The economic power of network effects in Open Money

Network effects are often misunderstood as merely viral loops — a way to grow fast. But in the context of digital systems, and especially in open financial protocols, network effects aren’t just about scale. They’re about value creation. More specifically, they’re a new kind of economic engine — one that becomes more powerful the more people participate.

This distinction matters because Open Money is not a product or a brand. It’s a new kind of money infrastructure. And like the internet itself, its economic logic is inseparable from its network structure.

We've talked about network effects before, in a previous section of this project. In the previous context, we were mainly looking at growth looks. This post covers network effects from an economic perspective.

From growth hack to value engine

Let’s begin with Metcalfe’s Law, which proposes that the value of a network grows proportionally to the square of its users (n²). While originally describing telecommunications systems, this principle has been adapted and refined for digital networks. Economist George Gilder and others have argued that for interactive systems, the economic utility grows even faster — thanks to exponential combinations of connections, interactions, and integrations.

In practical terms, this is why adding one user to Facebook or Ethereum doesn’t just add one unit of value — it opens up a set of new possible interactions. When a network is open, every node (user, developer, institution) is a potential contributor, not just a consumer.

For money, this shift is profound. Traditional financial systems have network effects, but they’re centrally controlled. Visa, for example, benefits from millions of merchants and billions of cards, but access to that network is gated. Most of the economic value is captured by a few intermediaries.

Open Money systems invert that relationship. They are open access and permissionless by design. Value accrues to the edge of the network, not just the center.

Liquidity, composability, and compounding value

Let’s take a specific example: Uniswap, the decentralized exchange protocol. At launch in 2018, it was a niche tool for token swaps. But because it was open source, composable, and didn’t require permission to integrate with, developers quickly began building on top of it. Other protocols started using Uniswap’s pools for pricing, arbitrage, yield strategies, and cross-protocol liquidity.

The more people used Uniswap — not just to trade, but to build — the more useful and efficient the protocol became. And this efficiency isn’t just a nice UX improvement, it's also economically efficient.

In a traditional system, increasing liquidity means hiring market makers, negotiating listings, paying fees. In Open Money systems, liquidity emerges organically through incentives, open standards, and network effects. A protocol like Curve or Balancer doesn’t have to onboard every user manually — users come because others are there, and because it’s composable with the rest of the ecosystem.

This is network liquidity — a shared, self-reinforcing capital pool that grows in tandem with the network. It lowers slippage, improves price discovery, and creates opportunities for yield. In turn, that attracts more capital, more users, and more integrations.

Security scales with the network

One of the lesser-appreciated aspects of network effects in Open Money is security.

In centralized systems, security scales linearly — or even sub-linearly. As a system grows, the cost and complexity of defending it from fraud, manipulation, or institutional failure rises. More infrastructure, more compliance, more operational risk.

Open Money flips this script.

In proof-of-stake networks like Ethereum, or in consensus systems like Bitcoin, security scales with participation. The more nodes, validators, and economic actors involved in the system, the harder it becomes to corrupt. Attackers must control a majority of stake or hashpower, which becomes economically prohibitive as the network grows.

In economic terms: Open Money networks internalize their own defense. Security becomes a property of scale, not a cost of scale. That’s a radical shift in infrastructure economics.

Network effects reduce marginal costs

Network effects also have a deflationary quality — especially when paired with open-source principles.

Each new protocol or tool built in the Open Money space becomes a public good. A lending protocol like Aave, a stablecoin like DAI, or a wallet SDK like Rainbow doesn’t just serve its users — it becomes part of a shared economic toolkit that anyone can reuse, remix, or extend.

This lowers the marginal cost of innovation. Developers don’t need to rebuild identity systems, liquidity engines, or compliance tooling from scratch. They plug into the existing network. That’s why new protocols can launch with global reach in days instead of years.

In traditional finance, launching a new product means navigating regulatory barriers, setting up capital reserves, and building trust from scratch. In Open Money, the trust is embedded in the code, and the market access comes from interoperability. Again, this isn’t just technological efficiency —it’s economic leverage.

Inclusion as a network externality

The economic power of network effects in Open Money also extends to inclusion.

In closed financial systems, underserved users represent high risk and low margin. They are excluded not because of malice, but because the economics don’t add up. Serving an unbanked user in a rural area costs more than the revenue they can generate.

Open systems have different economics. Because they’re digital-native, borderless, and automated, the cost of onboarding the next user approaches zero. And because the system becomes more valuable as more people join, inclusion is not a burden — it’s a benefit.

From an economic standpoint, Open Money turns what was once a cost center into a growth vector.

The network effects of Open Money aren’t limited to users. They include developers, validators, liquidity providers, DAO participants, cross-chain bridges, and governance actors. Each one adds surface area, security, and richness to the ecosystem.

And the economic feedback loop keeps spinning:

More users → more value → more composability → more use cases → more users.

In legacy finance, growth stretches the system. In Open Money, growth strengthens it.

Final thought: flywheels > moats

Traditional financial systems build moats andbarriers to entry, regulatory protections, proprietary rails. That worked well in an era of scarcity and control.

But the internet is abundant. It rewards openness. And the systems that win are the ones that invite participation.

Open Money builds flywheels — virtuous cycles that get stronger with every new participant.

And economically, that’s the future: not just faster money, but smarter, more inclusive, and more resilient financial infrastructure — powered by the network.