Web 3 Wealth Distribution

Web 3 Wealth Distribution

Every Thursday , the Forta Foundation team meets on Zoom for a virtual happy hour. I haven’t met some of my colleagues in person, so this is the only time I get to know their identities outside of the office. Everyone has a story to tell, you just have to ask.

The rule is “we don’t talk about work”. Often, someone asks an interesting question that ends up snowballing into discussions about economics, politics, the impact of social media, etc.

In April, Juan asked the question “Will encryption and Web 3 have a positive impact on global wealth distribution and equality?”

During the discussion, I was pessimistic. The development of the technology industry over the past 30 years has objectively had the opposite effect. Value creation is concentrated in a small group of companies (many of which operate effective monopolies in their respective verticals), while wealth creation is concentrated in a small group of people (founders, early employees, and investors). Seven of the nine richest people in the world founded or run technology companies in the United States, with a combined wealth of about $ 1 trillion .

We’ll explore what enables the tech industry to create and capture disproportionate value, but the question I really want to dive into is “Will cryptocurrency and Web 3 perpetuate the gap between rich and poor, or will it level the playing field?” We zoom in…..

Web 2 Value Capture

As I mentioned above, over the past 30 years, the largest tech companies have been able to create and capture value disproportionate to their size.

Amazon, Microsoft, Google, Apple, and Facebook are effective monopolies on e-commerce, operating systems, search, smartphones, and social media—owning entire industries and capturing most of their value.

Their founders and CEOs — Bezos, Gates, Page, Brin, Ellison, Ballmer, Zuckerberg — have also amassed huge fortunes. Now that Elon owns Twitter, I can group them together:

Web 3 Wealth Distribution

It comes down to the fact that, thanks to computers, software, and the internet, a small team can create and capture value at an unprecedented multiple. There have also been sudden spikes in value creation throughout history… Machines replaced humans during the Industrial Revolution.

When Amazon went public in 1997, it had 256 employees. Amazon’s IPO was valued at $438 million, equating to a valuation of $1.71 million per employee. Today, the valuations per employee of recently listed tech companies are even higher…

Web 3 Wealth Distribution

The seven companies founded or run by the eight richest tech billionaires mentioned above are located on the U.S. West Coast, California and Washington.

Early employees with the largest stakes will also work close to the main office, resulting in a concentration of personal wealth in these areas. Not surprisingly, three of the seven fastest-growing real estate markets in the US since 2000 are San Jose, San Francisco, and Seattle.

financialization

Even outside of technology, asset ownership has been concentrated in the past 30 years. Since 1980, the US economy has experienced rapid financialization, with more and more corporate profits coming from financial activities rather than trade or production. During the same period, U.S. household wealth shifted from physical assets (real estate, commodities) to financial assets (stocks, mutual funds). From 1984 to 2011, real estate declined from 40% to 25% of household wealth, while financial assets increased from 25% to 50% of household wealth.

The top 10 percent of U.S. households own 90 percent of stock and mutual fund wealth, but only 30 percent of primary home ownership wealth. There are barriers to ownership of physical assets that don’t exist for financial assets…you need to be close to the physical assets to get practical application. That’s why people who live in Detroit own a house in Detroit, and people who live in San Diego own a house in San Diego, not Detroit.

The top 10% of U.S. households own 90% of stock and mutual fund wealth, but only 30% of primary residence ownership wealth. There are barriers to ownership of real assets, while financial assets don’t, you need to be close to the real asset to get the actual asset. That’s why people who live in Detroit own a house in Detroit, and people who live in San Diego own a house in San Diego, not Detroit.

My conclusion is:

(a) technology and the Internet enable us to create more value with fewer people who traditional corporate structures allow disproportionate value to be captured, and

(b) Financial asset ownership is easier to concentrate than physical asset ownership because physical location does not eliminate the utility of financial assets.

Web 3 Wealth Distribution

The distribution of Web 2 crypto wealth is similar to that of the wider tech industry. Crypto started in the Web 2 world and is dominated by the common centralized companies headquartered in San Francisco. Most of the value creation and capture happens on some large exchanges ( Coinbase, Binance, FTX ). Their small teams create a disproportionate amount of value, and their founders and early investors get most of the wealth creation. The CEOs of all three companies (of which only one is listed) appear on the Forbes 100 list.

In terms of asset ownership, however, it is interesting to note that while approximately 70% of BTC is owned by the top 2% of network entities, retail investors have actually been growing gradually and continuously from 2012 to 2022. In 2012, retail investors with 10 BTC or less accounted for 2% of the total supply. The same segment of retail investors owns about 12% of the BTC supply by 2022.

Web 3 Wealth Distribution

I like this statistic because it violates the norm. Generally speaking, high-risk/high-growth asset classes (i.e. tech startups) are not easily accessible to the average retail investor. Cryptocurrencies are unique in that they are both high risk/high growth and easy to acquire.

Seeing retail investors own more than 10% of assets, you might think that still finding product-market fit is refreshing and a strong indicator of a potential shift in wealth distribution.

Geographical point of view

Geographically, Web 3 is more diverse than Web 2. There is no doubt that San Francisco and New York are hubs of activity, but they are not as dominant as Silicon Valley and Seattle were 20 years ago.

Today’s default work schedule is “remote first.” You can be anywhere, which means startup teams are more geographically diverse. For the first time in my life, most of my colleagues are outside the US (which also happens to be one of my favorite aspects of working in this industry).

The best people are everywhere.

Two other market forces affecting crypto and Web 3 talent and companies – regulation and taxation.

States with no state income tax, such as Nevada, Texas, and Florida, as well as countries with favorable capital gains treatment, such as Puerto Rico and Portugal, have seen a significant exodus of crypto brains.

For companies, regulations and taxes can affect your base of operations. FTX, now one of the world’s leading exchanges, recently moved its global headquarters from Hong Kong to the Bahamas, mainly for regulatory and tax reasons. Such a move was unrealistic for the last generation of tech companies, who needed to be where the talent was.

value capture

Value capture for Web 3 is already more fragmented than for Web 2

It starts with ownership, and decentralized networks and applications are owned differently than their Web 2 counterparts. For example, protocols that issue tokens typically allocate 50% or more of the total supply to the community through airdrops, grants, rewards, etc. This means that founders, early team members and investors hold 50% less tokens, and users and early supporters hold more than 50%.

Value capture is naturally also more decentralized, with blockchain and Web 3 protocols generating a lot of revenue, but not by one company. Instead, fee income is distributed among miners, validators, stakers, and liquidity providers.

Now you can say that these stakeholder groups are simply replacing employees in traditional corporate structures. While there is some logic in it, the absence of an intermediary entity that centralizes ownership means that the value captured by decentralization is more decentralized.  

Summarize

As I write this question, I have the economy of ownership ( on the Web3 economy of ownership ) in my mind . The number of assets being created is growing exponentially, and visits to these newly created assets are increasing every day.

How will the ownership economy, especially NFTs, affect the distribution of wealth? One thing I’m confident is that it’s becoming more diverse geographically, I’m sure it won’t become as much concentrated.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/web-3-wealth-distribution/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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