The new Web3 economy needs to use different types of tokens as value markers for economic activities, including utility tokens, equity tokens, and non-fungible tokens (NFTs), which represent usage rights, equity, and digital certificates, respectively.

Written by: HashKey Group

executive Summary

Web3 is a value network represented by blockchain, emphasizing data trust, data sovereignty and value interconnection. In Web3, all values ​​can be tokenized and efficiently and intelligently combined, transformed, circulated and distributed in the Web3 value network. These values ​​have multi-level property rights. In addition to ownership, the most important one is the right to use. For example, only those who own a token of a blockchain network, system or application have the right to use the network, system or application. The core of the market for the right to use is stakeholder capitalism. The organizational form will change greatly and become an open source organization, a non-profit organization, or a decentralized autonomous organization (DAO). The tokenization of the right to use is the key to understanding the development of blockchain infrastructure in the past 15 years.

In the next 15 years, Web3 applications built on blockchain infrastructure will become the new development focus and will have a revolutionary impact on human economic and financial activities, social interactions, and privacy protection in the digital world. The new Web3 economy will generate new currency markets, capital markets, and commodity markets, and different types of tokens will be needed as value markers for economic activities, including functional tokens, equity tokens, and non-fungible tokens (NFTs), which represent usage rights, equity, and digital certificates, respectively. We call this the "three-token model." In the new Web3 economy, the "three tokens" will give full play to the stakeholder principle through incentive mechanisms on the basis of fulfilling their respective functions.

The foundation for the healthy development of the Web3 new economy is the in-depth study and continuous practice of token economics. In token economics, monetary policy, mechanism design, and financial engineering are a "trinity" relationship. The goal of monetary policy is to regulate the supply and demand of tokens so that the effective supply and circulation speed of tokens adapt to the development needs of the Web3 new economy. The goal of mechanism design is incentive compatibility, through the design of dynamic game mechanisms and algorithms for decentralized decision-making, to coordinate the concerted actions of multiple participants under asymmetric information and inconsistent goals. The goal of financial engineering is risk-return conversion, and to design financial products and markets suitable for the Web3 new economy. The overall goal of token economics is to encourage stakeholders to actively participate in Web3 new economic activities through the reasonable design of token supply mechanisms, application scenarios, and related financial products and markets to promote the growth of token value.

Web3 new economy will surpass the Internet economy in terms of economic system, economic organization, financial system, law of value creation, law of value distribution, stakeholders, business model, distributed decision-making mechanism and value capture. Different from the value capture characteristics of the Internet economy, which is "thin protocol, fat application", Web3 new economy is "fat protocol, fat application". The underlying protocol stack of Web3 new economy has built-in currency system and value system, and value creation can be carried out at the protocol layer. Web3 new economy will combine many digital technologies at the application layer, and the value creation space will be no less than that of the Internet.

1. Outlook for the Web3 New Economy

1. Web3: underlying logic and evolutionary trends

Since the mid-nineteenth century, driven by communication technology (CT), information technology (IT) and digital technology (DT), the digital migration of mankind has continued to deepen, and the ability of mankind to collect and process data has continued to improve. Data has become an unprecedented new driving force for the development of human society and economy. The limitations of physical time and space have been broken, economic laws have been reconstructed, and business organizations have moved towards open source, openness, sharing and co-governance.

Humans are social animals, and the history of human development is also the history of network evolution: from the relationship network of ancient tribes to various physical forms of public infrastructure networks, and then to digital networks. Humans are deeply influenced by the network in work, life, social interaction, economy and politics.

Digital networks are efficient information exchange networks that have developed on the basis of the Internet since the end of the last century. The development of digital networks can be divided into three stages. Web 1.0 is an "information network" represented by portal websites. Users can easily obtain various online information, but in most cases, information dissemination is one-way. Web 2.0 is a "data network" represented by social media. Users create a large amount of content and leave a large amount of data on online identity and behavior, and information dissemination becomes a two-way interaction. The Web 2.0 platform has generated huge commercial value through the collection and analysis of user data, but it has also caused complex governance issues such as poor user privacy protection, platform monopoly, and free use of news information. Web 3.0 is a "value network" represented by blockchain, emphasizing data credibility, data sovereignty, and value interconnection. In Web 3.0, all values ​​can be tokenized and efficiently and intelligently combined, transformed, circulated, and distributed in the Web 3.0 value network. These values ​​have multi-level property rights. In addition to ownership, the most important thing is the right to use.

2. Market for usage rights

The importance of the right to use is most evident in digital products and services. As shown in Figure 1, physical products can generally only be used by the same entity at the same time, and are accompanied by consumption, wear and tear, and depreciation during use. Digital assets and services generally have the characteristics of high fixed costs, low marginal costs, and non-competitive use. Digital products and services can be used by multiple people at a time. This will have two effects.

Figure 1: Comparison of economic characteristics of physical products and digital products or services

On the supply side, digital products and services have obvious economies of scale—the more produced, the lower the average cost after amortization. For example, developing a piece of software requires a high investment, but after the software is developed, whether it is used by one person or 100 million people, the total cost will not be significantly different.

On the demand side, when multiple people use digital products and services, they generate huge economic and social value through network effects. Kevin Kelly summarized this as the "fax machine effect" more than 20 years ago. Suppose someone spends $200 to buy a fax machine, his cost is $200. But after his fax machine is connected to a fax machine network consisting of 10 million fax machines, he can send faxes to other people, and the network value he enjoys is far higher than the cost of purchasing the fax machine. Therefore, the fax machine also represents the right to use the fax machine network.

Figure 2: Comparison of ownership and usage rights

Although the right to use and ownership belong to different dimensions of property rights, they are very different. As shown in Figure 2, ownership is exclusive and cannot be infinitely subdivided. Under the ownership system, the goal of a company's operations is to maximize shareholder interests. This is called shareholder capitalism, which is most fully reflected in the stock market. The right to use is shared and can be granted multiple times and mutually beneficial. For many digital products and services, the right to use can theoretically be granted indefinitely in a cycle. The path to expanding the right to use is open source, openness, and permissionlessness.

The core of the market for usage rights is stakeholder capitalism. The organizational form will change greatly and become an open source organization, a non-profit organization, or a decentralized autonomous organization (DAO). These organizations pursue the maximization of organizational value (or common interests). All participants in the organization collaborate on a large scale as stakeholders, make their own contributions, and share the value of the organization. In these organizational forms, ownership becomes insignificant, and what is truly valuable is the right to use. Although the right to use cannot be demutualized, it can be tokenized.

3. The core position of blockchain in Web3

Over the past 15 years, with the rapid development of the public chain ecosystem represented by Bitcoin and Ethereum, the underlying technology of blockchain has matured. The blockchain R&D mechanism is rooted in the open source community, reflecting the characteristics of openness, sharing and unbounded innovation. Blockchain infrastructure is an important public product that is not owned by any person or organization. The distributed ledger of the blockchain can extract the right of use from digital products and services, standardize and share the right of use in the form of tokens, and form a digital asset market on this basis. The digital asset market can provide services such as the issuance and trading of usage rights on a global scale. In terms of value capture, blockchain embodies the characteristics of "fat protocol, thin application".

In the next 15 years, Web3 applications built on blockchain infrastructure will become the new development focus and will have a revolutionary impact on human economic and financial activities, social interactions, and privacy protection in the digital world. First, the blockchain basic protocol will be the basic guarantee for the development of Web3 applications, and smart contracts will be used to ensure the effective operation of business activities on the blockchain. Secondly, Web3 applications will ensure that their systems are trustless, open and transparent, and do not require permission to participate through decentralized governance mechanisms, and distributed autonomous organizations (DAOs) will become the main form of organization. Finally, non-fungible tokens (NFTs) will become proof of identity, ability, behavior, work, contribution, activity, and product and service proofs for Web3 application users. Based on these proofs, Tokens will serve as incentive tools to establish effective incentive mechanisms.

As regulatory policies become clearer, equity tokens will gain considerable development. In the distributed economy built around Web3 applications, equity tokens, utility tokens, and non-fungible tokens (NFTs) will give full play to the stakeholder principle through incentive mechanisms on the basis of fulfilling their respective functions. The new Web3 economy will embed new economic and financial systems, and the economic and social value created will be greater than the two organizational forms of for-profit companies and open source communities composed of volunteers, and these values ​​will be shared by the holders of equity tokens, utility tokens, and non-fungible tokens (NFTs). In terms of value capture, Web3 is gradually showing the characteristics of "fat protocols, fat applications."

2. All value can be tokenized

1. Re-understanding Token

Digital assets based on blockchain are essentially tokenized values. Technically, they are all tokens, and tokens include homogeneous and non-homogeneous types. How to understand the important position of tokens in the new Web3 economy? As early as the 1960s when computer systems were first introduced, as shown in Figure 3, tokens represented permission to access and use computer systems. When the permission to use computer systems, tokens, gradually evolved from the Internet stage to the blockchain stage, the permission to use was further standardized, shared, and financialized, becoming the tokens in the new Web3 economy. Tokens are a system that extracts usage rights from digital products and services and captures value.

Figure 3: Evolution of Token

In the new Web3 economy, all value can be tokenized. The basis of tokenization is the identity management, currency and payment, asset registration, transaction, and clearing and settlement functions that come with the blockchain. There are 4 main ways of tokenization. First, Token represents the right to use. Second, NFT represents proof of identity, proof of ability, proof of behavior, proof of work, proof of contribution, proof of activity, and proof of products and services. Third, Token represents off-chain value, such as the tokenization of central bank digital currency, stablecoin, and green bonds. Fourth, Token represents the right to income, governance rights, or a combination of digital assets.

2. The True Value of Tokens

First, token issuance. Token issuance relies on a set of pre-defined algorithm models. The key is to control the number and speed of issuance. The quantity limit and issuance discipline stipulated by the algorithm are the basis of the token consensus and trust mechanism, reflecting the principle of "Code is Law".

Second, Token represents the right to use. Only those who own the Token of a blockchain network, system or application have the right to use the network, system or application.

Third, the circulation of tokens. When a user uses a blockchain network, system or application, some tokens will be consumed each time it is used, so the circulation of tokens is generally a deflationary model. For example, in Ethereum, the daily fuel consumption is greater than the new ETH issued in the network every day, which plays an important role in supporting the value of Ethereum.

Fourth, the equity attributes of tokens. In some application layer protocols on the blockchain, the creation team often not only uses the functional purpose of tokens, but also uses the equity purpose of tokens. For example, the creation team usually promises to use part of the project's cash flow income to repurchase tokens circulating in the market, which is essentially to transfer part of the rights and interests to token holders.

Fifth, the governance attributes of tokens. In blockchain networks or systems, some distributed communities or decentralized autonomous organizations (DAOs) often transfer some governance rights through tokens. Tokens are certificates of voting rights, and token holders can participate in community voting, voting, and governance.

3. The “Three-Token Model” of the Web3 New Economy

Because the basic blockchain protocol is globally unified and has a built-in value capture system, it only requires a "single token model", with BTC and ETH as typical representatives. The Web3 new economy will generate new currency markets, capital markets, and commodity markets, and different types of tokens will need to be used as value markers for economic activities, including functional tokens, equity tokens, and non-fungible tokens (NFTs), which represent usage rights, equity, and digital certificates, respectively. This is the "three-token model."

Utility tokens represent the right to use digital products and services. Only when you hold a utility token issued by a network, system or application, you have the right to use the relevant products and services. The more ecological applications and users there are, the greater the market demand for utility tokens will be. Utility tokens are also certificates for receiving other rights and interests. For example, the project party will lock the address holding a certain token as a target group and airdrop the governance token of the project to the address. In practice, utility tokens can be given away for free as ecological points to motivate users and start the market; utility tokens can have no financing activities such as "issuance, sale and subscription", and the price discovery of tokens is formed by secondary market transactions. The value sources of utility tokens include: 1. "Permission" to use the network; 2. Used to pay gas fees and commissions; 3. The company repurchases with part of the profits; 4. The right certificate for community governance; 5. Priority to receive airdrops and join the whitelist. Utility tokens are the value units of network effects.

The founding team and early investors play a vital role in the project from initiation to implementation. At this stage, if there are only functional tokens, the incentives for the founding team are not enough, and the rate of return cannot attract early investors. Therefore, it is necessary to introduce equity tokens, which represent the equity granted to the project party and early investors. In terms of economic nature, there is no essential difference between equity tokens and stocks. Equity tokens will not be listed on stock exchanges, but will enter virtual asset exchanges in the form of STO (equity token issuance). STOs are sold on global networks such as public chains and are on the same trading platform as functional tokens, bringing users and investors together, and usually achieving higher valuation levels.

Non-fungible tokens (NFTs) play an important role in the confirmation, licensing and certification of fully digital things, and are truly "digital tokens". NFTs can assetize confirmed things and circulate them in secondary transactions to enhance the liquidity of assets. NFTs can be records of the contribution, activity and behavioral capabilities of stakeholders in the Web3 economic system, which can be used as a basis for rewarding stakeholders. In short, NFTs can connect everything, including connecting Web2 and Web3, connecting the real world and the virtual world, connecting offline and off-chain with online and on-chain, connecting digital twins and digital natives, connecting users and communities, and connecting consumption and experience. The value sources of NFTs include "Play NFT to Earn" and "Play NFT to Owns".

In general, the Web3 new economy is essentially a distributed network. In a distributed network, value is constantly generated, combined, transformed, circulated, and distributed. Functional tokens serve as the right to use a distributed network to capture network value. Some value is deposited in enterprise nodes, and equity tokens represent enterprise equity. NFT plays the role of a digital token in a distributed network.

Token Economics

1. Trinity Methodology

In token economics, monetary policy, mechanism design, and financial engineering are a "trinity". The goal of monetary policy is to regulate token supply and demand, the goal of mechanism design is incentive compatibility, and the goal of financial engineering is risk-return conversion.

Figure 4: The “Trinity” methodology of token economics

All token economic systems are affected by token supply and demand at the macro level and by the incentive mechanism of stakeholders at the micro level. Financial engineering methods are indispensable in the design of financial products and markets. The research goal of token economics can be summarized as: to motivate stakeholders to actively participate in Web3 new economic activities through the reasonable design of token supply mechanisms, application scenarios, and related financial products and markets, thereby promoting the growth of token value.

2. Monetary Policy

1. The Impossible Triangle of Token Economics

Innovation in the Web3 field will mainly revolve around two "impossible triangles", as shown in Figure 5. The first is the "blockchain impossible triangle", which means that no blockchain network or system can simultaneously achieve the three goals of decentralization, scalability and security. The second is the "token economics impossible triangle", which means that no token economic model can simultaneously achieve the three goals of free trading, price anchoring and autonomous issuance. The "token economics impossible triangle" is the key to understanding the sustainability and inherent stability of the token economic model. In a sense, the breakthrough of the "blockchain impossible triangle" is the fundamental driving force for the innovation of the underlying blockchain technology, and the breakthrough of the "token economics impossible triangle" is the fundamental driving force for the innovation of token economics.

Figure 5: Two “impossible triangles” in the Web3 field

2. Separation of asset functions and currency functions

In the Web3 new economy, token prices will fluctuate due to factors such as ecological development, secondary market liquidity, and investor sentiment. If tokens are used as a payment tool for economic activities, price fluctuations may inhibit the development of economic activities. Token price fluctuations may also lead to the inherent instability of the token economic model.

In order to ensure the stability of the Web3 economic system, it is necessary to separate the asset function from the currency function when designing the token economic model. Tokens that assume asset functions represent the participants' share in the Web3 new economy, and their goal is to capture the value brought by economic development. Tokens that assume currency functions can isolate the impact of the former token price fluctuations on economic activities, allowing participants to focus on the economic activities themselves. At certain stages of the development of the Web3 new economy, it is inevitable that token prices will fall, and it is necessary to avoid irreversible damage to economic activities, community cohesion, etc. caused by the decline in token prices. In this way, when the market fundamentals improve, the token price can be repaired upward.

The token economic model needs to have a built-in stabilization mechanism: when the token price falls, the cost of participating in economic activities decreases, economic activity increases, and the issuance and circulation speed of tokens decreases. This will provide strong support for the value of tokens and prevent a "death spiral".

3. Token issuance and return mechanism

The token issuance and repatriation mechanism has a crucial impact on the stability of the token economic model. In the real world, the growth rate of money supply is generally equal to the sum of the GDP growth rate and the inflation rate. In the Web3 new economy, the effective supply and circulation speed of tokens must adapt to the development needs of the Web3 new economy. The core issues include: first, the initial issuance quantity and speed; second, the issuance speed after the secondary market price appears; third, the relationship between the token price and the mainstream token or related tokens (the token exchange rate model), and its impact on the economic model; fourth, the token's withdrawal, repurchase, destruction, and precipitation in the use scenario, etc.

Some mechanisms can regulate the effective supply and circulation speed of tokens. First, expand the application scenarios of tokens so that some tokens are "precipitated" in the application scenarios instead of entering the secondary market for circulation. Second, introduce a token destruction mechanism. For example, in some application scenarios, the tokens paid by users are automatically destroyed. The token repurchase mechanism is also very important. The repurchase speed can be nonlinear or accelerated, and the goal is to achieve a deflationary effect. Third, the staking mechanism is essentially to regulate token liquidity in different time intervals. In the near term, staking will "freeze" a part of the tokens; but in the long term, this part of the tokens will be released, and the staking yield will change with the new issuance of tokens. If the fundamentals of the Web3 new economy can improve during the staking period, it can absorb the token liquidity released in the long term.

3. Mechanism Design

Every rational economic person will participate in market activities according to the rules of self-interest, but the pursuit of personal interests may violate the collective interests or affect the overall goals of society. If there is a mechanism design that enables each participant to pursue the maximization of their own interests, which coincides with the goal of maximizing the collective interests, the mechanism design is incentive compatible.

Figure 6: Core principles of token mechanism design

As shown in Figure 6, incentive compatibility is the core principle to be followed in the design of token economic models. Only by meeting the incentive compatibility conditions can we promote collaboration in a decentralized and trustless environment, align the individual interests of participants with the collective interests, and avoid the division within the community due to unfair incentives.

In the Web3 new economy, participants have large differences in psychological factors, cognitive biases, and behavioral tendencies. Therefore, perfect incentive compatibility is difficult to achieve in mechanism design. How to design dynamic game mechanisms and algorithms for decentralized decision-making to coordinate the concerted actions of multiple participants under asymmetric information and inconsistent goals is an important issue.

In the "three-currency model" of the Web3 new economy, mechanism design has important application value. Equity tokens are subject to securities supervision and need to meet securities supervision requirements or exemption standards in issuance and trading. For example, the U.S. Securities and Exchange Commission (SEC) uses the Howey test to determine whether digital assets have securities attributes. The Howey test includes four criteria: monetary investment, investment in common projects, no need for self-operation, and the existence of profit expectations. In the design and use of functional tokens, in addition to not touching the four criteria of the Howey test, it is best to distribute them free of charge through ecological rewards. In this case, before the functional token enters the secondary market, the starting price cannot be determined based on past financing, but a bilateral Dutch auction can be used to provide guidance for the starting price. The Dutch auction is conducted on the blockchain in an open, transparent, secure and non-manipulated manner. Whether the functional token can be listed on the exchange can also be decided by a quadratic vote in the community.

4. Financial Engineering

Token economics uses financial engineering methods to convert risk into return, with five main goals: first, to support resource allocation across time and space; second, to design corresponding financial products according to different scenarios and the needs of different users; third, liquidity management, especially reducing liquidity costs; fourth, asset pricing; and fifth, risk management.

4. Web3 New Economy Surpasses Internet Economy

In terms of economic system, economic organization, financial system, laws of value creation, laws of value distribution, stakeholders, business models, distributed decision-making mechanisms and value capture, the new Web 3 economy will surpass the Internet economy.

1. Economic system

From the perspective of property rights system and capital gains distribution system, the economic model can be divided into the "Main Street Model" under the industrial economic model, the "Silicon Valley Model" under the Internet economic model, and the "Shared Capital Model" under the Web3 new economic model.

The "Main Street Model" is characterized by concentrated property rights and exclusive capital gains, so a large number of big capitalists emerged during this stage.

The property rights of the "Silicon Valley model" are decentralized. The scope of capital has been expanded, and capital is no longer limited to the amount of money. Knowledge has also become an important capital. Entrepreneurs attract venture capital through business plans and realize the realization of knowledge. The "Silicon Valley model" is no longer a model of monopolizing capital and enjoying exclusive benefits, but through shareholder capitalism, equity is divided into shares, becoming a shareable share.

The "shared capital model" is a model that goes one step further than the "Silicon Valley model". All stakeholders can share all the value of an economic or business organization. Entrepreneurs under the "Silicon Valley model" become the initiators of the "shared capital model".

2. Economic Organization

Economic organizations under the "Main Street Model" and the "Silicon Valley Model" are usually centralized corporate organizations. When corporate organizations first emerged, they mainly adopted a top-down decision-making mechanism, which was a U-shaped structure. With the diversification and globalization of corporate economic activities, business units and regional departments gradually emerged, and the power of the group headquarters was gradually decentralized, presenting an M-shaped structure in terms of architecture.

The "shared capital model" essentially inherits the M-shaped structure of corporate organizations, gradually forming a distributed autonomous organization (DAO) form, and distributing the rights or interests of the organization to stakeholders through tokenization.

3. Financial system

There may be two capital market systems in the Web3 new economy. The first is shareholder capitalism based on the equity system and capital gains distribution mechanism of the industrial economy and the Internet economy. The financial activity form of shareholder capitalism is shown in Figure 7. Companies raise funds from the market through equity. Equity is the standardization and financialization of company ownership. Holding equity can obtain the company's profit dividends and governance rights.

Figure 7: Financial activity forms of shareholder capitalism

The second is stakeholder capitalism based on the new Web3 economy. Shareholder capitalism emphasizes ownership, using equity as an incentive to encourage the creation of new companies and new businesses. Stakeholder capitalism emphasizes the right to use, and achieves stakeholder "shares" and shared capital gains through tokens. The form of financial activities of stakeholder capitalism is shown in Figure 8. Tokens are the standardization, shareholding and financialization of the right to use the open ecosystem. Holding tokens means having the right to participate in the governance of the open ecosystem and the right to use digital products or services in the open ecosystem.

Figure 8: Financial activities in stakeholder capitalism

Shareholder capitalism and stakeholder capitalism can be integrated with each other. As shown in Figure 9, some enterprise nodes will appear in the Web3 new economy. Enterprise equity is not only a compliant financing channel, but also provides an incentive mechanism for entrepreneurial teams and early investors. Enterprise shareholders can transfer part of their interests to functional tokens in the enterprise ecosystem, and functional tokens will play a network effect, thereby promoting the development of the enterprise ecosystem. As long as the network value shared by shareholders is greater than the transferred interests, shareholders and functional token holders will form a win-win situation. Functional tokens can start the market through non-financing issuance, represent ecological use rights and governance rights, and capture value from the open ecosystem.

Figure 9: The convergence of shareholder capitalism and stakeholder capitalism

(IV) Laws of value creation

The industrial economy pursues the maximization of corporate value, the Internet economy pursues the maximization of shareholder interests, and the Web3 new economy pursues the maximization of organizational interests.

5. Law of value distribution

The industrial economy is characterized by high fixed costs and increasing marginal costs. Therefore, the pricing model of the industrial economy is basically cost-plus, and there is no free model.

In the era of Internet economy, the free model is the mainstream, and the figurative saying is "the wool comes from the pig, and the dog pays the bill." The reason why it is free is that the characteristics of the Internet economy are high fixed costs, but the marginal cost decreases or even approaches zero. Internet products that seem to be free may actually be more expensive than manufacturing products where "scarcity makes things valuable", which has also created some Internet companies with a market value of more than one trillion US dollars.

The value distribution of the new Web3 economy follows a fair, just and open distribution mechanism that allows stakeholders to share the benefits.

6. Stakeholders

The business model of the new Web3 economy is described as "Player to Earn". Players here refer to stakeholders, including developers, creators, contributors, consumers, and investors. All participants will be players of Web3, no longer limited to shareholders, an independent profit-sharing role.

7. Basic Business Model

The classic business model of the Web3 new economy should be "Play NFT" and "Earn Token". As mentioned above, NFT is a proof of contribution, and Token is a standardized and shared right of use. The right of use can be traded on the secondary market to realize the realization of contribution value.

8. Distributed decision-making mechanism

The decision-making mechanism of the Web3 new economy is a decentralized (or distributed) mechanism. Decentralization is not for the purpose of resisting censorship, refusing compliance, or refusing supervision. The decentralization of the Web3 new economy is mainly to introduce a more fair business decision-making mechanism through digital technology. Between efficiency and fairness, the business scenarios of the Web3 new economy need to find a suitable balance. The more infrastructure-oriented the decision, the more emphasis should be placed on fairness, and the higher-level applications should emphasize efficiency.

9. Value Capture

The value capture of the Internet economy is often referred to as "thin protocols, fat applications", while the Web3 new economy is "fat protocols, fat applications". The difference between fat and thin lies in whether they have the ability to capture value.

The core of the Internet is the TCP/IP model, which allocates network addresses through the IP protocol and relies on the TCP protocol for communication. The Internet's protocol lacks a value capture system, so the Internet economy is not friendly to protocol layer developers. The Internet application layer relies on "surveillance capitalism" to capture a lot of value through data privacy data and attention (including users passively watching advertisements pushed by Internet platforms).

The underlying protocol stack of the Web3 new economy has a built-in currency system and value system, and value creation can also be achieved at the protocol layer. The Web3 new economy will combine many digital technologies at the application layer, and the value creation space will be no less than that of the Internet. Both the Web3 protocol layer and the application layer are distributed economies based on tokens. In essence, they are market networks where participants directly trade with each other, and the economic value is also shared by stakeholders.

The commercial value of the distributed economy is not reflected in shareholder equity, but is contained in the market network and ultimately reflected in the value of tokens, which is positively correlated with the economic scale it supports. The distributed economy based on tokens has a strong network effect. The growth of user scale has a higher value increase for the distributed economy (n^2 order of magnitude) than for centralized business (linear order of magnitude). Therefore, for the same economic activity, higher commercial value can be achieved through the distributed economy.