Mimetic Conflict and Crypto
Applying Rene Girard’s perspective to the Crypto Crash
TL;DR
Rene Girard is Peter Thiel’s favourite philosopher. He developed the concept of Mimetic violence, where the similarities between members of society cause conflict. Stability within society is preserved by violently sacrificing scapegoats to re-establish differentiation.
Long-term stability within society is re-established by moments of shocking violence and chaos which reassert differentiation as the status quo. The act of violence is referred to here as a “Founding Murder” (think Romulus/Remus and Rome; Cain/Abel and the Bible; Dotcom Bust and Silicon Valley).
This short essay considers the Crypto Crash as the Founding Murder for the crypto community. The excess and chaos of that era presaged a stable era in which excess is curtailed and the foundations of long term value-building are laid.
Primer on Girard and Mimetic Conflict
In Mimetic Theory, similarities give rise to conflict, and this conflict can engulf communities (Mimetic Conflict) in chaos if not contained. Communities and societies can contain Mimetic Conflict through ritual sacrifice of a scapegoat. This serves as a release valve for pressure built up within the system.
The ritual sacrifice of the scapegoat serves to contain the built-up of violence and the community then returns to harmony. The origin stories of numerous communities often feature acts of great violence which serve as the genesis of norms and values for the community. In Rome, Romulus murdered his brother Remus; in the Old Testament, Cain murdered his brother Abel; and in Silicon Valley, there was the Dotcom Bubble. Alex Danco’s great analysis further suggests that WeWork’s fall playing out right now may serve as the Founding Murder story for the New York venture scene.
“The memory of that act of violence (which clears space for differentiation and stability, albeit violently) continually reminds people that it’s differentiation itself that’s keeping the peace.” — Alex Danco
For our purposes, SV’s Dotcom Bust is the most relevant parallel for our application of the ideas to the crypto community. In the run-up to the Dotcom Bust companies were valued at hundreds of millions that hadn’t got beyond registering a domain name. Investors threw money at them and they were considered valuable by default; chaos resulted once the sky-high valuations crashed. Many real and valuable companies struggled to raise money as investors flocked to the exits. Companies that remained differentiated themselves from those that were scapegoated (collapsed) such as Pets.com. The collapsed were guilty of being vaporware while those that survived built “real” products and value and a norm were born.
Purpose of the Founding Murder
The act of violence crystalizes the creation myth of the community and sets behavioural norms which preserve peace. Later failures in SV are treated as necessary sacrifices and eulogized whilst noting the reasons for their failure and thereby reaffirming the differentiation of the companies remaining. The seminal violence of the Dotcom Bust is revered and serves to remind the community of the dangers of being too similar, of the value of thinking and acting “differently enough” to avoid any bubble which could threaten the survival of the community. The taboo on herding thus pre-empts recurrent bubbles. Whenever even a whiff of a bubble or herd-like behaviour is detected, people raise the cry of “Dotcom Bubble” and investors curb their animal spirits so as not to become a cautionary tale. Peace and sober valuations are restored. The mimetic sacrifice plays the role of release valve and “safety word”.
Crypto Winter as Founding Murder
This lens can also be applied to the Crypto community. At the peak of the Crypto Boom in 2017, BTC reached a high of US$19,800 and over $11b was raised through ICOs in the period 2017 to Q1 2018. Most of these ICOs turned out to be “shitcoins”: projects with no clear use case and no strong reason for needing a Native Network Tokens. This was Crypto’s equivalent of the Dotcom Bubble; capital was freely available, all projects were given the benefit of the doubt when it came to ability to execute and product-market fit, disbelief was suspended and the universal credo was tokens will eat the world. Then we exited Q1 2018 and the price of cryptocurrency plunged, capital was again scarce and even very worthwhile projects with credentialed teams and vetted use cases were being labelled shitcoins and compared to Dogecoin.
To be sure, just as many valuable Web2 companies came through the ups and downs of the Dotcom Bubble (Amazon’s shareprice reached a high of $106 in Dec 1999, and bottomed at $6 in Sep 2001), great crypto projects have come through the Crypto Crash. Synthetix and Maker both completed ICOs in late 2017/early 2018 and have delivered great products and returns to investors since. Their founders can tell war stories, as Ben Horowitz does in his brilliant book the Hard Thing About Hard Things, about capital flight and negative press during the crash phase.
The crypto creation myth has not yet crystalised because it is debatable whether the Crypto Winter has thawed yet. BTC and ETH rose somewhat during early 2019 but erased all gains and traded sideways for the rest of the year. Looking at fundamentals, however, daily active use of Ethereum Dapps grew 118% in 2019.
Price has yet to reflect the fundamental improvement in functionality and value being built in the Ethereum ecosystem. Already, however, we see the hallmarks of how the Mimetic sacrifice sets behavioural norms. New projects are gun-shy about issuing Native Network Tokens through an ICO because of the stigma attached and the high threshold of investor skepticism that must be overcome for such undertakings. Projects must also show a clear path to monetisation and articulate how they will deal with regulators who have yet to communicate a clear approach of their own to crypto-regulation. Projects which can’t adequately address these questions will have the gates to funding slammed in their faces.
Conclusion
If too many dubious projects are funded, commentators will invoke the spectre of the ICO Bubble and cry “shitcoin”. This will prompt investors to panic that they’re swimming without bathers in a receding tide and to tighten purse-strings accordingly. Thus we avoid a repeat of the herd-like behaviour of 2017 which could be fatal to the Crypto community.
Whilst this is more a descriptive/analytical piece there is nonetheless a takeaway that the Founding Murder event that was the Crypto Crash has established a set of normative standards for future projects. These norms at best can serve as guardrails protecting investors and ensuring real value-creation is a necessary precursor to funding and filtering out shitcoins. The Crypto Crash as Founding Murder can mark the beginning of a period of stability and value creation. Economic returns for a number of projects will catch up to the value being quietly built. Future founders will look back on this period as a proving ground which separated the wheat from chaff in the same way the SV VCs/founders do of the Dotcom Crash.
Further Reading
If you want to take the red pill and go down the rabbit hole of Girard’s ideas, the articles below are great places to start. The Perell longform in particular prompted this piece.
