Web3 Entrepreneurship Discussion: Do encryption projects really need to be Open Source?

In the world of Web3, open source has almost become a form of “political correctness.” Decentralization, transparency, and verifiability are inherently tied to the idea of “public code.” If a blockchain project is not open source, it is often difficult to gain the trust of the community. Investors will also question: since it claims to be decentralized, why hide things?

This concept did not appear out of thin air. It is a continuation of the Internet's “Open Source Movement.”

From the Linux of the 1990s, to Apache and MySQL in the 2000s, and then to Android in the mobile internet era, open source software has gradually established a new consensus: code should belong to all humanity, not to any particular company.

In 2009, when Bitcoin was born, Satoshi Nakamoto directly opened the source code on SourceForge. There was no auditing company endorsement, no government permission, and the only trust came from anyone being able to download the code, run a node, and verify transactions. Thus, open source began to become a guiding principle in the Web3 world.

However, the significance of Open Source goes far beyond transparency. Open Source means that any developer can fork, improve, and submit code. Many well-known Web3 projects have established a kind of “technical consensus” with the community and developers through Open Source.

The most typical example is Ethereum. Its open source code has not only been directly reused, giving rise to hundreds of EVM-compatible chains, but has also attracted countless developers to join as contributors, driving the continuous evolution of the protocol itself. For instance, in 2015, community developer Fabian Vogelsteller proposed EIP-20 (later known as ERC-20), laying the foundation for tokens and becoming the cornerstone of DeFi prosperity; again, in 2017, Dieter Shirley (the chief architect of CryptoKitties) and others proposed EIP-721, which became the underlying standard for NFTs; and even community researcher Eric Conner and others initiated EIP-1559, bringing disruptive improvements to the transaction fee mechanism, which impacted Ethereum's economic model.

It can be said that it is precisely because of Open Source that Ethereum can continuously attract new developers to join and gradually turn “external contributions” into “industry standards,” forming a true network effect.

But the problem is that open source is not a free lunch. What it brings is not only trust and co-construction, but also means “lowering the threshold, diluting the moat,” as well as naked competition.

When you put the underlying code in the sunlight, competitors can almost copy it at zero cost. Countless “Ethereum killers” have been born this way in history: from EOS to Tron, and then to a series of EVM-compatible chains that mostly reuse the Ethereum codebase, only making adjustments in consensus mechanisms, performance parameters, or financial subsidies.

The same story also appears at the application layer. The most typical example is the DeFi summer of 2020. Uniswap pioneered a new paradigm of decentralized trading with the AMM model, but due to the contracts being fully Open Source, SushiSwap directly copied the code with almost no development costs and added additional liquidity mining incentives. In just a few days, over $1 billion in liquidity was siphoned away from Uniswap, and the market once thought that SushiSwap would completely replace it.

It has been proven that open source lowers the barriers to innovation but also amplifies “vampire-style competition.” Web3 project teams need not only technological leadership but also continuous accumulation in branding, ecology, and governance; otherwise, relying solely on code is not enough to create a moat.

This has led to a paradox: the more open the project, the easier it is to spawn competitors; while the more closed the code, the harder it is to gain the trust of users and investors.

So, what should Web3 entrepreneurs do? Portal Labs believes that the following points may provide support.

First, treat open source as a starting point, not an endpoint.

Open source code can attract developers and the community, but what truly determines the value of a project is the ongoing development that follows. The reason Ethereum can traverse cycles is not because the EVM is open source, but because it has formed supporting systems such as the EIP proposal mechanism, foundation support, and a long-term developer community.

For Web3 entrepreneurs, Open Source is just a stepping stone; the moat needs to be built on governance, ecology, and network effects.

Second, focus on differentiation.

The reason Uniswap ultimately stabilized is not because its code is unique, but because it has continuously built its own barriers beyond being open source. It has been iterating with V2 and V3, pioneering the introduction of concentrated liquidity design, which has improved capital efficiency; it attracts developers and the community to form long-term binding through foundations and governance mechanisms; more importantly, Uniswap has become the “default entry” for DeFi, and its brand recognition and compliance exploration have given it an irreplaceable position.

For Web3 entrepreneurs, if choosing open source, one must consider: if others can copy the code, can they replicate the product experience, community atmosphere, compliance framework, and partnerships? These are often the parts that truly determine long-term survival.

Third, use Open Source for “leverage”.

Open source is not just a risk; it can also amplify potential. Many projects adopt “layered open source”—the underlying protocols are open source to facilitate community co-construction; while core algorithms or application layers remain closed source, creating a balance. For example, the underlying matching logic of DYDX is open source, but its risk control and matching engine core remain closed source to ensure differentiated advantages.

There are also teams that use open source as a business expansion tool, lowering the access threshold to allow others to drive ecosystem growth. Typical examples include Cosmos SDK and Polkadot Substrate, which attract countless public chain projects for secondary development on their ecosystem through fully open source underlying frameworks, ultimately feeding back “others' innovations” into their own network effects.

Open source is both the cornerstone of trust in Web3 and a double-edged sword for entrepreneurs. It can attract developers and foster ecosystems, but it also amplifies competition and dilutes moats. However, open source is not a question of “whether to” but rather “how to”. Truly smart Web3 entrepreneurs will neither blindly close off nor naively open everything up, but will find their own middle path between trust and competition.

If you decide to open source, here is a list of open source suggestions from Portal Labs:

1. Clarify Boundaries

The foundational code such as protocol layers and smart contracts is recommended to be fully open source to establish transparency and trust. Business algorithms, matching logic, and risk control models can be closed source to create unique advantages.

It is recommended to manage repositories separately on GitHub and specify open source license agreements (such as MIT, GPL), while maintaining internal modules as independent closed source.

2. Institutional Co-construction

Learn the EIP model of Ethereum, establish a proposal process (PR → Review → Community Voting).

A public Discord/forum can be established, with a “Proposal Submission” section; a community call can be held once a month to review proposals.

3. Rapid Iteration

Open Source means others can copy the code, so your moat relies on iteration speed.

It is recommended to establish a rhythm of “a minor version every two weeks and a major version every three months”, and to publish the Roadmap on the official website or GitHub Project.

4. Brand and Trust

In the open source world, technology can be replicated, but trust cannot. The real barriers often stem from community atmosphere and compliance exploration.

It is recommended to treat security audits, compliance endorsements, and community activities as “fundamentals” to be practiced, such as

• Regular public audit reports;
• Invite law firms to provide compliance opinions;
• Keep users and developers in the ecosystem through hackathons and developer conferences.

5. Ecological Leverage

Use open source as a tool to attract developers and enterprises, rather than just “donating code”.

For example:

• Provide SDK/templates to lower the threshold for secondary development;
• Establish a Grant program to fund applications based on your protocol;
• Integrate with three to five key ecosystem partners (wallets, exchanges, data platforms).