The pandemic changed society forever – and in many cases, not for the better. But when historians look back a few decades from now, they will view this period as a turning point in the transition from a corporate-dominated economy to a new crowdsourcing model in which participants are motivated with tokens to grow a project and share in the profits ?
It may sound far-fetched considering that mega-corporations are dominating the current reality, but imagine a world where Uber drivers and their passengers own and operate a decentralized ridesharing network. Or one where Airbnb property owners, guests, and even cleaning staff share in the cooperative’s success.
“What happened in the last 10 to 12 months would have probably lasted 10 to 12 years without the pandemic,” said Michael Anderson, co-founder of Framework Ventures. As a VC fund, Framework Ventures raised $ 115 million for two mutual funds and is a major DeFi player early on in Chainlink, Synthetix and Yearn.finance.
Anderson says working from home normalized the concept of a decentralized collective effort.
“That kind of concept of working for a company where you show up every day and there is an office […] it broke up somehow, ”he says. “It forces people to have questions about whether we need this in the future?”
The concept “Uber as a Decentralized Autonomous Organizations (DAO)” has been around at least since 2016, when the blockchain project Arcade City started talking about it after a successful fundraiser for the unfortunate The DAO. But now it is finally beginning to capture the zeitgeist. This month alone, Bankless co-founder David Hoffman has wrote a long discussion on “The Future of Work” and Bloomberg’s Joe Weisenthal touched about this in his article “There’s a New Vision for Crypto”. Meanwhile, tech billionaire Mark Cuban tweeted in late May that corporate DAOs were the “ultimate combination of capitalism and progressivism.”
The future of companies could be very different as DAOs take over old businesses. It’s the ultimate combination of capitalism and progressivism. Entrepreneurs who activate DAOs can use $. When the community excels in governance, everyone benefits. Trustless can pay
– Mark Cuban (@mcuban) May 31, 2021
The DeFi sector has been at the forefront of the rise of DAOs and Digital Organizations (DOs), which are similar but less code-driven and not autonomous. They enabled a collaborative model and collective ownership of protocols and became popular in DeFi as a form of governance and as a way of crowdsourcing development.
Yield farming might start off with a bad rap as guerrilla marketing meets ponzinomics, but it quickly became apparent that it was a great way to reward the most active participants in a community with tokens and often with a stake in sales. This in turn creates incentives for the best participants to further develop the protocol and to bring more and more participants into the project.
“That property has the power,” explains Anderson. “And the best communities are the ones where you have the first users who are brought in from the start, and they become your greatest supporters, they become customer support, they become business development.”
If it works in DeFi, there is no reason why it can’t work in other industries and economies. Any marketplace could potentially benefit from this, and that doesn’t just mean tokenized versions of eBay or Uber. Anderson cites the example of a clothing production line where materials sourcing, clothing manufacture, distribution and sales could be promoted and organized through this new model.
“I think what we’ve seen in the past few years is a high point for companies. And I think we now have almost a substitute for a limited liability company or a company in general with the formation of DAOs, ”he says. “It is a replacement of incentive levels such as stock and stock options with tokens.”
“It’s mostly DeFi, but if you go beyond that, I think you can get this model into any market. I think it will end up being a really unique way to incentivize participation. “
The model has many advantages: The decentralization means that anyone, anywhere in the world, who has an idea to build on the protocol – or finds a better way to do something – can step in and reap the benefits. The process of iteration and evolution is also accelerating. You no longer have to wait for a company’s grinder to reluctantly accept a new course of action. It just happens through an efficient competition that produces the best result for a collective.
“That ultimately makes things more efficient and scalable, but also fairer and more open,” explains Anderson, adding that it allows anyone to compete anywhere with tech entrepreneurs in San Francisco or Silicon Valley who previously had the advantage of being there to be close to the capital.
“Tearing down these walls is really exciting, for the future of the world, but also for the future of work.”
“Community ownership is a fundamental difference and innovation in my opinion,” he says. “And that’s why I love tokens. It’s a whole new design space; We’re just scratching the surface of how we can use it in different and novel ways. “
Fairer than equity
In a way, DAOs and DOs are a modern twist on older concepts around partnerships, cooperatives and collaborations that have been made a thousand times more efficient through technology. And while our mental models for this type of property look very much like equity distribution right now, Anderson expects that to change as token use grows and evolves.
According to Andersen, having a clear vision of the future – or a strong thesis about how things might play in the future – is one of the things that sets Framework Ventures apart from many other investors in the space. Contrary to the short-term, price-oriented thinking that prevails with crypto, Anderson and co-founder Vance Spencer believe in considering where the digital finance world is headed over a five to ten year period and place their bets accordingly. They are popular guests on DeFi podcasts for their inspiring and reasoned thoughts about the future.
Framework’s first major success came before they had even formalized the fund, when Anderson and Spencer developed a thesis about the need for smart contracts to access secure, reliable real-world information that made their investment in the decentralized Oracle- Network Chainlink shaped:
“The mass adoption of interesting smart contracts requires data feeds that are secure, off-blockchain (i.e., interest rate data from a bank), and privacy when incorporated into a smart contract. Data feeds that meet these conditions are currently not available. “
Your investment thesis – which cannot really do justice to my brief summary – was well worth it. Anderson cites the example of Don Valentine, the late venture capitalist who founded Sequoia Capital, who invested in Apple after realizing a similar realization that personal computers would one day be in every household and on every desk. This is the secret to successful VC investing, says Anderson.
“Finding the pieces that fit into this vision and this new world is actually the easiest part in my opinion,” he says. “The difficult thing is to see what this future state will be like.”
A long time ago in the startup world
Anderson grew up in Palo Alto, California, the “epicenter of the startup world,” and attended Yale University in Connecticut. He wanted to study electrical engineering or computer science and play college football. But in September of his freshman year, the fourth largest investment bank in the United States – Lehman Brothers – collapsed and filed for bankruptcy. This event led to his fascination with finance and his degree in economics and computer science.
He then heard firsthand reports of the turmoil on Wall Street from family members of his friends and pondered reports in the New York Times and WSJ. He learned about the intricate and mysterious nature of mortgage-backed securities and collateralized debt obligations.
“Once you really dive into the depth and complexity, I don’t think there is anyone who really understands the whole system,” he says. “You could spend a lifetime figuring it out.” He attracted fintech as a possible solution.
“For me, software is the eighth wonder of the world. How can we develop software that accelerates or emphasizes the power of finance? “
He was initially torn between a career in technology or finance and tried both. During his internship at Apple in 2011, he was dismayed to find that a company that made such elegant products was organized like a “stuffy kind of opaque corporate institution” in which even many department heads did not know which product to put next Market came. He realized that he was unlikely to have any effect there.
Anderson also spent three months as a summer analyst at Barclays Bank researching companies considering going public, such as GoPro and Dropbox.
“I got tired of covering them and I realized that I just wanted to work for them,” he explains. “And that ultimately led me to Dropbox.”
He spent three years at Dropbox and another two years at Snapchat, mostly in the role of product manager. There he learned how to take an idea from conception to production, taking user needs into account as the product scales by the millions. This knowledge would later prove to be a key lesson in his approach to growing crypto networks, none of which are currently operating at the consumer tech level.
Although Anderson mined Bitcoin while studying, he didn’t really fall into the crypto rabbit hole until he read the Ethereum whitepaper in 2015 and a light went out in his head. Shortly after, when he moved to Los Angeles to work for Snapchat, a friend sent him on a “blind roommate date” with Vance Spencer, who was then working for Netflix. The pair pretty much connected from question one about Ethereum.
“Our kind of friendship grew very, very quickly. We started to have an informal investment partnership together, looking at different opportunities for angels, and it just grew from there. “
Top shot in all but name
Developing a clear vision for the future is one thing, but benefiting from it is another. As with most things, timing is everything. Unfortunately, Anderson and Spencer were about three years ahead of the market with their first company in 2017. Hashletes, essentially an NFL version of the outrageously popular NBA Top Shot.
NFT collectible player cards enabled users to compete in fantasy soccer games and win prizes. One of Anderson and Spencer’s claims about NFTs that won’t bear fruit until 2021 is that NFTs must offer both utility and digital ownership.
Hashletes was the first app on the iOS store to be linked to Ethereum, but the project only lasted a season and a half and was killed at the time by high royalties and a lack of interest or understanding of NFTs. Anderson and Spencer sold the business to a sports holding group in New York.
“It’s definitely hard to move forward, especially when you know this idea should work, but the infrastructure, the technology just isn’t there,” he says. “[American entrepreneur] Marc Andreessen said that there are no bad ideas, it’s just the wrong time. So a little bit of it. You know that being too early also means being wrong. “
“I would say we have definitely built up our empathy with entrepreneurs in this area. And that gave us a lot of insights into the way we wanted to create frameworks and why we wanted to build frameworks. “
Given the newfound interest in NFTs this year, Framework Ventures is once again following the space.
The couple’s success story was created with their initial investment in Chainlink when it cost 11 cents during the 2017 ICO. Anderson’s investment thesis is still online, explaining why they had a target price of $ 10-20 on the 11-cent token. It has already flown over that: at around 25 US dollars, the token represents a return of more than 22,000% in about three years.
“We probably made 20-25 different angel investments prior to launching Framework, but Chainlink was definitely the best accomplishment of these. But I think it’s the one we have the closest relationships with, simply because of the breadth with which they can expand into all of the different industries. “
They then formalized the partnership, with the Link investment leading to many more including Aave, dHedge, Synthetix, Yearn.finance, Dodo, Edgeware, Fractal, Futureswap, Kava, Pods, Primitive, Teller, The Graph and Zapper. “That’s how we got to know all these other teams. Chain link oracles are usually the common choice, ”he says.
The importance of community
Another premise is that in a decentralized open source world – where any protocol can be cloned and its liquidity siphoned off – the quality of the community around a project is more important than almost anything else.
“The community is something that has a real moat to defend,” he says. “That is why community development is our top priority. We like to say you can rate the team, you can rate the product, you can rate the market, but the most defensible elements of any investment will be the core team and then how that transitions into the community and ownership. ”
Instead of being mere investors, they are also active participants in the community if they are very influential and wealthy community members. A sister company called Frameworks Labs employs 17 software engineers who develop tools and systems to drive growth and engagement for projects they have invested in.
“We are one of the larger Chainlink nodes in the network. We are one of the larger graph nodes. We are active traders when we invest in an exchange and provide liquidity, ”he says. “It just means we roll up our sleeves as we are one of the bigger users, one of the biggest suppliers for most of the investments we make. this is how we define our lead. “
Anderson and Spencer see it as a perfect match of interests, and therefore this new decentralized organizational model can take back some of the power from the technology monopolies and corporations that dominate everyday life.
Back when the internet began to expand, utopian visions of its potential to democratize the world and restore power to the individual dominated. What actually happened, of course, was the development of addictive algorithms, filter bubbles and abandonment cultures thanks to technology monopolies like Google and Facebook.
It might be another utopian vision, but perhaps the DeFi / Web 3.0 model can succeed where the internet has failed. Anderson points out that he used to live near Google. He says, “Google had this famous line: ‘Don’t be angry.’ Well, blockchains enable something even better, namely, ‘Can’t be angry’.”
“When you build cryptographic guarantees of transparency and decentralization, you know that a company cannot extract value the same way.”
Radical transparency means that the best projects with the most thoughtful incentives will attract the brightest minds and avoid those who withhold 50% of tokens to end up in retail in the future.
“I think you don’t really get very far with models like this because everything is transparent and the incentives are focused on the users of the product, the users on the networks, more than anything I’ve seen in previous technology generations.”