De-Centralization in Moderation

Whenever I write about a trending (and often hotly debated topic), I append the following disclaimer: If you’re not in it for a genuine, substantive two- or multi-way dialog, don’t read this piece, because it’s not for you. I’m not here to listen to opinionated people calling others stupid, ain’t nobody got time for that.

Yes, this is a philosophical thought piece on the topic of NFTs (non-fungible tokens) and blockchains.

I always thought the technology itself is impressive and interesting, but like all technologies — if without clear value creation, then the whole debate is rather vacuous. So it’s fitting to home in on the practical contexts in which the technology could be employed.

I’m not going to spend a lot of time examining NFTs or blockchains from a technical perspective, instead I’m going focus on a few philosophical points of consideration, namely, the NFT-related debates of perception manipulation, government regulation and decentralized startup investing.

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Perception Manipulation is not inherently good or bad

This is largely a response to the concept of “cutting out art dealers” and allow people to deal their own art directly with buyers.

But this is not how the industry works — art galleries and auction houses are market makers.

Without market makers, many things we value today would instead be valued at a lot less, if not simply nothing.

In the case of art, an artwork has no inherent value without a context. This context is story-telling, it’s about creating drama that will in turn create a sense of scarcity and a sense of urgency.

Not only this, art dealers also maintain relationships with clientele, establish trust between the dealers and their patrons.

Manipulation of our perception of value, is the name of the game. Branding, marketing, your name it.

The scarcity, the urgency and the trust, these are a few factors on which much of the value in art is built.

In fact, it’s not just art.

Premium real estate market, and many high-end consumer markets function the same way. Without effective, efficient and trusted market makers, a building is just concrete sitting on a plot of land, a watch is just metal and quartz, and a handbag is just carved dead animal skin.

I’m not saying that cutting out the middle men or the dealers is categorically bad — customers in travel industry certain benefitted from cutting out brick-and-mortar travel agencies and increased transparency of airline and hotel prices.

Therefore, the judgment of merit in this case (or any case, really) is not binary. So let’s have more conversations.

Governments are often a result, not causes

I’m saying this because there’s a bandwagon of “curbing government regulation” and “that is often used to justify decentralization without much explanation.

Buy into faulting governments for everything is almost always predicated on taking governments for granted.

This piece written a few years back about decentralization of cryptocurrency and blockchains actually offer some interesting insights that are still relevant:

The world actually started out decentralized, as tribal cultures. Through crimes and conquests, people found the need to establish more sophisticated systems of governments in order to resolve conflicts, maintain social order, and later, establish economic stability. This carried us into feudalism, and then into modern concepts of nation-states.

I’m by no means saying decentralization itself is bad or archaic, what I’m saying is that we have seen problems with decentralization in the past in terms of governance, just like we see some problems with (more or less) centralized nation-states nowadays.

To offer a solution purely in decentralization without heeding historical lessons would be rather unilluminating. Considering many social and political problems remained even today.

Liquidity Flight Risk

This part addresses the idea of “creating a source of startup funding and liquid equity market” using NFTs.

Ok first of all, let’s start with a very rough description of any investing activity:

If expected value of asset is higher than its net present value, BUY.

If expected value of asset is lower or the same as its net present value, SELL.

I’m not too far off base, right?

So when it comes to investing in startups, it’s the same.

In fact, investing in startups is a high-risk, high-reward investment, which means that most of the time, the company’s expected value is vastly higher than any substantiated estimate of its net present value.

This is why if given the opportunity, many investors, individual or institutional, would take the deal of selling existing shares to investors in a new startup venture round — because that may very well be your last and only opportunity to realize the quite unrealistic paper value of your shares in the company.

Perhaps people who have gone through starting their own tech companies and raising money for them could relate:

Finding the right angel investors and venture capitalists who are willing to stick it out with you and not trying to screw you over at every turn, is the mainstay of the startup fundraising game.

In most cases, limited liquidity of private equity is what stabilizes the relationships between the board, the shareholders and the founders.

This stabilizing effect is what gives startups room to breathe and to grow — so they can focus on getting actual work done and not having to worry about valuations and fundraising every month.

Can you imagine turning this into a liquid decentralized market of indiscriminate investors?

I’m not saying no startups could be funded this way, but if startup shares are liquid from the get-go, it’s hard to curb “pump-and-dump” activity, as liquidating over-valued shares is a very rational choice.

Not offering conclusions, just more to think about.

2022/5/13 Edit

In observance of the TerraUSD crash:

What is particularly interesting (and ironic) is that the act of preventing or offsetting a bank run with reserve assets makes an NFT or blockchain company sound increasingly like a central bank.

Furthermore, the phenomenon of a token like Luna, with yet-to-be-proven utility gets dumped during the TerraUSD bank run, seems to corroborate the narrative here that value creation, value storage and value transfer are entirely separate problems from the one NFT and blockchains offer a solution to.

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