Author: Jason Rosenthal, operating partner of a16z crypto; Source: X, @jasonrosenthal; Compiler: Shaw, Golden Finance

Many top companies in history have succeeded by taking root in capital circulation - promoting the generation and transfer of value within the network system and sharing profits from it. The larger the volume of value flowing through the network, the faster the company tends to expand.

Cryptocurrency is the first modern technology to natively adapt to this set of business logic. If a start-up project does not rely on this logic to gain revenue when designing its product architecture and business model, it will miss out on core dividends. With stablecoins, money and value can now flow at Internet speeds:Global settlement around the clock, with full programmability. The underlying payment channel is fully open, the unit profit model is open and transparent, and the fund flow pool that can be covered includes all circulating dollars in the world.

Underlying business paradigm

Blockchain is a network business model from its underlying design. All transactions are settled in a shared ledger; each new participant will consolidate the underlying infrastructure for reuse by subsequent developers. The more users and builders there are, the higher the value of the entire network to all users.

Traditional companies often spend years struggling to build network effects on old infrastructure; while crypto entrepreneurs naturally have a network effect foundation when they start.

Network tokens further amplify this compounding advantage. A well-designed token system can unify the goals of ordinary users, developers, service providers, node verifiers and protocol parties - to jointly expand the scale of the network, and distribute benefits according to the proportion of each party's participation and contribution. All profits generated by the agreement will ultimately belong to the users, and there will be no cooperation rebates or private transactions. The value transfer within the system and the value accumulation of builders form a positive cycle.

This business model is not new. It is just the first time that the encryption industry has allowed start-up projects to implement this model at a lower threshold and on a larger scale.

The profits of railway companies do not depend on the sale of locomotives, but on a commission for every ton of grain, coal, and steel transported by rail. Standard Oil, U.S. Steel, and AT&T are all giants that are stuck in the capital flow channel. Google and Meta can replace the print media and TV advertising industries not only because of better advertising effects, but because they occupy key nodes in traffic monetization and can share profits from trillions of dollars in commercial demand; AWS is stuck in the computing power circulation track.

The core logic is always the same: find the only way for value to flow and stay at the center of the flow path.

The financial market vividly embodies this set of business logic. In fiscal year 2024, Visa processed payment transactions of US$15.7 trillion, with net revenue of US$35.9 billion; Jane Street's net transaction revenue last year was as high as US$20.5 billion, with revenue exceeding Citibank and Bank of America. The top five market makers in the United States handle 87% of the order flow payment business: they do not make money by predicting market trends, but are involved in the flow of every order. The higher the trading volume, the more profits they make.

This type of enterprise also has one thing in common: It has strong network effects. The more credit cards there are, the higher the value of Visa to merchants; the more merchants that connect to Visa, the more useful the card is to cardholders. The logic of order flow is also the same: the more brokers connected, the narrower the transaction spread, which in turn attracts more brokers to settle in, bringing greater order flow.

The superimposition of network effects on capital flow is one of the most viable business models in history.

Your profit is my opportunity

Bezos once said a famous saying: "Your profit is my opportunity." This sentence was originally aimed at the retail industry, but is more appropriate in the traditional financial services industry - traditional finance is the world's largest profit track, covering all business lines such as payment, asset custody, lending, foreign exchange, securitization, settlement, and market making. Visa and Mastercard rely on old networks built in the 1960s and still charge 2%–3% handling fees; cross-border remittance channel handling fees are as high as 6%–9%; prime brokers and custodians will take a commission from each securities transaction. Even if the United States implements the T+1 clearing system in 2024, funds will still be idle overnight, which is equivalent to a structural hidden cost that all market participants will bear.

These levels of profit margins are all entry points for innovation. Compressing transaction costs and increasing capital turnover speed are also expected to make the overall market pie bigger. Stripe and Square have already proven the feasibility of this approach in the payment industry.

Entrepreneurs in the encryption industry have the opportunity to create a new generation of circulation system: programmable, instant settlement, globalization, and rooted in value capital circulation links from the bottom.

This frontier of innovation is no longer limited to financial services: Computing power and GPU trading markets, memory chips, AI training data, energy, robotics, aerospace, rare earth metals, etc. This is true in all walks of life. These tracks will see massive global value circulation in the future, but the architectural carrying capacity of traditional underlying channels cannot keep up with such scale needs.

All tracks are blank blue oceans. Entrepreneurs can start from scratch and rely on programmable infrastructure to build a business model with blocked capital flow. There are no old monopoly channels, no entrenched intermediary service providers, and no barriers to defense by inherent forces.

As a project founder, you might as well ask yourself three questions:

• Is your business currently exposed to value capital flows?

• If the value of your product business expands tenfold, will your revenue grow simultaneously?

• If you are developing a new product, in the target market, which link has the highest profit margin relative to the value it creates?

Opportunities lie here. Reduce circulation costs, integrate new value circulation, and rely on network effects to achieve compound interest growth.