Thread by @willyogo

“But wait, if ShapeShift doesn’t charge fees, how do you make money??”

I get this q a lot 😅

There are in fact infinite ways to generate revenues besides fees. Today, I’ll show you how no fees can actually lead to more revenues 🤯🧵

First, let me clarify that I have no qualms about fees on the protocol layer. I’m specifically talking about this top layer, where end-users (the most important stakeholder) live and breathe.

(image h/t @TrustlessState)

“In order to win on this top layer, you need to build useful stuff for users. And in order to build useful stuff for users, you need to somehow create and capture value to fund the development of that useful stuff.”

- Captain Obvious

Okay, so how web2 applications historically monetized? The answer: fees! There are all sorts of fees you can charge: Transaction fees, Subscription fees, One-time fees

Web2 loves fees

However, it’s important to note that when you add fees, you add a barrier that each user must overcome. Fees inevitably add friction. Nobody likes fees.

Read this part twice: If like many web3 projects, your success depends on network effects, it’s essential that you minimize friction in your flywheel. Otherwise, a more frictionless competitor will build stronger network effects, and win.

Unlike web2, where man-made walled gardens, IP, and closed-source code can create competitive moats, the best interfaces in web3 are open-source and built upon powerful, permissionless legos that anyone can play with.

Code can be forked. Network effects and communities cannot be.

So what’s better than fees? No fees! #Free bb.

“Alright sure, all else equal, users prefer no fees over extra fees. But you still haven’t explained how you make money.”

Again, there are infinite ways. Today I’ll cover three examples close to my heart.

The first is @Giveth. On Giveth, you can donate to 2,000 verified projects around the world with no middleman, and no fees.

Could Giveth charge fees? I mean.. I guess, but that would be messed up! This money is for charity smh

Instead, Giveth has come up with a creative way to monetize that not only enables 100% of every xDAI donated to go directly to projects, but that also solves an important problem; one for which web2 has been unable to address.

The problem is that donating is hard. Once you’ve decided which cause you want to support, you have to research multiple competing projects to decide who to support. But you just want to give away your money! And giving away money should be easy.

Thanks to @gitcoin’s recent launch of their Grants protocol, Giveth is working to enable donations to causes where 100% of every dollar donated is allocated to verified projects supporting that cause.

If you do donate to a specific project, your donation is matched. This is not only a great feeling for the donor; projects love it too. They'll say “donate to us on Giveth. Not only will you earn GIV, but we will get a matching donation.”

The coolest part? While donations to a cause are waiting to be allocated to a project as matching donations (~45 days), they can be deployed to insured DeFi protocols to generate safe and sustainable yield ♻️ #regen #tokenomics

This model could generate billions of dollars of revenue in a way that costs both projects and donors nothing.

100% of every dollar donated goes directly to top projects, yet the project can still fund ongoing development and operations 🤝

This is a winning model, and I believe integral to Giveth's mission to build the best donation platform. While this would be a very difficult model for a Web2 startup to implement, for Giveth, the legos just need to be assembled.

The next example I’m proud to share is @ShapeShift

While ShapeShift used to charge a spread as a centralized org/exchange, it’s since aggregated DEXs, transitioned to a community-owned DAO, open-sourced all code, and removed all fees.

ShapeShift is officially an open-source public good.

So how does ShapeShift make money? Do it charge fees on swaps, and enable holders of FOX tokens to waive those fees!?

NO!!! FOX NO!!! 👏

“Okay, but what about Metamask? They add 0.875% fees on top of swaps in their wallet, and they seem to be doing pretty good.”

Don't get me wrong, I love MetaMask. But who the fox do they think they are adding 0.875% on top of DEX protocols!? This is more than the protocols charge!

I believe that as an industry we can, and should dao better.

“Well what if ShapeShift charged 0.865%? Or 0.855%!?”

NO! In the beautiful world of web3, fees are a race to the bottom. In order to win, front run this race, make your app zero, come up with creative ways to monetize, and maximize your network effects. This is the wei.

Instead of adding fees, ShapeShift earns affiliate revenues from a growing number of protocols or services that generate revenue from ShapeShift’s users.

The DAO doesn’t care how each protocol or service makes its pie. It just wants a slice of the pie that it helps create.

And you know what’s even better than a free open-source app? A free, open-source, and community-owned app that monetizes creatively and *rewards* you for using it. Now we’re really cookin.

I believe this is the winning recipe for building the ultimate interface to the decentralized universe.

Which interface would you rather use? The one that charges you extra, or the one that charges you nothing and rewards you for using it? 🤔

These are just two examples of ways to monetize that don’t require charging users extra fees. Tbf, both of these models require a significant volume of users to be sustainable, but the same can be said for fees.

Importantly, it’s much easier to acquire users and build network effects without fees, and even moreso when incentivizing users with ownership.

If only there was a way to generate meaningful revenues to fund the development necessary to build network effects and achieve scale..

Introducing the best of both worlds: optional donations on transactions instead of mandatory fees.

While nobody likes mandatory fees, some users may be happy to pay a small tip/donation to support further development and operations.

To enable this, both @Giveth and @ShapeShift have implemented optional, opt-out donations. Giveth includes this step on donating, and ShapeShift includes it on trades. Opting out is as simple as checking (or unchecking) a box.

Not only does this enable both projects to avoid mandatory fees while generating additional revenues, but it also results in more useful data vs. enabling mandatory fees. So far, ~40% of trade volume has included the optional donation.

If mandatory fees had been enabled, it would be impossible to know how much additional volume ShapeShift or Giveth could have without fees. This is important, cuz both projects need to achieve more volume in order to achieve sustainability.

These are some of the reasons why I made a counter proposal to ShapeShift in response to a proposal to add mandatory fees to THORChain swaps. I’m very grateful that the community decided not to add fees.

snapshot.org/#/shapeshiftda…

In the coming months, I’m excited for ShapeShift to launch a FOX Rewards program which rewards users that generate revenue for the DAO proportionally with FOX. This will give us a sense of whether this proposed model is indeed a winner. (example diagram)

If we can’t figure out a way to sustain without fees, I will be much more open to proposals to add them. Until then, I applaud the ShapeShift community’s efforts to build a better alternative, and invite you to support us in this mission.

Join us at shapeshift.com or discord.gg/shapeshift

If you’re interested in this topic, please check out this talk from ETHDenver that dives deeper: