Fat apps & thin protocols

The fat bera thesis isn’t just a meme - it’s a fundamental driver of Berachain’s functioning and underpins how users, apps, and validators interact on-chain. Distilled to its simplest form, the fat bera thesis is a belief that the applications built with PoL at the forefront will capture the majority of value in the Berachain ecosystem.

This value transfer is accompanied by a simultaneous shift in power back to apps, where important activities like providing liquidity and participating in governance thoughtfully are rewarded in a meaningful way. All of this is underpinned by Berachain’s consensus mechanism, Proof-of-Liquidity (PoL), and its ability to align these incentives at the protocol layer.

The current state of crypto is centered around extremely valuable infrastructure, a countless number of apps, and a broader community that’s undecided on how the value can more fairly flow between these. You’ve read about Proof-of-Liquidity, learned to love the tri-token model, and can’t stop transacting on bArtio V2 - but are you prepared to forget everything you know and embrace the fat bera thesis? 

The fat bera thesis is an extension of the fat protocol thesis, an idea first discussed by Joel Monegro back in 2016. However, the first individual to discuss and develop the fat bera thesis was Jani of the honey jar in January 2023, through this tremendous report.

This “fat protocol, thin app” terminology stuck, immediately entering crypto canon and becoming a staple of dialogue that’s shown to be extremely prescient. Protocol layers are the infrastructure that power the internet, while the application layer is where an app resides. In crypto, protocols are the L1s or L2s that power the applications that are built on them. The application layer broadly refers to any decentralized application on a blockchain. 

The fat protocol thesis was born out of an observation of tech trends within the web2 space, a thesis that was inspired by the notion that apps were becoming more powerful than the protocols built to support them. Before DeFi, Ethereum, and even Bitcoin, there was the world of web2. Facebook, Snapchat, Spotify - these are apps that changed the world and fundamentally altered how we interact with each other on a daily basis. Because of this, they were able to command greater premiums, in both user attention and monetary terms. 

Web2 can be defined as the second generation of the internet, an era that was - and still is - characterized by increased collaboration, user-generated content, and interactivity. Today, it’s more easily recognizable as the internet we’ve come to use everyday. 

Monegro examined a phenomenon where leading applications of the web2 era captured far more value than the protocols they’re built on. He argued for a different type of value transfer between blockchains and how new business models were forming because of this. 

Everything hypothesized in Monegro’s post turned out to be true. Most infrastructure is valued exponentially higher than crypto apps, and value flows between the two are often scarce. 

But why is it that crypto has fallen into a trap of rampant infrastructure valuation growth without any room for apps to see this same level of success? Have we built too much infrastructure and left out the possibility for apps to compete with chains that want to “own the stack?” Even further, how is this relevant to Berachain and PoL?

Historically, foundational layers of the crypto stack like L1s and L2s have commanded far greater premiums than the apps that reside on them. Even accounting for the cross-chain world crypto has been building towards, apps haven’t managed to trade at higher valuations based on future expectations.

Monegro’s 2016 thesis was a contrarian point-of-view to publicly take. Until then, all of modern history and the growth of web2 apps into mega corporations presented a counterpoint: why should the system change with crypto? If apps were where everyone was spending their time, why should the underlying infrastructure see any of that revenue? Because it’s so easy to deploy smart contracts onto a blockchain and create apps, some viewed this as a methodology to value the infrastructure higher than the apps. After all, without it there wouldn’t even be any apps to use.  

Even if crypto apps are capable of producing strong revenues and delivering sustainable outcomes, a phenomenon becoming increasingly ripe for debate, there’s no path for something like Maker to trade higher than Ethereum. 

Explaining the fat bera thesis

Is the application layer simply lackluster, or is there a more fundamental problem in crypto that hasn’t been addressed? What if there was a better way of doing things - what might this even look like?

Monegro described “fat” protocols and “thin” applications in the crypto industry, driven by the shared data layers of blockchains and the presence of speculative tokens. At their core, blockchains are just decentralized, immutable databases that make it relatively easy for new applications to make use of this vast amount of user data in a net-new way. Monegro discussed the role that tokens play in this transfer of value from applications to protocols - something unique from the web2 industry - and the idea that price increases leading to massive shifts in attention. 

This is evident enough through the massive attention Bitcoin has managed to sustain since the 2008 whitepaper. “Token go up” has essentially forced the world to pay attention, whereas applications are far more limited in how much they can go up, which has stunted their share of attention in turn. Apps are forced to play second fiddle to the chain they’re deployed on, which doesn’t make sense considering these apps are the main drivers of user acquisition on blockchains. 

The core value proposition of PoL comes from its ability to scale liquidity and security simultaneously, achieving a healthy alignment of incentives between users, dApps, and validators. PoL is a first-of-its-kind mechanism designed to enable real value transfer between the protocol and application layers. 

The success of all three distinct ecosystem participants hinges on PoL participation, with this activity leading to a type of shared trust on-chain. Validators trust users to delegate their BGT, users trust validators to control the flow of BGT emissions, and dApps trust that they’ll be rewarded for facilitating this behavior. Validators on Berachain are incentivized to create real-time rewards for apps in order to maximize their earnings. 

These validators are gunning for BGT rewards, but they’re also eligible to exchange their BGT block rewards for any apps’ native tokens, aligning incentives between validators and the apps they secure. The better an app does, the more a validator is able to earn in rewards, with this cycle repeating and producing increasingly larger positive feedback loops. 

Apps - and validators - that align themselves with the principles of this fat bera thesis effectively become zones of power, dependent on their own merits and competitive advantages. Instead of apps that might only gain notoriety for being on Chain A as opposed to Chain B, apps that are built with PoL in mind can dictate the success of the chain they’ve deployed on while increasing their reputation simultaneously. Apps can finally take pride in a job well done, knowing the infrastructure securing them is on their side.

Fat beras and beyond

Monegro said that “The market cap of the protocol always grows faster than the combined value of the applications built on top, since the success of the application layer drives further speculation at the protocol layer.” PoL finally opens the door for unlocking tangible value capture at the application layer by enabling inter-protocol alliances and competition. BGT rewards ebb and flow between users, validators, and apps, but it ultimately finds its way into the hands of all three participants - the real fun comes in how they’ll choose to acquire it. 

Validators have to be aware of what users want, apps need to ensure they have a competitive advantage and are offering differentiated products, and users need to stay alert to all of this. Validators have been far removed from the actual ongoings of the chain they secure, forced into a position where they can comfortably “collect rent” from users and apps without doing any work within the ecosystem. Berachain demands the opposite. 

There doesn’t have to be a world where applications only derive value from the chain they’re on. Flipping this on its head is the only way to begin the transfer from fat protocols and thin applications to fat applications, fat protocols, and fat beras. None of this is easy, of course - but anything worth doing will always be a challenge. 

Berachain wants to change the narrative and finally create a world where applications are valued proportionately for the amount of work they put in. A world where blockchains derive value from successful apps and infinite economic games can be played by all parties. 

“In PoL, the fatness of the protocol is determined by the thicccness of your applications.” - Berachain Head of Defi, Cap’n Jack Bearow.