How Does ‘Forking’ a Protocol Affect Its Competitive Advantage?
Forking a protocol ⎊ copying its open-source code to create a new, competing version ⎊ can severely erode its competitive advantage, as it lowers the barrier to entry for competitors. The original protocol's moat is reduced unless it possesses strong network effects, a defensible brand, or significant Protocol Owned Liquidity (POL).
A successful fork can split the user base and dilute the original's value, which must be factored in as a high risk.
Glossar
Open-Source Code
Principle ⎊ Open-Source Code in the context of DeFi derivatives means that the underlying smart contract logic governing the creation, pricing, and settlement of financial instruments is publicly auditable by anyone.
Protocol Owned Liquidity
Concept ⎊ Protocol Owned Liquidity refers to a tokenomic design where a portion of the protocol's native token supply is permanently allocated to a treasury controlled by the protocol itself, rather than being supplied by external users, to ensure deep, resilient liquidity for its native trading pairs.
Barrier to Entry
Constraint ⎊ Barrier to Entry in cryptocurrency, options trading, and financial derivatives represents the impediments that limit new participants from effectively competing within a given market.