On the immaturity of tokenized value capture mechanisms
Felipe Gaúcho Pereira
2.8K12

Great article! Really amazing how the token valuation/value-capture frameworks evolve — many of these ideas will be taught in schools one day.

I’m not sure I’m fully on board with:

Open sourced networks can’t hold CAPs long enough to sustain differentiation or value capture in the form of economic rent.

1. Just because a network is open-source, doesn’t mean its easily replaceable by a cheaper competing fork. Take Bitcoin for example, the amount of external infrastructure built around it (exchanges, futures, regulation, payment processors, brand name, trust) makes it difficult for an alternative to become popular, even if it’s cheaper on fees, because for end-user the cost of interacting with a network is more than just the rent imposed by it. As Peter Thiel argues in Zero to One, the product needs to be 10x better in order to have a disruptive potential.

2. I would go as far as suggest that decentralized networks can hold competitive advantage even better than centralized businesses. In traditional centralized world, entrepreneurs are encouraged to stand up competing businesses, because often that’s the only way they can participate in a desired market/industry. E.g. if you want to be a player in the peer-to-peer transportation you can (1) invest in Uber (2) become Uber employee (2) create Lyft. In a decentralized network you can become a significant player and a beneficiary by joining, not competing (e.g. many large Bitcoin miners joined long after the creation of the network). This creates dynamics where the benefits of standing up a competing business/network are outweighed by the benefits of joining an existing one. Similar to how in the open-source software forks rarely get any traction — there’s more benefits in contributing into an existing popular project than forking your own. As such, it’s reasonable to expect more network-level consolidation/monopoly, while the competition is shifted towards workers/miners within such a network as opposed to among networks.

Please let me know if I’m missing something here.

Coincidentally, yesterday I published an article aimed at comparing the mechanics of value capture in traditional equities(or security tokens) vs utility token. It explores why an investor in the future would prefer utility tokens to equities as a more efficient and transparent value-capture mechanism. I’d greatly appreciate your feedback if you have a moment to take a look at it https://hackernoon.com/utility-token-a-new-value-capture-mechanism-495caef81839

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