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In traditional business, the concept of a “moat” is all about building durable competitive advantages that fend off competition—whether it’s Facebook’s network effects, Amazon’s economies of scale, or Coca-Cola’s brand loyalty. But in the world of crypto, where open-source protocols, forkability, and token-based incentives are common, building and maintaining a moat is more complex.
At the same time, Ben Thompson’s Aggregation Theory—which emphasizes that companies win by reducing friction through simplicity and connecting consumers with what they want—has become increasingly relevant in crypto. Projects that control the user experience and aggregate liquidity, services, or assets are finding ways to deepen their defensibility despite the challenges of open-source competition.
One of the most recent and significant examples of this strategy is Uniswap’s launch of Unichain, an upcoming Ethereum Layer 2 (L2) solution designed to cluster more than just liquidity. Unichain is a prime example of how crypto projects can use aggregation to build sustainable moats. Let’s explore how aggregation has become a powerful strategy for defensibility in crypto.
In traditional markets, companies build moats by leveraging proprietary technology, securing cost advantages, or cultivating brand loyalty. But in the crypto ecosystem, where projects are inherently open-source and decentralized, the dynamics of creating and defending moats are fundamentally different.
Forkability refers to the ability to copy and modify the code of existing crypto projects. Since most protocols in the decentralized world are open-source, anyone can replicate a successful project’s code with ease. This drastically lowers the barrier to entry for competitors, weakening traditional defensive advantages like proprietary technology. Features that might be considered moats in other sectors can be copied and redeployed, making it difficult for any single project to maintain a lasting competitive edge. To stay ahead, projects must focus on continuous innovation, constantly improving their offerings to differentiate themselves from forks.
Composability is another defining trait of the DeFi landscape. It allows protocols to interoperate seamlessly, enabling users to switch between platforms effortlessly. While this integration fuels the growth of the overall ecosystem, it also reduces switching costs, which makes it harder to maintain network effects. Unlike in traditional tech markets, where companies can lock in consumers through exclusive ecosystems, crypto usera can easily integrate services from multiple providers. Therefore, building a moat in this space requires more than just basic functionality—projects need to deliver superior user experiences and added value that cannot be easily replicated.
Crypto projects often rely on token incentives to attract users. By distributing tokens, projects can lower customer acquisition costs and drive rapid user growth. However, this approach is a double-edged sword. While such incentives can quickly draw-in users, they can also lead to dependency. Once the money dries up, retaining activity becomes challenging if there isn’t sufficient value to keep people engaged. Successful projects recognize that while token-based growth can be an effective short-term strategy, it needs to be complemented by building genuine value and loyalty beyond the initial rewards.
The dynamics of forkability, composability, and token-based acquisition make traditional strategies for building moats less effective in the crypto space. Instead, projects must adopt new approaches to defensibility.
These strategies underscore the need for crypto projects to focus on innovation, user experience, and community engagement. In an environment where traditional moats are more difficult to sustain, adapting quickly and consistently delivering value beyond tokenomics is key to long-term success.
Uniswap’s strategy is an exemplary case of how aggregation can be used to deepen a project’s moat in the face of these challenges. Over time, Uniswap has evolved from being “just” a decentralized exchange (DEX) to becoming a key player in the broader DeFi ecosystem, using innovation and aggregation to its advantage.
Uniswap’s journey has not been without competition. In 2020, SushiSwap attempted a "vampire attack" by offering token incentives to attract liquidity away from Uniswap. Despite SushiSwap’s initial success, Uniswap continued to innovate and ship better products, refusing to rely solely on token incentives. Instead, Uniswap focused on building a superior user experience and continually improving its protocol. This strategy paid off, as Uniswap eventually regained the lion’s share of liquidity. The innovation moat, in this case, proved to be a powerful defense against competitors relying on short-term token incentives. Uniswap’s commitment to constantly improving its platform allowed it to weather the storm and emerge as the dominant DEX.
Last year, Uniswap launched its own wallet as a way to get closer to customers. This move represented an important step in strengthening its grip on the front-end of user interactions, which is critical in the open-source world. By offering a wallet directly integrated with its DEX, but also enabling new capabilities, Uniswap attempted to eliminate friction for consumers, keeping them within its ecosystem rather than relying on third-party wallets like MetaMask.
Uniswap is now taking its strategy a step further. Unichain is not just about aggregating liquidity—it’s about aggregating the entire user experience. This Layer 2 solution is designed to bring together speed, cost-efficiency, and cross-chain functionality into a single platform, creating a stronger, more defensible position for the project.
By launching Unichain, Uniswap is essentially creating a platform-like moat which reduces the incentives to simply fork its code. Rather, it starts to make more sense for teams to build on top of it, operating within the Unichain ecosystem to access its liquidity. This strategic positioning makes it harder for competitors to siphon off market share.
Uniswap’s strategy with Unichain is part of a larger trend in crypto, where aggregation is emerging as a key way to build defensibility. Other projects are employing similar tactics to deepen their moats.
MetaMask (MM) started as a simple Ethereum wallet, but it has evolved into an aggregator of DeFi services. By allowing users to interact with various decentralized applications (dApps) through a single interface, MM has become a key player in controlling the user experience. MetaMask doesn’t need to own the assets or the protocols; it simply needs to own the interface. This form of aggregation makes MetaMask incredibly sticky and defensible, as it becomes the gateway for DeFi users. The top-ranked app offers the ability to swap and stake through its interface. However, anecdotally I can say that ecosystem participants are growing frustrated with the relatively slow innovation at MM, which feels outdated relative to newer projects like Phantom.
Liquidity aggregators like Jupiter provide optimized trade execution by accessing liquidity across multiple decentralized exchanges. Ooga Booga takes this one step further in the Berachain ecosystem, by also tapping into various DeFi vaults for additional liquidity and price improvement. These platforms don’t own the capital, but they aggregate it in a way that delivers better pricing and more efficient trades. By controlling the execution layer, Jupiter and Ooga Booga are able to build defensibility, even in an open-source world. Interestingly, the former just launched a mobile app to get even closer to the end consumer. Instead of accessing the interface through a browser, you can go straight to the source to trade seamlessly, view your balances, etc. How long before there’s a Jupiter wallet, or in-app staking?
In the rapidly evolving crypto landscape, continuous innovation is critical for maintaining a moat. Projects that fail to deliver risk losing their users to competitors that can offer better features, lower costs, faster speeds, or a hot new token.
Unichain demonstrates Uniswap’s commitment to continuous innovation, which is itself a form of defensibility. By launching an L2 solution that improves on key pain points in DeFi—such as cost, speed, and liquidity fragmentation—Uniswap is building a more sustainable competitive advantage. Furthermore, Unichain’s open-source nature encourages ecosystem development around Uniswap, creating a platform-like moat that becomes stronger as more developers and projects build on it.
By aggregating liquidity, cross-chain functionality, and a user-friendly interface, Uniswap is creating a kind of ecosystem gravity. Even if a competitor manages to fork Uniswap’s code, they will struggle to replicate the network effects and liquidity that come with being part of the Unichain ecosystem.
Other projects, like MetaMask, achieve similar lock-in by being the primary entry point for DeFi users. A new app will almost certainly prioritize MM interoperability to get exposure to its vast user base. The longer consumers engage with these platforms, the more they become reliant on them, creating a defensible moat through aggregation and network effects.
While crypto-native projects like Uniswap and MetaMask are building moats through aggregation, traditional financial institutions are also entering the crypto space using similar strategies. Companies like PayPal, BitGo, and State Street are leveraging stablecoins to bridge their trusted platforms with decentralized finance (DeFi), integrating crypto functionality while strengthening their existing moats.
PayPal’s launch of PYUSD in August 2023 marked a significant move into the stablecoin sector. Acting as a bridge between PayPal’s large user base and the DeFi ecosystem, PYUSD allows users to seamlessly enter the crypto space while staying within PayPal’s trusted platform. PYUSD has already been used for business payments, demonstrating its potential to streamline commercial transactions. Additionally, PayPal has partnered with Anchorage Digital to offer rewards to users holding PYUSD, encouraging greater adoption and engagement. By integrating PYUSD into its ecosystem, PayPal is using stablecoins to keep users connected to its services while expanding its role in blockchain finance.
BitGo has taken a similar approach with the introduction of USDS, a stablecoin designed to enhance its role in the crypto space. USDS offers liquidity providers returns generated from its reserves, incentivizing network participation and growth. This strategy helps BitGo aggregate users and liquidity, strengthening its ecosystem. Moreover, by allowing seamless entry from traditional currencies like USD and other stablecoins like USDC and USDT without conversion fees, BitGo makes USDS available to a wide range of participants. This accessibility further expands BitGo’s settlement capabilities for both traditional and crypto-native financial communities.
State Street, though not having launched a stablecoin, is rumored to be looking at the option. This comes as the company explores custodial services for digital assets, which positions it as a secure and regulated bridge between traditional finance and decentralized finance. State Street’s well-established reputation for compliance and security would provide a defensible moat for traditional financial operators looking to explore the rapidly evolving crypto landscape. This would have the potential of making it a key player as the line between traditional and decentralized finance continues to blur.
The efforts of PayPal, BitGo, and State Street highlight how aggregation is being used to deepen their moats. By launching or exploring stablecoins, these institutions can attract crypto-native users while providing their existing customers with easy access to decentralized finance. The integration of crypto services into their platforms strengthens their role as comprehensive financial providers, aggregating value across both traditional and digital asset ecosystems. Furthermore, as more users and businesses adopt their stablecoins, the network effects strengthen, making their platforms more valuable and harder for competitors to replicate. Let’s see what Stripe ends up doing with their $1.1B acquisition of Bridge.
Despite the potential, these initiatives face significant headwinds. Regulatory uncertainty continues to cloud the space, posing potential risks to adoption and use cases. Additionally, these traditional players must compete with established crypto-native stablecoins like USDT and USDC, which already dominate the market. Navigating these challenges will be critical to their success in establishing a durable competitive advantage.
In conclusion, players in global finance are strategically leveraging stablecoins to bridge traditional and crypto finance. By aggregating value from both sectors, they are building new moats in the evolving landscape. However, their success will depend on overcoming regulatory hurdles and effectively competing with existing crypto-native solutions.
In the open-source, forkable world of crypto, traditional moats like liquidity are becoming less defensible. However, aggregation offers a powerful strategy for deepening moats in this environment. By simplifying the user experience, accumulating liquidity, and creating platform-like ecosystems, projects like Uniswap, MetaMask, and Jupiter are building sustainable, defensible positions.
Uniswap’s Unichain is a prime example of how aggregation can be used to create new types of moats—whether through user experience, cross-chain integration, or technological innovation. As the crypto space continues to evolve, the winners will be those that use aggregation to strengthen their defensibility in the face of constant competition.
Q: Why are moats challenging to build in the crypto ecosystem?
A: In crypto, projects are open-source, meaning features can be easily copied (forked). Additionally, composability allows protocols to integrate, reducing user switching costs. These dynamics make traditional moats like proprietary technology or network effects less effective, pushing projects to focus on continuous innovation and unique user experiences.
Q: How does aggregation help deepen moats in crypto?
A: Aggregation brings together different services—such as liquidity, speed, and cross-chain functionality—into a cohesive platform. By controlling the user experience and offering seamless integration, projects like Uniswap’s Unichain can lock users into their ecosystem, making it harder for competitors to replicate their value.
Q: What is Uniswap’s strategy with Unichain?
A: Uniswap’s Unichain is a Layer 2 solution that aggregates liquidity, cost-efficiency, and cross-chain functionality. This strategy creates a platform-like moat, encouraging other projects to build within its ecosystem instead of forking its code, thus reinforcing its position in the DeFi space.
Q: How are traditional finance companies using aggregation in crypto?
A: We’ve seen many use stablecoins to bridge traditional finance with DeFi, allowing users to engage in crypto while remaining within the trusted ecosystem. This integration strategy helps attract both traditional and crypto-native users, deepening moats by expanding service reach.
Q: Why is continuous innovation crucial for crypto projects?
A: In a space where features can be easily replicated, continuous innovation is key to staying ahead of competitors. Projects that consistently launch new features, improve user experience, and foster ecosystem integration are more likely to build and maintain defensible moats.
