What is the right mission for crypto?
One cohort believes that “winning” for crypto is replatforming the financial system; building better financial rails, tokenizing financial assets and creating new monetary instruments. They believe that the plethora of current crypto consumer apps do more harm than good; memecoins and “ponzus” degrade the reputation of crypto and divert time and resources from this core mission.
However, I have a radically larger vision for crypto. Blockchains enable the internet of value, whereby bytes can be programmed not only to transfer money, but to enable programmability across a complex ruleset of every asset type imaginable – identities, content, dollars, crypto, collectibles, tickets, points, assets, etc. This is composability, the interoperability of data and assets across networks, apps and infrastructure.
The internet of value is enabled by composability. Money + Content + Identity on a shared ledger will unleash a new wave of product experiences and business models that are radically better than building on Web2.
We already see early signs of the value of composability. Three different asset types, which are today are stored on radically different ledgers – commodities, photos and collectibles – can share the same standard (eg ERC-721) and therefore interoperate in the same (d)Apps with minimal extra development effort. DeFi in particular has showcased that asset composability can create radically better user experiences, for example being able to instantly and permissionless create financial markets for any asset (AMMs) and make prime brokerage services available to anyone (specifically the ability to borrow collateral to gain leverage).
However, composability expands well beyond the financial sector and unlocks new social experiences and business models.
Let’s dive in.
Today’s Internet Extracts Value
The internet and social applications we interact with today are designed for value extraction for platforms versus value creation for the Creators and Viewers. The largest platforms like YouTube only payout 55% of ad revenue to creators. Everything from YouTube to Fortnite occurs in proprietary databases, meaning no data portability and high switching costs. Standards for data interoperability don’t exist, or wouldn’t be followed if they did; a Facebook follower has different metadata than TikTok. Want to build new experiences on top of YouTube? Too bad, it’s closed with no ability to innovate beyond the content itself. These design choices are structural, with the objective to maximize value capture while minimizing risk for the Platform. For a more detailed view on the current challenges of Corporate Networks I recommend reading Chris Dixon’s book Read, Write, Own.
The Internet of Value
The internet of value requires composability, and is the reason Web2 developers are choosing to build on the blockchain.
Asset Ownership
The first major benefit composability enables is Asset Ownership, or the ability for users to own and bring their data instead of being fragmented across the internet outside of their control. Today, data and assets are by-default not portable. This reduces the ability for users to create rich profiles about themselves and opt-in for better experiences.
For example, Ticketmaster is a black box. Users cannot view or prove outside of their app what events they’ve attended, and even more bizarrely, venues and artists cannot see who attended their events.
There are a few ramifications. For users, Ticketmaster’s closed data policy means there’s no digital way to prove you went to an event (apart from your low-res camera selfies). Although this may not seem like a big deal, it eliminates the ability for open outreach and engagement built around event attendance and collective interests. For example, it eliminates the ability for artists and venues to build customer relationships and create special experiences for subsets of fans, such as those who are frequent attendees or are based in specific geographies.
Ownership of attendance history would enable a number of bottom-up innovations, ranging from enabling fans to self-identify for special promotions / drops from other businesses (e.g. restaurants who want to target local football fans) or for fans to self-assemble into social groups. With Asset Ownership, emerging artists can reach high-value listeners based on their prior concert history. Ownership – through composability – creates more economic value for everyone, even the new marketplaces in the internet of value.
Open Innovation
A second benefit is Open Innovation, or specifically the ability for developers, users and communities to build on existing products. Today, products like X (previously Twitter) and Youtube only improve at the speed at which the core product teams innovate. But it didn’t used to be this way. Twitter had a vibrant ecosystem of products which enabled users to have a more customized, better experience. The ecosystem they shuttered ironically is what enabled Twitter to become the primary short-form News standard. However, once the APIs were closed, there was no ability to improve Twitter, and it experienced a period of years with minimal innovation and unprofitability prior to Elon’s acquisition.
Crypto offers a more open, innovative path. Farcaster and Lens are examples emerging “open” social platform which enables deep customization for developers, up to and developing their own mobile apps which may have certain focus areas (eg Sports, Music) on top of the underlying protocol. The Farcaster team is only a handful of people yet has a UX near-parity to X which has over 1500 employees. How? Because there’s an entire ecosystem of developers building products and businesses on the platform. Multiple teams can now build ideal user experiences faster than the core Farcaster team, delivering faster innovation loops and a greater diversity of products. In addition, new companies can tap into Farcaster’s existing social networks for distribution and don’t need to start from “ground zero”!
Financialization of Everything
A final enablement is the Financialization of Everything, or the ability for any asset to accrue monetary value. When content + money + identity live on a shared global ledger, any content can be tied to a creator/originator/community and has the ability to programmatically route dollars based on views or interactions.
For example, Memes are ubiquitous on the internet but the only value accrual is to the social media companies who monetize the eyeballs. With Memecoins, the content itself lives on a financial layer and its token holders themselves who benefit from the meme’s proliferation. Financial incentives unlock further growth through the proliferation of user generated content (UGC); see examples like Costco Hot Dog and Jeo Boden. Lastly, even users who don’t directly engage with the token can help grow its value simply by interacting and sharing it, since it’s value is derived from attention. Through innovations like Solana’s token extensions, teams can even route a percentage of on-chain volume to a treasury or entity.
Billion Dollar Businesses in the Internet of Value
In the next three years I expect we’ll see billion dollar businesses in the below categories (non-exhaustive), in addition to ticketing and myriad memecoins which were discussed.
1/ Networks for Content Authenticity and Attribution
Thesis: Blockchains enable content attestation and attribution in a world where anyone can create anything
Generative AI is the fastest pace and potentially largest technological change humanity has ever experienced. AI technological innovations are being measured in weeks instead of months or years.
Blockchains are needed in the new age of AI. They enable people to own and self-authenticate content instead of the old-world Media complex authorizing what is “true” vs “fake”. Union Square Ventures introduced the term “deep reals” which represents this effect.
Like any technology, Generative AI can be used for both good and harm. In particular, the power to instantly create content is a massive enabler for misinformation campaigns. Traditionally, misinformation has been propagated by nation states and sophisticated photoshop actors, but LLMs democratize the creation of artificial content and render it nearly impossible to discern it as real or fake. AI is not fundamentally evil, but as generative content creation tools proliferate we’ll see a corresponding growth in demand for authentic, provable content.
Blockchains are kryptonite to unfactual content. Because Money, Content, and Identity are on the shared ledger – which means we know who owned (and uploaded) what and when – we now have a scarce, immutable, secure platform for genuine content to be verifiably true. This can be supercharged by hardware camera modifications to verify original content capture and subsequent edits.
Starting with Authentication, users can pseudonymously or with their actual identity upload content, secured by cryptography, ensuring the authenticity of the uploader. Content can be verified even at time of capture by hashing the initial pixels, ensuring that if even one modification is made the content will be noted as unauthentic. In addition, one of the biggest issues on X is not only knowing IF content is genuine, but when was it genuine. There are countless photos and videos circulating from prior events in the Middle East being falsely labeled as having occurred in Gaza. Blockchains solve that too – we can know with certainty when content was initially uploaded.
The ‘Money’ leg enables new forms of financial attribution. Photographers rarely get financial attribution for their content, or are hamstrung in their ability to select specific take rates. Content is often copied and reposted with little ability to prove who captured it. Because money is on the same ledger as content – and is fully programmable – micropayments for views or usage can be automatically funneled to the creator’s wallet. An enhanced NFT standard is the perfect mechanism to unite the content owner, the content, and fee structure for usage.
2/ Efficient Loyalty Markets
Thesis: Blockchain enables efficient markets for rewards to be put into the hands who want them most
Rewards programs today need to choose between high friction or inefficient targeting. For example, if I download the Sweetgreen app, they can provide curated promotions to retain me as a customer and drive lifetime value. However, only a small percentage of users who have eaten at Sweetgreen have downloaded the app, and then Sweetgreen needs to compete for my mindshare along with every other restaurant app I’m supposed to download. Alternatively, Sweetgreen can purchase miscellaneous email lists and send mass promotions / discounts, but these have low conversion rates and create uncertain liabilities for the company’s financial reporting. New layers like Toast enable more real-time and contextual notifications for discounts, but they don’t have a clear delivery channel (people hate texts) and the rewards are still “use it or lose it”, often on the same day.
One reason for the discrepancy is because rewards programs are built on siloed databases. Companies like Toast aim to act as rewards middle-layers – creating proprietary networks which share history and targeting info amongst its constituents. Nonetheless they cannot compete with open, blockchain based approaches.
Blockchains can use market forces to ensure promotions go into the best hands because the content (promotion) plus identity and money exist on the shared ledger, and therefore efficient markets can be created.
Let’s say instead of Sweetgreen giving me 20% off in my app, they issued it into my wallet. I could then go onto a market to swap that coupon for a different one – let’s say I was thinking about going to Chipotle and wanted to swap for a discount there. Through this simple example, everyone won – Chipotle increased the likelihood to activate a new customer or reactive an existing one since I now had a discount, Sweetgreen has similarly won a new user or reinforced an existing one, and both users are happy – net value was preserved versus if I let the Sweetgreen promotion sit idle. The fast casual companies were also able to better predict financial returns since the likelihood of redemption was much higher because there was an efficient market for exchange to a customer who wanted it more. In fact, they could even earn each time a promotion is traded.
These effects are most pronounced for businesses with high churn (require frequent reactivation like fast casual places) and those with high barriers to entry. For example, a Delta loyal customer may be more likely to try United for a nonstop flight if they could trade Delta Points for similar perks they’d typically receive on Delta (e.g. economy plus upgrade). Although one may say that Delta is “losing” a customer, they are actually gaining a new potential customer (points buyer) and still retaining that other customer who happened to have a flight to a destination that did not have a nonstop flight.
3/ Social Betting
Thesis: Wagering is better with friends
Today’s betting and trading markets are mainly single-player experiences and only available on the company’s own UIs. For example, users need to login to Fanduel to create sports bets, or onto Coinbase to trade crypto because they custody funds, make the markets and need to authenticate transactions from their own UIs.
But a radically more engaging experience can be built on blockchains, making them both social and omnichannel.
For example, instead of requiring FanDuel or other operators to build their own 1P experiences, third-party apps can be built and integrated into any social application to enable shared alpha and trading. For example Bullpen.fi is building a trading bot that can be added to any Telegram Chat, enabling users to get stats and alpha alerts in their existing social chats and create, share and execute transactions with their peers. Building on blockchain enables Bullpen – or any third party – to build leaderboards and other trackers. Token communities can target top traders and make them excited about upcoming launches. This all exists today because the markets (e.g. DeFi markets and permissionless Sports markets) are open and don’t need to authenticate transaction requests – they are already authenticated and funded through the signature from any crypto wallet.
4/ Game Assets as Productive Assets
Thesis: Games can grow their economies by letting users turn digital OPEX into CAPEX
Few remember in 2022 that STEPN – the move-to-earn app on Solana – was both the largest DEX (Decentralized Exchange) and NFT marketplace on the network, larger than any purpose built (d)App. Why? Beyond the addicting gameplay, users could buy shoes as an investment with future earning potential versus as an expense.
The average player spends ~$100 yearly on Fortnite, with some players spending thousands of dollars every year. In the financial sense these are operational expenses, with no mechanism for players to use those assets outside of the closed ecosystem.
Asset Ownership would enable P2P markets for using these assets as collateral or for selling the asset after improving its fundamental value. As more and more of our assets and identity occur in the digital world (dare I say the Metaverse), it’s increasingly important to be able to make these investments financially useful.
The premise is clear – if I have a $2000 USD asset, shouldn’t I be able to sell that or make it increasingly useful?
The best Games will have the biggest economies, and people will be more willing to invest in the economy if they have stronger protections (eg self-custody) and financial utility.
In addition, game asset ownership will enable additional levels of social coordination not possible today. Gamers can provably join Guilds based on their wallet contents and have open, transparent structures to distribute guild winnings to each other. The beauty is the game itself won’t need to provide these experiences – or even the API endpoints to prove status and asset ownership – because the information is visible onchain. More good user experiences equate to a stronger game economy, and games that don’t enable third-party experiences will struggle to keep up with the rapid pace of innovation and earning potential of crypto-native games.
Conclusion
The internet of value will be larger and more inclusive than the current internet. Composability across money, content and identity is the unique enabler. A wave of crypto builders understands these capabilities and are building the internet of value. Enterprises today are watching and afraid to be first, but very quickly they will become afraid to be last once they see the internet of value built on blockchains in-action.