34 - The Internet Cooperative | Jesse Walden

📣 Join us at Invest Ethereum Conference Oct 14th - http://bankless.cc/investeth $25 off w/ “BANKLESS” code ----- 🚀 SUBSCRIBE TO NEWSLETTER: http://bankless.substack.com/ ✊ STARTING GUIDE BANKLESS: https://bit.ly/37Q17uI ❤️ JOIN PRIVATE DISCORD: https://bit.ly/2UVI10O 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ 👕 BUY BANKLESS TEE: https://merch.banklesshq.com/ ----- GO BANKLESS WITH THESE SPONSOR TOOLS: 🌐 UNSTOPPABLE DOMAINS - HUMAN READABLE ETHEREUM & CRYPTO ADDRESSES https://bankless.cc/unstoppable 🌈 ZAPPER - ULTIMATE HUB FOR DEFI - ZAP INTO DEFI http://bankless.cc/zapper 💳 MONOLITH - GET THE HOLY GRAIL OF BANKLESS VISA CARDS https://bankless.cc/monolith 🤖YEARN - YIELD-SEEKING MONEY ROBOT THAT FARMS DEFI FOR YOU http://bankless.cc/yearn ------ The Ownership Economy | Jesse Walden Jesse Walden speaks about 'the ownership economy', in which value is returned to the producers via a protocol by compensation codified in its core. YouTube, Facebook, Twitter are now extracting more than they are providing. Can Ethereum and DeFi solve this? How can Ethereum host an internet-sized cooperative, like REI? How can token ownership create a larger tent, that can scale organizations past previous limits? We also discuss Jesse's 3 theories for how crypto will be adopted, and which one he believes will come first: - The people come, Bank the Unbanked! - The institutions come, WallStreet wants part of the global casino - The economy comes, non-financial apps create a “real economy" ----- Actions & Resources: Read Jesse’s articles: The Ownership Economy thesis https://variant.fund/the-ownership-economy-crypto-and-consumer-software/ The Ownership Economy in DeFi to date https://variant.fund/how-does-defi-cross-the-chasm/ Progressive Decentralization vs. Fair Launch https://variant.fund/progressive-decentralization-a-playbook-for-building-crypto-applications/ Business Models in Crypto https://variant.fund/cryptos-business-model-is-familiar-what-isnt-is-who-benefits/ Check out our Meet the Nation with RAC https://www.youtube.com/watch?v=vZMQcjLzx7s&t=848s https://www.youtube.com/watch?v=vZMQcjLzx7s&t=848s Five-star reviews to help grow the Nation!\ ------ Don't stop at the video! Subscribe to the Bankless newsletter program http://bankless.substack.com/ Visit the official Bankless website for resources http://banklesshq.com/ Follow Bankless on Twitter https://twitter.com/BanklessHQ Follow Ryan on Twitter https://twitter.com/ryansadams Follow David on Twitter https://twitter.com/TrustlessState Follow DeFi Dad on Twitter https://twitter.com/DeFi_Dad ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time we may add links in this channel to products we use. We may receive commission if you make a purchase through one of these links. We'll always disclose when this is the case.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:13Ryan Sean Adams?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front-run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, how are you doing this episode?

• 0:32David Hoffman?

  Really, really optimistic about the future of Ethereum, specifically from what Jesse talked about in this podcast. And I think this is going to be another one of the Bankless podcasts where you can take it to your friends and family and show them exactly what it is we are doing here. Because in addition to the DeFi, DGEN, yield farming that we're doing, we're also doing something much grander, much more meaningful. And that's the thesis that Jesse brought in this Bankless podcast today. So this is, this is a great episode just to illustrate like why we are all here.

• 1:05Ryan Sean Adams?

  I felt like this was an entirely new lens than what we usually talk about on Bankless, which is more, a bit more like, you know, like finance and economy, economic, right? Like, like more, more money related, I suppose. But this one, I think you're right, did feel like it has something for people who aren't finance geeks and don't really care about yield and return and all of these financial terms. They'd rather have their, you know, CPA handle that for them. And like, this is talking about the, the real economy, the ownership economy on, on top of this banking layer and this property management system that crypto has essentially built. So I think it's, it's super exciting and

• 1:49Ryan Sean Adams?

  also a lens that we don't often see on, on Bankless. I'm going to be thinking about this episode for a while. What were your takeaways, David?

• 1:58David Hoffman?

  Yeah, my big takeaway is, and this is just a fantastic continuation from our previous episode with Amin and Kevin about Moloch, because the Moloch conversation is so relevant here as well. What Jesse is doing with his fund variant, he's trying to solve coordination. And he thinks that what we can do with DeFi, what we can do with tokens specifically, is coordinate among a wider set of participants. And this is where the legacy financial system and the legacy startups of Silicon Valley and the gargantuanes of Silicon Valley have really broken down, is that they haven't been able to coordinate a larger and larger group of people. And so what I got specifically out of this episode is that what we are doing

• 2:41David Hoffman?

  when we are yield farming and what we are doing when we are issuing and trading tokens, is we are figuring out ways to get and coordinate energy and labor across a wider pool of participants to focus in on something that like, that could be something that would replace Facebook, that could be something that would replace Twitter, or that could be something that could also replace your bank, some financial institution. And it seems to be that we have the tools to move forward with actually trying and achieving some of these goals.

• 3:13Ryan Sean Adams?

  Yeah, this paired with our NFT episode a couple of episodes ago, feels like it's making a case for how Ethereum, how Bitcoin can go mainstream through real world usage, right? It's always the question that we ask is like, what's going to be the catalyst that makes crypto go mainstream, that makes bankless go mainstream? Is it stable coins? Is it the institutions coming? Is it just this bankless economy saturates the world in areas of the world that don't have banks? And the answer to that question is yes, but there's also an ownership economy answer to that question as well. And Jesse provides the thesis for that. It almost feels a little bit like, you know, our episode with Vance

• 3:56Ryan Sean Adams?

  from Framework. You know, if we had talked to Vance from Framework in 2018 and kind of developed his thesis before it was, you know, proven out, this episode felt a little bit like that. It's like, this thesis of the ownership economy, just a little bit ahead of it being totally proven out. So there might be some alpha there that listeners can can realize from this episode.

• 4:21David Hoffman?

  Absolutely. A while ago, on the Bankless Newsletter, I wrote a very quick Market Monday piece talking about how Uniswap moved the Overton window of capital, right? And what I was discussing was how Uniswap, as an application, really just purchased the loyalty of anyone that's ever used it ever, right? A retroactive airdrop of $1,200 that distributed ownership and governance over the protocol to the people that are incentivized to be good stewards of the protocol. What Jesse is really talking about in this podcast is copying that same model and using it on a grander scale and really kind of getting ownership into the hands of the people

• 5:05David Hoffman?

  that actually produce the value of these systems and including them in financial upside, right? So if there's ever going to be a new Facebook that's 10x better or a new Twitter that's 10x better, Jesse thinks that it's going to have some sort of compensation model for the people that are actually contributing the value that make those platforms valuable.

• 5:25Ryan Sean Adams?

  All right, guys, so you're gonna love this episode. You know, David, before we get into it, you've got some interesting news to announce, right? You've got a speaking event coming up.

• 5:33David Hoffman?

  Yeah, CoinDesk is getting hot on Ethereum, and so they are throwing an Ethereum Invest Economy Conference, virtual conference, on October 14th. There are going to be a ton of DeFi all-stars there, like Vitalik has a keynote there, Rune Christensen from MakerDAO, DeFi Dad, Hugh Karp from Nexus Mutual, Stani from AVE, Fernando from Balancer, Haseeb from Dragonfly. There's gonna be a fantastic lineup with a fantastic set of spots. And I am also speaking at this event. I'm talking about why Ether is such a compelling and unique asset that is not found anywhere else in the world.

• 6:11Ryan Sean Adams?

  You know, David, those names you mentioned, almost all of those have been on the Bankless Podcast previously. It feels like a Bankless conference almost.

• 6:18David Hoffman?

  Yeah, it's gonna be a Bankless reunion. And I guess all the ones that we haven't gotten on the podcast, I think probably will be on the podcast in the future. If you guys want to tune in to all these different people talk about DeFi, talk about Ethereum, go to the link in the show notes and register with the code bankless to get $25 off of your CoinDesk Invest conference ticket. So I will see you guys there.

• 6:42Ryan Sean Adams?

  All right, before we get started with Jesse Walden on the Ownership Economy, an episode you absolutely cannot miss, we want to tell you about some of these unique bankless tools from our sponsors. Bankless Nation, do you want to go fully bankless, but in the real world? Monolith is the DeFi account that you need. It wraps your ETH address in a bankless Visa card, and it does so much more. It closes the loop from fiat to DeFi. So you can onboard fiat to DAI on Monolith with zero fees. Then you can convert that DAI to ADI, which is an interest-bearing savings account. Again, zero fees. And then you can spend that interest in the real world

• 7:22Ryan Sean Adams?

  on a Visa card. So you can finally buy your cup of coffee with interest earned in DeFi. Guys, this is magic. This is the closest thing to the Holy Grail crypto card, and Monolith gives you all of it. You need to download the app at monolith.xyz to get your bankless Visa card. It's optimized for European listeners. They'll be coming to the US soon. And when you get that Visa card, the Monolith card, tweet about it when you do. I love seeing people unpackaging their beautiful bankless Visa cards. It makes me realize that the revolution is here. Search Monolith in the App Store.

• 7:58David Hoffman?

  YARN is DeFi's first self-building project on Ethereum, focused on producing products for those who are interested in earning yield in DeFi. YARN's various products are all built to suit each individual investor's preferred level of risk, from various vault strategies that leverage DeFi tokens, to the safer earn system which relies on stable coins. Vaults are aggressive yield farming robots, each with a unique strategy that is designed to maximize the yield of the deposited asset. YARN employs some of the most informed developers in DeFi to keep the vault strategies updated with the various yield farming opportunities on Ethereum. For customers who are more risk averse... The Yearn's earn product may be for you.

• 8:40David Hoffman?

  Earn is a yield-aware, dynamic money market that automatically seeks the best interest rates across the various DeFi protocols and regularly migrates your deposited stablecoins between the DeFi protocols that are returning the best yield at the present moment. Yearn is a system that is just a little over four months old, so things are still very much an experiment. However, this hasn't stopped people from depositing over $700 million worth of assets into the Yearn system in order to find yield on Ethereum. Perhaps the people that deposited all this money were tired of constantly making daily transactions to follow the best DeFi interest rates. And maybe the gas fees that they were paying ended up eating too much into their profits. With Yearn, it doesn't remove the risk of these various protocols that it leverages,

• 9:23David Hoffman?

  but it does remove the overhead of constantly trying to make sure you're finding the best yield and also so that you don't have to pay for gas to switch up your assets. Check out the products that Yearn has to offer at yearn.finance. That's Y-E-A-R-N dot finance, which they also have a nice statistics page to see what other people are doing.

• 9:43Ryan Sean Adams?

  All right, guys, let's get into the interview with Jesse. I want to welcome Jesse Walden to the Bankless Nation. He's a crypto investor, former A16Z, part of their crypto fund. He influenced many of my mental models on all things crypto, and I feel like he's about to do it again today. Now he runs an early-stage VC fund called Variant, which focuses on today's topic, the ownership economy. Jesse, how are you doing today?

• 10:14Speaker 02

  Doing well. Thanks for having me.

• 10:16Ryan Sean Adams?

  All right. Hey, are today's big tech companies taking advantage of people's free labor? Is that what's going on?

• 10:24Speaker 02

  Yeah, well, it's a loaded question, but I mean, my short answer would be yes. I think if you look at internet platforms today, I think it's fair to say that much of the value is, of course, created by their users, whether that's content or products in marketplaces. And those users... Of course, get tons of value from the platform in the cases where they're able to reach an audience or or, you know, sell their products or services. But I think we're sort of starting to hit an inflection point where the value that these platforms are able to extract is a little bit disproportionate to what the users are able to get out of it.

• 11:09Speaker 02

  And the ownership economy and what I see happening in crypto sort of presents an alternate model that I think is going to become the dominant model in the near future because better economic alignment with users is likely, you know, the way to win market dominance, in my view. So we can get into that, but the short answer is I think that users should be able to capture more of the value that they create on internet platforms.

• 11:38Ryan Sean Adams?

  Yeah, so really want to talk about your thesis around what you call the ownership economy. And as we dig into that, maybe jumping off of what you just said to sort of tee this up. So David and I, we're content producers, right? So on behalf of the Bankless Nation, thanks for everyone listening and reading our stuff. But we use platforms like YouTube and Twitter and Facebook for the distribution. And it feels like a lot of times, as content producers, we don't necessarily, A, have very much power in the interaction. So you're creating all of this, all of this value, right? All of these resources, but we actually can't stop YouTube from, say, blocking us or Twitter

• 12:21Ryan Sean Adams?

  from like putting us in Twitter jail for a while. And we also, we've realized like some of the upside, I suppose, but it very much feels like Facebook and YouTube are, you know, setting the terms here. Is that kind of what you're talking about when you're talking, when you're contrasting like the future ownership economy to the world that we live in largely in social media and web two?

• 12:44Speaker 02

  Yeah, I think that's, it's sort of a good, a good place to start the discussion. So I think most of these platforms, social media platforms, marketplaces, they, they follow a very predictable lifecycle. And my, my former partner at Andreessen, Chris Dixon, wrote about this in his post, "Why Decentralization Matters." The lifecycle they follow is, is sort of an S-curve of growth, where at the beginning of the S-curve, you know, they're, they're very cooperative with their users. They invite, you know, content producers, you know, media, media publications, in the case of, you know, Facebook and YouTube, to join the platform. They do everything in their power to help them out and reach a large audience. Once that audience is, is there and growing really quickly, you know, the, the S-curve

• 13:28Speaker 02

  starts to go up and to the right, but eventually it, it plateaus. Eventually, you can't grow anymore organically. And, and so that's where the, the final turn in the S-curve comes, at that plateau. And at that point, many of these platforms start to become more extractive of their users. And, and they're able to do that because they've sort of locked in network effects. Now they've got, you know, the creators and they've got the audience there. And it's very difficult for, for each of those parties to move because, you know, classic network effects, there's more value in staying than in leaving and being in a room by yourself. And that empowers the platforms to go and start extracting as much value as they can from their users and returning that value to shareholders.

• 14:13Speaker 02

  And, and so I think when, when you say, you know, YouTube sets the terms, or Facebook sets the terms on how you sort of interact and monetize their audience, I think that's, that's very much true. And you're very much subject to the whims of this S-curve. So if, if YouTube decides, you know, they need to, to extract more value from, from, for shareholders, they can very well do that. And, and you're kind of powerless to fight them as an independent creator. Right? So... The ownership economy sort of posits an alternate model where these platforms no longer have to follow that same S curve. And that's because I think platforms of the future will be owned and operated by their users.

• 14:55Speaker 02

  And what that enables is a much more cooperative economic model where the platform remains aligned with users over time. And in turn, that allows for unabated growth and continued innovation as the platform continues to serve the interests of users rather than the interests of shareholders.

• 15:13David Hoffman?

  So I remember as a kid growing up, Facebook came out when I was something like, you know, 12, 13, 14, right when I was starting to become like a social individual, right? And Facebook was really viewed by me and everyone around me as this sort of like public good on the internet. It was this platform for keeping in touch with your friends, for being able to share experiences, and really to be able to live a social life on the internet. And I think that's kind of where a lot of optimism about the future sci-fi world that's coming came from because these Silicon Valley startups kept on producing these awesome, awesome public goods that would produce value for us. You know, Twitter is the same thing.

• 15:56David Hoffman?

  It's a common square for conversation. YouTube is the same thing. It's this place to get out free content and to capture attention and to have conversations. And that was really exciting back when I was a kid in the early OOs, right? But what you're saying is that as time grows on, like Facebook and just the value that it provided to everyone as a social, as a public good platform to share social experiences kind of grew and grew and it continued to grow. And then it grew into such a wide part of the world that as a publicly traded company on the US stock market, the only way where it could get the share price to grow was to start, you know, becoming more and more extractive, right?

• 16:40David Hoffman?

  And so it hit the limits of growth in terms of adoption of its platform. And so it started to, in order to grow, what the ultimate goal is, is the share price on the stock market. It needed to become extractive. And that's where we kind of see the disillusionment we know we see in Facebook today, where people are all but aware that, you know, that Facebook is creating, you know, more and more polarization from various different parties, left and right. And, and I think, Jesse, trying to not put words in your mouth, but you might ascribe that polarization created by Facebook as a result of the business model of the Silicon Valley startups. Is that right?

• 17:17Speaker 02

  Well, well, yeah, I would certainly in the case of Facebook and other social media platforms, I think, yeah, the business model may be to blame for, you know, the, the nature of the algorithms that drive polarization. And then, but then I think the root question here is why is the business model that way? Right? And, and to your point, I think it's to drive, you know, advertising dollars and which trickle into share price. Now, just thought experiment, imagine Facebook was actually owned by its users instead. Right? Well, well, then users might optimize for something other than share price. They might optimize for utility that they get out of Facebook. And maybe part of that would mean reducing the number of ads that they see in their feed

• 18:00Speaker 02

  or reducing the amount of polarization that the algorithm suggests. Right? You'd have a different mandate if the platform were owned by its users. Today, you know, the, since the 1970s, really, since Milton Friedman proposed that the sole purpose of corporations is to maximize profits for shareholders, we sort of lived in a paradigm where each, each internet platform has strived to do exactly that. But now there's, there's sort of new tools in the toolkit to build internet platforms that don't just maximize profits for shareholders, but maximize benefits or utility to their actual users. And, and I think the first early examples of this are crypto networks,

• 18:43Speaker 02

  which I'm, I'm sure we can get into, but that's, that's what sort of got me excited and down the path of thinking about the ownership economy and how it can enable a more equitable future that also results in better products for consumers.

• 18:57Ryan Sean Adams?

  So for me, Jesse, this brings up two questions. I'm going to ask the first. So why doesn't everyone just switch? Right? So, so David and I and a bunch of other content producers were sick and tired of a platform. Well, like, why don't we switch to another platform?

• 19:16Speaker 02

  Yeah, it's it's network effects. Again, it's it's it's hard to coordinate a large group of people that are at a party to go to another party somewhere else, right? Like, there's going to be, you know, there there has to be a tipping point, a critical mass of people willing to move to the next party for that to happen. And and so there's a social cost, there's a coordination cost of getting everyone to exit and and move somewhere else. And and that's that's the result of strong network effects that these platforms have. And, you know, the the classic problem in building any new network, any new marketplace, is solving this chicken and egg problem. How do you get people to fill up the room

• 20:01Speaker 02

  such that it becomes more valuable, more attractive for others to come and join in? And one of the key innovations that that, you know, networks like Bitcoin, Ethereum, and and others have employed to solve that problem is giving users that participate a direct economic incentive to join the network and and help see it grow. And so that's the new, you know, earlier when I mentioned that there's new tools in the toolkit, a new way to build platforms that are better aligned with users, that's exactly what I'm talking about.

• 20:34Ryan Sean Adams?

  You know, David, this sounds so much like our previous episode where we talked about Moloch, the god of coordination failure, right? So, Jesse, what I think you're saying is that basically, the reason we can't all just switch is because we we can't coordinate very well with our other laborers, right? So the reason we we don't, as laborers, go unionize and then try to negotiate with capital or or switch platforms or exit, something like that, it really comes down to a coordination problem. And I think what you're getting at is that crypto helps solve that a little bit. But I I I let's get to that in in a minute. First, I want to ask my my second question around this, which is just like

• 21:13Ryan Sean Adams?

  All right, so let's say we go back to your example where you have Facebook, but instead of shareholders owning it only, who are like, just like, maybe users, maybe not,

• 21:27Ryan Sean Adams?

  it's owned primarily by its users, perhaps primarily by its, by its heavy users or something else, or something like that. Doesn't kind of the equilibrium in this sort of thing just turn users into capitalists over the long term? So let's say you just distributed everyone Facebook shares and you said, "Look, we're getting rid of our cap table, you know, and we're distributing all of Facebook capital to the users." Doesn't over time, what happens is kind of the users just sort of become the capital, or some users sort of decide to sell their capital, others acquire it, and they essentially become, you know, the capital in the market.

• 22:11Ryan Sean Adams?

  So it sort of becomes like, you know, yeah, new boss seems to be the old boss over time. What are your thoughts on that?

• 22:17Speaker 02

  That's definitely a possibility, but I would, I would answer that with another question, which, which is, what's wrong with that, right? So, so imagine a new platform gets off the ground and its early power users end up, you know, earning a large ownership stake in, in the network. And that's, you know, very much the case of what happened with Bitcoin and the early Bitcoin miners and developers that were part of the community that got it off the ground, same thing in Ethereum. The, you know, I think the question is, what's the problem with those early adopters being large owners? You could argue that they will try to extract rent from others

• 23:00Speaker 02

  that join later, and that may be the case, but maybe that's not the game theoretically optimal thing for them to do. Rather, you know, maybe they can see, see beyond that and see that there's potential to grow the network even bigger, even larger than Web 2 networks have grown by virtue of giving, you know, additional users a slice of the pie. So.

• 23:22Speaker 02

  To make this a little more concrete, I think there's a good analogy to be drawn in venture capital financing. So it's usually the case that early-stage founders and investors in a startup get diluted as the company grows and takes on subsequent rounds of financing. In other words, as the company is growing and it needs to raise more money, the cap table expands, it inflates, and the original shareholders have less total percentage than they did at the outset.

• 23:57Speaker 02

  Now, why would they agree to do that? They agreed to do it because they see the additional capital coming in and the additional growth that that enables as a way to grow the pie for everyone. And so while they may own less on a percentage basis, the percentage that they do own will be worth more. And so I think that same analogy can be used as a mental model in crypto networks, where smart capital or smart users will see the benefit of continuing to grow the network in a way that is aligned with additional users joining. And so that's where you get into monetary policy.

• 24:38Speaker 02

  And I think that the most successful networks in the crypto space and the ownership economy space will be adaptive, and they will have a monetary policy that encourages continued growth over time. And if that's the case, I think it's likely that users as capitalists, it is not a bad thing. In fact, it's the driving engine of growth.

• 25:01David Hoffman?

  Jesse, I think your answer there was more along the lines of, we've previously seen companies on the public stock market, companies like Facebook, companies like Twitter, where they will dilute shares to reward new employees, like new team members, because that's just a smart incentivization model, and that has also worked out just well, that's been a great model. But I think your answer was that specifically with ERC20 tokens on Ethereum or the token equity model.

• 25:32David Hoffman?

  That is issued by smart contracts, we can expand the inflation of the token of the governance asset, the share of the protocol to a new cohort of people, which are the users rather than the employees. And so not only are we incentivizing, you know, early-stage employees with equity, but we are also now incentivizing early-stage users. And as a different cohort of people receiving the governance rights over a system, that new cohort of people wasn't really included in the previous model, in the, you know, Web 2.0 or company equity model. But now that we are able to get equity or ownership into the hands of users, that a different sort of social contract

• 26:15David Hoffman?

  can emerge as a result of the inclusionary environment that this new system, that this new substrate offers. And that new social contract might be able to expand these new products, these new protocols, to be far greater and far more inclusive than their Silicon Valley cohorts. Was that a different summary?

• 26:33Speaker 02

  Yeah, I think that's absolutely right. I just want to distill two points that I think are actually separate, but but kind of interrelated. The first is that, you know, the the model I'm describing, where users own the network, is very similar to, you know, traditional venture capital, in the way I described, where, you know, there's there's inflation of the cap table, and that inflation is used to bring in new talent, new investors, and grow the pie for everyone. That's that's point number one. And so very similar to to, you know, VC funding, or, you know, stock option pools that grow over time. So the second point, which is a

• 27:16Speaker 02

  point that you made, David, is is that we have this new tool in the toolkit, which are tokens and smart contracts. And the way I see tokens effectively are packets for value. So we can now move value on the internet in the way we move information instantly to anyone, anywhere in the world. And the result is that we can sort of expand the pool of talent that's able to participate in value creation and value distribution. So instead of being a W2 employee of a company and earning stock options when they inflate the talent pool, you can be a user of a platform and contribute to the platform's marketing or contribute to its development and in return,

• 27:58Speaker 02

  earn a digital token that gives you some of the value that you've contributed. And so the fact that this is now digital and native to the internet is, I think, a really important shift because it expands the talent pool to literally everyone with an internet connection. And that's why it's now possible, I think, to build platforms that are built, operated, and owned by their users.

• 28:25Ryan Sean Adams?

  This is so interesting, this idea of a permissionless and global talent pool. You know, David and I often joke, but it's not really a joke that we work for protocols. We don't work for people, right? So there's no boss at Bitcoin or Ethereum or these crypto networks that we talk about and formed kind of like media properties around. But we do it because we're passionate about these systems and also because there's an economic incentive, right? So we believe that by talking about these crypto systems, that more people will be on boarded, that it's better for our world, it makes our world more bankless, gives us a new financial system that's open and accessible to everyone, and also because these tokens

• 29:10Ryan Sean Adams?

  go up in value and that's a good thing for everybody. So I think that's what you're talking about, right? Like, so, you know, I quit what I was doing. It's really interesting, kind of the startup space and doing things in healthcare because I was just sucked into this ecosystem. And now I work for a protocol. Is that what you're talking about?

• 29:26Speaker 02

  Exactly, yeah. And what I would add is that, you know, I think that networks like Bitcoin, Ethereum, and others in the DeFi space are the very first examples of what I'm describing, right? These are networks that were built, operated, and owned by technologists, developers, and enthusiasts who were sort of naturally the first to recognize the value of these digital tokens, right? Like, it's no wonder developers were sort of the first to grok it.

• 29:58Speaker 02

  And technologists like yourselves, and so we are seeing this in real time where you guys, self-described, work for a protocol, right? You work for the growth of the network.

• 30:09Speaker 02

  This, I think we're just in the very early innings of this becoming sort of a very mainstream phenomenon, where they're, in the near future, I think, with one or a few breakout successes that are more consumer-facing, this will become the dominant model for building new internet platforms, because it's just the most market-driven, strongest way to drive network effects and growth.

• 30:33Ryan Sean Adams?

  So we're going to talk a bit more about this new crypto toolkit and building out the ownership economy in a minute. But before we do, Jesse, can we talk about some of the old tools that we have? Because I think there's probably some folks that are listening who are just like, "Yeah, but, you know, do we really need blockchain for this?" a little bit, right? So, a couple of things. One is, we have this idea of the passion economy that's kind of been kick-started in Web 2, right? So platforms like Kickstarter, like Patreon, like Substack, which we use for Bankless, where instead of it being sort of an attention-driven type economy, that is the base business model for YouTube, Twitter, and Facebook, where they sell ads for your eyeballs, for your attention,

• 31:19Ryan Sean Adams?

  like patrons, effectively, can start to support content producers. So that's one. But we also have other elements. I mean, you mentioned employee stock options, but we also, and I know you talked about this before, we also have co-ops, like REI, that are kind of like companies, but instead of owned by shareholders, they're actually owned by like members, who are users and purchasers of like REI products, say. Can you comment on some of the old tools before we get to the new tools here?

• 31:50Speaker 02

  Definitely, yeah. So first on passion economy platforms, I see passion economy platforms as very adjacent to ownership economy platforms. I would say the ownership economy is a very linear extension of the progression of the internet as a whole. And so to answer this question, I'm actually going to rewind the tape a ways back before the passion economy. And first, just note that one of the most surprising things to happen in software...

• 32:19Speaker 02

  You know, generally speaking, in the last 20 years is the success of open source software. You know, if you 20, 25 years ago, if you told the average computer geek that the most valuable companies in the world were going to have been built on top of open source software, they probably would have laughed at you. That would have seemed like a crazy idea, but that...

• 32:39Ryan Sean Adams?

  Having grown up, having grown up in the 90s with Windows dominance, I totally agree with what you're saying. That's totally the case.

• 32:45Speaker 02

  Right. And so the remarkable thing about where we are today is that open source does power trillions of dollars of economic value. And open source software is software that's built by a community of developers all over the world. It's crowdsourced. And then with that open source software, we've gone and built, you know, these valuable companies, many of which crowdsource their value, again, from their users. So, you know, content products, we talked about that. And just now, we're getting into a phase where people are starting to recognize the value of those contributions. And that's what the passion economy is about, right? So the passion economy is enabling people on the internet to pay for, for, you know,

• 33:27Speaker 02

  the work of creators that they want to see more of. And that's great. That's like, I think, the very logical next step. Now, what comes after that is sort of what I'm interested in. And I think where this is, where this goes is back to sort of where we started the conversation, which is the creators of value on platforms like Kickstarter, Patreon, Substack are the users, the people driving subscriptions, right?

• 33:57Speaker 02

  Now, why shouldn't it be the case that those creators are able to earn all of the value that they contribute to the platform? So in addition to just the value from, that they're getting from their subscribers, can they get involved in a deeper level in, in building and operating the platform tailored to their needs? And if so, how should they be rewarded for that? Now, Substack kind of did this in an ad hoc way in that they gave some of the some of the creators stock options in the company. And I think that's sort of a good first attempt. But what I think that points to is doing that same thing at scale. And that's where you start to run into problems. I think if you want to start giving stock options

• 34:41Speaker 02

  or equity to your users at scale, at the scale of, you know, these large internet platforms, you start to run into headaches pretty quickly because stock options are, you know, big legal contracts and, you know, there's tons of paperwork and you have to be in a certain geography. And so it's not digitally native, or internet native, I should say, to scale that up to the to the size of the most valuable internet platforms today. Tokens, on the other hand, and smart contracts, enable an internet native sort of movement of value that can scale. And that's why I think they're the right tool for the job.

• 35:23Speaker 02

  That said, you know, it may be some time before we see that happening in mainstream consumer platforms. Today, you see it happening in crypto networks. My view is that it's very quickly going to cross the chasm to consumer facing marketplaces as well. But it may be, it may be a few years out. But that's, I think, that's why I think that the ownership economy is sort of a natural extension or natural progression from the passion economy.

• 35:51Ryan Sean Adams?

  Now, how about REI? And maybe for folks that aren't even familiar, Jesse, with like what a co-op is?

• 35:58Speaker 02

  Yeah.

• 35:58Ryan Sean Adams?

  Maybe you could like, talk about what co-ops are and maybe like something like REI and like that current toolset.

• 36:06Speaker 02

  Yep, absolutely. So, yeah, so a few years ago, I don't, I, the question dawned on me, you know, I'm, here I am, thinking about networks owned and operated by their users. And I started to ask, well, what are, what are other examples of organizations that aren't owned by shareholders but are actually owned by users or customers or suppliers? And and that's what got me on to a train where I researched cooperatives, mutuals, credit unions. Turns out there's actually a lot of of organizational structures that are owned by members or users rather than shareholders.

• 36:46Speaker 02

  And and so I think there's a good analogy between crypto networks or ownership economy platforms and cooperatives, for example. And REI is is one of many multi-billion dollar cooperatives. There's there's others like Land of Lakes Butter is a is a twenty four billion dollar cooperative. It's a it's a dairy cooperative.

• 37:06Ryan Sean Adams?

  I had no idea.

• 37:08Speaker 02

  Not just not just butter.

• 37:11Speaker 02

  But it's it's it's it's a it's a massive organization and it's comprised of of dairy farmers who actually own the means of production. And the goal of a cooperative is to maximize the benefit of of members. So I'll I'll talk about Land of Lakes first and then we'll get we'll go to REI. But in with Land of Lakes, you know, a bunch of dairy cooperatives, dairy farmers, rather, at some point realized it would be more cost effective for them to pool resources together. And, you know, buy some equipment that they could all share in order to scale up production rather than each of them having to buy that equipment on their own.

• 37:51Speaker 02

  You know, they they they pooled the resources and and that was a a way to increase each of their bottom bottom lines respectively. And so that was sort of, you know, the inception of the cooperative. Similarly, REI started as a as a group of outdoor enthusiasts who wanted, you know, very specialized climbing gear that nobody was making. They were the only the only ones who wanted it, the only ones who knew how to make it. And so they pooled resources in order to go produce it for themselves. And then as they did that, turns out there was a a bigger market there than than just them. And so they were able to scale that up. But if you are an REI member, you know that when you shop there, there there's there's sort of member benefits.

• 38:36Speaker 02

  Namely, whatever profits are left in the cooperative at the end of the year from from all the stuff that they sell, you get a a distribution or a dividend of those profits. So by being a member of REI, you you get a dividend which effectively amounts to to a discount on on your purchases there over the year. And so again, there's sort of a benefit to pooling resources and sort of acting collectively to maximize benefits to the people who actually use the goods or services of these cooperatives. And so I think there's a good analogy there for crypto networks and ownership economy platforms

• 39:20Speaker 02

  in that, you know, the optimal economic model for these platforms should be to maximize the benefit of using the product or service for the users rather than for the shareholders. And that's exactly what cooperatives like REI and Land of Lakes have done. Now, just one last point on why do we need a blockchain for this? I'll again sort of note that cooperatives are, you know, traditional organizations that have tons of legal overhead. There's a lot of paperwork, in fact, even more paperwork than a traditional Delaware corporation, because you have to sort of specify, you know, the benefits that member owners

• 40:03Speaker 02

  get from the co-op in the bylaws of the organization. And so there's a lot more sort of customization that needs to go on versus a plain vanilla Delaware C corp. And traditionally, that overhead, I think, has been, you know, difficult for startups in particular to manage. Now, we have new tools in the toolkit that enable you to express all of those rules and sort of values that the owners want in code. And so the cost to building organizations of this type, I think, has gone down by orders of magnitude overnight with smart contracts. And so I expect we'll see a lot more digitally native cooperatives.

• 40:45Speaker 02

  You know, and you guys mentioned Malok, who you had on recently, they're an example of exactly what I'm describing.

• 40:52Ryan Sean Adams?

  Yeah, and so like the other thing, going back to your previous is that imagine being a startup trying to do this with all this documentation, but then like trying to do that globally, like extra net, like across all of these various nation states and their regulatory structures. That sounds like impossible. I don't even know if in REI, Lando likes can kind of achieve that outside of like their, you know, nation states.

• 41:17Speaker 02

  Right, that's right. It's, it's so I think, I think in the case of those two, they have managed to do it, but again, it's, it's, it's a nightmare. It's setting up these like sub entities and making it all work, expressing all this as code is orders of magnitude improvement in terms of, you know, cost efficiency, transparency, accessibility. And, and so I think we're going to see way, way more experimentation in this direction because of that.

• 41:43David Hoffman?

  One of the tools I've started to use recently is Zapper. For those of you that were a part of the 2017 bull market, it was characterized by just opening up Blockfolio and refreshing it over and over and over again. And also anytime you ever made a trade, you would have to go into Blockfolio and manually input that trade information to make sure that your portfolio that you think that you have matches what you actually have. With Zapper, you don't have to do any of that anymore because all you have to do is Zapper is input your Ethereum addresses. And then Zapper will give you a really elegant report as to where all your money is. So there will never ever be any disconnect between the money that you think that you have and the money that Zapper reports to you.

• 42:23David Hoffman?

  Zapper looks directly on-chain and gives you a nice portfolio summary of all your assets and how many assets and all of your debt and all of your lending positions, all of your positions, all at once. So there's no more editing your portfolio because Zapper just does it for you. One thing that I thought was really useful about Zappers was when I plugged my wallets in, I found that I had submitted liquidity to Uniswap forever ago. And without Zapper, I would have probably lost that forever because Zapper knows where your money is better than you do. It's also the gateway to investing your money into this ever-expanding list of available DeFi platforms like Curve, Balancer, Uniswap, Urn. In the bankless nation, there is this growing number of money Legos and keeping track of them all is just super overwhelming,

• 43:07David Hoffman?

  which is why you could just go to Zapper and Zapper will, will solve the problem of there just being too many money Legos to choose from. So check them out at zapper.fi, enter your Ethereum addresses and check out your portfolio and see if there's anything that you missed.

• 43:22Ryan Sean Adams?

  Your Ethereum address is a bankless bank account. But here's the problem. It doesn't have a human readable name. It's represented by this long hexadecimal string that no one can read. Unstoppable Domains has the solution to that problem. It provides a domain name for your Ethereum address. So instead of telling someone to send you funds to zero X E3BA, blah, blah, blah. You can tell them to send funds to yourname.crypto, a domain name for your Ethereum address. At unstoppabledomains.com, you can search for blockchain domains like this and find tools to easily launch websites on decentralized web technology like IPFS.

• 44:02Ryan Sean Adams?

  You can even have Unstoppable Domains help you manage your .crypto or .eth or even .zil domain name addresses at their Unstoppable Domains Manager. Websites have domain names, .com, .org. Your bankless bank account on Ethereum should have a domain name too. So go to unstoppabledomains.com, register a domain name for your Ethereum address now. Unstoppabledomains.com.

• 44:28David Hoffman?

  Jesse, the way that you described the Land O' Lakes butter co-op and then the REI co-op as well, it seems to be that they are thwarting Moloch, right? And I'm really happy that this episode is coming right after our Moloch episode with Amin and Kevin, because what Moloch is, is human coordination failure, right? But humanity is a story of finding different ways and finding good people that you want to include in your in-group to coordinate with to produce better outcomes, right? And so it sounds like the Land O' Lakes butter co-op, which was a group of dairy farmers that all figured out that if they coordinated together, they could have net positive outcomes

• 45:13David Hoffman?

  for everyone at large. And then the REI model seems to increase that, right? Just to double down on that idea. And what I'm hearing you and Ryan discuss is that if we wanted to have something like a global co-op, there's no platform to enable that. There's no global co-op. Like mechanism until crypto, right? Until the smart contract where you know the the where there needs to be a legal system of enforcement that is internet native and globally accessible in order to produce some sort of global co-op that is fit to kind of take over what we are seeing with, you know, the the traditional legacy financial model of Silicon Valley startups.

• 45:57Speaker 02

  Yeah, I think I think, yeah, I would I would sort of restate it that, you know, simply the, you know, traditional organizations, you know, whether Delaware C corps or cooperatives have relied on, you know, the jurisdictions in which they form for their their documents and enforcement. And now we have new tools in the toolkit and those tools are based in code and the jurisdiction is the internet. And so Bitcoin, you could argue, is the first example of an internet native co-op. It's a it's a platform where there is no company. It's a network that's owned and operated by its users.

• 46:37Speaker 02

  And then Ethereum is the same thing, but it extends the the functionality beyond sort of, you know, store of gold or digital value. And with smart contracts, you enable any developer to build their own organization on top. And and that's what we're starting to see happen in DeFi. And I believe that's what we're going to start to see happening across more consumer facing verticals as well. And that's that's what unlocks the ownership economy.

• 47:08Ryan Sean Adams?

  Okay, I want to connect some dots for some crypto folks here, right? Who haven't quite viewed crypto in this lens before, but you wrote a great ownership economy article, which we'll include in the show notes, which everyone listening to this who's into this should go and read. And you called Bitcoin the first user owned and operated network at scale. And I think you called it that because basically the users were the were the laborers. It was one and the same and they were they also owned owned the capital. And then you talked about Ethereum, sort of in all of the the sub-games that came out from that. So like the, I guess, sub-ownership economies that that came out from that.

• 47:52Ryan Sean Adams?

  Maybe we could talk about some of these examples, like you could even talk about Bitcoin, or like what we've seen with SNX, the Synthetix token, or what we've seen with recent, more recently with uni tokens. Can you give us some examples as to how we're seeing this play out in crypto through the lens of the ownership economy?

• 48:11Speaker 02

  For sure. So, so yeah, with with Bitcoin, I imagine most of your listeners know, but you know, the the way the network works is you have a bunch of miners who who operate these, you know, big, intensive computing rigs to secure the network. And, you know, it wasn't always the case that you needed these these kind of highfalutin rigs with with tons of electricity. And back in the early days, you could do this on your laptop. And so the the people who participate in securing the network, securing the digital gold that Bitcoin wants to be, are rewarded for their efforts with new Bitcoin. And so what that means is they're rewarded with a stake

• 48:52Speaker 02

  in the the platform's native asset, in the platform's sort of equity value. And so that, I think, was the very first example of this new organizational model, where the people who are, you know, contributing the the most value to the network are earning the most value. Now, I I think Bitcoin, because it was the first, you know, had to invent a lot of things. And one of them was was this monetary policy that the miners earn these rewards. And and that monetary policy is sort of fixed in the code of of the network.

• 49:26Speaker 02

  Ethereum iterated on this a bit. So they had a similar model. The miners of Ethereum earn new Ether, a direct stake in the network itself. However, Ethereum also did a crowd sale. And so people who were interested in the vision of Ethereum, sort of described in in Ethereum White Paper, were able to fund its development. And those people who did so were able to earn or receive an ownership stake in the network. They got Ether in the Genesis block. And so too, did the developers. So the monetary, the initial monetary policy of Ether already sort of expanded the adjacent possible of who

• 50:08Speaker 02

  you can incentivize, which stakeholders you could incentivize to build a successful user-owned and operated network. And I think Ethereum has done, you know, did that very, very well. And that net today, they have a really robust developer community because lots of the developers own Ether. You guys produce this podcast because you guys own Ether, right? You want to see the network succeed. And now we're starting to see the same sort of tinkering with ownership distribution design manifest in other verticals. So you mentioned Uniswap. Uniswap is an exchange for crypto tokens. It's similar to Coinbase or Binance, but it's important and it's different

• 50:48Speaker 02

  in a few important ways. And one is that it's a decentralized exchange, meaning the operations of the exchange happen on top of Ethereum. And the value of the exchange doesn't go to shareholders as it does with Coinbase and Binance. Instead, the value of the exchange goes directly to the liquidity providers, the people who trade on the exchange and make it valuable in the first place. And so another way of saying this is that the business model for Uniswap is the same as the business model for Coinbase. They both take a fee on transactions in their marketplace.

• 51:30Speaker 02

  But what's different is what each of them does with the fee. Coinbase takes the fee and, you know, gives it to shareholders effectively. Uniswap takes the fee and gives it to the users trading on the exchange. And that's what they've been doing from inception. Just recently, they launched a uni-token, which is a governance token that could eventually claim some of those fees. And they gave those tokens directly to

• 51:57Speaker 02

  Users that not only provided liquidity, but for example, you know, bought some of their merch. Right. So that they they are experiencing Uniswap is an experiment in, you know, different stakeholders that participate in networks and how to incentivize them appropriately. And I think the big work, the big challenge, a big opportunity in the ownership economy space is to iterate on towards a a very sort of fair and meritocratic distribution of value for all the stakeholders in the network. And and I think the platforms that succeed in the ownership economy will be the ones that figure out the best ways to do that.

• 52:34David Hoffman?

  I think the most obvious lesson we can learn from the fact that Uniswap is directing its fees to the its users versus Coinbase that's that it's directing its fees to its shareholders is that if you are a system that directs fees and rewards and value to the people that produce the value, you are simply a more scalable system. You are more, you have a bigger tent. There are more people that can contribute more total value to your system because they are being compensated for that. And so as a social organization, as a organization of people, the Uniswap organization is far more likely to scale and because of their ability to coordinate more people

• 53:16David Hoffman?

  and coordinate more value in ways that incentivize more alignment. And once again, this goes right back to what we were talking with Amin and Kevin while on the Moloch episode, where we were saying whichever institution, whichever system can coordinate better than its competition will become the new status quo.

• 53:34Speaker 02

  Yes, exactly right. And and one thing I just want to highlight is, you know, Coinbase is is a company with, you know, a few thousand employees. I don't know exactly how many, but somewhere somewhere around 5,000 employees. It's been around since 2012. I think at their last fundraising round, they were valued around $8 billion. And Uniswap, by contrast, was initially built by a team of six or seven people. It's two years old, founded in 2017, or sorry, early 2018. And over the last two months, it's outdone Coinbase in terms of the volume traded on the exchange.

• 54:15David Hoffman?

  Crazy. And I just want to add in something that's not financial advice, but Coinbase is theoretically valued at somewhere between like $20 to $30 billion, where Uniswap is currently valued at $2 to $3 billion. So there's perhaps some discrepancy there.

• 54:31Speaker 02

  Right. And what I would say, the point I'm trying to land here is that networks that give a direct ownership stake, or you know, make better economic alignment with their users, a feature of the product, can grow way faster with a much smaller team, because you end up getting production capital, or you know, real meaningful contribution directly from your users. So rather than raising a bunch of venture capital, scaling the team inside the company, why not give ownership directly to your users and scale the marketplace with the help of those users rather than employees?

• 55:12Speaker 02

  And that's, I think Uniswap is an early example of that proving to be a very, very effective model. And there are other examples I can go into in other verticals. You know, I think Bitcoin, Ethereum, Uniswap, they're all more or less, you know, financial use cases. And Bitcoin is, you know, digital gold, Ethereum is internet money, and then Uniswap is an exchange for crypto tokens. But you're starting to see the same model play out in other verticals that are less technical, less financial in nature. And we can talk about that, too.

• 55:45Ryan Sean Adams?

  And before we do, Jesse, so like, we're talking about Uniswap providing possibly a better coordination mechanism and beating its centralized exchange counterparts who don't have this ownership economy. I want to go back to something you said earlier because I think it's super insightful and I don't want us to lose this. You talked about the biggest problem for protocols or even just in general networks, fighting against other networks is adoption, right? It's a network effect problem. So we can see this in the web world. The reason, you know, people can't just switch to another Facebook is because, you know, there's no, there's no users on the Facebook alternative,

• 56:28Ryan Sean Adams?

  right? And so network effect is like you add a user to something on Facebook and the value increases in a power law fashion. So like a Facebook with no friends has no value, like an Uber with no drivers has no value. That's what we're talking when we're talking network effect. One thing that you taught me, I think that's an important lens, maybe this is a little bit of a side quest, but let's go on the side quest for a minute. An important lens for DeFi value accrual is that some DeFi protocols can produce like code libraries, basically open source code that can be forked, right? And you talk about

• 57:10Ryan Sean Adams?

  that not being very defensible versus other DeFi protocols and just networks in general that are able to create entire networks that have state. They're able to capture value. They capture like users and that sort of thing. I remember early on, you gave a talk, I can't remember what it was, but you sort of compared the difference between like a zero X, right? As kind of a code library back in 2008, 18 versus a maker, which was actually capturing state, was capturing value inside of it. Can you talk a little bit about that, like network effects and protocol value accrual and what you actually need to capture in order to get a good network effect as a protocol?

• 57:52Speaker 02

  You know, to be honest, I think since we first talked about that that framework of sort of libraries, code libraries versus stateful networks, you know, my my thinking has evolved quite a bit. And I think that's true for a lot of people in the space. So just to summarize that that framework, you know, when you look at open source software, and I'm not just talking about crypto, I'm talking about any kind of any any open source software.

• 58:20Speaker 02

  The the the value of that open source software is not in the code itself. It's in the deployments of that code. And here's what I mean by that. So let's take MongoDB as an example. MongoDB is an open source database that that anyone can download, right? When you when you download that code, it's free. It's it's it's like the definition of a commodity. Anyone can have it, right? And they can have it for free. It becomes valuable when someone takes that code and they deploy it. And they start to fill up that database with with data, you know, with with users with with, you know, users' photos and and then they, you know,

• 59:03Speaker 02

  the the state of that database is what's actually valuable because, you know, once you have user photos, you can put ads there, right? So so Facebook takes the commodity that is the MongoDB database, for example, and makes it valuable by filling it up with state, right? Now, switching back into the crypto context, right? There are a number of protocols that are just code libraries, meaning, you know, they they've they've come up with a template for for smart contracts. And and then each new user takes that template and redeploy's it for their own purposes.

• 59:48Speaker 02

  For example, you know, a a lending contract between you and I, we could instantiate that as a smart contract. That's sort of a one off agreement between you and I. And then anyone else could could copy and paste that. Smart contract and use it between two other parties, right? So that would be an example of a library, a library getting, you know, copy pasted two times, a million times. And, and there's no sort of network effect there. Each copy is its own instance of, of, of the code library. The flip side is our, our networks that are stateful, right? So, so they're more like the Facebook database that's filled with user data.

• 1:00:33Speaker 02

  And examples of that are, you know, MakerDAO, Compound. Sticking with the lending example, we could talk about Compound. What Compound does is it pools, it pools value into a single smart contract that allows any, any borrower to, to show up and ask for a quote. And as, as the pool grows in liquidity, or the state of that smart contract grows in liquidity, the, the, the rate at which borrowers can, can take a loan gets better. So there are real network effects there. As there's more liquidity, there's better, you know, there's better pricing for borrowers. And so more borrowers will show up and that'll draw more lenders. Now, that, that was the thinking of the libraries versus networks framework.

• 1:01:18Speaker 02

  What we've seen though, that, that I think is pretty unique to crypto, is that liquidity is, is a very fungible form of state. You know, the, the fact is like you can very easily move liquidity from one protocol to another. In fact, you know, there, there are tools that make it one, one click to do this. And, and so what we've, I think what we've learned since we first discussed this, Ryan, is that liquidity is not a very defensible form of state.

• 1:01:51Ryan Sean Adams?

  That's an interesting refinement. And like, so why did you make that refinement? Is it, is it kind of examples that we've seen in the real world? Like, say like, you know, vampire mining, as it was called, where a clone of Uniswap, a fork of Uniswap called Sushi was created and, and started to draw some liquidity out?

• 1:02:08Speaker 02

  Yeah, I think, I think that's, that's a good example. I think also, you know, Compound has competition from Aave and other lending protocol and we've seen liquidity move back and forth between the two of those pretty fluidly. So I think, yeah, there's just been a number of examples where the state of these networks has been less defensible than I once thought it might be. And so it begs the question, where are the defensible network effects in crypto?

• 1:02:41Speaker 02

  And I think that's, you know, my answer would be, I'm not totally sure, but here are some ideas. I think there's still defensibility in developer integrations, right? So there's a cost to a developer pointing their front end at your back end. And again, the developer making that decision is doing so on the basis of the state of your back end, right? Does this back end have data in it that's useful to my front end? And so it's non-zero cost for that developer to add additional integrations. It may not be, you know, a high cost, but it's non-zero.

• 1:03:26Speaker 02

  And so I do think that protocols that are stateful need to prioritize a rich developer ecosystem. And part of that may be rewarding those developers with an ownership stake in the underlying protocol for the value that they're driving to it. And so I think protocols that do that may end up seeing a lot more defensibility versus protocols that don't reward the developers that are integrating them.

• 1:03:54Speaker 02

  And another thing that I think maybe is a little bit softer, a little more fuzzy is sort of brand and security. So those are two separate things, but they kind of go hand in hand. Obviously, if you're integrating with a protocol that sits beneath you in your stack, you want to be sure it's secure. And one of the ways that you can build confidence is of course the track record and the brand of that protocol over time. Does this protocol have a history of, you know, being very security minded? And is that part of, is that part of the brand of the protocol? And so, so that may be another sort of asset or, or, you know, dimension of

• 1:04:38Speaker 02

  defensibility for protocols. And then, and then finally, I think the other piece of this is when you're, when you're a developer integrating a protocol that sits beneath you, you want to make sure that the rug is not going to get pulled from underneath. And, and developers understand that very well because developers built on top of platforms like Facebook or Twitter, only to see those platforms shut off the API or yank the rug from underneath them. And so, how, how can developers be sure the rug's not going to get yanked from underneath? Well, they can be sure if they in fact own the underlying network. So again, that's another reason why you may want to reward

• 1:05:22Speaker 02

  developers who are building on top with an ownership stake because they're the ones driving value. And if they, you know, that through that ownership stake, they gain control and control gives them confidence building on top. So it's a sort of a two way street that's symbiotic between, you know, developer integrations and underlying protocols. And I think that's something to strive for to create defensibility.

• 1:05:43Ryan Sean Adams?

  You know, another moat that Dave and I have talked about so much, bankless listeners will be familiar with this, is this idea of credible neutrality and what we call kind of the, the protocol sync thesis, which it kind of goes off of what you were talking about with, like, you know, the first thing about, you know, developers wanting to connect to it and that being a network effect advantage. And also the last with, you don't want a rug pull, right? If you're a developer. Well, it, you know, the analogy here is it's kind of like the, the internet, like TCP IP protocols, right? So how useful would TCP IP be if AOL owned it? Or if the United States of America governed it, right? It would, it would be

• 1:06:26Ryan Sean Adams?

  Less credibly neutral for other companies, other nation states to build on top of it. But because of its credible neutrality, you might call this in your lens, Jesse, like it's decentralization, then you can be assured that you're not going to have a rug pull type event. What's your take on that as a potential moat?

• 1:06:47Speaker 02

  We're describing the same thing, right? It's credible neutrality, I think derives, one way to derive credible neutrality is through user ownership. In other words, if users own and operate the platforms on which they build, or on which, you know, or that they use, they can develop trust and exercise their will to ensure that those platforms remain aligned with them. And that's how you avoid a rug pull. So I think, I think we're describing the exact same thing and that you guys call credible neutrality. And that, that I think is a very powerful moat for protocols. If developers feel that the platform is credibly neutral, they will be much more confident building on top of it.

• 1:07:30Speaker 02

  And, and, and that's how you, you know, you lock in network effects. Because again, there is a cost for that developer to switch thereafter.

• 1:07:38Ryan Sean Adams?

  Okay, that's great. Side quest concluded. Thanks, Jesse. Like, we understand about network effects now and your take on it. You, you also mentioned earlier that for now, we've seen a lot of financial type of use cases, but that this ownership economy concept is much broader than just banking, store value, finance, that sort of thing. I guess a few examples that I know the Bankless community has some exposure to. One is a web two platform, a social platform, Reddit, of course, rolling out community tokens. So it almost appears like Reddit is taking the ownership economy notion from crypto and glomming that onto an existing business model. Another example, of course, is like social tokens.

• 1:08:24Ryan Sean Adams?

  And David just had a Grammy award winning artist, RAC, on the Bankless YouTube channel to talk about one of his kind of fan tokens or a social token, might be another example of that. But you, you do think that ownership economy is broader than, than just finance, right? How is it going to bleed into these other areas?

• 1:08:43Speaker 02

  Yeah, so I think the examples you just mentioned are good sort of early experiments. I think the Reddit experiment is really interesting. That said, you know, it's usually not the case that incumbent platforms are the ones to break through with a new technology innovation. It's generally, I think, an opportunity for startups. And so what RAC is doing, what Zora, I think, is really interesting, what Foundation has been doing with helping other creators tokenize their work is sort of another example. And zooming out, the way I would describe all of those experiments are consumer marketplaces

• 1:09:23Speaker 02

  that are enabling suppliers in the marketplace to make ownership a keystone of their product offering, right? So they're enabling creators to connect with their fans, who otherwise would be patrons in Passion Economy marketplaces, patrons that pay a subscription, like subscribers to Bankless. And they're allowing these creators to experiment with the intersection of patronage and profit. So not only are you someone who's excited about the work that this creator is doing and paying them monthly, you're able to actually invest in their success and get a token that gives you access, say, to premium features like Bankless users have.

• 1:10:06Speaker 02

  And that aligns the incentives of the creators and their audience, and I think will eventually lead to a different mode of creation, where it's not the creator creating in single-player mode, it's the community around the creator contributing to creation, just like platforms, internet platforms crowdsource their value from their users, right? So it's the same idea, just applied to a different sort of community that's creating a different kind of value in consumer or cultural goods.

• 1:10:39Speaker 02

  I think this can also eventually happen at the platform level itself. So beyond, you know, RAC or Bankless creating a token for each of your respective communities. I think we'll start to see the tools that these creators use also start to employ a similar model where the creators on the platform are able to earn some of the platform value directly. And that's exactly what Reddit is doing. I think you're starting to see it in other consumer-facing verticals. For example, Rowley is a platform for games, video game studios and streamers that allows

• 1:11:20Speaker 02

  each of them to respectively earn ownership in the network itself. And so you're starting to see more and more experiments in increasingly consumer-facing verticals where ownership is a keystone of the product offering. You're showing up day zero when no one else is there because you're able to contribute to this platform and earn your share for doing it. You're literally able to make money in a new way that other platforms don't offer you. And my view is, once there's a breakout success here, it's going to be the zero to one moment where platforms that aren't offering their users this kind of compensation for their contribution are not going to be competing on the same terms as those that are. And that's how the ownership economy wins.

• 1:12:03Speaker 02

  It's, you know, it's one of these things where everyone who's sort of not on board with the idea today is saying, well, look, that's not how platforms have been built for the last 20 years. Why would it be any different going forward? But once there's one breakout success that, you know, hits a home run in the consumer world, I think it's going to become par for the course and everyone will be rushing in to do it.

• 1:12:30David Hoffman?

  So Jesse, I've been hearing different derivatives and different ways of people articulating very similar things to what you've been articulating here on this podcast today and what you've also articulated in your writing. There's a lot of resemblance to kind of the "by the user, for the user" ethos that we came out in 2017. And a lot of the ethos has been kind of, you know, being tossed around since 2018, 2019. And now it seems to be like, as a community, we've really been able to focus on what we've really been talking about. And I think you are the person who has really been able to articulate this thesis the most clearly. And which is why we're bringing you on the podcast. But what

• 1:13:12David Hoffman?

  have you seen in the last years or so that has really allowed you to formulate this thesis? Like, what has happened? What are the experiments that have caught your eye that have really allowed you to formulate this thesis in such an articulate way?

• 1:13:26Speaker 02

  Yeah, well, so I think, first off, I got into this space as an entrepreneur before I got into investing. And that was back in 2014. I co-founded a company called Media Chain Labs. And our goal was actually non-financial in nature. We wanted to build what we called a universal media library that would enable creators on the internet to capture more of the value that they create across platforms. And so, you know, in short, the idea was, you know, Bitcoin is really good at tracking this digital asset, this financial asset. What if you took a system with similar properties and used it for a different kind of digital

• 1:14:10Speaker 02

  asset, instead of a financial asset? How about a digital media asset, an image, a video, or a song? If images, videos, or songs on the internet could be attributed to their creator in the same way Bitcoin is attributed to its owner, then you could enable those creators to capture more of the value from platforms that distribute their work. That was the goal. And so I've been in this space for a while with the same goal in mind. I think the thing that's changed for me is how I define creator. So rather than limiting it to media creators, I've expanded it to include all kinds of creators, developers, right, that are building these platforms, you know, people who are marketing these platforms. Everyone's creating some kind of value in the products and services they use every day online.

• 1:14:55Speaker 02

  And so I would say that the thesis has been, you know, sort of a cornerstone of my involvement in the space from the get go. But what I've seen recently that I think is encouraging, you know, back in 2017, we saw, you know, the rise of, of like ICO tokens that sort of, you know, pie in the sky had the same idea, many of which didn't deliver, a lot of bad actors. And so that was honestly a bit of a distraction, but what did happen in 2017 that was pretty profound is a ton of developers rushed into the space, right, like a ton of developers took an interest in platforms like Ethereum, frankly, and a lot of those developers stuck around.

• 1:15:36Speaker 02

  And why did they stick around? Well, because, you know, they own ether and or they they own some token and they're working to build the value of that, the platform token, right? So the, I think that was, that was encouraging is seeing how effective, you know, this model in the case of the Ethereum community has been at attracting developers to build out this ecosystem. That was 2017. I think today, 2020, we're seeing experiments largely in DeFi that have been very, very effective at driving growth and adoption, you know. I think this has come to be known as liquidity mining and yield farming, which you guys have covered extensively. So I won't, I won't explain it in detail, but you know, the, in short,

• 1:16:19Speaker 02

  by distributing platform tokens directly to users, these, these new financial marketplaces on top of Ethereum have been able to grow their numbers really, really quickly. Now, I think there's a lot of Problems with the distributions that some of these projects have deployed and that they've they've sort of optimized for short term flash in the pan growth rather than sustainable, you know, and defensible growth. But each time a new financial protocol distributes ownership directly to their users, you know, they're iterating on the model and they're improving. And I think we're very close to establishing some some best practices that are going to lead to repeatable and defensible organic growth over time. And so that's that's

• 1:17:04Speaker 02

  what's, you know, gotten me really excited lately is I think we're finally starting to see the ownership economy thesis play out at the layer of applications that end users use rather than, you know, the platform or the infrastructure layer that developers use. And I think that's going to continue all the way till we get to consumer marketplaces and consumer social.

• 1:17:23Ryan Sean Adams?

  I want to address a question again for the listeners who are a little more bearish on this about kind of why a blockchain. I know we talked about it earlier, but but here's something a bit more specific. So when someone asked me to describe a token from it wasn't Binance like BNB, but it's it's similar to that. Crypto.com is an organization. They have a token called the MCO token. They had a token. And the way I described it as to this bankless users, like I think of it as kind of like a loyalty token, right? So almost similar to airline miles, hotel points, Starbucks points that you earn for doing

• 1:18:04Ryan Sean Adams?

  specific things. And, you know, crypto.com is an entity kind of awards you for doing things it wants to incent in its platform, like a loyalty point, like it's like a hotel point. Now, one key difference is, of course, you know, the the the token itself, the crypto.com token is on crypto rails. So it can be like exchange in the entire DeFi economy. But I want to go back to the skeptics take is like, is what you're describing with like fan tokens with RAC and Reddit and this sort of thing, don't we already have these in the analog world? Aren't they just called airline miles, hotel points, Starbucks points, that sort of thing? What's the difference here?

• 1:18:41Speaker 02

  Yeah, there's definitely similarities, but I think they're pretty different in important ways. And you know, the crypto.com example, and one that's very similar to that is, you know, Binance has a token, BNB, right? And I think it's not fair to say that Binance is entirely community owned and operated. Like CZ owns that company along with, you know, its shareholders. However, you know, the Binance token does confer the holders of it with a share of the platform value because they take, you know, revenue from the platform and buy back and burn those tokens. At least last I checked in, that's how it worked.

• 1:19:18Speaker 02

  And so, you know, I think

• 1:19:22Speaker 02

  ownership in the ownership economy is a pretty broad design space, right? I think in networks that are sort of more crypto native like Ethereum and, you know, and Uniswap and Compound, those tokens directly control smart contracts on the blockchain. There's no other way to do it, right?

• 1:19:44Speaker 02

  But with Binance, you know, you could imagine that, you know, they have a, they don't use a blockchain for their loyalty program or their revenue share program, they use legacy rails. So, so why are they doing it this way? I think it's because blockchains are the right tool for the job when it comes to distributing value at internet scale, right? So there is a cost to using the legacy financial system, especially when you're trying to move value all over the world, right? There's a bunch of non-interoperable financial rails that are expensive to use and are subject to, you know, the whims of the operators that run those networks.

• 1:20:26Speaker 02

  Crypto is a credibly neutral platform, on top of which any developer can build and distribute any kind of value. And so I think, you know, much like the internet was an open, permissionless, incredibly neutral layer for experimentation, we are going to see lots of experiments of, you know, what it means to make ownership a keystone of your product experience. And some of those will be on the crypto native end of the spectrum where there's literally no other way to do it. And others will be on the end of the spectrum where it's more of a hybrid model. And I think both are valid experiments to run, like social tokens are not fully decentralized. They depend on the creator, right? But when you produce this token on a blockchain,

• 1:21:08Speaker 02

  it's way easier, way less costly to distribute that value to people all over the world than it is to say you Stripe and Stripe probably wouldn't even let you do it. Right? So there's a lot more room for experimentation. There's a lot more design space by building on top of a blockchain.

• 1:21:23Ryan Sean Adams?

  It does seem like we keep going back to this idea of iteration and experimentation and crypto facilitating that, whereas like the traditional world does not facilitate that, which is super interesting, kind of comparable maybe to the iteration and experimentation of the early internet. But I want to tie this into DeFi a little bit. So for Bankless listeners who've been on the journey with us, one of the big questions we always come back to and ask our guests is, when is DeFi going to go mainstream? Like, what's the catalyst going to be? You wrote a really interesting article, Jesse, where you sort of divided that question into three schools of thought. You know, you said, one, the people will

• 1:22:06Ryan Sean Adams?

  come. Basically, bank the unbanked is one school of thought, one thesis for when DeFi and why DeFi will go mainstream. You said, secondly, another school of thought is that the institutions will come. So Wall Street wants to be part of this global casino. They start issuing stock and tokens and, you know, JP Morgan issues their stablecoin and they become all about it. So the people come, bank the unbanked, the institutions come, Wall Street. You also said that there's a third path that people talk about, which is an entire economy will be built around this. And that includes real things that you can do that you can't do in other economies. So like, Non-financial types of applications, so similar to kind of the the the fan tokens,

• 1:22:48Ryan Sean Adams?

  the NFT idea that you were talking about earlier. And then you said something which is kind of interesting to me, and maybe contrarian a little bit to what we what we often talk about in Bankless, which is you're much more bullish on the third than you are on the first two. Can you talk a little bit about those kind of three schools of thought? And like, why you're bullish on one versus the the other?

• 1:23:15Speaker 02

  First, let me let me just sort of qualify this by saying that I think, you know, the question or the title of that blog post is how does DeFi cross the chasm? So it's specifically trying to address the question of how it becomes sort of like a mainstream phenomenon. And and so the first two schools of thought, you know, bank the unbanked,

• 1:23:37Speaker 02

  and and sort of Wall Street or institutional casino. I think I'm less bullish on those simply because I'm not sure that's how you capture the the hearts and minds of your, you know, your average Western consumer, which is sort of who I'm talking about when asking that question, right? And that's okay, because it, you know, it means that DeFi still has a ton of room to grow, even without the, you know, the the Western consumer user in mind, right? Like, there's a ton of room to grow if it's if it's a Wall Street casino, there's a ton of room to grow if we bank the unbanked. But the question is, how does DeFi cross the chasm and and sort of, you know, get mainstream Western consumers to care about it? And there, the reason I'm bullish on the the third sort of school of thought that,

• 1:24:21Speaker 02

  you know, there has to be a real economy here, is is, I think, informed by, by the way, you know, finance works in in the traditional world, like finance as an industry

• 1:24:32Speaker 02

  doesn't exist in a vacuum. It it exists, at least in in theory, to service an economy of real goods and services, right? The financial industry is a service industry, and it's in service of of of other real industries, industries that produce, you know, GDP. And that's not to say finance doesn't produce GDP, but you you get what you get my point, right? It's a service business and is in service, at least in theory, of of of these other industries. It's not in service of itself, or at least it it shouldn't be or can't be entirely in service of itself for very long. And I think right now, we're in this sort of

• 1:25:11Speaker 02

  Interesting phase in DeFi where by and large, a lot of crypto tokens and DeFi protocols are still used for financial speculation. So that's that's kind of finance in service of finance itself. I think it gets really interesting. Once you start to see the ownership economy thesis play out and you do start to see platforms that produce products and services that are not financial in nature, but use these new financial rails to distribute the value of their product or service, the value of their industry directly to their users. And once that value is running on these rails, the financial services that have been built through DeFi to, you know, to support it, get a lot more interesting. And I think, you know, just to make that concrete, imagine, you

• 1:25:55Speaker 02

  know, you, you buy, you're a fan of RAC, you buy his token, right? And you use that token, maybe to, I don't know, you know, get a one-on-one meet and greet with him, you know, a few months from now. What, what happens if you're able to take that token and then go use it as collateral to go get a loan, you know, so you can buy another creator token and support the next creator, right? Like, I think that's when DeFi starts to get interesting is when there's these, these other products and services that have nothing, you know, explicitly to do with finance, that start to play in the DeFi ecosystem. That's, that's when I think consumers will start to realize, wow, this is way better than my bank where I can't do any of this. And that, you know, that's where it clicks.

• 1:26:40David Hoffman?

  Ryan, I'm seeing a lot of similarities to what Jesse, what Jesse just said to what Andrew Steinwald said on our podcast about NFTs, where Andrew claimed that the NFT ecosystem will be orders of magnitude larger than DeFi, because NFTs are the property that, you know, financial assets, you know, are used to purchase. It's the actual property that we value rather than, rather than the, the currency. And I think what Jesse's saying is like, you know, DeFi is great and DeFi is valuable in of itself, but there's no real point to a financial system if it's not supporting something else. And that something else could be orders of magnitude bigger than the DeFi ecosystem that underpins it. Jesse, does that resonate with you?

• 1:27:24Speaker 02

  Yes, that's exactly, exactly right. Nail on the head.

• 1:27:27Ryan Sean Adams?

  It's so cool because, you know, I actually think I agree with your article, right? With, with kind of the addendum that it feels like these three things will grow together. So the, the economy becomes much more interesting. It becomes much more interesting for RAC to put his fan token on a network like Ethereum that has an ecosystem of banking and financial protocols, basically, right? Like it has Uniswap and it has Compound and it has Maker and it has this robust ecosystem of like banking users too. And so it seems to me that all three of those things kind of grow together, like even the,

• 1:28:08Ryan Sean Adams?

  the, the second, the institutions, well, that just lends credibility to the platform itself, which again, makes it more interesting to build a real economy on top of. Would you agree that's kind of what you're saying here?

• 1:28:21Speaker 02

  Totally. Yeah. I, I do think, I think I even mentioned in the post, you know, I think all these things are, are going to happen sort of in parallel. I guess, you know, transparently, I'm, I'm rooting for the third because I think we need just more entrepreneurs experimenting and building the ownership economy because that's going to be, that's going to be the thing that allows DeFi to really hit escape velocity. So I think all three of these things will happen in parallel, but I think this goes exponential when we start to see tons of, of goods and services, you know, whose value is, is tokenized and, and running on these DeFi rails.

• 1:28:54Ryan Sean Adams?

  So on that, if, if I am, say, a founder and I am looking to build something with an ownership economy in mind, or I'm even like a speculator, looking at what, you know, that this token comes, comes out with and I, I'm putting it through this, this lens. What does a, a founder need to do to begin with this new model in mind? Like, do they go to Sand Hill Road and go raise from VCs like the traditional kind of web two startup does? Or is it a little bit different?

• 1:29:30Speaker 02

  Yeah, so I I think that ownership economy platforms are gonna follow a sort of different lifecycle than traditional venture-backed startups do. What I mean by that is, you know, it is explicitly the goal of an ownership economy platform to distribute ownership of the platform directly to users as a tool for growth, right? So whereas traditional startups go to Santo Road and they raise subsequent rounds of fundraising to fund, you know, additional growth of their platform, ownership economy platforms seek that growth from their users and reward their users directly for their contributions to growing the platform.

• 1:30:11Speaker 02

  What that means, I think, is these ownership economy platforms will exit to their community of users, exit the value of their platform, you know, which traditionally is an IPO or an acquisition. They will exit to the to the community of users fairly early on in the lifecycle of the project, right? Because that's that's the goal, that's how you grow it. I think the implication is that these types of projects will not raise as much venture capital as traditional startups. Instead, they'll raise financial capital and production capital directly from their community of users through a liquid token.

• 1:30:52Speaker 02

  And so what what I think that means is that seed stage or pre-seed stage even investing is some of the most important capital founders will take, right? Because it may be the only capital that they take, and it's the capital that helps them get to this important milestone of exiting to the community of users. And and that's why, you know, Variant Fund is set up with a dedicated focus on pre-seed and seed investing. I think that's that's the big opportunity in the space. Now, there's all there's a there's other schools of thought that, you know, projects shouldn't raise any venture capital at all, right? That they should only, you know, distribute tokens directly to users and and not at all

• 1:31:37Speaker 02

  to investors. But I do want to push back on that idea a little bit because I think

• 1:31:44Speaker 02

  The key thing that kills any kind of startup is a lack of focus. You know, you have to build a product that people actually want, and that requires, you know, focus, it requires leadership and sort of quick execution and iteration. And at the earliest stages of a startup, I think it can be a distraction or a cause of, you know, the catalyst for a loss of focus. If you have to make every decision about what your product's going to do, what it's going to look like by committee, I think, I think what you want to do in the very early days of a crypto project is build something that people want. And then very quickly, once you, once you've validated that people are actually interested in using this thing, start to effectuate a distribution of ownership to those users

• 1:32:29Speaker 02

  to encourage them to help you grow the platform or service. So all that to say, I think there's a role for very early stage financing in the ownership economy, but there's likely less of a role for, for, you know, big VC funds to, to, uh,

• 1:32:46Speaker 02

  exponentially scale these platforms through subsequent rounds of financing, because all that growth is going to come from the users directly rather than the VCs.

• 1:32:55David Hoffman?

  And I think we've seen a ton of evidence for this, especially in the last, you know, few months of Ethereum and DeFi, right? Uniswap is this place where assets can come to access liquidity and can really be a good distribution mechanism. And then we've also seen Compound, you know, go through very few seed rounds before getting a token out into the ecosystem. And, you know, in stark contrast to, you know, legacy companies that go after seed, seed round after seed round, series A, series B, where there's all these investors who are front running the public stock market, right? Like the IPO is where like all the rest of the world gets to have access to, to some capital, some, some equity.

• 1:33:38David Hoffman?

  And every single seed round or, or series round before it gets to the public stock market are, you know, privileged parties getting in front of, you know, the rest of the people. And what we're seeing these DeFi rails operate as are quicker turnaround tools to getting ownership into the hands of the people. And it seems to be the faster that we can get ownership into the hands of the people, the sooner we can get ownership into the hands of the right people and kind of have that emergent incentive, uh, that, that correct incentive emerge organically out of who wants to get incentivized quickest.

• 1:34:13Speaker 02

  That's right. Yeah, exactly right. I think that's the key to growth and that's why these platforms follow a different lifecycle. I guess, one thing I also wanted to just add on to what I was saying is, you know, what I just described, this process of, you know, first building a product, then very quickly, as soon as you're ready, distributing a token directly to your users, that's an idea I've called progressive decentralization. And, you know, a number of other folks in the community have been talking about this idea of fair launches and a lot of folks have like put these two concepts at odds with

• 1:34:53Speaker 02

  one another where, you know, you can't progressively decentralize if you're fair launching because a fair launch sort of implies, at least aspirationally, you are day zero distributing ownership to your users and then building the product. And I think that's not, it's not the case that these two ideas are mutually exclusive. I think you can, you know, a better definition of fair launch is a launch that meritocratically distributes value to those that create it. And so, again, if it's valuable for the team to be able to be heads down for a little while, you know, building a product that people actually want, then I think the team should be rewarded.

• 1:35:37Speaker 02

  And separately, the investors that back that team and enable them to go and build the thing in the first place should also be rewarded. Right? So I think, you know, a better definition of fair launch is really about meritocratic distribution, not about, you know, pure decentralization. And it's actually quite complementary with the idea I was describing, which I call progressive decentralization.

• 1:35:59Ryan Sean Adams?

  So Jesse, it's been fantastic to have you and this has certainly been a journey into the ownership economy. Want to conclude with this last question of what is next for the ownership economy? It feels like we've got this primordial soup of experimentation and new tools, but what's next? And is there even a way to predict what's next when we're getting this level of experimentation?

• 1:36:26Speaker 02

  Yeah, so I'd say what I'm excited about next, beyond, you know, infrastructure platforms like Ethereum, beyond DeFi, is consumer marketplaces. I think we're going to start to see platforms that, you know, historically would be called passion economy platforms, start to lean into the ownership economy model first. Because many passion economy platforms are those that depend very heavily on their creators for their value. And again, you know, one thing that's unique about passion economy platforms versus, say, you know,

• 1:37:05Speaker 02

  gig economy or Uber, for example, is passion economy platforms depend on the uniqueness of their users. Whereas Uber tries to commoditize all drivers, make every car the same, you know, every trip of the same quality. Passion economy platforms lean into, you know, your unique content on bankless, right? And so I think that's a ripe opportunity for sort of cunning founders to explore. Which is, you know, how do we give our most unique, our most valuable users more skin in the game in the success of this platform? And again, I think, once there's one successful experiment there, it's going to unlock the floodgates and everyone's going to jump in on doing it.

• 1:37:47Speaker 02

  And right now, I think the tools to experiment with this are in market today. Namely, I think there's two important advances that will enable this. One is, we have stable coins, right? So you can now distribute the value of ownership in a medium of exchange that creators or mainstream users understand. And two, we have wallets that don't require you to write a 24-word mnemonic phrase and store it under your bed. You can use tools like Magic Link or others that give you sort of a web 2 authentication experience while allowing you to access Web 3 or custody Web 3 assets, including stable coins.

• 1:38:30Speaker 02

  And so, you know, Web 2 par user experience plus stable coins, I think are a big unlock for consumer marketplaces joining the ownership economy next.

• 1:38:41Ryan Sean Adams?

  Jesse, this has been absolutely fantastic. It seems clear to me that all three of these things will grow together. DeFi, institutional, adoption. But the real economy that everyone's been asking about, like, what are people actually doing in crypto? This real economy might indeed be the ownership economy that you are talking about. So, thank you so much for guiding us through your thesis and this lens on the world. It's been a pleasure to have you.

• 1:39:10Speaker 02

  Likewise, thanks for the great questions. It's been a lot of fun to talk about it. I'm glad to have been here.

• 1:39:14Ryan Sean Adams?

  Absolutely. All right, Bankless Nation, actions and resources. So, if you really enjoyed what Jesse was talking about, want to deep dive more, there are four of his articles that you absolutely need to check out, starting with the ownership economy thesis. We will include those articles in the show notes as always. Also, check out our recent Meet the Nation episode with RAC, where we talk about, David talks about his A Fan Token, that'll give you a take on that. And also, if you missed our episode on NFTs with Andrew Steinewald that David referred to earlier, we will include that in the show notes as well. Lastly, David, how are we doing on five-star reviews?

• 1:39:54David Hoffman?

  We're doing pretty good. We're doing pretty good, but we can always do better. As DeFi grows and as the economy that Jesse cited grows, we want Bankless to promote that growth in the iTunes top charts. We are currently in the top 100 in the iTunes Investing and Finance category, and I think as the economy grows, we think we can get ourselves into the top 10. And the way that we do that is with your five-star reviews. Wherever you listen to podcasts, please open up your podcast app and give Bankless those five-star reviews.

• 1:40:26Ryan Sean Adams?

  Thanks in advance for giving us five-star reviews, helping us spread the word, sending this podcast to a friend. As always, guys, risks and disclaimers. What we talked about today is risky. Eth is risky. Bitcoin is risky. So are some of these experiments that we were talking about in the ownership economy. All of it is risky. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.