeFi, insurance, and gaming applications.
Distribution Model:
Developer Community: Chainlink has an active developer ecosystem that builds and integrates oracles with various blockchains.
Investor Relations: LINK tokens are used to pay node operators and are viewed as an investment asset.
Mining Incentives: Oracle node operators earn LINK tokens for providing reliable data.
Economic Model: LINK tokens are used as payment for data feeds, driving demand as more dApps require off-chain data.
8. Solana (SOL)
Value Model:
Core Philosophy: Provide a high-performance blockchain capable of supporting large-scale decentralized applications with low transaction costs.
Core Values: Speed, scalability, and low fees.
Value Proposition: For developers, Solana offers a scalable platform for dApps with lower costs than Ethereum. For users, it provides faster transaction times and cheaper fees.
Blockchain Model:
Protocol Rules: Solana uses a unique Proof of History (PoH) consensus combined with Proof of Stake (PoS) for higher throughput.
Network Shape: A decentralized, high-performance network with lower transaction costs than competitors.
Applications Layer: Used for DeFi, NFTs, gaming, and high-performance dApps.
Distribution Model:
Developer Community: Solana has rapidly attracted developers, especially those building DeFi and NFT applications.
Investor Relations: SOL token is popular for staking and used as currency for transactions.
Mining Incentives: Validators stake SOL to validate transactions and earn rewards.
Economic Model: SOL tokens are used for staking and transaction fees, with growing value due to Solana's scalability and performance.
9. Avalanche (AVAX)
Value Model:
Core Philosophy: Create a highly scalable and customizable blockchain platform capable of handling a large number of transactions with low latency.
Core Values: Flexibility, scalability, and security.
Value Proposition: For developers, Avalanche allows the creation of customized blockchains (subnets) tailored to specific applications. For users, it offers fast, cheap transactions.
Blockchain Model:
Protocol Rules: Avalanche uses a unique consensus protocol that achieves high throughput with low transaction finality.
Network Shape: The Avalanche network consists of multiple subnets, each capable of hosting its own blockchain.
Applications Layer: Used for DeFi, gaming, and enterprise applications, including the creation of custom blockchains.
Distribution Model:
Developer Community: Actively growing with multiple partnerships, especially in DeFi and institutional sectors.
Investor Relations: AVAX token is used for staking and transaction fees.
Mining Incentives: Validators earn rewards by staking AVAX and validating transactions across multiple subnets.
Economic Model: AVAX tokens are used for staking, governance, and fees, driving value as the network expands.
10. Cosmos (ATOM)
Value Model:
Core Philosophy: Build an “Internet of Blockchains,” allowing different blockchains to interoperate seamlessly.
Core Values: Interoperability, scalability, and security.
Value Proposition: For developers, Cosmos offers a platform to build blockchains that can interact with others in the network. For users, it facilitates a connected ecosystem of services.
Blockchain Model:
Protocol Rules: Cosmos uses the Tendermint consensus algorithm, which is based on Byzantine Fault Tolerance (BFT).
Network Shape: A decentralized network of independent blockchains connected through the Cosmos Hub.
Applications Layer: Blockchains built on Cosmos are used in DeFi, supply chain management, and various other sectors.
Distribution Model:
Developer Community: Cosmos has a rapidly growing ecosystem of developers creating interoperable blockchains and applications.
Investor Relations: ATOM is used for staking and governance.
Mining Incentives: Validators earn ATOM rewards for securing the network.
Economic Model: ATOM tokens are used for staking, governance, and transaction fees, with value driven by the network’s growing utility.
Ciao!
With ♥️ Gennaro, FourWeekMBA
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