In a recent post (great content for crypto) by Pete Huang @ Coinbase He states
Wanted: Use cases for crypto
Will pay: Billions of dollars
Can it work?
Major blockchains have raised hundreds of millions of dollars from investors in order to pay developers to build on their chains:
- Binance Smart Chain - $1 billion
- NEAR - $800 million
- Avalanche - $400 million
- Algorand - $300 million
- Harmony - $300 million
- Polygon - $200 million
- Terra - $150 million
These are called "ecosystem funds". The idea is simple: nobody will use the chain unless there's stuff to do on it, so why not wave a little cash in front of developers looking to build something?
Example: Harmony will pay you $50,000 if you can launch a fully featured product with community-run governance and 10,000 users.
It’s a crowded strategy. Nearly every chain has adopted ecosystem funds as a business development strategy, and there are only 18,000 developers to go around (note: there's probably more - this is only counting active open source developers from Electric Capital's report).
The argument isn't simply about buying new applications. Having "stuff" in the ecosystem begets more "stuff". A great example is DeFi: many applications build on top of other applications, so having the base primitives is essential to enabling development.
So in essence, the fund is about buying momentum and awareness. Paying 100 developers building on your chain could actually bring on the next thousands for free. The idea is to bet big on building runaway momentum.
Like me, you might be ogling at the sheer size of the funds. How can they possibly make that back?
I think it's safe to say that investors and blockchain teams alike are taking a long-term view on this one.
Keep in mind that Ethereum's market cap is $350 billion. The largest of these chains is only 10% of that. If these ecosystems can grow to 10x (especially as all of crypto continues to gain momentum), then these funds are actually quite small in comparison.
For some good old fashioned great content, get your re-Pete on here: https://www.linkedin.com/in/petehuang/
