Web3 Protocol Design: The Important Shift from Token Economy to Protocol Design

Recently, a16z has been focusing on the topic of transcending the Token economy. Following the "Token Design" presentation and the article "Tokenology: Beyond Token Economics," they have launched a "Protocol Design" course. Eddy Lazzarin, CTO of a16z crypto, emphasized that the key to transcending the Token economy lies in Protocol Design, while Token Design is merely an auxiliary means. This article provides a concise summary of the course content.

The Inherent Laws of Protocol Evolution

Internet protocol: the bond of interaction

The internet is a network composed of various protocols. Protocols are formalized interaction systems that facilitate complex group behaviors. The strength of internet protocols lies in their ability to connect not only interactions between people but also interactions with software.

Evolution of the protocol: Web1 - Web2 - Web3

The evolution of the protocol can be analyzed from two dimensions: the degree of decentralization and the clarity of the economic model.

• Web1: decentralized but with no clear economic model
• Web2: centralized with a clear economic model
• Web3: decentralized with a clear economic model

Web1 protocols such as NNTP, IRC, SMTP, etc. maintain neutrality in terms of value flow and ownership, without a clear economic model. Web2 addresses the limitations of Web1 protocols by providing specific functions but is entirely controlled by the owners. Web3, on the other hand, offers a more flexible and innovative space through decentralization and a clear economic model.

Web3 Protocol Design Case

Taking "Unstable Confusion" as an example, it demonstrates the process of Web3 protocol design from goal setting, constraints, to specific mechanism design:

Design goals

Establish a decentralized, interoperable image generation marketplace.

potential mechanism design

1. Verification mechanism: methods such as game theory and cryptography can be used to ensure reasoning accuracy.

2. Pricing Strategy: An order book can be established on-chain, or on-chain verified computational resources can be used to measure the proxy.

3. Storage mechanism: On-chain storage, dedicated storage encryption networks, or off-chain storage can be selected.

4. Task allocation strategy: can be selected by workers, allocated by the protocol, or chosen by users.

Key Points of Decentralized Protocol Design

• Seven key design elements that may lead to centralization
• Reduce switching costs and promote interoperability
• Create a decentralized system using Web3 technology
• Conduct in-depth research in all aspects to choose the best solution.

Web3 protocol design needs to go beyond simple token economics, starting from the overall protocol architecture, balancing decentralization and economic incentives to build a long-term robust system.