The Return of Corporate Blockchains | Roundup

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The Rebirth of Corporate Blockchains: A Historical Perspective

• The discussion opens by revisiting the "blockchain, not Bitcoin" era of 2018, where enterprise blockchains, primarily private and permissioned, aimed to leverage blockchain properties like transparency and security without embracing cryptocurrencies. Zave, drawing from his experience at ING, explains that these early initiatives largely failed due to a lack of economic incentives and poor governance.

• Enterprise Blockchains (2018): Defined as private, permissioned, and shared digital ledgers used mainly for tracking data in supply chains or financial settlement, rather than for money. Examples included Hyperledger and Ethereum Quorum.
• Reasons for Failure:
  • No Tokens: Unlike public blockchains (e.g., Ethereum's ETH), these networks lacked native tokens to pay for gas or incentivize node operators, leading to a lack of maintenance and growth.
  • Poor Governance: Coordinating between competing enterprises on a shared ledger proved difficult due to inherent conflicts of interest.
  • Slow & Inaccessible: They were often slower than centralized databases and not openly accessible, limiting neutrality and liquidity.
  • Lack of Incentives: No one was incentivized to run nodes, fund, or expand these private networks, throttling growth from the start.
• What Worked: Only two initiatives from that era truly survived:
  • JPMCoin (now Kexus): Evolved from an internal settlement system to settling on public Layer 2s (L2s), demonstrating a shift towards embracing public infrastructure.
  • Paxos: Successfully tokenized assets and worked closely with regulators, achieving significant product-market fit.

The Shift to "Blockchain with Crypto"

• Zave highlights that the current resurgence of corporate chains is fundamentally different, driven by the integration of crypto primitives and a clearer regulatory environment. This marks a transition from "blockchain without crypto" to "blockchain with crypto."

• Key Changes Since 2018:
  • Stablecoins: The widespread adoption and regulatory clarity around stablecoins provide a reliable on-chain medium of exchange.
  • Improved Blockchain Infrastructure: More mature and robust underlying technology.
  • Economic Incentives: Tokens are now accepted as financial instruments, providing clear frameworks for enterprises.
  • Regulatory Clarity: Post-Gensler, enterprises have clearer guidelines, increasing their willingness to engage.
  • Liquidity & Real Users: Public chains now boast significant liquidity and applications with active user bases.
• Current Examples: Corporate stablecoins, Visa settling on Solana, money market funds on-chain, Coinbase's Base L2, and on-chain deposits.
• Zave's Core Takeaway: "Back in 2018, enterprise blockchains failed because it tried to avoid crypto. Today I might make the argument that it is working because enterprise blockchains are actually bracing crypto."

Design Choices: Shades of Gray in Corporate Chains

• Miles introduces a 2x2 matrix to categorize the evolving landscape of corporate chains, moving beyond the simplistic "private vs. public" debate. The matrix considers two spectrums: public vs. private (who can read/verify state) and permissionless vs. permissioned (who can participate/deploy).

• Miles' 2x2 Matrix:
  • Public vs. Private: Refers to who can read and verify the chain's state (e.g., run a node, view a block explorer).
  • Permissionless vs. Permissioned: Refers to who can deploy smart contracts, run validators/sequencers, or even use the chain (e.g., KYC-gated users).
• Emerging Quadrants:
  • Top Left (Private & Permissionless): Rare, but examples like Aztec aim to offer privacy in a permissionless setting, a long-sought cipherpunk ideal.
  • Bottom Right (Public & Permissioned): This is where most new corporate chains like Tempo and corporate rollups fall. They offer public state but exert control over validators, sequencers, or contract deployment to ensure compliance (e.g., OFAC sanctioned transactions).
  • Cosmos-Inspired Chains: Some corporate L1s resemble Cosmos chains (e.g., Osmosis, dYdX) by optimizing for specific use cases with governance-gated contract deployment, prioritizing capabilities over strict control.
  • Networks of Networks: Examples like Canton, ZK Sync, and Avalanche subnets allow individual chains to have local control while connecting to a broader, more decentralized network for interoperability and asset movement.
• Strategic Implication: The choice of where a corporate chain falls on this matrix is crucial for its success, balancing control, compliance, and decentralization.

Centralization, Decentralization, and Monetary Premium

• The discussion delves into the trade-offs between centralization and decentralization, and their impact on value accrual and "monetary premium."

• Centralization Trend: Zave observes a trend towards more permissioned and somewhat centralized chains among new corporate entrants, citing Hyperliquid's success and Solana's growth despite being more centralized than Ethereum.
• Monetary Premium Debate: Mike challenges this, noting that Bitcoin and Ethereum, the most decentralized assets, still command the vast majority of crypto market cap, suggesting a "monetary premium" for true decentralization.
• Zave's Perspective: He believes this monetary premium might be compressing. Corporate chains like Tempo and Robinhood, if successful, will likely be valued more like traditional equity businesses (e.g., Stripe) rather than receiving a crypto-native monetary premium.
• Miles' Counterpoint: The failure mode of 2018 (competitors unwilling to build on competitor-owned rails) hasn't changed. Public, neutral blockchains like Ethereum and Solana succeed because they are owned by nobody, enabling fierce competitors to build on the same rails. Corporate chains, by contrast, are sector-specific platforms, unlikely to achieve the same broad adoption.
• Actionable Insight: Investors should differentiate between chains that aim for a monetary premium (decentralized, neutral) and those that will be valued based on traditional business metrics (centralized, application-specific).

Corporate Strategy: Vertical Integration vs. Specialization

• Mike introduces a framework for how corporates decide where to play in a value chain, using the automotive industry (BMW) as an analogy to argue against full vertical integration in crypto.

• The "Own the Whole Stack" Fallacy: Many corporates naively assume they can and should own the entire blockchain stack. Mike argues this is unlikely to happen, citing JPMCoin's evolution to public chains as evidence.
• Business Logic for Value Chain Participation: Companies evaluate four criteria:
  • Strategic Importance (Core vs. Non-Core): Focus innovation on core business functions (e.g., Apple's OS, BMW's brand) and outsource non-core elements.
  • Differentiation vs. Commodity: Play where there's differentiation and profit, avoid commoditized areas.
  • Coordination & Risk: Outsource high-fixed-cost, variable-demand functions to mitigate financial risk.
  • Regulation & Liability: Consider regulatory burdens and liabilities when deciding what to own.
• Blockchain Value Chain Layers:
  • Base Layer (Consensus & Security, Data Availability - DA): Provides counterparty risk reduction (strong assurances against transaction reversal). Mike argues this is a commoditized but difficult-to-replicate layer.
  • Scaling & Middleware (Infra): Services like sequencers, block production, RPC providers, indexers. Mike predicts these will collapse into a "Red Hat" model of shared services.
  • Application Layer: Where most corporates originate.
• Mike's Argument: For corporates, investing in commoditized layers like consensus and DA yields low ROI compared to focusing on ecosystem, business development (BD), wallet, and identity. Owning the settlement layer also compromises the neutrality essential for broad adoption by competitors.
• Actionable Insight: Crypto AI investors should analyze corporate blockchain initiatives through the lens of traditional business strategy, identifying where companies are likely to specialize versus vertically integrate. Focus on projects that enhance distribution, user experience, and identity, rather than attempting to "own" the base layer.

The Role of Public Chains and Future Competition

• The conversation concludes by emphasizing the enduring importance of public, neutral blockchains and how startups can compete with corporate giants.

• Public Chains as Neutral Infrastructure: Miles reiterates that public, permissionless blockchains are crucial as neutral venues for settlement, allowing competitors to build on shared rails without relying on a rival's control.
• Competing with Corporate Chains: Startups can counter-position against corporate chains by building on public blockchains (e.g., Solana, Ethereum) to offer trust minimization and potentially lower costs, especially for core services where corporates might charge a premium (e.g., Stripe's 1.5% fee includes fraud guarantees).
• The "Red Hat" Model: Mike envisions a future where L2s and related infrastructure collapse into a service-provider model (like CommonWealth's original vision), offering specialized services on top of free, public chains.
• Talent and Focus: Zave highlights talent as the most finite resource in crypto, noting that well-funded corporate chains like Tempo can attract top engineers. However, Mike counters that too much money can lead to a lack of focus, making startups with resource constraints potentially more strategic in their innovation.
• The Risk for Generic Chains: Zave poses a critical question: if corporate chains become highly verticalized and focused (e.g., Tempo for payments, Google for AI), do generic public chains like Ethereum and Solana risk losing their monetary premium if they don't find clear product-market fit in specific segments?
• Strategic Implication: The battle for market share will involve both cost and convenience. Startups leveraging public chains can compete on trust and potentially lower fees, while corporate chains will leverage existing distribution and convenience. The long-term success of generic public chains depends on their ability to define their core value proposition and maintain relevance against specialized corporate offerings.

The episode underscores that the success of corporate blockchains now hinges on embracing crypto primitives and strategic specialization. Investors and researchers should track the interplay between corporate vertical integration attempts and the enduring value of neutral, public settlement layers, focusing on where true innovation and value capture will occur.