For more than a decade now, Venture Capitalists (VCs) and the public (mostly techies) have been engaging in various battles. VCs have won them all.
Back in the late naughties and early tens, crowdfunding took some industries by storm. Suddenly, musicians in particular, film producers, and entrepreneurs in general, could go directly to the public to ask for funding.
The gates were briefly opened. Control over music specifically crumbled. Some films too. A revolution was brewing and this was a peaceful one. The public was finally speaking through music to which they danced.
Then came the SEC and told them there is this ancient law, a barbaric law we call it, which says only the rich can just give money to music producers, or film makers, or entrepreneurs.
If the public wants to do so, they have to first go through SEC, because that’s what this ancient law says.
Overnight, crowdfunding became a was, generally. The peaceful online attempt to change course gave way to riots in London in 2010, and outright revolutions down below.
Those of course also had other causes that probably contributed far more, but this loss of public voice, and money is speech the Supreme Court says, may have well contributed to the feeling at the time that there was no other way to express oneself but the streets.
Most of us had forgotten this story until we were made aware that an overlapping generation before us had learned what we learned in 2018.
This time less to do with music, although there were attempts there too, or film, and more to do with specifically tech innovation.
With the gates opened once more, the public swarm through them. Anyone that wanted money could have them. A boom was on, and suddenly, the wider economy was beginning to boom too.
Our promise to get back to that pre-9/11 optimism and to stop children watching the news to get them to play with blockchenized robot-toys instead, was being fulfilled.
There were aims and ambitions, ideas and visions, scams too, with a new world on offer to a public thirsty for change and variety.
How do you manage all this? Should everyone be able to raise money based on a promise? What if they are lying? How do you keep them accountable? Shouldn’t there be some rating agency?
Ironically, whether a project had received VC funding became one method of quality control, until plenty argued VCs don’t necessarily care as they just secure the pre-tokens for cheap and then sell at a higher rate once the token goes public.
Overall however in a way we were dealing with what our great great grandfathers were dealing with a century ago. How do you balance accountability with the freedom of funding, or with money is speech?
As it happened SEC came down and said you don’t have to worry about any of this, your great great grandfathers have written a sacred unchangable book which says if not rich then no money is speech for you, that is still in force and we are going to enforce it now.
Practically unchangeable. Theoretically you can get Congress to pass a new law, but with the public practically not having voice, good luck with that one.
Before SEC came in there was chatter whether this was disrupting VCs, whether they were or were going out of business now, whether they’re irrelevant if the public is the one that gets to choose what to fund.
Some VCs even publicly gave the answer to that. They said not to worry, the SEC won’t allow it. They were right.
What followed was a year of stagnation in stocks in 2018. The public once more began becoming restless. The French rose, and within months, the entire globe was in protests, until the pandemic struck.
Again much of these had their own reasons and perhaps nothing to do with money is speech, yet fundamentally they were about freedom and fundamentally SEC curtailed some freedoms.
Plenty therefore thought it necessary to checkmate SEC, to provide a peaceful outlet for change, and to provide an outlet through which the public too could participate in value creation and capture.
There were first the Initial Exchange Offerings (IEOs) where small projects would just list their offerings on generally unregulated exchanges.
Before that China came up with exchange mining. Some new exchange would just give out a token as fee rebate to traders, sending trading volumes to tens or even hundreds of billions a day.
Now what we have is liquidity mining. You get free tokens just by putting down your assets in a dapp that primarily focuses on facilitating code based financial services.
He is referring to Coinbase Pro listing YFI. Coinbase however bought a Securities broker that has all the relevant SEC licenses, so they no longer care if something is a security or not because they now have the license to sell securities.
So in our view, they’re not necessarily passing judgment on whether YFI is a security. The matter is now irrelevant to them.
Cronje’s point however is somewhat sound. There is no direct monetary exchange, but if SEC wanted to they can extend the interpretation to include the provision of liquidity as a money-like exchange.
There is no promise of value creation, but SEC takes there more the intent. Is someone providing liquidity because they think the free token will have value and may increase in value.
The team is obviously responsible, at least in part, for value creation, but only temporarily because once it’s out it can be forked.
Arguably that last part is the real checkmate because it makes any enforcement pointless as you can’t shut down ethereum and therefore you can’t shut down these dapps.
In addition as there has been no direct money exchange, any enforcement wouldn’t lead to any restitution because there is no money to be given back to the investors as they didn’t give any money.
So he is probably right that these are not securities, but in that case what are they? Presumably they are something, with the only thing that can be said with some certainty for now being that it probably would take them some time to figure out what that something is and for plenty that’s good enough for now.
By online ads he means what back then were still hot start-ups like Google and Facebook before they turned into giant corporations that no longer value you very much.
High-Frequency Trading (HFT) was also a new thing at the time, with it better described as a talent war between Silicon Valley and finance which at the time was the go to for smart people.
Silicon Valley won it briefly, but the entropic quality of a VC chock-hold on project funding led to a gradual stagnation and now perhaps even regression in what we’ll call traditional tech.
VCs were basically ordering smart kids to not touch anything these corporate techs were touching or could touch, giving a window of opportunity to corporate techs to touch everything and just as importantly, preventing any competition against them, primarily because the VCs had invested in them.
That led to what can be described as the death of innovation in traditional tech, in social media or in publishing etc., with great consequences for the public which is now chained by these corporate giants.
Talent being much appreciative of freedom, they began moving to crypto especially after 2016, both from Silicon Valley and from traditional finance, with the effects now beginning to be felt.
Seeing what happened to what has now become corporate tech and the consequences of it, you’d think a lot of this talent would want to maintain this freedom space for as long as possible.
That can have implications for traditional structures that lose some control both in regards to what opportunities are offered exclusively to them and then to the public after 90% of the value has been captured, but also in regards to who finds or exploits the opportunities as smart men and women may well find it difficult to decide whether they should be working for VCs or for themselves.
Meaning there’s a window for disruption which can even amount to a peaceful revolution of sorts as middlemen and chokepoints are bypassed to reach the public directly.
So this pandemic pause may well turn out to be a good thing as the techies finally take charge again with the same aim of giving the public the opportunity to directly engage in value creation and value capturing.
No wonder they swarming again, with it unclear whether there’s anything anyone can do about it this time because this time they seem to be doing it the Nakamoto way.
Here’s the code. You can’t shut this because it runs on ten thousand nodes and because it can be forked ten thousand times.
Your enforcement has no teeth, because the coders don’t even have to be known. We can all read the code.
Your exchanges are no longer a chokepoint. We can mine eth ourself or bitcoin, and then exchange it for whatever we want on the ethereum network.
We don’t need your money. We make our own money, and so we’ll compete with whoever we want.
You are of the past, greet the future grandpas and be thankful it is us, the British way lads, for we tend to bring an economic boom and optimism as has been shown time and time amore.
Rejoice, for the music can start. Take off the veils of darkness, and let us live for once. Let us kneel not on the graves of the past, but in this decade, let us try again to catch the stars.
Open the gates young ones. Better we, than those other ones.