The Creator Economy

Web 3.0 Dissolving Middlemen, One Step At a Time

LordArugula 🥬 @LordArugula

@TurnerNovak

One of the things about Web 3.0 that will be similar to the Web 2.0 economy is it will remove middlemen. What we have seen with great technological change is it always seems to put producers closer to customers.

Web 2.0 made it possible for humongous companies to be created and take market share from businesses that didn’t add value. It made it possible for adjacent companies to enter that previously didn’t seem like competitors. It also lowered surviving businesses margins. See Amazon and WalMart. In music, see Apple.

When the trading industry was revolutionized with electronic trading, thousands and thousands of traders and middleman brokers were out of a job. Some survived because they were able to adapt, or they were just a lot better than the rest.

The regulatory climate in trading also enabled businesses to create fiefdoms for themselves. Citadel and operators of dark pools are an example. The old specialists from the NYSE floor are basically gone. New entrants like TD Ameritrade that enabled customers came into the market revolutionizing it. Old line exchanges like CMEGroup were forced to change or die.

As tech moves into industries like accounting, law, or medicine, we will see the same thing. Commoditized roles or jobs that add nothing to the actual product except cost or their ability to carve out a special niche for themself will go away. If you are at the top of your game and actually add a lot of value when tech moves in those producers actually make more than they did in the past.

When we envision change, we tend to think about a commoditized job in a factory, or driving a truck, or some blue-collar occupation. In Web 3.0, the white-collar class will be in for dramatic change too. Quantum computing will be able to do difficult processes that are currently done by a person paired with a computer.

If you are new to Web 3.0, don’t take the bait and be distracted by meme coins and other stupid stuff. Those are the fun and games that help people figure it all out.

Web 3.0 will eliminate a lot of friction in industries. Friction is where aggregators can earn outsize profits. In the trading industry, the customer would call or wire a broker who would transfer the order to a floor desk who would transfer the order to a floor broker who would execute the order in the market. Of course, right now due to regulations and other conditions, the industry still is concentrated with walled gardens even though it is a lot more efficient than it was 15 years ago.

Web 2.0

Creator/Producer——→Broker 1—→Broker 2—→Broker 3—→End Consumer

This lecture illuminates that point using academic research. This stuff works in theory, but we have seen it work in the real world over and over again.

Web 3.0

Creator/Producer—→Tokenized Blockchain——→End Consumer

Of course, there will be aggregators in Web 3.0. But, they better add a lot of value and be nimble because competition will be more intense. There will be more ways to arbitrage profits away and get down to “perfect competition”.

Taking Web 3.0 to its extreme,

• Why would an artist need a gallery and the entire art distribution industry?

• Why does a company need a venture capitalist to give it money when it can raise it using tokens? Hint, the larger percentage of VCs are commodity money-even the big and famous ones.

• Why do I need voter ID, voting judges, polling places, and entire voting infrastructures when I can use a voting token and blockchain-based proof of work voting? By the way, it should be very easy to have on-the-level voting rolls with no fraud too.

• Why do I need a bank when I can create a wallet, put it on a secure unhackable blockchain, and do everything I can do today at a cheaper cost?

On a walk the other day, I was listening to some music and started pondering the music industry. I don’t pay for any music and am not loyal to any platform. I am not an expert on the music industry. I never really paid close attention to its structure until I started seeing a lot of new startup businesses recently trying to tackle the chain of distribution in that industry. There are a lot of bottlenecks in distribution and legalities. Big producers and record companies seem to make outsize profits. New entrants like Spotify, Apple Music, etc create their own walled gardens to earn outsize profits. What would that industry look like tokenized? How can you empower the little guys so they can earn more for their talent, and consumers pay less for music? Imagine a world where consumers of the music paid musicians directly using some sort of token, cutting out the aggregators.

If you think about microeconomics and consumer surplus/producer surplus, how can that be re-arranged using tokens and a blockchain.

As I said the other day, no industry or innovation is immune from the iron laws of microeconomics.

Web 3.0 enables the “invisible hand” to work faster and be more powerful. The danger is it could create monopolies where the monopolist is able to quash competition through blockchain lock-in. It’s not clear how to mediate that potential problem but regulation isn’t the answer.

If you currently earn outsize profits because of the way you were able to position yourself in the value chain, really think about your position and what it would look like in a Web 3.0 business model. How can you transition your business to Web 3.0 to take advantage of the change? Is your business in a position to initiate the change? What adjacent businesses might be tempted to enter and compete with you if enabled by Web 3.0?

No one is an expert on all industries. If you are an expert in an industry, take a peek at the chain of distribution. How do things get from creation to consumption? Figure out where there is a point of weakness in that chain where a lot of aggregators congregate earning outsize gains for the service they provide. See if you could imagine a way for that part of the industry to be tokenized.

Then, go do it. In many industries, the timing might be right. In others, it will be time within the next ten years.