A Cost Displacement Model is a financial and operational framework that quantifies how a new system, technology, or process reduces existing expenses by making them obsolete or significantly less costly. In crypto, this model assesses how decentralized solutions or specific technological upgrades eliminate traditional intermediaries, reduce transaction fees, or lower operational overhead compared to legacy financial systems or less efficient blockchain implementations.
Mechanism
This model functions by identifying direct and indirect costs associated with current operations, such as fees to centralized exchanges, traditional banking charges, or high gas fees on inefficient chains. It then projects the cost savings realized by implementing an alternative, often blockchain-based, solution. The mechanism involves comparing historical cost data with anticipated expenditure reductions, attributing savings to automated execution, reduced settlement times, or minimized human intervention.
Methodology
The methodology for applying a Cost Displacement Model involves a systematic analysis of current expenditure against the projected cost structure of a proposed crypto system. This requires detailed cost component breakdown, baseline establishment, and a clear quantification of the displacement impact across various operational segments. It serves as a decision-making tool for justifying investment in new crypto infrastructure or protocols by demonstrating tangible economic advantages through cost reduction.
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