In 2019, Bill Gurley wrote a blog post on how internet marketplaces can unlock latent and previously unseen value in the world
In the post, Gurley applies concepts from Adam Smith’s “Wealth of Nations” to discuss internet marketplaces – his conclusion being that by “connecting economic traders that would otherwise not be connected” – internet marketplaces “unlock economic wealth that otherwise would not exist“
Or – more simply – these marketplaces create “money out of nowhere.”
Building on the ideas in his post, I think we’re experiencing a similar unlock in economic value via blockchain infrastructure by:
- Providing strong ownerships right for digital goods
- Creating a financial incentives for creating and supporting public goods
Strong Ownership Rights for Digital Goods
In March 2007, economist Hernando De Soto published a book “The Mystery of Capital”
In the book, DeSoto argues for the importance of property rights for economic growth – with the core premise that turning assets into capital will allow them flow to their most productive use and unlock further value
While De Soto focuses on emerging market countries in his book, I’d argue the same framework could be applied to emerging digital markets – where we haven’t had a low cost, low friction method for strong ownership rights to exist online
With strong ownership rights, users can more efficiently and transparently transact in digital goods – in the same type of global marketplaces that Gurley highlights in his post – allowing for better price discovery + value creation
As a first example, I’d highlight Art Blocks + Generative Art
Generative art has existed since the 1950s, but it didn’t really have a business model until Art Blocks – which allows creators to sell a limited-edition of a digital object – launched in November 2020
Using Art Blocks, artists are able to sell a limited number of their works – with collectors receiving their own unique visual output created by the artist’s algorithm and a record of their ownership of that object – backed by the security of the Ethereum blockchain
With strong ownership rights, collectors feel safer makes transactions – price discovery happens in open NFT marketplaces like OpenSea and Universe XYZ – and previously unseen value is unlocked
As a second example, I’d highlight the emergent ecosystem around IP-NFTs
Even prior to the Decentralized Science (or DeSci) movement, research + discovery for pharmaceutical development had become increasingly decentralized – with large companies often partnering with small startups or academic research universities to source new drug candidate
And while this system has generated incredible impact, is everything that could be funded getting funded? The existing system has human biases and includes a limited number of capital sources – does lowering the barriers for capital enter the market allow for more impact to happen long-term?
At their best, IP-NFTs create a lower cost and more efficient system to fund potentially promising experiments – and creates a path for more money to flow into the scientific research ecosystem – funding experiments + ideas that wouldn’t have been supported otherwise.
To be successful, those assets eventually need to be licensed by a large existing pharmaceutical company or emerging startup – but as a friend that I shared an draft of this post with pointed out – this is no different from the commodities market – where speculators and investors who fund early discovery and exploration activities – which – when successful – sell their end product to large existing companies for industrial and other applications
DAOs as a Coordination Mechanism to Better Fund and Support Public Goods
In Fall 2019, Eric Beinhocker gave a talk at the Santa Fe Institute on a concept called “Market Humanism” where he describes cooperation as “the dark matter of the economy”
He goes further to describe:
You know, it’s ninety-eight percent of the mass, but markets are kind of like the bright lights, the visible stars that are, like, two percent of the mass, just like in physics. By having such a narrow focus on markets, we’ve forgotten about the other ninety-eight percent of what enables cooperative societies to do things like build very complicated products and services, have complex social organizations, and solve very complex problems.
To have large-scale cooperation, you need a whole set of social and cultural norms and institutional structures. There’s a lot of infrastructure around large-scale cooperation that needs to be built.
What markets are good at is creating evolutionary competitions between those structures of cooperation. But markets can be harmful when they actually reduce that cooperation and crowd it out.
In my prior post, I outlined the potential symbiotic relationship between corporations and DAOs (or decentralized autonomous organizations) – also discussing how DAOs could create incentives for developing and managing public goods
In that post, I mainly focused on the use of DAOs in supporting open source software protocol development – however, I think it is even more exciting is to start think about his structure beyond that initial use case
As a first example – I’d highlight Songcamp DAO
Over the past year, it has emerged as one of the leading creative communities – where individuals can learn, find future colleagues, and collaborate on projects together
It isn’t a company – and it isn’t just community – but has some of the features of both – generating revenue from projects its members work on together – but also being a fertile ground for members to launch their next company or project
I think the closest comparison is 1970’s Los Angeles – which had an abundance of new, emerging talent – and those individuals found different ways to help each other + value was created
And while I think it’d be hard to point to a specific economic benefit of being a member of the LA community in 1970 – I’d argue its participants felt (and benefited from) being there
I think members of Songcamp would tell you a similar thing today about the benefits of being a member – to a degree where projects being incubated by the DAO or started by its members – will share part of the potential economic upside back with the collective
As a second example – I want to re-highlight Biotech DAOs (or specifically Vita DAO)
Vita DAO is a group that came together to focus on funding biotech projects in longevity
Longevity is an area of research that has historically been underfunded by venture capital investors and traditional corporate biotechs
But starting as a DAO – and aligning member incentives through collective ownership the DAO’s native token VITA – this global group of previously unaffiliated individuals were able to come together to trustlessly collaborate on their shared goal of financing longevity research
This – combined with the lower friction of funding research via IP-NFTs – has enabled this group to start funding projects that would not have been funded otherwise
Vita DAO is less than a year old, so I can’t say if will have an impact long-term – but I’m excited by the interest in researchers being open to working with a group like this for funding and large institutions like Pfizer (who is pushing into Longevity) requesting to become a full member of the organization
Zooming out –
I think large innovations in social technology (how humans coordinate activity) are relatively rare – and when combined with innovations in financial technology (how we finance those activities) have been shown to lead to tremendous value creation
One specific example is the modern venture capital industry – which – at its most basic – was the combination of a social technology from the 1600s (the corporations) and a financial technology from the 1800s (the limited partnership structure)
Accelerated by the Prudent Man Rule of the Pension Reform Act of 1974, this combination of social technology + financial technology has funded 57% of US stock market value was attributed to venture-backed companies by 2015 (though I think it is likely even higher today)
So looking forward, what if this structure results in the next great unlock?
It doesn’t take away from anything that exists today – but instead, grows to the pie – and adds so much value that it represents more than 50% of global GDP over the next 50 years
Even if that outcome is highly unlikely, I think all the experiments being run now would be worth running – and excited to see where creative founders and leaders take us over the next period of time