Decentralised Platforms Need Breakthrough Thinking, Here Is What You Need to Know

I recently visited Venture Catalysts (an incubator) in Mumbai. Having conversations with the top thinkers(Vishal, Anuj, Ram, Vaibhav) about Blockchain and ICOs stretched my thinking. I didn’t have answers to all the questions they asked. Later, deeply thinking about the questions led to few insights.

How does decentralised platforms make profits?

Imagine you are starting a decentralised crypto exchange. The typical way of making revenue on a platform which facilitates services by connecting people is by charging a commission. In a crypto exchange, you gain commissions for every trade, withdrawal, etc.

In a centralized exchange, there is a reason for you to charge such fees. Because you have to maintain the infrastructure. In a decentralised exchange, there are no infrastructure costs. In the long run, decentralised exchanges are likely to win because they are cheap for customers since the platform is self-maintained.

Decentralised platforms would generate no profit from services customer avails on the platform. This is because you are thinking like a middleman. The purpose of a blockchain is to eliminate the middleman. It doesn’t make sense to be the problem which the system is destined to eliminate.

In a Blockchain future, the producers will generate more revenue. Currently if I have to sell a book on Amazon, they take 50% of the sale as commission. If a decentralised platform replaces Amazon, I would get 90–95% of the profits. Blockchain systems are designed to benefit the producer and the consumer.

Does that mean decentralise platforms won’t be profitable?

No, you can be profitable. Let me explain!

The typical steps in building a platform are as follows.

Step 1: Raise Investment from Investors

Step 2: Build the platform , market it and gain massive adoption.

Step 3: If profitable investors get return on their investment

Step 4: If not profitable got back to Step 1, otherwise shut down and move on.

I have simplified the steps, the reality is a lot more complicated. Decentralised platforms need to break the typical flow and design a good system to be profitable.

Here are the steps I think a decentralised platform should take.

Step 1: Sell tokens to consumers and promise them to return a service in the future.

Step 2: Build the first version of your product.

Step 3: Build a community around your platform.

Step 4: Deliver the promised service to your customers.

Step 5: Slowly your community will take ownership of your platform and you make an exit.

Huh? What is in it for people who built the platform in the first place?

In Step 1, based on your market you would be able to generate substantial investment from issuing coins or launching an ICO. The amount you raise would be drastically high compared to your expenses to build and sustain the platform.

This is because you only need to make the first or second version of the product. The subsequent versions will be built by the community. Bitcoin now has less than 2% of the code written by its original creator Satoshi Nakamoto. He even abandoned Bitcoin. He is now worth $19.6 billion. That would make him 44th richest person in the world.

If you plan your decentralised platform in a typical way, you are likely to be in trouble. You don’t need 100’s of programmers, managers, and an expensive marketing budget. You need to carefully design the platform to incentivise the community who will build and evangalise your platform for massive adoption.

People will buy your tokens for two reasons. The primary reason being they hope to trade the token for a service your platform offers in the future. The second reason being they expect your platform to do good and increase its net-worth. This would increase the value of their tokens. They can exchange them for more tokens from another decentralised platform or service with lesser net-worth.

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