ECONOMIC SILUET: The worlds that will loosen FANG

MON, NOV 22, 2021

YOUR AFTERNOON NEWS UPDATE AND MARKET ACTION FROM CNBC

AS OF MON, NOV 22, 2021 • 11:01 ET

DJIA		35839.81
		+0.67%	+237.83

S&P 500		4735.41
		+0.80%	+37.45

NASDAQ		16127.39
		+0.44%	+69.96

EDITOR'S NOTE

I'm trying to get into a DAO, because that's what all the cool kids are doing these days. The main criteria for this particular one are a personal questionnaire, some basic familiarity with Discord and crypto, and a startlingly high entry fee. I highly doubt I'll get in.

Not all DAOs are similarly gated; ConstitutionDAO, which just narrowly missed on winning a copy of the U.S. Constitution last Thursday night at Sotheby's, was donation-based and generally open to anyone. In fact the whole point of DAOs at this embryonic stage is that each sort of comes up with its own entry rules and governance structure. This is a huge deal, actually, with implications for corporate governance and securities law down the road--and even for political philosophy.

But before we get into that, let's back up for a second. The first time DAOs really came to my notice was when one of them won the auction for a piece of digital art this spring and then bought that Wu-Tang album last month. (I wrote about it here). All they are is internet groups called decentralized autonomous organizations, whose rise and financial power has been facilitated by the blockchain and its native crypto payments. But as Wikipedia observes, "The precise legal status of this type of business organization is unclear."

If you're not excited enough yet about the rise of this new kind of organization, check out this discussion between Andreesen Horowitz partner Chris Dixon and AngelList co-founder Naval Ravikant on the Tim Ferriss Show (tip: start around the 15-minute mark). Their point being, DAOs are part of the rise of "Web3," which will disintermediate the Big Tech platforms like Facebook and Google and replace them with self-run special interest groups that can create big pooled financial power.

All of these emerging things that can sound rather ridiculous to the uninitiated--NFTs! Discord! Crypto! The metaverse!--are part of this new internet that is quickly crystallizing. As it comes into view, everyone wants a piece. You buy cool NFTs for their status now (or the hope of a quick profit), but also for their utility in future metaverses where they are the price of entry into new exclusive groups.

If NFTs make your head hurt, don't worry. They're just digital art. But the token part is what's really interesting. The token is how you own them, display them, transfer them, program them, all thanks to a blockchain. Today you might think "yeah I can just copy and paste and get the same result," but tomorrow you obviously can't do that in the metaverse. Virtual reality is three-, not two-dimensional. And ownership is on the blockchain.

And tokens are going to start popping up everywhere. You a fan of the Washington Wizards? Their star guard, Spencer Dinwiddie, wants you to have a token for that. The token could give you special ticket access, fantasy league perks, and even a vote in their future lineups. I spoke to him about it a few weeks ago--it's an amazing chat. You should see his twitter page, and the app he's working on that will let players and other celebrities issue their own tokens someday. He's a million years ahead on this stuff.

This is why tokens have value, and what makes them different than, say, the fandom or online polls of the past. You could have tokens from your alma mater, your favorite store, or your employer. I need 75 tokens to get into this DAO right now that are part of only a million tokens the DAO says it will ever issue. So in five or ten years, if other people want to get into this group--whose members are already hosting exclusive events in the real world--the tokens may have risen in value (who knows). This is the "land grab" mentality right now, anyway.

Tokens go way beyond what I'm describing; there are already platforms offering tokenized stock trading, and tokens can represent financial interest in pretty much anything. There's a reason why "about 75% of Andreesen Horowitz's current crypto fund's capital is invested in tokens, partner Katie Haun said at an event last week," to quote Axios. Indeed, "Some firms even manage more hedge-fund like vehicles that trade tokens."

Now, as Dixon himself cautioned on the Ferriss show, Web3 is very much still in the early "MySpace" days. The way to make money on the web back then was actually to wait years for the rise of FANG (Facebook, Amazon, Netflix, and Google) and then ride those names to multitrillion-dollar valuations. Only buy an NFT right now if you actually like the art itself, he and Ravikant cautioned over and over again.

So the real questions now are (1) How long can FANG hold its value as the new web emerges? (2) Will Web3 actually be decentralized, and if so is the real money in tokens? Which ones? (3) Or will Web3 end up with major platforms instead that will be great investments? (4) Which cryptos will hold their value, and how will crypto be defined and used? And (5) how will tokens be defined in legal and regulatory terms?

Because, in conclusion, the current regulatory structure seems to generally frown upon the types of tools, like initial coin offerings, that could be used to distribute cryptos and tokens and build Web3. The definition of what is a security and what is not is also creating all sorts of categorization problems, and the existing rules often exclude small investors from nontraditional arenas because they're not "accredited" by income or net worth. And if all of this uncertainty isn't resolved, then Web3 may well be built elsewhere.

And if Ravikant is right, Web3 offers the biggest possible wealth transfer to artists and creators that we have ever witnessed in history. They can finally earn the big bucks, not their distributors--because they become their own distributors. The rise of Web3 can even look rather Marxist by comparison to FANG--because DAOs are structurally more similar to co-ops than anything we've previously seen.

"We are now seeing waves of brilliant, creative people building new products and services on top of blockchains that are disrupting industries and reaching mainstream adoption," Dixon and Carra Wu wrote last month. Their whole piece is worth a read. The internet hasn't been this exciting in at least a decade. Crazy as it sounds, its impact on society may only just be starting. But its next iteration may actually help undo much of the damage its first couple generations have made.

See you at 1 p.m!

Kelly