Web3 design principles diverge significantly from Web2, Best design choices seem counterintuitive at first glance in web3. This article explores two key concepts: composability and forkability within protocols.

Composability: The ability for Web3 building blocks to be seamlessly combined and configured in various ways fosters greater innovation around your protocol. As more innovative applications are built upon your foundation, the value of your protocol itself increases.

Forkability: While composability fosters innovation, forkability presents a unique challenge. It allows competitors to easily create new protocols based on your code, potentially siphoning value away through direct competition with minimal switching costs.

Traditional vs. Web3 Strategies: Traditional competitive strategy often suggests focusing on composability while actively hindering forkability. However, in the open and permissionless nature of Web3, user data, behavior, and code are readily accessible. Deploying protocols is cheap and effortless, making forking an inevitable reality.

Embracing Forkability: Instead of resisting the inevitable, I propose actively designing for forkability and embracing new forks as a potential source of value for the main protocol. Here are some strategies to achieve this:

• Design for Forkability: Develop your protocol with features that facilitate seamless integration with forks, allowing for easy flow of value between the main protocol and its derivatives.

• Deployment Packages: Create comprehensive design packages that significantly simplify the deployment process for new forks, fostering a vibrant ecosystem.

• Financial Support: Consider providing financial incentives to bootstrap promising new forks, potentially through grants or investment programs.

• Token Design: Strategically design your token distribution to encourage new forks to integrate and utilize your native token, aligning their success with the success of the main protocol.

The True Moat: While code itself can be easily forked, the real competitive advantage in DeFi lies elsewhere. The true "moat" around your protocol is built upon:

• Collateral: The quality and depth of collateral available within your ecosystem.

• Community: A strong and engaged community that actively contributes to the protocol's growth and development.

• Integration: Seamless integration with other DeFi protocols and aggregators, creating a network effect that strengthens the overall ecosystem.

Examining Forking Success in DeFi Lending

While the lending ecosystem boasts over 180 forks, the combined TVL of these forks (around $6 billion) pales in comparison to the TVL of the main protocols (~$6.75 billion). This disparity highlights several key points:

• Limited Impact: Despite the high number of forks, their overall impact on the market remains relatively low.

• Struggle for Traction: Most forked protocols fail to capture significant value, with only a handful exceeding $50 million in TVL.

• Deployment Advantage: Forks deployed on new chains appear to have a higher chance of success, suggesting potential limitations in established ecosystems.

MakerDAO's Case: A Strong Moat

MakerDAO exemplifies the challenges faced by forks. Despite having only three forks, their combined TVL remains significantly lower due to the powerful moat established by DAI's:

• Liquidity: Deep and readily available liquidity is crucial for stablecoin adoption and usage.

• Usability: A user-friendly experience fosters wider acceptance and integration within the DeFi ecosystem.

Example:

Nouns: A Deliberate Forking Strategy

The Nouns DAO exemplifies a unique approach to forking. Unlike accidental or opportunistic forks, Nouns' forking functionality is intentionally designed into the protocol itself. This allows for:

• Easy Exits: Nouns holders have a clear and intuitive interface to exit the original protocol and join a fork.

• Transparent Tracking: The entire community can easily track developments within each fork in real-time.

However, unlike Ethereum forks where users hold both versions, Nouns holders can only choose one fork at a time. This creates a distinct dynamic compared to traditional forks.

Current Landscape:

• Main Nouns: Holds 5,629 ETH in treasury and 1,023 Nouns.

• Fork #0: 741.71 ETH and 472 Nouns.

• Fork #1: 0.25 ETH and 69 Nouns.

• Fork #2: 161 ETH and 53 Nouns.

Beyond Simple Copying:

Forks like CREAM Finance and Snowswap demonstrate the potential for adding unique value beyond mere replication.

• CREAM Finance (Compound Fork): Supports a wider range of coins, allowing users to earn yield on previously unproductive assets.

• Snowswap (DEX Fork): Facilitates efficient and cost-effective swaps between Yearn Finance vaults, leveraging Curve's algorithms for improved user experience.

Forks with changes in Tokens or Goverence:

• SushiSwap (Uniswap Fork): Introduced a token and governance system, attracting liquidity through "vampire mining" incentives. While initially perceived as a threat, Uniswap ultimately benefited from increased attention and user base.

• Swerve Finance (Curve Fork): Emphasized a "fair launch" and offered its own asset pool, initially attracting significant liquidity with high mining rewards. However, TVL dropped significantly after reward reductions.

Reference:

Forks - DefiLlama
Web3 network effects: Designing for forkability | by Sangeet Paul Choudary |BosonProtocol | Medium
DeFi Forks Are Moving Beyond Copy and Paste - The Defiant
Nouns’ thoughts on forks: Why are forks wonderful?_Information-odaily
Multicoin Capital: On Forking DeFi Protocols - Multicoin Capital

Web3 design principles diverge significantly from Web2, Best design choices seem counterintuitive at first glance in web3. This article explores two key concepts: composability and forkability within protocols.

Composability: The ability for Web3 building blocks to be seamlessly combined and configured in various ways fosters greater innovation around your protocol. As more innovative applications are built upon your foundation, the value of your protocol itself increases.

Forkability: While composability fosters innovation, forkability presents a unique challenge. It allows competitors to easily create new protocols based on your code, potentially siphoning value away through direct competition with minimal switching costs.

Traditional vs. Web3 Strategies: Traditional competitive strategy often suggests focusing on composability while actively hindering forkability. However, in the open and permissionless nature of Web3, user data, behavior, and code are readily accessible. Deploying protocols is cheap and effortless, making forking an inevitable reality.

Embracing Forkability: Instead of resisting the inevitable, I propose actively designing for forkability and embracing new forks as a potential source of value for the main protocol. Here are some strategies to achieve this:

• Design for Forkability: Develop your protocol with features that facilitate seamless integration with forks, allowing for easy flow of value between the main protocol and its derivatives.

• Deployment Packages: Create comprehensive design packages that significantly simplify the deployment process for new forks, fostering a vibrant ecosystem.

• Financial Support: Consider providing financial incentives to bootstrap promising new forks, potentially through grants or investment programs.

• Token Design: Strategically design your token distribution to encourage new forks to integrate and utilize your native token, aligning their success with the success of the main protocol.

The True Moat: While code itself can be easily forked, the real competitive advantage in DeFi lies elsewhere. The true "moat" around your protocol is built upon:

• Collateral: The quality and depth of collateral available within your ecosystem.

• Community: A strong and engaged community that actively contributes to the protocol's growth and development.

• Integration: Seamless integration with other DeFi protocols and aggregators, creating a network effect that strengthens the overall ecosystem.

Examining Forking Success in DeFi Lending

While the lending ecosystem boasts over 180 forks, the combined TVL of these forks (around $6 billion) pales in comparison to the TVL of the main protocols (~$6.75 billion). This disparity highlights several key points:

• Limited Impact: Despite the high number of forks, their overall impact on the market remains relatively low.

• Struggle for Traction: Most forked protocols fail to capture significant value, with only a handful exceeding $50 million in TVL.

• Deployment Advantage: Forks deployed on new chains appear to have a higher chance of success, suggesting potential limitations in established ecosystems.

MakerDAO's Case: A Strong Moat

MakerDAO exemplifies the challenges faced by forks. Despite having only three forks, their combined TVL remains significantly lower due to the powerful moat established by DAI's:

• Liquidity: Deep and readily available liquidity is crucial for stablecoin adoption and usage.

• Usability: A user-friendly experience fosters wider acceptance and integration within the DeFi ecosystem.

Example:

Nouns: A Deliberate Forking Strategy

The Nouns DAO exemplifies a unique approach to forking. Unlike accidental or opportunistic forks, Nouns' forking functionality is intentionally designed into the protocol itself. This allows for:

• Easy Exits: Nouns holders have a clear and intuitive interface to exit the original protocol and join a fork.

• Transparent Tracking: The entire community can easily track developments within each fork in real-time.

However, unlike Ethereum forks where users hold both versions, Nouns holders can only choose one fork at a time. This creates a distinct dynamic compared to traditional forks.

Current Landscape:

• Main Nouns: Holds 5,629 ETH in treasury and 1,023 Nouns.

• Fork #0: 741.71 ETH and 472 Nouns.

• Fork #1: 0.25 ETH and 69 Nouns.

• Fork #2: 161 ETH and 53 Nouns.

Beyond Simple Copying:

Forks like CREAM Finance and Snowswap demonstrate the potential for adding unique value beyond mere replication.

• CREAM Finance (Compound Fork): Supports a wider range of coins, allowing users to earn yield on previously unproductive assets.

• Snowswap (DEX Fork): Facilitates efficient and cost-effective swaps between Yearn Finance vaults, leveraging Curve's algorithms for improved user experience.

Forks with changes in Tokens or Goverence:

• SushiSwap (Uniswap Fork): Introduced a token and governance system, attracting liquidity through "vampire mining" incentives. While initially perceived as a threat, Uniswap ultimately benefited from increased attention and user base.

• Swerve Finance (Curve Fork): Emphasized a "fair launch" and offered its own asset pool, initially attracting significant liquidity with high mining rewards. However, TVL dropped significantly after reward reductions.

Reference:

Forks - DefiLlama
Web3 network effects: Designing for forkability | by Sangeet Paul Choudary |BosonProtocol | Medium
DeFi Forks Are Moving Beyond Copy and Paste - The Defiant
Nouns’ thoughts on forks: Why are forks wonderful?_Information-odaily
Multicoin Capital: On Forking DeFi Protocols - Multicoin Capital