It is difficult to overstate the effect, and affect, of metaphor.
“State-free money expands the market for gold in the same way that Uber expanded the market for taxis”
Here we see this phenomenon in action in Multicoin’s Crypto Mega Theses sharing three key [investment] themes that have emerged in the cryptocurrency and blockchain space: Open Finance, Web3, and Global, state-free money. Striking in its capacity to illuminate the potential that lies ahead, imaginative use of metaphor makes underlying concepts easier to understand.
As such, we metaphorize other segments of the thesis employing ChatGPT via a telegram bot (@metaphorizebot) built thanks to steamship which can be used for free; and a metaphorizer app built on streamlit (bring your own api key).
Open finance. By making units of value—stocks, bonds, real estate, currencies, etc.—interoperable, programmable, and composable on open ledgers, capital markets will become more accessible and efficient. Just as the proliferation of capital markets over the last 100 years enabled staggering levels of wealth creation, open finance will make capital markets more efficient and accessible to everyone on the planet.
Superhighway: On a global scale capital markets resemble a fragmented network of roads with limited interconnectivity. Each type of asset, such as stocks, bonds, real estate, and currencies, operating within its own closed system, much like separate roads leading to different destinations. Open finance acts as a transformative force, a high-speed superhighway connecting previously isolated roads, bringing together different units of value, making them interoperable, programmable, and composable on open ledgers. Greater access and engagement, epitimosed by centralised applications like Robinhood & Wealthfront, have opened the door for decentralised and/or open applications that pave the financial superhighway enabling seamless and efficient transactions across various assets e.g. synthetic exposure to the S&P 500 for those locked out traditionally.
By modularizing financial primitives, the open finance stack commoditizes trust such that no application has a unique trust advantage over any other.
Building Blocks: Imagine that traditional financial systems are like large, intricate structures built by a single architect or company. Trust in these systems is heavily reliant on that central entity, similar to a building constructed and maintained by a single authority. On the other hand, the open finance stack, with its modular financial primitives (e.g. lending, insurance, or trading), is like a city made up of buildings constructed by multiple architects and builders. Each building follows standardized construction guidelines and undergoes rigorous inspections to ensure safety and reliability. In this decentralized model, trust is distributed across the various buildings (financial primitives), and no single building or entity has an inherent advantage in trust. The paradigm shift is that trust is no longer centralized in one authority but instead distributed and standardized across the open finance stack.
Supermarkets & Bustling Marketplaces: In traditional financial systems, it's as if there's a large supermarket with just a single aisle managed by a single company. Customers must place their complete trust in that company to provide reliable, high-quality products. In contrast, the open finance stack resembles a bustling marketplace with different stalls run by independent vendors. Each vendor specializes in a specific financial primitive and is accountable for the quality and trustworthiness of their products. Customers can choose from a variety of stalls, each offering standardized and trustworthy products. The paradigm shift here is that trust is not concentrated in a single entity but rather distributed among the independent vendors, creating a decentralized and competitive environment where no stall has a unique trust advantage.
By creating a world with fewer trust assumptions, we can reduce systemic risk, and create ultimately healthier and more productive economies and societies.
Hurdles: Trust assumptions are like hurdles in a race, where each assumption represents an obstacle that participants must overcome to reach the finish line. By reducing these assumptions, we eliminate unnecessary barriers and allow for smoother, more efficient, less risky movement towards our goals. It's akin to clearing the track, removing unnecessary hurdles, and providing a level playing field that enables individuals, businesses, and communities to thrive. In doing so, we not only mitigate systemic risks but also unleash the full potential of our economies/societies, creating an environment conducive to innovation, collaboration, and sustainable growth.
Pillars: Our economic and social systems are grand architectural wonders like bridges or monuments. Pillars play a critical role ensuring structural integrity. Too many pillars scattered haphazardly mean the bridge/monument is burdened with excessive weight and complexity, leading to potential system wide instability and inefficiency. Redesigned, with a strategic focus on strength and simplicity, numerous weak pillars turn into a select few robust, durable, and reliable pillars strategically placed to bear the weight and maintain stability.
Trust assumptions act as the pillars that support the overall structure of these systems. Just as a bridge or monument benefit from a limited number of strong pillars, our systems thrive when we deliberately reduce the number of trust assumptions to focus on those that are reliable, well-tested, & resilient.
The Web3 vision is about empowering consumers to control their own data, as opposed to the status quo in which tech giants, credit bureaus, advertisers, healthcare providers, etc. hoard consumer data. As this paradigm shifts, incumbents will lose their primary competitive advantage—their data monopolies & associated network effects—creating massive opportunities for new value creation.
Warehouses & Boutiques: Vast warehouses of customer data are centrally controlled, accumulated, and owned by tech giants, credit bureaus, advertisers, and healthcare providers. They offer convenience and scale as one-stop shops where various services are readily available. However, this convenience comes at a cost—a tradeoff in terms of data privacy, ownership, and control. Consumers are left with limited visibility and influence over how their data is utilized. An alternative infrastructure of unique boutique stores has emerged within the data landscape with person having a self sovereign data vault, where they have complete ownership and control over their personal information. Consumers here gain greater autonomy over their data but sacrifice some of the convenience and scale offered by the giant warehouses.
Unlike gold—which offers no organic yield—blockchain-based monies guarantee perpetual, positive, risk-free rates (via staking in proof-of-stake networks, and via liquidity routing in payment channel networks on top of proof-of-work networks).
Mountains & Forests: Like an immovable peak, gold has served as a trusted store of wealth through the ages. However, gold offers no organic yield or growth, remaining steadfast but unyielding. With blockchain-based monies, a lush forest emerges, coexisting with the mountain. It thrives by allowing individuals to participate in securing the network and earning rewards by locking their tokens as a form of collateral. Just like a perennial plant that continuously produces fruits or flowers, staking offers a perpetual and reliable yield to its participants. A different plant in the forest symbolizes the ability to navigate the financial landscape and optimize transactions for maximum efficiency. Just as a well-designed irrigation system efficiently directs water to various parts of the garden, liquidity routing ensures smooth and swift transactions by dynamically directing funds through the most cost-effective and liquid channels.
Three major hypotheses for the path to global, state-free money: Store Of Value (BTC), Utility (ETH), Stablecoin (price stability)
Ships In The Ocean: In our vast financial oceanscape there exist many different monetary islands that are buffeted by powerful economic and social currents, waves, and tides. The ideal of an open state free currency island is one that several ships seek to sail towards an inhabit. Each ship represents a different hypothesis on how money can achieve this global adoption. One, "The Inflationary Crusader," follows the SOV (Store of Value) hypothesis, believing that the money with the least inflation will ultimately prevail e.g. bitcoin. Another, The Utility Explorer," believes money that’s widely used in various applications will become the global, state-free currency. They recognize the importance of a credible monetary policy but consider utility as a vital variable. A final ship, "The Stability Seeker," sails with the stablecoin hypothesis. Its passengers argue that price stability is crucial for money to gain widespread adoption. However, they acknowledge the inherent trade-offs of stablecoins and doubt the longevity of algorithmic solutions due to the impossibility trinity. This ship navigates carefully, balancing the desire for stability with the challenges it poses.
Among the three ships, the Multicoin crew on "The Utility Explorer" believes their vessel has the highest likelihood of reaching State-Free Money Island. They believe that the money used extensively across a wide array of applications will become the global currency of choice. The crew focuses their efforts on developing smart contract platforms and supporting the infrastructure required to fulfil the visions of Open Finance and Web3. While Ethereum currently leads the way, they remain open to other possibilities and manage their portfolio probabilistically, recognising that the journey to State-Free Money Island is full of uncertainty.
No metaphor is perfect, but these investment themes of Open Finance [bustling marketplaces for primitives], Web3 [boutiques], and Global, state-free money [islands] represent powerful narratives driving innovation and redefining our relationship with trust, data, and value. As we navigate this transformative landscape, our storytelling ability in communicating these ideals widely will be as effective an onboarding tool as the technologies themselves.
Read More: The Data Harmony Trilemma