Disclaimer: Delphi Ventures holds a position in THORChain. For full disclosures, see our transparency page.

“Moat”, a term coined by Warren Buffett, refers to a business’s ability to maintain its competitive advantage as it grows. As the name indicates, a moat generally relies on keeping others out, leveraging proprietary technology, brand or relationships. While establishing a moat is difficult enough in traditional markets, the very idea of a moat seems impossible to the point of being paradoxical in DeFi as the open, permissionless and forkable nature of protocols makes it difficult to keep anyone out.

As I covered in past dailies here and here, this makes value capture significantly more difficult since any excess rent extraction will result in a cheaper fork coming to market. In fact, DeFi seems to fulfil most of the conditions of perfectly competitive markets, including commoditised products, low barriers to entry,, perfect information and perfect factor mobility.

Peter Thiel famously described all good businesses as monopolies, with perfect competition being the opposite of this. This makes sense as a perfectly competitive business maximises consumer surplus at the expense of producer surplus. In other words, it’s great for consumers but does not bode well for founders or investors.

In this daily, I explore the concept of a moat in DeFi. Specifica