According to my last article, blockchain creates new ways to distribute economic value. Why is this significant? We are living in a world where content, and the technologies with which we consume that content, are increasingly created, worked, and even funded by the men and women who use it. These community-sourced websites may have begun as collaborative efforts–Wikipedia is still mostly maintained by volunteers–but it wasn’t long before the industrial prospects became obvious: enter Facebook, YouTube, and Twitter, none of which will exist without content. And the sharing market has developed much further, with the development of programs such as Kickstarter and Patreon, where consumers can choose to fund specific services and products and obtain exclusive access in return.
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As user involvement progresses in this manner, the upcoming logical step is what Jesse Walden, Founder at Variant Fund, predicts the Assets Economy, in which platforms are”not only built, operated, and financed by users–but owned by users too.” As blockchain networks and cryptocurrencies utilize common assets that are shared with all stakeholders, producing value that aligns their economic interests, crypto ecosystems are a natural fit with the ownership economy. In this piece, I’ll break down how this relationship can develop, what incentives will induce adoption of the ownership market, and why I feel this procedure will operate.
How would it work?
Consider a co-op, credit union, or labor union, which has members buying in and paying dues and receiving gains in return. From the ownership economy, users become owners by consuming a product or placing money or resources into the computer system. For example, in the context of a financial product, you would place in crypto, which then gets lent out, equally as crypto, stablecoin, or converted to fiat. Or you could become a customer by simply taking out a loan. When you get the loan, you gain access to a community of associates and precious content.
We envision a mechanism where a borrower may invite a guarantor into the merchandise experience to partly collateralize the value of their debt being asked. Without having to sync their bank account in precisely the same way, the guarantor will be motivated to”purchase” some percent of security, which would stay managed by the company for the length of the loan. The collateral instrument is a token or stable coin.
In the same way, the idea of using blockchain as a rail to facilitate P2P loans isn’t new. Nevertheless, most companies that have seen any success in this field have just been able to ease loans from one crypto consumer to another crypto consumer, for instance in the Compound marketplace.
The complexity arises when money is utilized to facilitate each side of the market, for example, if the coin holder possesses compromises (rather than fiat), but the customer wants fiat (as opposed to tokens). This problem has been partially solved in the blockchain ecosystem by using”stable coins” like MakerDAO’s Dai as an intermediary advantage.
Jesse Walden points out that user ownership lies at the heart of both Bitcoin and Ethereum, the very first user-owned and operated networks to climb.
Crypto might also be given as a reward for providing customer referrals or adding more bank account to one’s member profile.
The societal guarantee of other loans incentivizes on-time repayment: the fact that the guarantor exists puts social pressure on the debtor to pay off the debt and not harm their social standing or reputation among their own peers. This is only one of the chief mechanisms used in microfinance. In such examples, crypto acts as a passive investment for members of this system. Participants can earn interest, borrow, and lend, which helps ordinary people become spent in crypto without requiring them to perform some heavy lifting.
Why blockchain-powered ownership?
Blockchain businesses could use ownership to open gateways to new markets. Because members on such networks behave like owners, they are more inclined to participate with the new, evangelize the item, create trust, donate to governance, and obtain a voice.
This last point is particularly intriguing, as it allows members to provide direction in regards to both internal choices (by way of instance, how should the economics of the marketplace be designed?) And external problems (by way of example, if an Uber Benefit is directed to an HSA or retirement savings?). Jesse Walden additionally creates the debate that since the value of ownership can be represented by non-traditional rewards like platform governance or new forms of social funds, possession can also”be a new keystone of consumer experiences, with plenty of design space to explore.”
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Blockchain-powered ownership also creates long-term financial alignment. As the collective ownership grows, the company, associates, and other stakeholders will benefit from the shared financial upside. There’s also a considerable decrease in danger: as users gain a larger financial stake in the success of their collective, they are less inclined to engage in risky behavior that will lead to a reduction. Additionally, their ownership stake can become collateral against credit facilities, providing the company with lower risk underwriting.
Cryptocurrencies can be utilized as a proxy advantage that reflects the long-term worth of this market, and this could theoretically be passed to customers. Although we’re still at an early stage in the comprehension of”crypto-economics,” a number of the leading theories widely suggest that a cryptocurrency derives its value from the financial activity happening that is invisibly in it, or is linked to a demand for its cryptocurrency caused by”transactions” happening on the various blockchain network.
Following this basic concept, we can expect that as the use of a specific currency spurs economic activity, the marketplace will apply more value to this money. Consequently, anyone who owns these coins will see their value growth. Obviously, this presumes a comparatively informed market with rational actors, and this is not always true in crypto. However, the hypothesis still holds, and we expect that this will become more and more accurate with time. A fantastic example, if you can ignore the risky sound in crypto that also affects cost, is that the price of ETH is steadily rising in a manner that appears linked to the amount of DeFi activity happening on Ethereum. As more people use Ethereum for economic activity (in this case through DeFi), the price of ETH rises.