The Five Risks of Building on a Corpo Chain

Should you build on Robinhood's chain or on Tempo? Both companies run the platform (the chain) and the biggest apps on it (the wallet/brokerage and the payments stack, respectively). History, from Amazon to Microsoft to Coinbase's own Base, says that combination creates misaligned incentives that can have negative ramifications for you as a builder: you're accepting platform risk for the sake of a distribution advantage, while sitting on top of unstable incentives. In this piece I will describe the tensions, how they might affect you, and ways to mitigate them.

The Promise: Distribution

Why build on a corpo chain in the first place? Well, sometimes they flat out give you a ton of money to do so. More often, the chain sells distribution as its primary value proposition. Take Coinbase as an example. Base's implicit pitch is that if you build on the chain, they will potentially help distribute your product to their users, either through the Coinbase wallet (Base App) or through the main app. I imagine Robinhood is selling something similar, as is Tempo with Stripe.

In theory this is a win-win: you get distribution, which is incredibly hard to build from scratch, so it's nice to piggyback on someone else's. In exchange, the chain gets to earn transaction fees from your app's activity, plus if it distributes your app, it gets to charge additional fees on top (effectively monetizing your R&D).

In practice, a few problems emerge, downstream of each company's incentive to favor its native apps over yours. Coinbase is incentivized to favor its own exchange and wallet; Robinhood is incentivized to favor its own brokerage and wallet; Stripe is incentivized to favor its own payments stack. Let's unpack the risks…

Risk 1: The platform competes with you

Companies that run a platform while also operating apps on it have a long, well-documented history of turning on their own builders. A Wall Street Journal investigation found Amazon executives used individual third-party seller data to identify bestselling items and launch competing private-label products. Sellers proved demand on Amazon’s rails, and Amazon used its privileged view of the marketplace to compete with them.  Another classic case is Microsoft and Netscape: Netscape depended on Windows for distribution, and Microsoft bundled Internet Explorer into the OS to kill it. These same incentives are present between chains like Base, Robinhood Chain, and Tempo, and the apps that will build on top of them.

Risk 2: The wallet isn't loyal to the chain

The wallet doesn't have a clear incentive to only distribute your app. A wallet has to give users access to all the opportunities in crypto, or it's fundamentally limited as a product. Users who can't touch other chains will churn to a wallet where they can. So the Coinbase wallet has to support Solana, and the wallets attached to Robinhood's chain and Tempo will face the same pressure.

Which means the wallet inevitably surfaces apps and assets that aren't on the company's own chain. In fact, the wallet's best product strategy may be to directly integrate the dominant app in a category (say, the way Phantom integrated HyperliquidX directly for perps) even if said app is not on the wallet's chain.

This incentive breaks the distribution pitch: if the wallet, acting in its own interest, distributes the best apps wherever they live, then apps off the chain get distributed too, and the value of being on the chain is less compelling.

Risk 3: You inherit their enemies

Anyone competing with the corporation has little reason to distribute its adjacent apps. Why help a competitor? I discussed similar dynamics playing out with USDC, where, given its link to Coinbase, other apps were hesitant to distribute it. The same is true for an app exclusively built on Robinhood: why would the Coinbase wallet want to use it, and vice versa?

Risk 4: They own the user, they take the margin

In crypto, the party that owns the end users tends to earn more than the protocols it distributes, often compressing the margins of said protocols toward marginal cost. I document this strategy in How to Capture Value and in this article about agents. As a result, even if you build on a corpo chain and they deliver on the distribution promise, relying on the corporation as the sole distributor is risky, as it will have a lot of leverage over you to take your margins.

It's better to own your own distribution and use other channels as an accelerator. Examples of this strategy include Hyperliquid and Polymarket, which have their own relationships with users and then distribute the protocol with their builder codes.

Risk 5: The distribution never comes

The distribution promise could go unfulfilled. Many lamented that the Coinbase wallet never seemed to prioritize surfacing Base Apps, focusing until recently on social features instead. Base is now claiming they will fix this. Regardless, notice how a top-level decision on focus affects whether the distribution partner will be a good one.

The alternative: Neutral chains

As an aside, this is a moment to appreciate the beauty of pure-chain businesses. Ethereum and Solana, out of the box, carry no platform risk of this kind. They are neutral platforms: nobody building on Ethereum worries that Ethereum will launch an app to compete with them. That neutrality is a real and underrated benefit.

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So should you deploy on a corpo chain?

There are a few ways to de-risk the misaligned incentives. The chain could pay you a ton to deploy there (note, this is less typical among corpo chains and more typical of foundations). In that case, you need to decide whether the money is worth the risk. Or the platform could give really hard commitments about whether they will compete and whether they will actually distribute your product (though business history suggests even those can prove flimsy). Or you could mitigate the platform risk yourself by deploying across multiple chains and building your own distribution. This gives you optionality and helps defend your margins. In that light, a corpo chain can be a fine way to get off the ground: take the distribution boost early, but use it to bootstrap your own relationship with users rather than becoming dependent on it.

These corpo chain business models are still young. I imagine the corpo chains will find ways to resolve some of these tensions, and we will discover new ones along the way. I would love to hear how others are thinking about this: are there risks I am missing? Are there better ways to mitigate them?

‍Thank you to those at BCAP who provided feedback on the article.

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