Two of my previous posts were about the relationship between labor and capital in innovation-rich parts of the economy. Roberto recently asked: "I'm curious if you have any thoughts how the incentive structures change with web3 / crypto?"
I'm not a crypto bull, though I'm interested in the space, and I honestly think that crypto-economics has a related, but distinct modality of disruption.
In Observer or Participant I argued that investors, by betting on success, can reduce its likelihood. With crypto, I suspect that the same perversion can occur, at least in network-driven applications.
Consider a model in which users of a decentralized application, who have been granted tokens which increase in value as the application becomes more valuable. For the marginal user, is it better to a) participate in an existing application, or b) become a pioneer in a new clone of that application.
Without the user-owned tokens, the answer is clear - the value of the network will roughly track the number of users, with quadratic value a la Metcalfe's Law as an upper bound. The marginal user will receive more value from Application A than from Application B.
But in a crypto-economic world, the user's value equation is different: users receive value both from their usage of the application and from their token. I'm sure there's some math that we can do, but assuming a non-inflationary token (e.g. the first N users get the first N tokens), it's not clear that the same incentives hold. In some sense, you've turned your users into employees, and just like the investors in the previous post, these employees may find it more valuable to cash in and leave rather than staying - selling Token A at the peak and then joining Application B seems like it would be value-maximizing in many cases. And certainly for the marginal user, it seems rational to take a bet on Application B.
In other words - while it may be frustrating to users that Facebook's founder and employees have been able to capture so much of the value that Facebook's users have created, the new incentives in a token-based world may actually make it impossible to create networks with as much value as their web2 competitors; rather than winner-take-all, web3 network effects may actually drive a tremendous amount of internecine warfare with splintering communities forking and re-tokenizing each other's networks. Empirical results from the currencies (BTC / ETH etc) seem to imply at least some amount of stability, but we're in the early days, and the impact may not be what we expect - jealousy is a powerful motivator.
