Web3's New Value Chain: Successful Projects Possess Global Market Value and Win Broader User Adoption
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Web3's New Value Chain: Successful Projects Possess Global Market Value and Win Broader User Adoption
The ultimately successful Web3 protocols and applications will become globally accessible public goods for their specific use cases.
Navigating Web3 tides with focused insightsAuthor: Gagra Ventures
Translation: TechFlow
Recently, Gagra Ventures published an article titled "The New "Value Stack," discussing the evolution of value chains in Web3 and distributed technology businesses. It explores how decentralization and autonomous agents are reshaping the global tech sector, and how Web3 protocols and applications can form globally accessible public goods. The article also examines how companies like Amazon achieve commercial success by controlling different layers of the value stack, and how these principles apply to the Web3 environment. TechFlow has translated the full piece.
Background
In traditional tech, it is well known that companies securing the “last mile”—direct access to end customers—typically capture the most value within a product's value chain. The last mile is also the most competitive, so for risk-averse founders, building intermediate components or services along the value chain remains a sensible strategy.
In the realm of Web3 and distributed technology, intermediaries are ideally minimized, with systems becoming decentralized and services automated. This leads to the conclusion that the value chain is inverted. The foundational infrastructure for early Web3 applications was dominated by giants like Bitcoin and Ethereum, each offering distinct paradigms (e.g., “internet money” and “internet computer”) for applications to leverage their openness. As a result, investors realized that these protocols themselves might capture more value than the applications built on top of them.
This thinking directed much of the capital toward Web3 infrastructure, such as so-called Layer 1s, Layer 2s, and even Layer 3s (or application-specific chains/rollups). However, the underlying vision has evolved from monolithic designs to more modular architectures, giving rise to numerous infrastructure startups seeking funding.
Since then, we've also seen the emergence of applications that significantly benefit from reduced deployment and distribution costs using Ethereum, while gaining substantial upside through token issuance—tokens that don't necessarily capture the value generated by the product (mainly due to regulatory constraints, which are temporary). Uniswap is a prime example, despite only recently starting to charge fees. Although its valuation at peak times remained far below that of Ethereum, its development and time-to-market were significantly faster than competing Web2 trading platforms, while benefiting from outsourcing most operational costs to Ethereum validators and maintainers. This represents a strong business model.
As such, for a period, the narrative shifted, with significant public and private market investments flowing into new “super app” contenders in Web3, primarily in gaming and DeFi applications (such as liquid staking).
We have been reflecting on which mental framework best identifies the most valuable Web3 business models. This led us to develop our concept of the “Value Stack,” which now guides our investment decisions and portfolio construction.
Forces Shaping the New Value Stack
We believe two core trends will define the global technology industry. Starting with software and the internet (which will become synonymous as the security gap between offline and online narrows), we expect these trends to gradually extend into the physical world.
These trends are:
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Decentralization, driven by the proliferation of public blockchains and blockchain-like distributed systems (deterministic, trustless, censorship-resistant). It begins as a system around any asset, including autonomous programs. We view blockchain-like technologies as the "leash" for artificial intelligence, just as legal systems curbed real-world violence when humans transitioned to agriculture. This will bring everything—first digital assets, then physical ones—onto the network. In the near future, as scalability and bandwidth bottlenecks inevitably get resolved, blockchain-like cryptographic systems will offer superior security while keeping everyone and everything connected, eliminating the need for internal setups and downloadable clients;
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Autonomous agents emerging in both the digital and physical worlds, powered by artificial intelligence and robotics. Machines will dominate internet traffic and usage. We believe the ultimate form of consumer applications will be highly customizable AI agent interfaces combined with mundane tasks, while more creative and engaging applications may evolve into gamified experiences for human users, still retaining high AI integration.
To reiterate: we believe most business processes and user experiences will be automated, while the parameters and preferences we set remain under our verifiable control. Moreover, scalability limitations and complexity—the current bottlenecks preventing decentralized counterparts of top Web2 products from thriving—will be resolved within the next 3 to 5 years. Thus, we assume these constraints will no longer hinder our argument when it fully takes effect.
This also implies we will ultimately have a very different value chain, as these technologies are inherently global. Everything will be online and interconnected. The key takeaway here is that the internet value stack will eventually become homogenized globally.
In our view, winning applications and protocols will become global public goods, managed and accessed via decentralized networks similar to public blockchains. There may be jurisdiction-specific rules and restrictions when interacting with them, but most of the time, the underlying stack remains identical.
What Is the Value Stack?
Now, let’s use a simple example to explain what we mean by “value stack.”
Amazon initially appeared as an infinite store shelf, first for books and then for all other products—their captured “last mile.” They attracted consumers by expanding beyond their original book offerings. Over time, Amazon evolved from merely reselling publishers’ books to becoming a publisher itself, creating a platform via Kindle, and later launching additional content platforms through Amazon Prime. But what truly reduced their costs and eventually enabled profitability was moving down the technology and value stacks by monetizing backend access—an infrastructure that, aside from the Christmas shopping season, sat idle 95% of the year. This gave birth to their cloud platform, AWS. Furthermore, to enhance customer experience and attract new users (who otherwise would shop at physical stores), they delved deeper into the value creation chain, establishing extremely fast delivery services and ultimately owning the largest private fleet of planes and drones in the U.S. They also partnered with manufacturers to sell some of the most popular products under their own brand, maintaining attractive low prices and fast delivery speeds.
This is roughly how an e-commerce platform transformed into a cloud computing, infrastructure, and logistics giant—by vertically moving down the value stack and owning it. From the topmost last mile all the way down to manufacturing, extracting every margin and satisfying customer demands. Of course, they also rely on shared infrastructure—like TCP/IP on the internet or concrete roads in the physical world—which also forms part of the value chain. But to maintain dominance, Amazon needed to own its vertical stack, achieving this incrementally after locking in the primary growth drivers. Other tech giants exhibit similar patterns to varying degrees.
For a company, deepening into the value chain of its core product is a more natural process than expanding into adjacent or entirely new markets—even though they often do both, with varying degrees of success. Companies generally have a better chance of fully owning their vertical value stack than achieving horizontal dominance (i.e., across multiple markets/jurisdictions/platforms). Owning parts of the value chain creates economies of scale and helps avoid competition. Horizontal expansion into new markets, by contrast, carries higher risks and greater uncertainty.
No matter how strong Amazon’s vertical stack is in the U.S. and select regions, it cannot fully replicate this globally. Thus, it either depends on local partners with better regional distribution or competes against enterprises that own similar vertical stacks in other regions—such as Alibaba in China. These entities may never be exact copies of one another; for instance, Alibaba owns no warehouses or logistics operations but dominates its local market by controlling other parts of its value chain—such as financial services via Alipay.
Therefore, the winning business model in traditional tech has been to vertically expand down the value stack to maximize margins and avoid competition. Still, this doesn’t fully protect such businesses from occasional disruption.
The Value Stack in Web3
We believe the eventual winners in Web3—protocols and applications alike—will become globally accessible public goods for their specific use cases, because broadest access typically generates power-law dynamics (most people use just one or two winning solutions). These distributed products are usually networks of service providers + users (e.g., Bitcoin) or purely user-driven (e.g., Uniswap). They are inherently censorship-resistant, operate 24/7, and are equally open to anyone contributing or building atop them. In such an environment, users and contributors have no reason not to treat the winning solution as the default product for a given use case. Winners will likely be those capturing the most mindshare, liquidity, and other network effects.
This also means Web3 consists of multiple applications and protocols, each occupying a segment of this decentralized, global value creation chain—but none able to fully own the entire stack. Interoperability and openness require a degree of specialization (depending on the domain). In a world where everything is open-source, you must either be absolutely the best or possess the largest network effects. Moreover, if you reduce interoperability to enforce lock-in, users will simply switch to alternative solutions that don’t impose such restrictions—because that’s where value lies for them. Finally, you can still build your own complete value stack, but incentives increasingly favor building on top of existing solutions rather than recreating everything on your own. The benefits of minimizing your protocol’s setup cost and distributing it to the widest possible user base (wallets on blockchains) are too great. The more contributors an open-source technology attracts, the stronger it becomes. This is an economic, cultural, and even social movement that is difficult to reverse.
Extending the value stack metaphor to a layered structure, the slice captured by any single application or protocol may appear smaller/thinner vertically (limited vertical value capture) due to the reasons above. However, the nature of the global markets created by Web3 allows these businesses to serve far more users than regional winners like Amazon or Alibaba. Horizontally, therefore, Web3 may hold greater potential value than its Web2 counterparts.
We see Web3 winners growing horizontally within their categories, rather than vertically. The global value stack is a set of uniform, homogeneous layers stacked vertically into one large tech stack, with each protocol and application representing a single slice of this layered entity.
In this scenario, what does the winner in the “storage” category look like? It would be the protocol hosting data for the majority of the global internet—from China and the U.S. to everywhere else—effectively capturing the storage segment of AWS, Alibaba Cloud, Azure, Tencent Cloud, Google Cloud, Hetzner, and all other cloud and on-premise storage businesses. Now multiply that by the ever-expanding storage demands of a digitized world, where AI generates and consumes data orders of magnitude larger than today, and you begin to grasp the scale such a value stack layer could occupy.
The critical question is: given the open-source nature of these technologies, how can one ensure that winners in network effects also capture most of the value they create? We firmly believe we are at the beginning of discovering optimal economic models for such systems. Experiments with digital assets representing access/ownership of these platforms have only begun to break through. The rapid path to token liquidity is both a gift and a curse—it incentivizes quick token launches and minor improvements based on early trial-and-error. However, for products whose tokens continuously decline in price, reversing direction becomes extremely difficult. This is why failures in token economics could impose heavy costs even on builders of highly successful products.
We strongly believe a golden age of token design—and a testing ground for the most complex and cutting-edge economic theories—is about to arrive. Economists we work with in our portfolio companies tell us that, due to limited real-world output, most careers in traditional economics are dull. In contrast, token economics allows them to implement and continuously refine closed-loop network economies.
How We Apply Our Framework in Practice
As investors, you want to back the winners—or at least the second-largest protocols/applications serving their respective stacks. We believe protocols further down the value chain (i.e., the final end of the internet) will resemble commoditized “winner-take-all” offerings. The application layer may host multiple simultaneous winners catering to different user groups, yet still exhibit dominance within their niches.
Moreover, we don’t know which layer of the stack will capture the most value, and we expect demand for each service/protocol to be cyclical. However, the higher up the stack, the greater the profit potential (think of staples versus discretionary goods across economic cycles), including for middleware (e.g., the rise of gaming benefits certain middleware more than the rise of productivity software). Therefore, you want to own as many category leaders as possible across the entire stack to achieve defensiveness in your portfolio.
Additionally, while we don’t know the exact value size of each category, heuristically, one might prioritize larger categories first. We tend to favor projects in areas that appear less competitive yet make sense from first principles and founder talent perspectives.
The key to ensuring you back winners or strong contenders is confirming they can build defensive moats around themselves. In an interconnected world, we believe this means first and foremost network effects, followed by robust value capture mechanisms. As investors, we primarily collaborate with portfolio companies to enhance their composability with other portfolio companies and the broader ecosystem, while also designing optimal value capture mechanisms.
One note on network effects: over the past 20 years of internet growth, we’ve learned that technology is a popularity contest—not always the best solution that gains the most adoption. However, we encourage our portfolio teams to maintain uncompromising technical excellence, especially when the technology isn’t consumer-facing. In a world where integration decisions are driven by AI, this will become increasingly important—AI will eliminate human bias and social thinking when selecting the best technologies. This adds a whole new dimension to consider, though that’s a topic for another time.
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