“Your take rate is my opportunity”
- Chris Dixon, on Web3.0 vs Web2.0
GM
Take a breath. It’s okay .. the world has a sneaking tendency not to end just because you took a moment for self-care and meditative reflection.
Since it’s Friday … and because being author, editor and publisher of this daily, process based stream of consciousness means you, dear reader, are hostage to whatever whimsicality I have on offer … let’s take a few minutes to indulge in some cathartic cerebral exfoliation.
We’re going to attempt a short journey of discovery.
Let’s begin by turning our gaze to the macro horizon and thoughtfully pondering the inevitable.
First, consider the mechanics of your daily life – the social media, the information and entertainment consumption, the immersive flow that informs your reality and supports your activity and output.
Now, imagine yourself not as a user of those platforms and interactions that define your daily life, but as an owner. Instead of a settling for being a serf on someone else’s server, imagine owning your content and production. Owning the upside in the communities and projects you believe in, are an active participant in and have helped grow.
The prevailing system, in its currently entrenched form, cultivates the accretion of capital disproportionately in the direction of IP capital. Capital concentrates and aggregates and power/influence become increasingly centralized. Inequality rises and socio-economic frictions intensify in self-reinforcing fashion.
Now, imagine catalyzing a reversal in that reflexive cycle. Imagine disintermediating mega cap tech. The 100% take rate of TikTok and Twiiter and Instagram now accrues mostly to you. Imagine that all it takes to catalyze the migration from user to sovereign owner is the simple recognition of an alternative and a decision to participate in that mass migration.
Back to the Crypto Grind…
Let’s extend the vision:
- Imagine the return of an (open) internet owned by users and builders and organized/incentivized by tokens. A transition away from an operating model defined by closed code, closed platform where users are the data to open code where users own the platform and users own the data (see this great recent discussion with Chris Dixon and Naval for more → HERE)
- Open protocols and the capability to build functionality and conditionality into code via NFTs/Smart contracts obviates the need for an intermediary or centralized entity. The control and value accrue directly to the builders and users of the network, not some centralized entity.
- Critically, decentralization and the shift in ownership and governance works to align everyone’s incentives in the same direction….
- The users/builders/creators of the network/community/project are also the investors and shareholders and a persons ownership and upside becomes proportional to the value they provide to the system.
- Also, critically, open code/protocols allow for composability and composability allows for non-linear growth. What does that mean exactly ….
- Composability refers to the dynamic that if code is open, anyone can take it, use it and build on top of it…..
- Every problem only has to be solved once and because the code/solutions are freely available, innovation can spread and scale in nonlinear fashion. That, in part, is why crypto has seen the steepest adoption curve of any technology in history.
What are the implications?
Consider some of the low-hanging fruit:
- Imagine owning every in-game item you purchase (think fortnite). What was a closed system with a 100% take rate where all the value accrues to the platform or developer now gets upended. Via NFTs you now have verifiable ownership of those items – ownership of a collection of assets that can be sold, rent out or transferred across game environments.
- Ownership of specific assets could also grant you access to exclusive offers/tournaments/IRL events/etc.
- And because the complete history of an NFT is indelibly etched into the blockchain, you could verifiably purchase and own an asset that was used by your favorite celebrity/gamer/etc. Different (or similar assets) could carry notably different values and Marketplaces can develop and facilitate price discovery.
- Further, you could take those in game assets and post them as collateral and borrow against them. This applies to any NFT of value and is already occurring with some of the CryptoPunk and BAYC NFTs being used to collateralize loans.
- Imagine as an artist you could tokenize your content and bypass record labels and/or streaming platforms and interact directly with your audience. Via programmability of NFTs/smart contracts you could sell an entire project directly, sell fractionalized ownership and/or receive royalties anytime your work changed hands. This is all accomplished via the programmability of smart contracts (imagine the number of intermediaries involved in fractionalizing the ownership of a painting
- On the other side, as a fan of an artist, you could participate in a project or growth of the artist via direct participation and ownership (imagine being a fan and buying the NFT that granted fractional ownership of The Beatles album/catalogue … before they became “The Beatles”, for example).
- Programmed into the The NFT could also give first access to future projects or an exclusive IRL or metaverse concert, etc.
- The scope of application is not limited. Tokens that incentivize engagement, offer rewards or direct (partial) ownership can be crafted around any project or community. The growth in Social and Community tokens associated with sports teams and large brands is already well underway.
- Why have intermediaries and clearing processes for equities that take fees and days to clear? … why not tokenize all assets and have ownership transfer be instant, verifiable and immutable.
- Why only allow institutions/VC’s/Accredited Investors access to projects? Why not tokenize fractionalized ownership of that fancy downtown building in a way that anyone/everyone can participate?
- Why not make the implicit, explicit? That is, we currently use Web2 platforms for free, but they are not free … we give up our data in exchange for that use. What if, instead, we explicitly choose to opt in (or not) to allow the collection of our data and get paid to do so. Is that the early foundations of a version of UBI (universal basic income)?
Imagine that the above is only a tiny cross-section across the high dimensional space of Web3/Metaverse/Defi/Crypto native applications enabled by crypto/blockchain technology.
Imagine I went this whole time without mentioning “bitcoin”!
None of this has anything to do with sh*tcoin speculation or ‘number go up’ narratives that still pervade retail’s perception but it can be framed, foundationally, within the context of BTC ….
Imagine the promise of permissionless, immutable sovereign ownership offered by bitcoin but for everything digital – a mechanism and means to capture and exchange value in whatever way it exists, for both real and digital assets.
Now, cease imagining.
This is happening and most of the above is already here. There is no bottle left for the genie to go back into.
While we’re stuck in policy purgatory of yesteryear discussing whether a spot Bitcoin ETF should be allowed or not, the crypto and digital asset evolution is way (way) beyond that.
And you don’t have to understand the particulars of a specific protocol or parse the technicals of a whitepaper. Understanding and internalizing it as a macro evolution with enough critical mass to catalyze whole-sale change is enough.
And the fact that it’s 4th Turning concurrent and innervates through money/finance, politics, economics, and culture means its inertia is likely inexorable and the pivot in the direction of decentralization, disintermediation and a shift in the balance of value accretion inevitable.
My goal this morning was two-fold:
- to provide some minimal, sufficiently cogent context around the inevitability of the crypto-enabled digital asset evolution and its intersection with macro, and
- Offer an annotated tutorial around the On-Chain & Anecdata Section of our daily Crypto Quant product.
I’m already way over my word quota (particularly for a Friday) so #2 will have to wait until next week.
Please reach out to for more information about our Crypto Quant product.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.45-1.66% (bullish)
UST 2yr Yield 0.39-0.54% (bullish)
SPX 4 (bullish)
NASDAQ 15,499-16,121 (bullish)
RUT 2 (bullish)
Tech (XLK) 160.57-169.90 (bullish)
Utilities (XLU) 66.10-67.92 (bearish)
Energy (XLE) 56.69-59.90 (bullish)
Financials (XLF) 39.69-40.94 (bullish)
USD 93.52-95.19 (neutral)
EUR/USD 1.144-1.161 (bearish)
Nat Gas 4.71-5.95 (bullish)
Gold 1 (neutral)
Copper 4.29-4.45 (bullish)
TSLA 1000-1302 (bullish)
Bitcoin 60,100-69,241 (bullish)
Best of luck out there today. Have a great weekend,
Christian B. Drake
