The Refragmentation - Part 3

Equity Token Whitepaper The Refragmentation Paul Graham Images (4).png

The need for a decentralized internet is clearly imminent as the current structure is no longer efficient. One example in recent years is the failure of proper journalism, due to declining publisher revenues and the never-ending need for increased page views. The inequality between those in the technology sector and those outside of it is a problem of growing concern. Incentives across the board have become misaligned and the goal to properly aligning incentives around the world starts with shared equity ownership.  

At the start of 2018, Mark Zuckerberg stated:

“One of the most interesting questions in technology right now is about centralization vs decentralization. A lot of us got into technology because we believe it can be a decentralizing force that puts more power in people's hands. (The first four words of Facebook's mission have always been "give people the power".) Back in the 1990s and 2000s, most people believed technology would be a decentralizing force.

But today, many people have lost faith in that promise. With the rise of a small number of big tech companies — and governments using technology to watch their citizens — many people now believe technology only centralizes power rather than decentralizes it. There are important counter-trends to this --like encryption and cryptocurrency -- that take power from centralized systems and put it back into people's hands. But they come with the risk of being harder to control. I'm interested to go deeper and study the positive and negative aspects of these technologies, and how best to use them in our services.”

We are witnessing what Paul Graham has coined “The Refragmentation”. In response to increased inequality and the polarized divide being seen between populations around the world Paul Graham lays forth the following hypothesis in his 2016 essay stating that “all these trends are instances of the same phenomenon. And moreover, that the cause is not some force that's pulling us apart, but rather the erosion of forces that had been pushing us together. The two forces were war (above all World War II), and the rise of large corporations.”

It is an issue more companies are having to address. There are 52 private tech firms founded in 2008 or earlier and worth more than $1 billion, according to PitchBook. They include Airbnb, Pinterest, Palantir, SpaceX, Credit Karma, Unity, 23AndMe, Squarespace, Qualtrics and Tanium. Companies that will hit the 10-year mark next year include Uber and Slack.

The issue wasn’t foreseeable a decade ago, said Christine McCarthy, an attorney at Orrick Herrington and Sutcliffe who advises companies on compensation. Regulatory changes and access to large amounts of private capital have extended the time companies stay private. “The companies that were granting options 10 years ago, if you had talked about this, they would probably think you were crazy,” she said. “It was not really heard of for tech companies and startups to remain in business as a standalone [private] entity for more than 10 years.”

Regardless of the good or bad nature of this trend, it is important to recognize it is happening in order to realize the opportunistic potential of blockchain technology. Value creation has shifted from public to private market investors. This is perhaps best summarized by in their whitepaper:

“IPO investments in firms such as Apple, Microsoft, Oracle, and Amazon returned 300x to 600x. Facebook, by comparison, has yielded less than 5x return against its IPO price (8x if one purchased at the post-IPO low) and that is despite having reached a market cap of more than $475 billion. Early Facebook investors, however, received 800x return on their capital invested. By way of contrast, for Facebook to match the equivalent return of Microsoft's IPO, Facebook would need to reach a market cap of $45 trillion, which is more than twice U.S. GDP.”