You should read this whole thread, it's great! But I think this needs addressing. Yes the entities had $0 revenue, at least Uniswap & Curve the company. But they did generate revenue, it just went somewhere else… And this is where I think @SBF_Alameda is still anchored to CeFi. https://twitter.com/sbf_alameda/status/1284966006574596096

The entire point is for the protocols to be coordination games, to coordinate one side of the market to permissionlessly produce a service for the other. What’s interesting is this is highly convex. A small investment in coordination can produce huge returns for everyone.

The key is where these returns flow, in the case of Curve they will flow eventually to a combo of LP's and CRV holders. Uniswap is a little harder to predict since unfortunately they launched in the middle of the market cycle where having a token was a scarlet letter…

But it would not surprise me at all if some Uniswap LP's had already generated more revenue from fees than Uniswap has raised in capital. If they haven't yet then it will happen by the end of the year. Same for Curve.

I also think that looking at extra-protocol incentives is critical as well, since e.g. SNX holders paid sETH pool Uni LP's to provide a service to the Synthetix protocol, this is 100% legit revenue for Uni LP’s who provided this service. It was liquid and convertible to cash.

So you can now raise a small round, create a coordination game, then have that game produce significantly more revenue for the players than you even raised to create it.

This is fundamentally different than running a centralised service where you need to keep paying everyone in the firm continuously forever to run the thing or it will implode on itself.

To go back to the uniswap example, it is a little like someone in the Amazon marketplace making more revenue than Amazon the company. It is pretty astounding.

The open question here is incentive alignment. Bezos started Amazon presumably so that one day he could launch himself into space or something, being the largest shareholder in the largest retailer ever is a pretty good incentive to grind away at it for years.

With these DeFi coordination games, the incentive for founders is likely going to be getting an upfront allocation of governance tokens, which I think is totally fine and good, if we have no incentive for founders to experiment very little experimentation will happen.

For everyone else the incentives will be either direct, in the form of revenue from participating as an LP or indirect via governance token revenue capture or both. But the solution space here is huge and we are just starting to explore it.

Can Uniswap or Curve run indefinitely without injections of outside capital, I think the answer is almost definitely, but governance tokens are kind of a blunt instrument in that there are a lot of functions required to keep a protocol relevant.

One thing I hope to see is experimentation in revenue distribution to various protocol requirements, x% to engineering etc. A team can form and provide this service and gov token holders can grant or revoke this revenue stream based on performance.

Firms have undoubtedly been the optimal coordination mechanism for capitalism but smart contracts are a new enabling technology that could disrupt this... Someone much smarter than me needs to update Coase to the nature of the protocol, imo. https://en.wikipedia.org/wiki/The_Nature_of_the_Firm