Podcast Summary
Building a new ownership economy on Ethereum: DeFi and tokens could coordinate energy and labor, potentially replacing traditional institutions like Facebook or Twitter through Ethereum's ownership models
The Ethereum network is not just about finance and economics, but also about building a new ownership economy on top of the banking layer. Jesse's thesis, discussed in a recent Bankless podcast, emphasizes the potential for DeFi and tokens to coordinate energy and labor among a wider group of participants, potentially leading to the creation of new platforms that could replace traditional institutions like Facebook or Twitter. The use of ownership models, such as Uniswap's retroactive airdrop, is seen as a key component of this new economy. The Ethereum Invest Economy conference on October 14th, featuring speakers like Vitalik, Rooke Christensen, and DeFi Dad, among others, is an opportunity to learn more about this exciting development in the Ethereum ecosystem.
Exploring DeFi, Ethereum, and the Ownership Economy at CoinDesk Invest: Attend CoinDesk Invest to discuss DeFi, Ethereum, and tools like Monolith and Yearn Finance, learn about the ownership economy, and meet notable figures in the space. Use code 'banklist' for $25 off.
The CoinDesk Invest conference will feature a lineup of notable figures in the DeFi and Ethereum space, including some who have previously appeared on the Bankless podcast. Attendees can expect discussions on DeFi, Ethereum, and unique tools like Monolith and Yearn Finance that aim to simplify the process of earning yield in DeFi. Monolith offers a bankless Visa card that allows users to easily onboard fiat to DeFi, while Yearn Finance is an automated system that seeks out the best yield opportunities across various DeFi protocols. The conference also touches on the ownership economy and the idea that users should be able to capture more value from the platforms they use. Jesse Walden, a crypto investor and founder of Variant, a venture capital firm focusing on the ownership economy, discusses this topic in the interview. Overall, the conference promises to be an exciting event for those interested in the future of DeFi, Ethereum, and the ownership economy. Register using the code "banklist" to get $25 off your ticket.
From cooperative to extractive platforms: As platforms reach a growth plateau, they may shift from cooperative to extractive business models, prioritizing shareholder value over user experience and innovation.
In the current digital economy, content creators often have limited control over the platforms they use to distribute their work, and these platforms can become more extractive as they reach a plateau in growth. This dynamic is described as following an "S curve" of growth, where platforms are cooperative with users at the beginning but become more extractive as they reach a plateau and seek to maximize value for shareholders. In contrast, the ownership economy posits that platforms will be owned and operated by their users, enabling a more cooperative economic model where the platform remains aligned with users over time, leading to continued growth and innovation. The shift from viewing these platforms as public goods to extractive entities reflects their evolution from growth-focused startups to publicly traded companies.
Challenging the business model of social media: Shifting ownership to users could reduce ads and polarization, but coordination costs and network effects make it difficult to switch platforms. Crypto networks offer new tools for user ownership, but users could become the new capitalists.
The business model of social media platforms like Facebook, driven by maximizing profits for shareholders, may lead to polarization and an excessive amount of advertising. This paradigm could be challenged by shifting ownership to the users, who might prioritize utility over share price, reducing ads and polarization. However, coordination costs and strong network effects make it difficult for users to switch to new platforms. Crypto networks are an early example of new tools that give users economic incentives to join and help grow the network, potentially solving the coordination problem. But, even if ownership were transferred to users, they could eventually become the new capitalists. The question then becomes, is that an undesirable outcome?
Expanding crypto networks through inclusive ownership: In crypto networks, early adopters expand networks and earn a share of value, promoting growth and innovation over traditional rent-seeking models.
In crypto networks, early adopters or smart capital can see the potential for growth and opt to expand the network, rather than trying to extract rent from new users. This can be compared to the venture capital financing model, where early investors agree to dilution in exchange for additional growth and increased value for everyone involved. In the crypto space, tokens and smart contracts provide a new tool to expand the pool of ownership to users, incentivizing them to contribute to the platform and earn a share of the value they create. This inclusive model can lead to greater growth and more innovative products and protocols than traditional web 2.0 models.
Revolutionizing Technology with a Global Talent Pool: The digital nature of modern technologies enables a global talent pool, leading to the rise of permissionless and market-driven platforms like the passion economy and cooperatives, and ultimately, the ownership economy.
The digital nature of modern technologies, such as Bitcoin and Ethereum, expands the talent pool to anyone with an Internet connection and enables the creation of platforms owned and operated by their users. This concept of a permissionless and global talent pool is revolutionizing the way we build and consume technology. Old tools like the passion economy (platforms like Patreon and Substack) and cooperatives (companies owned by members) paved the way for this shift, but the real innovation lies in the ownership economy, where individuals work for the growth of a network and are incentivized by the potential increase in value of digital tokens. The future of Internet platform building may lie in this market-driven, network effect-driven model.
From Passion to Ownership Economy: Creator platforms may evolve towards an ownership economy, where creators have more control and rewards through tools like tokens and smart contracts, inspired by cooperative models like REI.
The future of creator platforms may involve giving creators more ownership and control through Internet native tools like tokens and smart contracts. This could be a natural progression from the current passion economy, where creators build value for platforms, towards an ownership economy. An example of this model can be seen in cooperatives, such as REI, where members pool resources and share in the profits. REI started as a group of outdoor enthusiasts who wanted specialized gear and eventually scaled up to serve a larger market. Members receive dividends, effectively acting as a discount on purchases, as a benefit of their membership. This model could provide creators with more control, incentives, and rewards for contributing to the growth and development of the platform. However, implementing this at a large scale may face legal and logistical challenges, and it may be some time before we see this in mainstream consumer platforms.
The future of digital cooperatives with blockchain and smart contracts: Blockchain and smart contracts enable complex rules and values as code, reducing overhead and increasing transparency for digital cooperatives, paving the way for a new wave of efficient and transparent economic models.
The future of digital cooperatives lies in blockchain technology and smart contracts, which enable the expression of complex rules and values as code, reducing overhead and increasing transparency and accessibility. Traditional cooperatives like REI and Land O'Lakes have shown success in maximizing user benefits, but managing their legal complexities and global expansion has been a challenge. New tools like Zapper and Unstoppable Domains are making it easier for startups to navigate the ever-expanding world of DeFi platforms and manage Ethereum addresses. These innovations are paving the way for a new wave of digitally native cooperatives, providing solutions to human coordination failures, such as Moloch, and offering a more efficient and transparent economic model.
Decentralized Platforms and the Future of Cooperation and Organization: Decentralized platforms like Bitcoin and Ethereum offer user ownership and operation at scale, with rewards in native assets for miners or contributors. They foster successful networks through incentives and promote the emergence of decentralized finance (DeFi) and the ownership economy.
The future of cooperation and organization might lie in decentralized, Internet-native platforms like Bitcoin and Ethereum. These platforms allow for user ownership and operation at scale, with miners or contributors earning rewards in the form of native assets. Bitcoin pioneered this model, rewarding miners with new Bitcoin for securing the network. Ethereum expanded on this by also conducting a crowdsale, allowing early supporters to receive ether and become stakeholders. With smart contracts, developers can build their own organizations on top, leading to the emergence of decentralized finance (DeFi) and the ownership economy. Examples include Bitcoin's reward system for miners and Ethereum's crowdsale, as well as projects like Synthetix (SNX) and UNI tokens. By incentivizing and rewarding contributors, these platforms foster robust developer communities and promote the success of the network.
Decentralized platforms distribute value differently than traditional ones: Decentralized platforms incentivize more people to contribute value, leading to scalability and alignment, by returning the value of their operations directly to liquidity providers, unlike centralized platforms that distribute value to shareholders.
The business models of decentralized platforms, like Uniswap, differ significantly from traditional centralized platforms, such as Coinbase or Binance, in how they distribute value to their stakeholders. Uniswap, a decentralized crypto token exchange, returns the value of its operations directly to its liquidity providers, while Coinbase distributes its value to its shareholders. This difference in distribution model can lead to more scalability and alignment for decentralized platforms, as they can incentivize more people to contribute value to the system. The success of these platforms lies in their ability to create a fair and meritocratic distribution of value for all stakeholders. Decentralized networks that provide direct ownership stakes to their users can grow faster with a smaller team, as they tap into the production capital of their user base. This model is not limited to financial use cases, and we're starting to see it play out in other verticals as well. The challenge for these networks is adoption, as they compete against established centralized alternatives that don't offer the same economic alignment with their users. Uniswap's success as a decentralized exchange is an early example of this effective model.
Stateful networks create real network effects in DeFi: Stateful networks capture value and users through data and users, but liquidity, a form of state, can be easily moved in crypto, making it less defensible, however, stateful networks still hold significant value due to their ability to create network effects and capture users.
Network effects and stateful networks play a crucial role in the value accrual of decentralized finance (DeFi) protocols. While code libraries or templates for smart contracts can be easily copied and pasted, it is the stateful networks that capture value and users, creating real network effects. The value of these networks lies in the data and users they accumulate, just like how MongoDB becomes valuable when it's filled with user data, enabling the display of ads. However, a recent refinement to this framework is that liquidity, a form of state, is not very defensible in crypto due to its fungibility. This means that liquidity can easily be moved from one protocol to another, as seen with the creation of Sushi, a fork of Uniswap, or the competition between lending protocols like Compound and Aave. Despite this, stateful networks still hold significant value due to their ability to create network effects and capture users.
Defensibility of crypto networks: Developers, Brand & Security, Neutrality: A strong developer ecosystem, reputable brand, and credible neutrality are essential for the defensibility of crypto networks. Developers face non-zero costs to integrate, making ownership stakes an attractive incentive. Brands and security provide trust, while neutrality ensures user control and trustworthiness.
The defensibility of crypto networks lies in developer integrations, brand and security, and credible neutrality. Developers integrating with a protocol face a non-zero cost, making a rich developer ecosystem essential. Protocols that reward developers with ownership stakes can create a symbiotic relationship, ensuring the underlying network remains valuable. Brand and security are also crucial, as developers want to integrate with secure and reputable protocols. Lastly, credible neutrality, or decentralization, is vital for building trust and avoiding rug pulls. This concept can be achieved through user ownership, allowing users to maintain control and align platforms with their interests. The ownership economy concept extends beyond finance, with examples like Reddit's community tokens showcasing its broader potential.
Shift towards an ownership economy model in various industries: Consumers can invest in creators, creators earn directly from audience, aligning incentives and leading to new modes of creation. Examples: Reddit, RAC, Rally. Expected to expand to more consumer-facing verticals. First breakout success could change competitive landscape.
We're seeing a shift towards an ownership economy model in various industries beyond finance. This model allows consumers to invest in creators and creators to earn directly from their audience, aligning their incentives and leading to new modes of creation. Examples include Reddit's tokenization of communities, RAC's fan tokens, and platforms like Rally for video game studios and streamers. This trend is expected to expand to more consumer-facing verticals, giving users a new way to contribute and earn from platforms. The first breakout success in this area could change the competitive landscape, making it essential for platforms to offer ownership opportunities to their users. This shift towards an ownership economy is a continuation of the "by the user, for the user" ethos that has been gaining traction since 2018. My guest, Jesse, has been a leading voice in articulating this thesis, drawing on his experiences as an entrepreneur in the space since 2014.
Blockchain for Universal Media Library: A Long-term Vision: Blockchain technology can enable creators to capture more value from platforms, with repeatable and defensible organic growth seen in DeFi experiments. Decentralized tokens offer more control and flexibility to users compared to traditional loyalty points.
The concept of a universal media library using blockchain technology to enable creators to capture more value from platforms that distribute their work is not a new idea. The speaker has been advocating for this since the early days of Bitcoin, proposing that similar properties of Bitcoin be applied to digital media assets instead of financial assets. The speaker's perspective has evolved to include all types of creators, not just media creators. The speaker finds encouragement in the success of Ethereum in attracting developers to build out the ecosystem, and the current trend of experiments in DeFi, particularly liquidity mining and yield farming, which distribute platform tokens directly to users. These experiments are leading to repeatable and defensible organic growth. However, the speaker acknowledges the need for best practices to ensure sustainable growth. The speaker also addresses the skeptics' question about why blockchain is necessary, using the example of Crypto.com's MCO token, which functions similarly to loyalty points but can be exchanged in the decentralized finance (DeFi) economy. While there are similarities to traditional loyalty points, the speaker argues that the decentralized nature of blockchain-based tokens offers more control and flexibility to users.
Using blockchains for value distribution: Neutrality, interoperability, and lower costs: Blockchains offer unique benefits for value distribution, including neutrality, interoperability, and lower costs compared to traditional financial systems. The future of DeFi going mainstream is debated, with potential paths including banking the unbanked, institutions joining, and building an entire economy around DeFi.
The use of cryptocurrencies and blockchain technology in distributing ownership and value is a growing trend, with platforms like Binance using crypto tokens to confer platform value to their holders. The benefits of using blockchains for value distribution include neutrality, interoperability, and lower costs compared to legacy financial systems. The future of DeFi going mainstream is a topic of debate, with three main schools of thought: banking the unbanked, institutions joining in, and building an entire economy around DeFi. Jesse is more bullish on the third path, as he believes it has the potential to offer unique applications and experiences that cannot be found in traditional economies, ultimately capturing the hearts and minds of mainstream consumers.
DeFi's role in supporting real-world economies and industries: DeFi has the potential to facilitate exchange of goods and services in a decentralized and accessible way, creating a more interconnected ecosystem. The NFT ecosystem, which deals with real property or assets, could be much larger than DeFi.
The true potential of DeFi (Decentralized Finance) lies not just in financial speculation, but in supporting real-world economies and industries. Finance is a service industry that exists to facilitate the exchange of goods and services, and DeFi has the potential to do the same, but in a decentralized and more accessible way. The real interest comes when non-financial industries and products utilize DeFi rails to distribute value directly to their users. This creates a more interconnected ecosystem where finance services become more valuable and interesting. The NFT (Non-Fungible Token) ecosystem, which deals with the actual property or assets we value, could be much larger than DeFi. As Jesse noted, DeFi's value comes from supporting something else, and that "something else" could be orders of magnitude bigger. For founders looking to build in the ownership economy space, the process might differ from traditional venture-backed startups, and they may need to consider different strategies and resources. The future of DeFi lies in its ability to support a diverse range of industries and goods, and as this happens, it will become more valuable and interesting to consumers.
Distributing ownership directly to users for growth: Ownership economy platforms prioritize user ownership, exit to communities earlier, and rely on community capital for growth
Ownership economy platforms aim to distribute ownership directly to users for growth, which sets them apart from traditional startups. These platforms will exit to their user communities earlier in their life cycle, and may not raise as much venture capital as traditional startups. Instead, they'll rely on financial and production capital from their community through a liquid token. Seed and precede stage investing is crucial for founders to reach the important milestone of exiting to the user community. However, a lack of focus in the early stages can be detrimental, so it's essential to build a product people want before distributing ownership. Progressive decentralization, or quickly distributing tokens to users, is not mutually exclusive with fair launches, which meritocratically distribute value to those who create it. Overall, these platforms follow a different growth cycle, with a focus on getting ownership into the hands of users as quickly as possible to encourage growth.
The Ownership Economy: The Next Frontier for Growth in Crypto: The ownership economy, driven by consumer marketplaces and tools like stablecoins and user-friendly wallets, is the next growth area in crypto. It offers individuals more control over digital assets and platforms, and comes with significant rewards despite risks.
The ownership economy, which allows individuals to have more control and ownership over digital assets and platforms, is the next frontier for growth in the crypto space. This economy, which is complementary to decentralization, will be driven by consumer marketplaces, particularly those in the passion economy sector. The tools enabling this growth include stablecoins and user-friendly wallets. As this economy grows, it's important to remember that it comes with risks, but the potential rewards are significant. To learn more about the ownership economy and related topics, check out Jesse's articles on the Bankless website, as well as our recent episodes with RAC and Andrew Seinwald. And, if you enjoy the podcast, please consider leaving a 5-star review to help spread the word.
