In this guest column, Neil Singh looks at the recent success of $PEOPLE and $gm and the rise of ‘Culture Coins’.
The problem of aggregation, where rational actions at the individual level lead to an irrational outcome at the collective level, is prevalent in macroeconomics and financial markets. A bank run is a classic example.
The solution in TradFi is often centralized agency in the form of (government) institutions, powered by a countervailing incentive structure. In regards to the example of a bank run, individuals are rationally motivated to withdraw their deposits in a mad dash for the exit, despite having this action exacerbating the effects at the collective level.
As a response to this problem of aggregation – the FDIC was instituted as a countervailing agency, incentivized by the need to provide stability to the banking system. Similarly, in the spring of 2020, the Federal Reserve was a neutralizing force against the rational behaviour of investors fleeing the market. The Fed’s agency is motivated by its mandate for macroeconomic stability.
Fundamentally, in traditional financial markets, the problem of aggregation creates a pretext for this centralized countervailing agency. In a binary sense, this seems acceptable and rational. Centralized institutions uphold the rule of law and give legitimacy to the markets as counterbalancing agents.
TradFi vs DeFi
In the context of DeFi, the distributed ledger, as opposed to centralized institutions, provide the countervailing agency. Having said this, recent market dynamics are worth questioning if by predominantly focusing on transactions, we might be limiting the scope of DeFi in a broader sense.
Ultimately, problems of aggregation occur not just in financial markets but also in society and culture, and therefore there is an opportunity to utilize DeFi in another sense – specifically, that to which we can apply non-linear value.
The recent rally in $PEOPLE (the governance token that emerged from the DAO that was formed to buy the US Constitution at a recent Sotheby’s auction, but ultimately failed) perhaps validates this notion of the desire to attach value to culture.
It did not matter that Ken Griffin won the auction, as the auction itself was a means to an end – a successful proof of concept. Amusingly, the melodrama that unfolded can be looked upon as the next iteration of the AMC/Gamestop saga from last summer – the poetic irony of Griffin winning the auction thus not being lost.
Conversely, as opposed to stumbling on the idea of tokenized socio-economic culture, this has been the raison d’etre for the $gm token from the onset.
The team led by @ugliestduck is flipping the conventional DeFi model on its head by catalyzing a market cap on the basis of a philosophy that originated in the NFT space. The genesis of ‘gm’ as a culture is eloquently captured by a16z’s Chris Dixon in the following tweet:
The motivation of @ugliestduck and her team has been to capture the universal appeal of the ‘gm’ philosophy and to form capital around it.
The irrationality of inertia at the individual level is solved by the tokenization of the ‘gm’ culture at the collective level. The shared economic incentives mean holders of $gm then seek to evangelize the culture even further, with ownership creating a flywheel effect (to borrow the parlance from Web2).
Arguably, the rise of ‘culture coins’ could be deemed an institutionalist’s nightmare – if the perception is that our traditional democratic establishments are being undermined – but this would be myopic.
Instead, culture facilitated by tokenization should be viewed as solving the problem of aggregation where traditional institutions lack the capacity, granularity or universality to do so.
In the end, this is not a zero-sum game as we all stand to benefit if the problem of cultural aggregation is solved at the macro level. At the very least, it could kick off a new model for philanthropy. Culture coins’ might be the next evolution of DeFi 2.0, and the possibilities should be embraced.
Sadly, one of the most innovative and inspiring cultural curators, Virgil Abloh, passed away on Sunday.
His legacy has important implications for this discussion – Twitter user @FEhrsam posted an early iteration of the DAO that Virgil envisioned, called “SKYSCRAPER.”
Virgil saw Web3 as an opportunity to “inch us a little closer toward a utopia for creativity.”
Fundamentally, he understood that the attachment of value to culture allows for our digital identity to find equilibrium with that of our physical – gifting us a platform for self-realization and expression, which begets the “creation of the future” as opposed to “pulling from the creation of the past.”
One hopes that Web3 will bring “SKYSCRAPER” to life – the culture owes Virgil what he deemed himself to be his “final act”.
Cultural identity through securitization.
Disclosure: The author holds PEOPLE and GM tokens.