Tuesday, May 17, 2022

May 17: Li Jin, Paul Krugman

Web3 Is Our Chance to Make a Better Internet Web3 proponents envision an internet in which users can wrest back power from a small number of extractive, centralized institutions, and in which everyone with an internet connection can participate on a level playing field. ....... But Web2, the current era of the internet defined by companies built on proprietary data (such as Facebook and Google), started with a similar promise of empowering individual creators and removing intermediaries — a promise left unfulfilled. Now, standing at the precipice of a new era, we should ask ourselves: Is Web3 actually democratizing opportunity? And if not, how can we better design platforms and governance systems to promote fairness? ......... A just society is one “that if you knew everything about it, you’d be willing to enter it in a random place.” .......... Web3 presents the opportunity to build an entirely new internet — indeed, entire new economies — from scratch. .......... questions about impacts and externalities were left too late in the design of Web2, with consequences ranging from election manipulation to widespread vaccine misinformation. Some indicators show that early design choices in Web3 are replicating or compounding the inequalities of Web2 and the real world. ......... If we want Web3 to make good on the promise that it can materially improve the situations of everyone within the ecosystem, and not just a handful of people at the top, we need to design it according to principles that will make that happen. ........ it’s acceptable that doctors earn more than janitors, because that compensation differential incentivizes doctors to pursue their careers and ensures that janitors (and everyone else) will receive quality care if they fall ill. ......... Before the internet, access to participation in various industries was limited by a handful of gatekeepers, ranging from movie studios to music labels. The internet and social media platforms made it possible for anyone to participate in content creation and distribution, and therefore enabled more creators to succeed. ........ Gig economy platforms bring in billions of dollars in revenue, while the frontline workers who deliver their services earn poverty wages and are shut out of decisions that impact their lives. Social media companies and media platforms earn billions of dollars in ad revenue from algorithmic feeds that elevate misinformation and damage vulnerable communities. Platforms’ creator funds typically reward creators with the most views and engagement, leading to the concentration of income among those who already have ample sources of revenue while failing to broaden access for less-well-off aspiring creators. And we’ve written before about how the internet’s original sin of not enabling payments led to the extractive, advertising-based business models that define the Web2 economy today. ........ But it’s not just Web2 platforms that fail to reach Rawls’s standard of justice. Web3 in its current form is also exacerbating inequalities. Web3 projects commonly issue crypto tokens as digital representations of value. Early versions of token distributions have led to unsustainable dynamics wherein speculators are rewarded instead of those who are adding consistent value to networks through actual usage. ........ strong parallels between some current non-fungible token (NFT) projects and multi-level marketing schemes, in which later arrivals to the ecosystem are structurally unable to achieve the same level of success as early adopters due to system design. ............ We’ve seen how both the Web2 internet and early iterations of Web3 fall short of ensuring a free, fair playing field that benefits the least advantaged. ....... Unlike in Web2 platforms, with a cadre of founders, executives, and shareholders holding all the power, Web3 communities will be controlled by their members. ........ Early governance structures have largely instituted token-weighted voting, with the result being plutocracies that are not all that different from the boardrooms they’re meant to be a corrective to. ....... Web2 platforms coerce user loyalty through network effects and closed data, and exiting a platform leaves creators without access to their audiences or content. Web3 affords the opportunity to build systems that foster user agency and self-determination through true digital ownership, open data, and networks that are built atop open-source software. ......... A core philosophical tenet of Web3 is that there are more ways to provide value to an ecosystem than through capital — and furthermore, that value should be able to be earned, not just purchased. This is a radical departure from the existing structure, where those with capital earn more through investments than people can earn through work — resulting in a widening wealth gap over time.



What a DAO Can — and Can’t — Do

it remains unclear whether, and how, DAOs might supplant traditional organizational structures.

..... In November 2021, a group of individuals formed a legal entity that bought 40 acres of land in Wyoming. ....... The purchasing group included approximately 6,000 people. They met via online discussion platforms such as Discord and bought the land not with dollars, yen, or any other fiat currency, but instead with cryptocurrency. ........ the strangest part of this deal is that no one runs the entity that purchased the land — it doesn’t have a CEO, a board of directors, managers, or other decision-makers ........ DAO (pronounced as “Dow,” like the Dow Jones Industrial Average) is the acronym for decentralized autonomous organization. A DAO is a new type of digital-first entity that shares similarities with a traditional company structure but has some additional features, such as the automatic enforcement of operating rules via smart contracts ......... No single person exerts control in the way a conventional CEO or senior management team would. ....... Like most other Web3 technologies, DAOs are currently in an experimental phase. The forms, structures, legalities, and use cases are all still emergent. While the United States has seen tens of millions of corporations registered over the past two centuries, there are fewer than 5,000 DAOs worldwide today ........ fewer than 100 have assets of more than $1 million ....... Once the DAO has established a core set of rules and embedded them into smart contracts, it needs to raise funds. DAOs typically raise funds by issuing tokens, a form of digital currency tied to the smart contract. Sales happen through public or private offerings, and the money raised goes to the DAO’s treasury. The tokens represent a form of ownership but are not the same as traditional equity and do not function as investment contracts; rather, they are akin to contributions that bestow governance rights but not ownership. Most DAOs are not directly owned by anyone in the traditional sense. ........... Information related to issues such as currency transactions and internal decisions is available for everyone to see on blockchain. This transparency forms the basis for trust among members. ......... An important feature of this process is that voting mechanisms are defined in advance and not easily modified. This differs from what happens in traditional organizations, where a CEO or CFO can ignore consensus when making a decision. In a DAO, the community votes on activities such as spending money. Although the scope of decisions that can be made this way is more limited than in a traditional organization, once everyone agrees to the rules, there’s no ambiguity or wiggle room in how they are applied. .........

The majority of existing DAOs are unregistered and have an uncertain legal status, and they are perhaps viewed as “alegal” rather than illegal.

........ Most jurisdictions around the world require a company to provide a unique name, a physical office address, and the name of at least one director in order for the company to receive its own identification number and be entered into the formal business register. .......... DAOs in Wyoming are considered a distinct form of limited liability company (LLC), which grants them a legal personality and confers a wide range of rights, such as limited liability for members. Without this protection, a DAO could be viewed as a general partnership, exposing its members to personal liability for any of the DAO’s obligations or actions. ......... CityDAO’s first investment (named Parcel 0) was the 40-acre plot of land in Wyoming. ........ It’s unlikely that DAOs will replace traditional organizations, or at least they won’t anytime soon. But their current shortcomings should be viewed through the lens of early-stage innovation: It’s not clear exactly what they will become and where they are most beneficial, but DAOs have obviously created a lot of interest and excitement in the Web3 community. Will DAOs take the place of traditional organizations for some types of group-level activity? Will we see hybrids form, where, for example, “normal” companies use smart contracts to make ironclad, irrevocable commitments to a constituency? Imagine using something like a DAO to let your employees vote on which philanthropies to support or users decide which features to incorporate in the next version of an offering. With Web3, there’s plenty to imagine.

https://upstreamapp.com



Crashing Crypto: Is This Time Different? In any case, as we look forward, the value of cryptocurrencies will have to rest on their underlying economic uses, which are … Well, that’s just the thing. I’ve heard many discussions in which crypto supporters have been asked exactly what economic role crypto can play that isn’t more easily and cheaply achieved through other means — debit cards, Venmo, etc. Other than illegal transactions, in which crypto may sometimes offer anonymity, I have yet to hear a coherent answer.

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