In a fast paced world functioning purely on incentives available, tokens are the new “new” thing in the blockchain space as the business model for Web 3.0. By align incentives amongst its entire ecosystem, it is being recognized a positive-sum game among the tribe of token holders.
Long story short: Though right now only startups have released tokens, once tokens enter the enterprise world – they will eat the enterprise from within, because investors will make money and the community will gain. Let this across many enterprises and the stock market will find its place in history. And finally, this turns out to be a new response to the Innovator’s Dilemma — how can enterprises compete given their tendency to protect their profits or rather, how will they maintain the status quo?
- Tokenize. Shares become tokens.
- Decentralize. Spread power among more people – Users get tokens for past and future contributions.
- Melt into the community. Value and power spreads further over a period of time.
One enterprise doing this and making money for the shareholders will start the domino effect – the others will follow suit.
Example: Applying this through Facebook
Step 0. Status quo
There is a basic tension: Facebook has a bias to openness, versus users’ privacy because despite contributing the key personal information and content that is the heart of Facebook. Billions of user, handful of controllers – this is the recipe for a fatal disaster especially if Facebook is not structured to handle such a responsibility.
There have been various proposals to improve the situation with many ideas come from the blockchain world. One in particular involves overtaking Facebook from the bottom-up, by building something decentralized, and try to get the users to come. The greatest challenge is how to populate the network. It’s chicken-and-egg: people only join if their friends are there. And you guessed right, it’s awfully hard to crack two billion highly engaged users.
The variant: build something decentralized and tokenized. This can only help, because early token holders are the first users, and they’re incentivized to bring in their friends.
Step 1. Tokenize.
Firstly, Facebook shares (ticker:FB) get converted to tokens.
There are about 3 billion shares in Facebook. So here, Facebook (the company) issues 3 billion Facebook tokens ($FB) on a blockchain and it starts using the blockchain as the registry of who owns what (share = $FB).
Either way, we end up with a blockchain holding all $FB tokens that have replaced the previous FB shares. The tokens are securities.
Step 2. Decentralize.
This is where the real change occurs: spreading power, and tokens for users.
The following need to happen simultaneously.
- Spread governance. Change governance so that the community control; $FB should not be controlled merely by Facebook.
- Make the blockchain public-facing. Anyone can read to it or write from it; and no single entity is running all the servers i.e. key protocols for Facebook functionality are open, specifically the ones where tokens are given or spent. Ideally all of Facebook becomes open source.
- Tokens for past value-add. Facebook issues 3 billion more $FB tokens to the existing users – rewarding them proportional to their degree of interaction over its history. Or along the status quo business model: a decentralized service that asks users to use their data for marketing purpose in return for other value.
- Tokens for future value-add. Facebook sets up rules such that value-creating actions on Facebook get $FB tokens. Furthermore, people should earn tokens for other value-adds too, such as adding features or improving performance.
When this is done, it will be obvious for crypto exchanges like Kraken or Interledger to add $FB tokens. So in steps 1 and 2, FB value has been moved from the traditional exchanges (stock market) to new crypto exchanges.
What becomes of Facebook the company? One option is to dissolve it. Another option is for Facebook the company to simply become a service provider to the public $FB blockchain; it’s incentivized to improve the service because by doing so it earns more $FB tokens on behalf of its employees.
Step 3: Melt $FB Into the Community
This step is something gradual that happens over time. At the beginning of this step, half the $FB tokens are owned by the previous shareholders, and half by the users. As time goes on, it could spread out more as users earn $FB tokens for usage, or more people buy $FB due to the lower friction to buy it.
Now why would Facebook shareholders ever go for this scheme? The main reason is that it will make them money! That’s the chief driver of a typical shareholder.
Numbers, Figures and Companies
If we talk in terms of where the biggest payoff will be, one is where enterprises are at odds with their customers or broader communities, and therefore have the most to gain by aligning incentives. Visa and other credit card companies could tokenize and include merchants as it is under the interests of its shareholders and banks (and avoid more lawsuits). Uber shareholders, drivers and riders could unite in tokens, to share in the value creation. Twitter, Medium, and really all existing social media will move just like Facebook. Amazon too already has many independent business units with their own API, profit & loss so a similar pattern would work for them too. Big music producing/ record labels often find themselves at odds with the musicians they represent, not to mention the rest of the music ecosystem. By tokenizing and decentralizing, we can start to align the interests of everyone. All media distribution platforms from music and movies, to photos and video games would majorly benefit from this new biz model too.
We understand a tokenized, decentralized enterprise might seem like a far, far shot. But, we have enough precedents which show us steps towards this:
- Business unit with a tokenized core. For example, almost every airline on the planet has some sort of “air miles” program. Many of these have even spun out into their own businesses, such as Air Canada’s Aeroplan. Blockchain experiments abound for these kinds of applications, from air miles to ticketing.
- Series-A stage startup that tokenized its core. Numerai switched to rewarding its community of data scientists in tokens, turning zero-sum game among scientists to a positive-sum game. Next up — decentralizing the tokens.
- Series-B stage startup that tokenized its core. Messaging app Kik introduced Kin tokens, creating a positive-sum game for its ecosystem.
- Enterprise that tokenized its core. For example, reportedly about a decade ago some of the big credit card vendors tokenized (but didn’t decentralize) their internal flow of value. This led to big savings on currency exchange, lowered friction within the network, and more.
Stock Markets: If this domino effect follows, every single company on the stock marketwill be tokenized, whether it chose to or not. Traditional stock markets as we know them will be empty. The new tokens on crypto exchanges.
The Innovator’s Dilemma: The constraints of “a billion dollars or it doesn’t matter” and “why would we cannibalize ourselves?” exist for enterprises even when valuation isn’t sky high. Enterprises try to preserve their status quo, to preserve their profits — at the risk of death by disruption. Clayton Christensen’s 1997 book The Innovator’s Dilemma described this problem but with solutions that won’t work in the years to come.
The New Solution
Like in Hollywood a different group of people keep on making a movie, make some money and move on, “Tokenize the enterprise” is a new answer to the Innovator’s Dilemma. It allows the enterprise to embrace change, because the enterprise has become the community, and vice versa. The community can decide if it has the courage to embrace change. And, crucially, if some subgroup doesn’t agree, it can splinter off (yes, fork) to do its own thing. Then, a billion dollars doesn’t matter. Communities can self-organize around the original community or the new one, based on their beliefs.
These communities will be much more fluid. Membership in each tribe is really mostly about what tokens you own, and therefore what communities you are incentivized to contribute to.
But blockchains change this. Blockchains radically reduce the cost of communication between organizations, compared to within. So, the natural size for an organization can be far smaller. So, once large enterprises have tokenized, then it will also be natural for them to split into smaller and smaller entities; and to re-form as needed – Liquid Enterprises.
Enterprises melt into the community. The stock market melts into crypto exchanges. Innovator’s Dilemma spinoffs = hard forks. The future of business will be token tribes,in Hollywood-style.
To paraphrase J.B.S. Haldane: The future is not only stranger than we imagine, it is stranger than we can imagine.
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