Tech 4 Tokens: a framework for venture technologists in the blockchain ecosystem
StarkWare was recently founded to bring transparent privacy and scalability to blockchains. We’re aiming to set up a business with recurring revenues — we’re old-school that way.
Getting to those recurring revenues requires an important first step: developing technology and generating demand. This first step can be achieved with a business model we’re considering, one which could be of value to others, and potentially transform the blockchain ecosystem.
Let us describe this first step. The long-term plan will be discussed in a later post.
We’re asked daily: When is the ICO?
Our one-liner: we’re holding off on this for now, to explore the possibility of Tech4Tokens (T4T).
Consider VCs: they invest capital in ventures, and in return are offered exposure to value upside. We’d like to invest our technology and get similar exposure. Think of us as a VT: Venture Technologist. Crypto Funds invest capital in exchange for tokens. We’re exploring being a Tech Crypto Fund(1): investing technology in exchange for tokens, hence T4T.
As a Tech Crypto Fund, we consider ourselves an early stage investor: the earlier we invest our technology, the greater the impact on token value. We’re not interested in cost-plus returns; we want to capture a meaningful chunk of the value we’ll create. For the foreseeable future, talent will be far scarcer than cash in the blockchain ecosystem, and the returns on token portfolios of successful venture technologists should reflect this scarcity.
Our token remuneration from blockchains has several potential sources: some have foundations that control a sizable allocation, others have various mechanisms for increasing the token supply(2). If tokens are to become a powerful tool for compensating technology developers, token supply will become a central element of blockchain governance.
Metaphors aside, we intend to be a service provider. A company — as opposed to a consultant, or an ad-hoc crew of engineers — is well-positioned to provide quality service in the long term: it can raise significant funding to support R&D, assemble a larger and more diverse team, and support customers over the years.
We see this as a very exciting opportunity to write the playbook on how to monetize blockchain technology with existing tokens, without issuing yet another token.
We realize this opportunity also presents risks to all parties involved.
StarkWare will face a business risk: the cost of attempting to educate the market on the merits of a new business model. Will blockchains accept us as an early stage investor? Will they move away from the cost-plus remuneration of individual programmers towards a fairer share of value created? Beyond the business risk, venture technologists need to mitigate the execution risk of blockchains. The standard way of managing such risk is by forming a portfolio of investments, and that is what StarkWare intends to do: work with multiple blockchains.
Blockchains, as recipients of technology investments, face their own risks.
First, alignment: how can they ensure a venture technologist will perform over the long-term, and not walk away with their tokens? Vesting is the mechanism typically used for improving alignment.
Another risk blockchains need to contend with is free-riding: why should they pay for technology that other blockchains can supposedly fork instantly, and pay nothing for (recall Zclassic, Bitcoin Private)? Exclusive access to a technology under development, tailoring it to a blockchain’s particular specifications, and offering blockchains the ability to position themselves as technology leaders — these are all mechanisms intended to compensate for the risk of free-riders.
The coming period will give us a clear indication of whether T4T could be considered a viable path forward, or whether StarkWare should reach recurring revenues via more commonly used schemes.
For now, we’re busy selecting the 3–4 Founding Member Blockchains of StarkShield, a consortium that will develop transparent privacy: STARK-based shielded transactions (think Zcash, but with no trusted setup).
1. Thanks to Ed Roman for this metaphor
2. See Fred Ehrsam’s Funding the Evolution of Blockchains for a detailed discussion