# Crypto Business Models: Notes from Ali Yahya's Lesson

**Published by:** [arnavb](https://paragraph.com/@arnavb/)
**Published on:** 2023-03-18
**URL:** https://paragraph.com/@arnavb/crypto-business-models-notes-from-ali-yahyas-lesson

## Content

This lesson covers alot of topics: Layer Stack of Blockchain Business Models of Layers 1 & 2 Value Capture in Crypto Network Flywheel COMPOUND Business Model Layer 0 -> includes miners and validators communicating through peer-to-peer networking Layer 1 --> then after P2P networking, they agree with the truth of the network i.e. Consensus Layer 1.5 --> then they compute that state through game theoretical mechanics Layer (0 + 1 + 1.5) combines to form a "blockchain computer". On top of this, we can deploy programs. Now comes, Layer 2 (Smart Contracts) computational foundation written by developers which runs on "blockchain computer" fundamental building block for everything built on blockchain Layer 3 (Client and UI) : code that runs on user side (phone, browser) like wallet, apps etc. connects the world of protocols to the world of people Let's talk about Business Models: Layer 0 and Layer 3 are called "The Periphery Of Crypto" both follow the same traditional business model like web2 Layer (1 + 2) is also called "The Core Of Crypto" both layers follow the same business model i.e. Multi-Sided Platform. What is a Multi-Sided Platform? A common ground that creates value by enabling direct interaction b/w diff kinds of participants. Eg: Bazaar --> which connects merchants and buyers Lyft --> connects drivers and riders LAYER 1 BUSINESS MODEL (FLYWHEEL) PROTOCOL itself is a multi-sided platform which connects every participant TOKEN is a key mechanism for value capture How it captures value? This Value Capture Paradox is solved by defensibility. Defensibility is the ability to maintain a positive rate of return over a period of time for a network It comes by having Network Effects in a system. Two types of Network Effects: a) Same Sided More existing users --> More trusted by new user Value of a network to a new user increases if there are already large number of users. Cross-Sided Eg: In case of Lyft If a driver joins ---> More riders will ride More financial capital by investors --> Greater Token Value --> More attractive to miners Also called Cross-Sided Network Flywheel (another thread) So that's how token value is fabricated in so many layers, so it can't be just copied whether it is open-sourced. Network Effects are so powerful, you can't just open a new token or join one. LAYER 2 BUSINESS MODEL LAYER 1 --> Community Owned + Controllable by Autonomous Programs called Smart Contracts. Smart Contracts are multi sided platforms that themselves are built on layer which is also a multi sided platform. COMPOUND CASE STUDY COMPOUND is a decentralised money market (lending platform) Built on Ethereum Includes 4 diff participants LENDERS - Provide Money KEEPERS - Financial Support to network BORROWERS - Borrow Money by providing collateral COMP HOLDERS -> Risk Management This is a core template for the business model for Layer 2 It is also replicable. But what makes it un-replicable? Defensibility for Layer 2 --> Network Effects Activity in protocol increases --> its Assets increase ---> Cost and Risk for users decrease --> Defensibility increases In summary, Value Capture in Crypto --> Multi-Sided Platform + Network Effects

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