The world is transitioning towards a post-capitalist era. Exclusionary systems where capitalists dominate the creation and retention of value in monopolised industries, may soon be flipped upside down, says Paul Veradittakit.
The post-capitalist era will bring an inclusionary system where value is controlled through distributed ownership and power comes from talent and creativity. The past twenty to thirty years has been an interregnum period where individuals like Steve Jobs, a broke college dropout in his humble basement, built the foundation of the world’s most powerful company today.
Jay Eum, Co-Founder & Managing Partner at Translink Capital discusses why ICO will remain strong and is definitely "here to stay" despite the surrounding skepticism.
Through the introduction of Initial Coin Offerings (ICOs) and tokens, cooperatively owned projects will be the new wave of disruption that will absorb value in the future decentralised economy. Bitcoin changed our perception of money and value. ICOs are doing the same but for project funding and equity. Bitcoin and cryptocurrencies alike bypassed the restrictions of our traditional financial system.
Anyone, anywhere around the world with a computer and internet connection can participate in the funding and development of the future Apples and Googles of the world.
ICOs are bypassing the exclusivity of traditional venture capital and private equity. Anyone, anywhere around the world with a computer and internet connection can participate in the funding and development of the future Apples and Googles of the world, a privilege otherwise granted only to a handful of firms in Silicon Valley. The next wave of groundbreaking applications and services may be birthed from this inclusionary funding mechanism facilitated by Ethereum and platforms alike. User generated value will be retained by participants of the network and governance conducted by that same group. This is how the post-capitalist era will be.
Over 2017 and 2018, ICOs as a funding source has significantly dominated project funding in the blockchain ecosystem. To date, roughly $19 billion has been raised through ICOs versus traditional venture capital’s $4 billion. It is becoming increasingly clear that access to deals through efficiencies in distributed ledger technology has the ability to drive innovation at a more rapid pace compared to venture capital. That said, VC is still a necessity in the development of cryptocurrency infrastructure where tokenised models are not truly needed. A token model is not a one size fits all solution—you cannot stick a square peg into a round whole. We anticipate that over 95% of token based projects will not be around five years to a decade from now. Our belief is that utility tokens have the best value proposition and will have the most upside in this developing industry. Security tokens, though perhaps an improvement on the liquidity of equity, may not provide much upside in an investment standpoint.
As opportunistic as the ICO market sounds, the market is filled with exactly that, opportunists. Lack of regulation over a near-frictionless and open system has attracted many scammers and fraudulent projects looking to make a quick buck. As result, regulatory bodies such as the SEC have stepped in to assess the market and ensure the protection of investors. Our stance on this matter is very open and clear. We appreciate the pro-active approach the SEC has taken when it comes to regulation on the cryptocurrency market. We believe that everyone can benefit from regulatory clarity developed through open and healthy discussion.
In addition to the need for regulatory clarity, there is an equal need for improvements on the technical side of blockchain infrastructure before tokenised projects can fully take off. Scalability and price stability are two of the main limiting factors prohibiting decentralised applications and cryptocurrencies to be adopted by the masses. Bitcoin and Ethereum in their current state can facilitate roughly eight transactions per second (Ethereum slightly more). The current transaction throughput constraints are causing increased fees and are adversely affecting the ability to truly un-tap real world use cases that require real-time settlement. There is a lot of development to solve scaling issues and we are very excited to have contributed to a handful of these projects through our Venture and ICO Funds. Needless to say, we are confident in a few of the innovative solutions proposed and it is just a matter of time before transaction capacity is at the level of Visa and Mastercard.
As for price volatility, stablecoins are seeking to resolve short term volatility that disrupts various application use cases. For a project like Augur, if the fair market value of the cryptocurrency you stake decreases more than the value of the winnings you make, the incentive to place bets on Augur is nulled. In order to see adoption of dApps that are time-price sensitive, stablecoins or some other type of solution are needed. Projects like Basis and MakerDAO could be just that.
Like the evolution of money, companies and projects are changing as well. ICOs introduce new capabilities that were not possible in the old capitalist society. An inclusionary system of project funding and development is going to disrupt traditional venture capital and our perception of equity. Open access to innovative projects and the ability to participate in the development and governance of decentralised applications may soon be the norm. ICOs are the new wave of disruption. The post-capitalist era is just around the corner.