Someone said web2 was about product, web3 is about community. A lot of someones have said that. Some have argued that possibilities of collaboration and organization of communities are greater than the impact purely from the technological advancements in web3. The word “community” in web3 excites me. I’m using community here to mean a few different things at once. First, the community of those that are engaging in the space broadly speaking. The energy in web3 is infectious and rare — perhaps unprecedented in my lifetime. The speed at which people (particularly engineers) are pivoting their careers into web3 is both a bit scary and also very exciting. Chris Dixon at a16z once talked about using a talent heat map (i.e. mapping where the best talent is going) to evaluate the growth of an industry or prospects for a company. By that measure, web3 is off the charts.
I also use community to reflect the group of developers, users, employees, and investors that surround a specific web3 project. Particularly “users”, even though that term feels somehow antiquated in web3. Community building feels more vital and more complex than in web2 — I liked this article from Peter Pan. Building community with users that are also potential collaborators, builders, and owners is complicated. Then they are distributed. Then some have a vote. Oh, and there isn’t one CEO to build cohesion. Where and how do financial incentives weigh in? How is governance power distributed to the community over time? These questions are different from web2 and contain new and exciting challenges and opportunities. I think we are a long way off from understanding best practices here.
Tokens- In the case of smart contract blockchains like Ethereum, tokens are code that lives on a blockchain. They can also be a part of non-programmable blockchains such as Bitcoin. They can be considered a record of ownership and can be used as an investment, to store value or to buy stuff. (“Buying stuff” is a technical term.) Tokens can represent many different things and the possibilities seem limitless. Tokens can incentivize open network participants in unique and groundbreaking ways (as Chris Dixon argues here). Not just developers, employees, and investors (as equity did in web2.0) but users and service providers as well.
In time, tokens will be tied to attendance of a concert or grant access to a community (online or IRL). Tokens will unlock real-life physical goods — perhaps allowing your son to drive the car — with certain governing restrictions. Tokens will show how you voted in a PTO meeting or how you added specific value in organizing the fundraiser. Tokens can represent ownership and reward participants in a project or company. (By some accounts, Brian Armstrong has made more off his investments in tokens than his founding of Coinbase).
Wait. Stop. Pause.
Why? Why do we need tokens to represent your participation in a PTO meeting? If we trust the centralized school system for a PTO, why would we want decentralization of the attendance records? Decentralization can be burdensome. When exploring web3, push yourself to ask “why”. Then do it four more times. Someone smart might give you a hand-waving answer — ask why again. While the zealots will tell you that decentralization is always better, ask yourself in specific instances if you agree. The PTO example is silly. Maybe other ones I’ve listed are silly. But force yourself to think whether you believe decentralization or tokenization adds real value in each instance.
Tokens can create or dramatically shorten the economic feedback loop for participants in a project or company. They allow users and other stakeholders to participate as owners. They encourage speculation and trading for many reasons including the outrageous upside that some have demonstrated, and the liquid nature of the product. Tokens also have the potential to increase the power of network effects, or (as others have pointed out) reverse the decline of network effects for those networks that have reached maturity. Chris Dixon best articulated this in his discussion of decentralization and the change in relationship that occurs when the network hits the top of an S-curve. There is also an argument that tokens help kickstart the cold-start problem.
Fungible tokens can act as a medium of exchange, a store of value or a unit of account to provide a measure of value. Tokens can act like money. I’ve chosen to invest across many different tokens because while I believe web3 is the future, I struggle to have the confidence to make a bet on just one or two. I loved Fred Wilson’s articulation here around buying crypto assets.
NFTs– Non-Fungible Tokens are unique from one another. Frankly, I think fungible vs. non-fungible sounds a bit confusing at first, but I really liked OpenSea’s language in their Bible on non-fungible tokens: “Non-fungible assets are just normal stuff. Fungible assets are the odd ones out.” Unlike fungible tokens, which are a bit more like commodities (e.g. money, gold, sugar), each NFT is unique. A dollar bill is a fungible currency. Each dollar represents a standard unit of value, whereas a dollar bill signed by Andy Warhol is a non-fungible token — it is no longer interchangeable with every other dollar and is in fact worth much more given its uniqueness and scarcity.
Recently I went to the Verse NFT exhibit in San Francisco with my wife, Kim. There are several of these types of exhibits around the country. In this case they converted the bottom floor of the San Francisco Mint into an augmented reality-style NFT exhibit where the exposed brick walls and space are empty to the eye, but light up with NFTs and music when you leverage a headset or your phone. This was my first experience of this type of event and I was blown away. Yes, the technology (hardware was Microsoft HoloLens 2) was at times a bit janky (we had 3 false starts; the combo of iPhone and headset was awkward; time limit was annoying given there were 50 headsets laying around). But the possibilities are incredible. It is not hard to imagine that in the future these exhibits could be personalized to the user. My wife could see art that matches her tastes which are different to mine. There could be (much) greater use of the other senses. I loved the ability to click through to learn more about the NFT or to buy on OpenSea. I could imagine some exhibits updating based on demand — the artist that sells most at 3pm will be given more space at 6pm. Perhaps buying the NFTs unlocks other things at the exhibit (special rooms, sections, art) just as it will certainly unlock unique experiences IRL. As I came close to bumping into other patrons because we were distracted by the AR, I wondered if the entire idea of walking around an IRL gallery to view digital NFTs is a bit skeuomorphic. But it was interesting enough that I’m glad I drove up to the city to see it.
NFTs enable digital ownership, which also enables scarcity and exclusivity. NFTs can have interoperability in ways that previous digital goods did not (e.g. you couldn’t take a skin from Epic Games to another platform) because the user owns the data. NFTs enable authenticity. NFTs can act as receipts for goods. NFTs can provide ongoing royalties which, as many have pointed out, completely changes the game for creators, artists and journalists alike. NFTs do so via a smart contract that can execute a set of if/then instructions without an intermediary. If you haven’t found Skyline DAO yet, they have a terrific webinar on NFTs.
I am bullish on NFTs that have utility. While I own some profile picture (PFP) style NFTs that have no real utility other than me thinking they are pretty, I am less passionate about that market. I do however find myself daydreaming about the offline-online connections made possible by NFTs, such as NFTs that provide special access communities that form around NFTs and create other, more interesting, possibilities, or NFTs that vest (increase in value to holder) or degrade. I’m fascinated by the concept of credentialing via tokens and will write more about it in the future.
DAOs– Decentralized Autonomous Organizations intrigue me. I also think a lot needs to be figured out. I’ve loved Cooper Turley’s thinking on DAOs, particularly SubDAOs. Today it is hard for me to tell how much of the energy in the DAOs that I’m a part of has to do with the structure of the DAOs themselves vs. the energy in web3. Time will tell.
I’m not convinced DAOs will completely replace VC firms, but I think they will add to the ecosystem. I think there are hundreds of VC firms that provide no or negative value, and the concept of a DAO investing is better. I can imagine DAO members earning tokens (or carry/equity) for performing different tasks for the portfolio like recruiting, fundraising, sourcing new deals, sitting on boards and others. It effectively helps to debundle VC firms, and instead of asking one GP to be good at everything, allows the DAO to find members that are better at more isolated tasks. This debundling would allow the DAO to scale more effectively (easier to find interchangeable people who are better at a more narrow set of tasks) and perhaps do a better job at helping portfolio companies (because you can find experts instead of generalists). You could imagine, for example, that the DAO rotates the board member representation. For the first 18 months, it’s someone with a great recruiting background, then it’s someone that is phenomenal at product, then capital raising, etc. I believe VC framed DAOs (h/t to The DAO) will make a dent, but I don’t think they will replace the top 10-20 firms whose brand name matters and whose partners are world-class. And while I don’t believe DAOs will replace universities in the near future, I’m very intrigued by the concept from Kassen Qian that DAOs could do a much better job of facilitating lifelong learning. (Loved her thinking on a student’s learning at university being replaced by multiple DAOs as well.)
I’m not yet sold, but I am certainly considering the concept that the average person in the future will not work for a company and that DAOs will be the default organization type. DAOs seem to be able to be set up quickly and efficiently while sucking in engaged talent at a pace I haven’t before seen. Again, though, that could be the DAO structure or it could be where we are with the hype around web3. For some projects, I think the concept of automation at the center and humans at the edges is intriguing. For other projects, e.g. launching the next iPhone, I wonder if having a singular centralized vision is vital. I believe DAOs can impact a wide range of problems, and I’m spending time thinking about how they could tackle real-world problems.