Investing in Protocols
Protocols revolutionize capital and efficiency like no other business paradigm before
Capital efficient and highly profitable, protocols represent the natural evolution of technology investing. Just as software ate and revolutionized the world, protocols are building the next iteration of efficiency and profitability.
What is a protocol?
A protocol is a set of rules, standards, or guidelines that govern how different systems or entities should communicate or interact.
The internet is a protocol, email is a protocol, we use protocols daily without ever knowing it. Products are typically more understood since they are more commonly consumed. One might use Google or Gmail while underappreciating the fact they are utilizing web queries and TCP/IP protocols.
Make no mistake, protocols operate just like products but with a few key differentiators.
Open-source: Typically open-source, protocols scale faster as a tool for cumulative innovation rather than siloed product-level innovation. Time-to-market, capital investment, and time-to-profitability are all reduced as a result
Composable: Protocols can work together to utilize ecosystem-wide benefits. What is good for protocol A may also be good for protocol B. Their composability instantly leverages network effects, products and companies do not share this luxury
Hyper-efficient: Software showed the world how efficient a business could be, protocols are the 10x innovation upon software. Both can be rapidly replicated but protocols enjoy gross margins well above their software counterparts and also substantially less operational expense
So, why invest in protocols?
Protocols are a superior business model with secular tailwinds. Accelerating time-to-market with open-source code and leveraging interoperable business models enables growth we have never seen before. Automation allows these functions to be executed in a hyper-efficient way at nearly zero cost (read 99% gross margins). This means that protocols require less capital to start and operate more efficiently than their SaaS counterparts.
Business interaction is also increasingly computer-to-computer (or soon AI-to-AI). Protocols govern and monetize these interactions. As commerce evolves to be even more technology-centric, the protocol business model will be further thrust into the light for its extreme efficiency and profitability.
About Florin Digital
Florin Digital is a crypto-asset investment firm deploying at the intersection of finance and technology.
We seek out early-stage opportunities in liquid markets which present an asymmetric risk-reward profile. Our thesis-driven, hands-on approach allows us to unlock significant latent value in the teams and protocols that we partner with.