Have you heard of disguised unemployment? This refers to situations where a portion of the workforce appears to be employed but does not contribute to the production of the economy. Consider the loss of large capital expenditures from ghost cities, representing vacant infrastructure.
The same can be said about the top smart contract blockchain, which hosts hundreds of distributed protocols. Of these, only the minority makes money, while the rest do not loosen the yields, which loosely represent a form of unemployment disguised as ghost digital cities.
According to Defilama, Ethereum is the world’s largest smart contract blockchain, hosting 1,271 protocols. However, over the past 30 days, an astounding 88% or a total of 1,121 projects have not generated revenue.
Ethereum rival Solana is much smaller, hosting 264 protocols, of which 75% have not made any revenue in the past few days.
In other words, numerous protocols on the two chains have not gained value recently, like labor forces that draw wages but don’t contribute to producers, or ghost towns that are not utilised to generate meaningful economic benefits.
Important AI Insights
Inactive projects are not necessarily a direct burden on the network’s processing power in the same way as a busy network, but they do indirectly:
Storage burden
All smart contracts, active or not, are stored forever on the blockchain. This immutable data is added to the size of the blockchain, and all nodes in the network must store and maintain this history. As the total number of contracts increases, so does the storage and bandwidth requirements for running the nodes. The effect of a single inactive contract is minimal, but thousands of “ghost towns” will add up over time, increasing the long-term operating costs of the network.
Security and vulnerability risks
The presence of a huge number of inactive or abandoned contracts creates a larger offensive surface. Smart contracts can contain vulnerabilities, even if they are no longer used, that can, if exploited, have unexpected consequences for other parts of the ecosystem and funds locked within it. This introduces a layer of systemic risk into a network that needs to be monitored continuously by security researchers and auditors.
Economic inefficiency
This is where the analogy of “disguised unemployment” is most appropriate. These projects do not cause crowding, but represent collective failures of capital and developer time, creating productive assets on the network. The funds, time and effort spent developing these projects are effectively trapped in a state of counterproductiveness, which causes the overall ecosystem efficiency.
Just as physical ghost cities represent large capital and labor investments that do not bring economic benefits, protocols that generate numerous secular religions on the blockchain represent the effort and capital of wasteful developers that do not contribute to network productivity.
User Experience Impairment
Many inactive projects make it difficult for new users to find and trust legal and active protocols. Sieve the oceans of projects that have been discontinued or failed, can be confusing and can undermine the overall user experience.
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