Flow: The Evolution from Popular Applications to Public Chains

Author: echo_z, Chain Teahouse

Dapper Labs has an impressive track record in the crypto world: after developing the OG hit application CryptoKitties, they turned to develop the public chain Flow, and then launched the breakout product NBA Top Shot on the public chain, capturing a lot of attention. Currently, Flow is still actively expanding its ecological resources, having recently announced that a former Meta executive will join. This article will analyze Flow from the perspectives of product technology and operational ecology to understand its current development.

1: Product Technology

Flow's technology has two major features: one is the "multi-node architecture," and the other is "resource-oriented programming." These two points correspond to two current hot trends: modular blockchain and new public chains in the Move ecosystem.

The first feature of Flow, "multi-node architecture," refers to the differentiation of the entire chain's process from computation execution to consensus completion into different processes, using four types of nodes to complete the corresponding tasks. Compared to ETH Sharding's parallel division of labor, this is a form of vertical division of labor[1]. The currently popular modular blockchain follows a similar idea, and Flow can be seen as an early case of modularization.

The four types of nodes include: computation nodes, consensus nodes, verification nodes, and collection nodes. Among them, computation nodes have high operational requirements and must be deployed in data centers with an admission system, currently totaling 7 computation nodes; the other nodes have lower requirements, totaling over 400 nodes.

Source: https://flowscan.org/staking/nodes

Flow attempts to achieve scalability in this way. However, the current TPS is not very impressive; according to the official website, it can reach over 100 TPS in simple transfer scenarios, but actual usage scenarios are mostly more complex than transfers, making it difficult to achieve[2]. The vertical division of labor also lowers the threshold for some nodes, allowing more users to participate in the consensus process, but the operation of computation nodes remains centralized, and the "impossible triangle" problem still exists.

The second feature, "resource-oriented programming," is a characteristic of its self-developed programming language Cadence. "Resource-oriented" is also a feature of the common language Move used by the three Libra-based public chains: Aptos, Sui, and Linera. The Flow team was inspired by Move in its early stages to develop the Cadence language.

As a new language trend, resource-oriented programming aims to better adapt to the application scenarios of on-chain assets. Solidity is a "ledger model," where an asset corresponds to an owner, and assets are recorded in contracts; whereas resource-oriented programming, represented by Cadence, is a "resource model," where all assets are recorded under the owner's address, and only the owner can call methods to move the assets.

Taking the following two images as examples, both scenarios represent CryptoKitties transfers, but the left image represents the ledger model, which changes the owner field of the asset, while the right image represents the resource model, which moves the asset out of the owner's address and transfers it to a new owner address.

Source: https://medium.com/dapperlabs/resource-oriented-programming-bee4d69c8f8e

Currently, Cadence remains relatively independent. Although it draws on the ideas of Move, there are significant changes to the syntax, and the workload for code migration is still considerable, making it difficult to share developers with the Move ecosystem in the short term. However, Flow has plans to launch the Move VM, which may allow for sharing the benefits of the Move ecosystem in the future.

It is generally believed that resource-oriented languages have two advantages over Solidity: first, by placing assets under the owner's address, it naturally avoids the "backdoor" for contract controllers to call assets, making it safer; second, it can handle certain business logic better, such as easily implementing the logic of one asset owning another asset.

2: Operational Ecology

The types of projects on Flow are quite diverse, including NFTs, DeFi, games, etc. The official website shows over 1,000 projects, but the ones truly supporting Flow's market value are still the NFT projects based on traditional sports IP, especially NBA Top Shot, which was launched in collaboration with Dapper Labs and the NBA— a series of collectible NFTs of NBA game videos.

The following chart shows the historical trading volume of top projects, among which NBA Top Shot has accumulated a total transaction volume of $1.11 billion, accounting for 89% of the Top 10. The second-ranked NFL ALL DAY and the third-ranked UFC Strike are also launched by Dapper Labs, representing the football league and the ultimate fighting championship, respectively; the fourth, Gaia, is a marketplace based on FLOW, and the fifth, BALLERZ, is a basketball-themed generative NFT series. Other projects have transaction volumes below $10 million.

Source: https://www.flowverse.co/rankings

It can be seen that the top projects are all NFT projects based on sports IP, and these projects contribute the majority of the trading volume for Flow. Although the metaverse (Matrix World) and games (Chainmonsters) are also included, their proportions are small. Additionally, there is a DeFi project on Flow called Increment Finance, but its TVL is only around $3 million.

NBA Top Shot has brought continuous revenue to Flow. In June and July of this year, the monthly transaction volumes were $7.7 million and $8.3 million, respectively, which included the release of new card packs and secondary transactions between users[3]. Assuming NBA Top Shot's transaction volume accounts for ~85% of the entire platform, the total monthly volume for the platform would be around $9.5 million, which is similar to Immutable X's monthly transaction volume of $9 million[4]. However, Flow's revenue should be higher than Immutable's; on one hand, all new issuance revenue belongs to the project party and should be shared between the NBA and Flow, and on the other hand, all cards in NBA Top Shot are traded within its self-built marketplace, which charges a 5% tax on all secondary transactions; comparatively, Immutable only charges a 2% protocol fee on NFT transactions.

Despite having NBA Top Shot as a strong cash cow, its revenue sources are relatively singular, lacking the diversity of the Immutable X ecosystem, and there is an urgent need to explore new application scenarios. Recently, Flow announced a partnership with Meta to showcase user NFTs on Instagram, which seems more like soft marketing, and it is uncertain whether it can effectively improve business metrics.

3: Token Economy

Flow's token is $FLOW, with its core function being to pay transaction fees on the chain and to be distributed as incentives to nodes. Ordinary users can also delegate staking to nodes to share in the node incentives.

$FLOW also has a relatively unique function: due to the characteristics of resource-oriented programming, if users want to own assets, they must also have corresponding storage space, for which they need to pay a certain fee, and the payment method involves locking $FLOW. If the storage space is released in the future, the corresponding $FLOW can also be released.

$FLOW was issued at the end of 2020, with an initial issuance of 1.25 billion tokens. To minimize selling pressure, $FLOW implements low inflation, and transaction fees on the chain are distributed to nodes, with more being frozen and less being minted. Currently, the total minted amount of $FLOW is 1.39 billion, with a circulating supply of 1 billion (data source: CMC), accounting for ~72%.

In the initial distribution, 38% belongs to Dapper Labs and the development team, 20% to investors, 32% to ecological development, and 10% for community sale.

Source: https://flow.com/token-distribution

4: Team and Financing

Dapper Labs was founded in 2018 and gained fame early on due to CryptoKitties, which brought the team lasting recognition, and later turned to develop the public chain Flow. At the same time, the sports star card products like NBA Top Shot launched based on Flow also became hits, continuously generating revenue for the team.

From 2018 to 2021, Dapper Labs completed multiple rounds of financing, raising a total of $600 million, with major investors including a16z, Union Square Ventures, Venrock, and Coatue.

CEO and founder Roham Gharegozlou graduated from Stanford with both bachelor's and master's degrees. After graduation, he worked at a fund company and founded the creative studio Axiom Zen in 2013, assisting startups in fundraising and product development. It was at Axiom Zen that Roham Gharegozlou developed CryptoKitties, and in 2018, he established Dapper Labs to focus on the CryptoKitties business and subsequently derived the public chain Flow.

CTO Dieter Shirley graduated from the University of Waterloo in 1996 and has since worked as a software engineer at several companies, including Apple. He joined Axiom Zen in 2013 as the chief software architect, embarking on a entrepreneurial journey with Roham, and both joined Dapper Labs in 2018. Dieter Shirley is also the creator of the ERC-721 standard.

Recently, Dapper Labs announced on Twitter that Nick Grudin, former Vice President of Content and Community Partnerships at Meta, will join Dapper Labs as Chief Business Officer, responsible for partnerships, developer experience, and marketing[5]. This may bring changes to the ecological development of Flow.

5: Advantages and Challenges

Chain Teahouse believes that Flow's core advantages lie in:

1) Technologically daring to innovate, adopting the idea of modular division of labor and resource-oriented programming language early on, making it a team willing to explore new fields;

2) From CryptoKitties to NBA Top Shot, Flow is a rare company with a continuous track record of successful hits, possessing almost unreplicable trust backing;

3) NBA Top Shot is also bringing continuous and considerable revenue to the Flow public chain, providing a relatively stable fundamental.

At the same time, Flow also faces corresponding challenges: the current ecosystem is relatively singular, with trading volume concentrated in a few NFT products launched by Dapper Labs; other types of projects such as games and DeFi also exist but are not thriving. The core variables for future ecological development are: first, whether the Move ecosystem can rise and whether Flow can share the benefits through Move VM; second, whether Dapper Labs can continuously BD to projects with considerable revenue.