“One way to think about ‘value’ is through the lens of costs. The basic principle is that markets allocate value along the lines of costs as they trend to equilibrium. So we can estimate the overall behavior of future value by studying its associated cost structure. To establish this logic we’ll review some fundamental principles of economics (based on equilibrium and MB=MC) and piece apart what we mean by ‘costs’. Then we’ll apply this insight to reason about the nature of value capture and investment returns in crypto.”
Ethereum and The Seven Dwarfs →
“People in the 1960s computer industry would say the market was IBM “and the seven dwarfs” in reference to the other popular computer makers: Burroughs, Control Data, Digital Equipment, RCA, Univac, Honeywell and GE. They all poured fortunes into developing newer and better technologies than IBM, yet none could compete with its massive distribution advantage. Ethereum is the IBM of the smart contract blockchains: it may not be the “best” technology, but it works well enough and has amassed a distribution advantage that will be hard to overcome by its competitors.”
Web vs. Crypto Service Models, Cost Structures and Value Distribution →
“We compare web vs. crypto service models across two dimensions: the production model (from centralized to decentralized) and the data model (from custodial to non-custodial). The more decentralized and non-custodial a service, the more distributed its cost structure. This is important because markets tend to allocate value along the line of costs. So the more we decentralize the cost structure of a service, the more broadly we distribute its value.”
Sovereign Cryptonetworks →
“A state is sovereign when it has supreme authority to govern its territory without interference from a foreign power. Similarly, a cryptonetwork is sovereign when it runs in a way that resists outside influence. But instead of managing the rules and politics of a geography, cryptonetworks use blockchain protocols to govern the production and exchange of information services over digital space. Achieving sovereignty is necessary to fulfill crypto’s ultimate promise of independent online networks that distribute value more broadly across its participants, instead of concentrating it in a particular company or jurisdiction.”
Cryptonetwork Governance as Capital →
“Capital is, in essence, the power to organize the economic resources of a social system, and its worth a function of how much of those resources can be directed to the holder’s benefit. This understanding reveals the inherent value of cryptonetwork governance as capital, and helps us understand tokens with governance rights as new kinds of capital assets.“
Crypto Hedge Funds vs. Venture Funds →
“Cryptonetwork founders, unlike those starting traditional equity businesses, now have to think about the fund structures of their investors. This is because the liquidity of cryptoassets brought the hedge fund model, which carries an active trading bias, to early-stage tech investing, a field historically dominated by venture capital. If you’re raising money for a cryptonetwork, each model has pros and cons depending on your goals, but understanding how they operate is key to making good decisions about how to structure financings.“
Funding Cryptonetworks →
“When we invest, we think in terms of funding teams, and funding networks. Funding teams provides the financial capital to build the service. Funding networks supports growth by capitalizing the whole community. They’re very different kinds of investing, but both are essential to long-term network success.”
The Cryptoeconomic Circle →
“The Cryptoeconomic Circle describes a three-sided market between miners (the supply side), users (the demand side), and investors (the capital side). Miners opt-in to the consensus protocol and coordinate their resources to provide the network’s service in a decentralized manner, users consume the service, and investors facilitate exchange while capitalizing the network.”