Fast Forks in DeFi
0xBb03
February 16th, 2022

I have read this amazing article from Coin98.net. If you want to see more alphas and insights, please visit the website for more details.

Whether like it or not, DeFi protocols like Uniswap, Compound, Curve…have to accept that they can be forked anywhere, anytime and by anyone.

It’s simply because DeFi projects are Permissionless, Open-source and Transparency.

And that is exactly what has been happening recently in the DeFi ecosystem.

In this article, I will talk about 1) Why most fork projects failed 2) Why fast forks are good for the DeFi ecosystem.

DeFi Forks: Most Fail, Some Survive

In the past 2 months, there’ve been thousands of DeFi projects launched by forking from successful DeFi Protocols. But most of them failed, disappeared, scammed,... etc. Why?

In my opinion, there are 3 main reasons for the failure of DeFi Fork projects. 1) Unique Selling Point, 2) Team, 3) Network Effects.

Unique Selling Point (Weak)

In business, to stand out from opponents, your products need to have something that OUTWEIGHS the others.

DeFi is the same, DeFi Fork projects only have one difference from the original protocol and that is “Fair Launch”.

Fair launch is used to describe 100% tokens being distributed to the community, no pre-mine, no VC money, no token sale.

But for me, this USP is not strong enough for DeFi Forks to surpass the original protocol, despite this can create early traction and attract users to use the protocol in the beginning.

But in the long-term, DeFi Forks must have their UNIQUE value compared to the original protocol.

Team (No Trust)

To create their UNIQUE value, the team needs to clearly understand finance, market at the moment and have vision in what will be the trend, what will not in the future.

But the truth is almost every DeFi Fork project was built by an anonymous team, no information, no background.

That is why people come to DeFi Forks just for quick money, there is no need for using the product and there is no trust in the development of the project in the future.

Network Effects (Not Completed)

You can fork the code, but you can’t fork the network.

The truth is DeFi Fork projects can be the same in the technical side (code) but the usages will be far from as good as the original protocol.

Code can be forked but the network can’t. Network consists of users, community, partners, developers… everything creates value and interoperates with each other.

DeFi Fork projects lack many links in the chain to create network effects and that lead to difficulty in creating long-term value.

Ex: SushiSwap, a fork project from Uniswap with the differences are: token governance and fair launch through liquidity mining.

You can see clearly that, Network Effect of Sushi in the beginning are left far behind by Uniswap.

On the other hand, Flywheel creates network effects of Uniswap is much more efficient.

Why Fast Fork is good for DeFi?

For projects

Every DeFi project needs to be accustomed with being forked anytime. This means that they have to create many development strategies, carefully go-to-market before executing.

For retail investors

After many times bought farming tokens and lost money, Surely they will soon realize the best way is to invest in a project that can truthly solve the problem in the ecosystem, not just chase after high-yields and quick money…

This will result in investors who have higher standards for projects.

For VCs

It’ll be very difficult for VCs with no contribution in developing the ecosystem to invest in a DeFi project, because the community will not accept that.

Conclusion

Fast Forks must be considered as a common thing that will happen to open-source projects, so that a strategy to cope with forking issues must be considered. And the result is the development of projects with the strongest network, keeping the ecosystem forward.

I have read this amazing article from Coin98.net. If you want to see more alphas and insights, please visit the website for more details.

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