The Tokenization of Everything: Post #TokenSummit thoughts
Are ICO-backed blockchains the startup model of the future, or the bubble of today? Or like the unique natural wines Arnold Waldstein curated for us the night before, will they develop appreciation in their own good time?
Just settling in after an intense week in NYC after attending a sold-out Consensus 2017, then William Mougayar and Nick Tomaino’s over-capacity inaugural Token Summit 2017, May 25 on the NYU campus. There’s so much energy around blockchain projects right now. Much of this excitement has less to do with the capabilities of distributed ledger technology and smart contracts, and more to do with recent multi-million-dollar ICOs and token sales used to launch startups in a new way.
I’m sharing a few takeaways. Great recap coverage of that day has already been posted — I recommend reading either of these accounts:
- Michael del Castillo of Coindesk: Blockchain Entrepreneurs Target Apple and Google at Token Summit
- Laura Shin, a blockchain insider reporting for Forbes: Bubble? So What? Token Summit Marks Cryptocurrency’s Revitalization
Ask your doctor if token investments are right for you. Side network effects may include…
With token sales and ICOs on the mind of a very concentrated group of investors, the topic couldn’t be more prescient and I was glad to see it addressed head-on. Coinfund’s Jake Brukhman presented a demographic study of ICO investors so far — 91% of them are male, 60% of them are age 21–40 and working in a tech field, and they average 50% of their holdings in digital currencies, with 1/3 of them putting in 70% or more into tokens. What risk?
Nature abhorrs a vacuum, and to fill the void of information on these investments, new firms emulating those we see in conventional markets are springing to life. Along with Coindesk and other media outlets covering the space to varying degrees, we got to meet dedicated category analysts Smith+Crown, who presented killer market performance data profiling ICO raises (averaging $2M historically— about a typical seed round, though we are seeing more high profile $10M+ outliers today) and success rate (currently at 40%) as compared to investments at the same time in BTC and ETH currencies. See their site for details on this report.
We even saw new cryptocurrency funds, professional fund managers and blockchain investment advisors appearing in this landscape to help investors better assess risk to allocate and diversify their assets. It’s a digital analog to the analog financial world.
Coinfund’s Alexsandr Bulkin mentioned that all the speculation happening today is hiding the true economics that will drive this market to its true potential, and tossed out his hot prediction: “Within 5 years not a single cryptocurrency we know will be in the Top 10.” Gasp.
[To get your arms around the details of token issue and valuation, I thought this recent article “Thoughts on Tokens” from Balaji Srinivasan covers the topic well.]
Are token offerings the venture capital of the future?
After seeing several new ventures and projects pitched, I started to wonder if blockchain + smart contracts + digital currency with an ICO kicker made sense for every project, or if a “token washing” was going on.
Of the new projects presented I thought Etherisc put up a cool idea — a decentralized insurance protocol makes sense when you think about betting against the pool on an outcome you don’t want — such as a late flight, or crop failure — to hedge your risk. Other projects, I’m not exactly sure how they were different than any other web-based business idea that necessitated tokens or a blockchain.
Founders of ICO graduates from Maker, Augur, Numerai, zCash, Golem and Aragon were there sharing their recent experiences, and what life is like post-token. There is not one clear perfect way to go about the ICO process, but all of the leaders seem to be proceeding well along their paths by engaging their communities (i.e. token holders) as participants, and governing with their willing consensus.
The highlight session for me focused on The Attention Economy. Here you have a scenario ripe for decentralization. Tokens make ideal incentives to align the content we consume with our own needs — not those of a big central aggregator who is paid by advertisers for our attention.
Since content is really nothing more than a message, tying that to our wants and needs follows naturally. “What if a token represented not only you, but a token represented anything you are interested in,” said Simon de la Rouviere of Consensys. “Information is only learned when the viewer has skin in the game,” said Maciej Olpinski of the content rating system userfeeds.
Brave CEO (and JavaScript inventor) Brendan Eich discussed his browser’s model for blocking ad tracking, and instead having advertisers compensate content producers and pay viewers on a voluntary basis only for ad views. It’s better targeted and lower cost for advertisers, and users get their privacy back and a little extra in return for their time. “We’re going to make advertising great again!” he noted to chuckles.
With perhaps one of the first blockchain network effect success stories already underway, SteemIt co-founder/CEO Ned Scott talked about how his platform’s communities and sub-communities have used tokens to foster enthusiastic content contribution and earning.
One theme was coming through clearly: The long-term value of a given token system is only realized if the tokens are intrinsically aligned with the interests of the communities and projects they support.
A lot of these earliest blockchain + ICO projects grew out of the success of Ethereum, which engaged massive development involvement and tied their ETH currency to the execution of smart contracts on their blockchain for the price of gas, which funds further development and scale for the Ethereum network… and so on.
Tokenization means way more than trading value, it funds platform development tools, scalability, security, testing, identity, storage — project offerings that are largely open source collaborations that will contribute value back to the blockchain ecosystem at large. This virtuous cycle around infrastructure is laying a foundation for bigger, faster advances in the future. Even if it seems to be feeding itself rather than serving a particular business need at the moment, this collaborative spirit will make an impact as it marshalls a growing development community.
Until next time…
The day ended on a chat with sage Fred Wilson from Union Square Ventures, to put all this token stuff in perspective of boom and bust tech megatrends he’s tracked for the last few decades. He threw a bit of a wet blanket over the hot room in saying we’re probably 10 years out from seeing this infrastructure support the heyday of blockchain-based, tokenized successes.
While I agree it is early days for blockchain and token-backed ventures, I’m a little more bullish on this market. Innovators in this space are not only moving extremely fast, but unlike past paradigm shifts marked by proprietary standards and patent wars, blockchain project teams are openly sharing and leveraging each other’s talents.
Indeed, there will be busts before we hit business-level escape velocity. But this token funding model can align incentives to build customer-oriented solutions in a more engaged way, and make winners out of all participants rather than being focused on growth at all costs, shareholder value or exit strategies.
Quite a hot ticket event. Seriously, I might have sweated out a couple pounds. If you missed it, don’t worry, Mougayar announced they are going to be taking the Token Summit on a World Tour over the next year. Given the demand for this content, who can blame him?
