Scalability as a Prequisite to Composability
Jan 3, 2024
In the early days of crypto Venture Capital in 2018-2019, most funds were focused on the scalability problem. How can we create blockchains that allow more throughput(or Transactions per Second i.e. TPS) without sacrificing decentralization or security?
This energy was focused mostly on Ethereum’s competitors, alternative L1 chains, but also on L2 scaling solutions like Polygon(MATIC). While scalability is a necessary component for mass adoption, it is not the only blockchain characteristic missing from the web3 stack today.
However, scalability is not all that interesting in itself. For example, the NASDAQ processes 50,000 equity transactions per second everyday and so does Paypal and VISA.
What you actually need in the web3 stack, is composability across chains and integrations with existing web2 technologies. In my early crypto days back in 2019, I started to tinker with this concept. Cosmos had announced their plan for Inter Blockchain communication(IBC), so I started to dig into the research. What I realized was that crypto protocols are similar to APIs, in that they perform a simple read/write function, and do not inherently know that other APIs exist. In the first iteration of DeFi in early 2020, I classified these protocols as the “Modularization of Financial Primitives.”
So, what is composability anyway?
This diagram above shows 3 different crypto primitives.
0x ( Decentralized exchange)
Maker DAO (stable coin minting)
Augur (decentralized prediction market)
These crypto primitives, when leveraged together by an application, can produce something more valuable than the sum of its parts; i.e. emergent value can be created.
For these reasons, we believe that scalability is not a prerequisite, and composability will drive innovation at the L2 application layer for years to come. However, we still predominantly focused on web3 infrastructure for the time being, not apps, given that we are still early to this multi-decade re-engineering of value capture on the internet.