Most of us are getting $strong wrong. It’s not a DeFi protocol. What is it then? I spent 100+ hours researching this. Here’s what I found out. You won’t look at $strong and DaaS protocols the same. PART 1: The History of @Strongblock_io & The Origins of Node Protocols 🧵

@Strongblock_io 2/ This will be the first part of a multi-part series. The aim of this series is to examine: • How node protocols were born • How DaaS protocols emerged • How sustainable nodes are • Why StrongChain makes sense Let’s dive in.

@Strongblock_io 3/ We all know StrongBlock. It was the darling of the DeFi space in 2021. It was the original passive income protocol that gave people financial independence. But by early 2022, investors were asking questions of it:

@Strongblock_io 4/ • Why was it taking StrongBlock so long to innovate compared to Thor, Comb, etc.? • Why don’t they investigate other revenue streams e.g. angel or VC-style investments in other protocols/tokens? • When will they move away from ponzinomics? • Why create a blockchain?

@Strongblock_io 5/ If you view StrongBlock as a DeFi protocol, these questions might make sense. However, the problem is that it isn’t a DeFi protocol. It’s an infrastructure company. And it’s through this lens that we should be viewing it. To understand this, let's look at its history.

@Strongblock_io 6/ StrongBlock: The Founding of an Infrastructure Company StrongBlock was formed in 2018, by a team who had previously worked for Block One, a company that created the EOS blockchain. The team believed that soon companies would want their own blockchains to transmit/store data.

@Strongblock_io 7/ However, blockchain networks are notoriously difficult to create. It takes a lot of technical expertise to launch a blockchain network, and most companies didn’t have that expertise in-house. StrongBlock's aim was therefore to offer Blockchain as a Service.

@Strongblock_io 8/ This involved being like WordPress but for blockchains. Where WordPress helped non-technical people launch websites, StrongBlock would help private companies to launch and manage their own blockchain network without needing to know the ins and outs of programming.

@Strongblock_io 9/ In early 2020, StrongBlock had lined up their first clients for their Blockchain as a Service offering. However, a black swan event happened: COVID. The pilot partners eventually pulled the plug, and the company was left wondering what to do next.

@Strongblock_io 10/ Since their aim was always to build blockchain networks and its supporting infrastructure, one of the next ideas on their roadmap was around improving blockchain ‘nodes’. The team had seen a problem. The quantity & quality of nodes on networks like Ethereum were an issue.

@Strongblock_io 11/ But what is a "node"? Once transactions are made on a blockchain network like Ethereum, transactions are “validated” by miners. After they're validated, they're added to the blockchain. This involves "chaining" together "blocks" of all validated transactions on a network.

@Strongblock_io 11/ Each (full) node stores a full copy of the blockchain - from the first transaction on the blockchain, to the most recently verified block of transactions. Nodes play an important role in ensuring the security of the blockchain.

@Strongblock_io 12/ They do this by “talking” to each other - through software - and ensuring that all copies of the blockchain are the same. It'd be a problem if one node had a different copy to other nodes. This could indicate that a hacker has tried to re-write the history of transactions.

@Strongblock_io 13/ Therefore, issues with nodes happen if: • There aren't enough nodes hosting the full history of prior transactions, • They are running on old software, or • They suffer from outages tl;dr: more nodes (with up-to-date software) = more security for a blockchain.

@Strongblock_io 14/ The problem with nodes: no incentives Despite the importance of nodes for a blockchain, there are little incentives to run one. People who run nodes are not compensated by blockchain networks (unlike the miners who "validate" transactions on Ethereum).

@Strongblock_io 15/ Introducing Nodes as a Service (NaaS): StrongBlock therefore realised that: • Blockchains need more nodes to ensure security, and • People need incentives to create nodes. They therefore created an incentive system for people to create and maintain Ethereum nodes.

@Strongblock_io 16/ While it may have been easier for StrongBlock to simply run the nodes themselves, they were passionate about decentralisation. They wanted nodes to be run by individuals, rather than a centralised organisation.

@Strongblock_io 17/ How StrongBlock incentivised node creation: To find a way to create incentives, they looked to the DeFi space for inspiration. Their eventual solution was to create their own token - $STRONG - and compensate node holders with it. At launch, $STRONG was worth $200.

@Strongblock_io 18/ When StrongBlock launched the idea, it required people to set up their own node (typically using a virtual machine). This could cost up to $115 a month to run, and required technical expertise. Once set up, node holders would begin earning rewards in $STRONG.

@Strongblock_io 19/ Offering an automated nodes service: A few hundred people ended up setting up their own nodes. However, many people were disappointed they couldn't participate because they simply didn't have the technical skills to set up and manage their own nodes.

@Strongblock_io 20/ Hence, in Dec 2020, StrongBlock announced a new initative that would allow ANYONE to set up a node. If you paid StrongBlock 10 $STRONG, they would set up a node on your behalf and run it for you. Node holders would receive a fixed rate of $STRONG per day as a reward.

@Strongblock_io 21/ StrongBlock’s rewards system has come to be known as “ponzinomics”. I’ve previously done an in-depth explanation of “ponzinomics” and its history. But in a nutshell, ponzinomics uses tokens from new investors to pay old investors.

@Strongblock_io 22/ Therefore, when someone paid 10 $STRONG to set up a node, 6 $STRONG tokens were sent to a “node rewards” pool. Existing node holders would receive their $STRONG rewards from this rewards pool.

@Strongblock_io 23/ Nodes were compensated under a fixed rate. Node creators received approximately 0.93 $STRONG per day. However, the value of $STRONG in $USD is NOT fixed. At its peak 1 $STRONG was worth $1200. In March 2022 it was $120.

@Strongblock_io 24/ The growth of nodes: Many node holders, once they received 10 $STRONG in rewards (after around 108 days), chose to “compound” their rewards into a second node. They realised the more nodes you have, the quicker it is to compound rewards into new nodes.

@Strongblock_io 25/ An initial 10 $STRONG investment in 1 node, could eventually be compounded into 17 nodes in a year’s time. I.e. after an initial investment of 10 $STRONG, in 12 months you could be earning 15 $STRONG per day. The DeFi "passive income" community jumped on this deal.

@Strongblock_io 26/ People realised that through the power of compounding, they might be able to earn more than their day jobs. As a result, node creation (through compounding + new investors) grew exponentially.

@Strongblock_io 27/ But how sustainable was this? Given the ponzinomics of StrongBlock, the number of new investors would need to grow exponentially to pay old investors. Many asked if this was sustainable. Further, there was little utility for $STRONG - its main use was to purchase a node.

@Strongblock_io 28/ If node holders chose not to compound their nodes and “cashed out” their rewards instead (eg by swapping it for ETH), the supply of $STRONG on the market would rise. And prices drop if the supply of $STRONG is greater than its demand. This is something we've been seeing:

@Strongblock_io 29/ Wait, so how was StrongBlock going to monetise this? As far as I can tell, they never announced plans to monetise these nodes. Instead, they aimed to fix a market failure. I.e. to simply incentivise people to create & maintain nodes. They succeeded tremendously at this.

@Strongblock_io 30/ Instead of monetising nodes, they used other ways to bring in revenue: They: • issued NFTs to raise capital, • invested in validator nodes (e.g. Sentinel), • set up ETH 2.0 pools, • set up validator pools, etc. They would use these yields to promote sustainability.

@Strongblock_io 31/ However, in Feb 2022, StrongBlock announced its next major innovation: StrongChain - a blockchain network. Some were confused by this. They thought StrongBlock had innovated too slowly compared to Thor, Comb, etc., who were already developing several revenue streams.

@Strongblock_io 32/ They were worried that setting up a blockchain would take time & the immediate monetisation potential wasn't clear. Moreover, why yet another blockchain network? What would StrongChain do that other networks like Fantom, Avalanche, or Cosmos couldn’t do?

@Strongblock_io 33/ Before answering these questions, we need to understand one thing. We shouldn’t be comparing StrongBlock to protocols like Thor and Comb. They are completely different. In reality, StrongBlock is an infrastructure company - albeit one that uses the principles of DeFi.

@Strongblock_io 34/ The company was born out of a desire to commercialise blockchain technology. It wasn’t simply a DeFi protocol that was pivoting to something unrelated in order to create utility for its token.

@Strongblock_io 35/ Tl;dr: • StrongBlock is a blockchain infrastructure company, not a DeFi protocol. • Its initial aim was to commercialise blockchain technology. • They found product-market fit with the DeFi community by incentivising the creation of nodes in return for passive income.

@Strongblock_io 36/ In PART 2, I’ll examine the specifics of: • HOW StrongBlock is different to Thor, Comb, Hive, etc., and • The origins of DaaS protocols I'll be releasing PART 2 early next week.

@Strongblock_io 37/ It's taken quite some time to put this series together. So if you enjoyed this thread, I'd be grateful if you: 1. Follow me @economiserly to read the upcoming parts, and 2. RT the tweet below to share this thread as it helps out with the Twitter algo.

UPDATE: Two small typo corrections (made in comments but flagging again here): • Investors earned approximately 0.093 $STRONG per day. • Once compounded to 17 nodes, investors earned approx 1.5 $STRONG per day. Looking forward to that edit button, Elon.

Part 2 of the series looks at the origins of DaaS protocols:

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