Opinion: Web3 innovation is replacing middlemen with middleware protocols

Cryptocurrencies and the broader blockchain ecosystem are helping to change the reality of our daily lives. With these emerging technologies, Web3 is being introduced as a permissionless open innovation using middleware blockchain protocols. In doing so, they are displacing middleman software-as-a-service (SaaS) companies by capturing higher levels of value.

Middleware protocols are by no means new. After all, Web2 is powered by middleware applications, the main one being HTTP. Middleware enables users to interact with each other and with applications in a computing environment. And for Web3, there are various protocols to support applications in the middle layer stack of this new Internet. More importantly, however, do they really matter?

Creating Value Using Middleware Protocols

With the advent of blockchain technology, the way we conduct our daily activities is changing. Whether through financial transactions, purchasing art, purchasing real estate or donating to charity, blockchain enables this by providing a secure and trusted peer-to-peer (P2P) network between users. Now, instead of companies extracting value from users, developers extract value from protocols.

But how? On the middleware protocol, developers can pledge native tokens once in exchange for the same network bandwidth within the validity period of the pledge. The longer the application is staked and uses the network, the closer the cost is to zero. After a few months, the service is essentially free, and with a staking-based token economy, there are no monthly fees like SaaS fees.

Developers can unwind their initial investment at any time and sell the middleware protocol’s native tokens they purchased on the secondary market or to another developer. They can also stake SaaS nodes to earn more protocol tokens for serving application requests.

Other middleware providers include Arweave, a global hard drive that allows users to permanently store data. Arweave users can get 1 GB of permanent storage space by paying 0.54 AR at a time. Although its marginal cost is close to zero, the initial cost cannot be recovered. Graph is a pay-as-you-go model for querying blockchain data indexed through micropayments. Depending on the size and frequency of queries, developers may pay high fees.

Collaborative relationship

Each application-specific middleware protocol provides unique services at different layers of the stack. For example, Pocket Network has an RPC layer, Graph has an index layer, Akash has a cloud layer, Livepeer and Arweave have a video transcoding layer, and Filecoin and Storj have a storage layer. The protocols are complementary because they are in different parts of the decentralized Web3 developer stack. For example, the ETHOnline 2020/2021 Hackathon project used both Pocket and The Graph: ERCgraph, Proxy Poster, LiFinance Bridge Aggregator Analytics, and Balancer Chat. And, because they are in different parts of the decentralized Web3 developer operations stack, the protocols are synergistic.

Graph's subgraph indexer requires a base-layer Ethereum archive node, which can be expensive to run and maintain. To save money, indexers can leverage the RPC endpoints of the middleware protocol, providing users with maximum uptime and no single point of failure. Using Livepeer's coordinator, they need a base layer Ethereum full node, which also brings monthly operation and maintenance costs. Similar to indexers, coordinators can leverage the middleware protocol's RPC endpoints to save money. This in turn develops a two-sided market between consumers and suppliers.

Under this synergistic relationship, better services attract applications, more application usage generates more node revenue, and more node revenue attracts more nodes, thereby increasing redundancy, so the economic flywheel continues to operate.

Disrupting SaaS

The Web3 Index tracks demand-side fees (DSF) for service agreements at each layer of the decentralized developer stack. For example, Pocket generated $3.9 million in DSF in 30 days because it employs a novel deflationary payment model. This means that developers pay fees through dilution and nodes earn through inflation.

Graph, Livepeer, Arweave, Helium, and Akash generated gains of $6,460, $50,396, $171,406, $7,591, and $4,623, respectively. This novel economic approach has the potential to substantially disrupt SaaS while maintaining the “forever fair boot” mechanism that individuals in the crypto space seek when contributing to a growing community.

It also means that developers don't need to pay monthly rent to middlemen and can get paid for their efforts.

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