In college, I picked up computer science because I wanted to build— stemming from my innate desire to provide any value I possibly could. Everybody wants a legacy they can leave behind, the ability to say that they’ve created something that could positively impact others.
Because of this, I started to dig deeper into other, more innovating fields of computer science than software engineering. To me, this was the blockchain network. It was the perfect blend of technical intellectual stimulation and a public good. I thought about what I could do to make the most change and apply my fundamental ethics to shaping the future of the field. The most obvious answer was venture capital; every new industry needs money which means they are going to raise from institutions. These institutions realize the benefit and vision of this new industry and pour in millions and billions of dollars to fund the progression of emerging companies.
This was exactly what I was looking for in my career. So, I made it my goal to join an established blockchain-focused venture capital company. But because the blockchain is an inherently financial technology and I work at a financial firm, I had to learn the ins and outs of the financial world. Learning more through exposure to different financial deals, talking to my peer, and self-studying, I came to one conclusion: finance isn’t real. At the end of the day, it is an overly complex system exercising creative ways to measure and optimize for the amount of capital that flows in and out of different subsystems.
For example, let’s take one of the first financial derivate: futures. They were originally created to give farmers some insurance and bootstrap their capital in order to optimize for their farm growth. Some douchebag decided that since it has monetary value, we should be able to trade it with others. Now we have banks making money off of end consumers by providing liquidity to private equity firms that are trading on the futures of a basket of assets that are valued through an intricate game of stock buybacks. There are a couple of problems that lie with such a system.
Centralizing Power
In this game of capitalism that we have today, it is coded that the more power and money you have, the more power and money you can achieve. Power and money opens door to opportunities that bear far greater yield than without.
For example, a laundromat with more money will always beat a laundromat with less because they’re able to spend on better marketing, technology, talent, and in a lot of cases, even buy out the smaller laundromat to make their laundromat even bigger.
This is a small scale of what’s happening with the tech giants and the big banks of the 21st century and a primary reason why it’s too difficult for new innovation to happen outside of them. We now, entering a post capitalistic economy (oligarchy LOL), operate against the original ethos of capitalism which is consumer ownership.
Unfair incentives
There is no longer an incentive for people to own anything. Because the system rewards people that have more capital, people will do anything to borrow as much money as they can. None of this is inherently their property or ownership, and it has a much greater risk, which is the only way for the average consumer to participate in a fairer market. But why would I try to create anything or own anything if I have much higher yields just borrowing money and feeding into the game instead?
People have started to try to learn how to play the game instead of trying to innovate out of it. In some ways, you can say that consumers are jaded by the bigger institutions and have given up trying to optimize for the market. This is a common pattern that loosely tie into what happened in 1929 and 2008.
But the average American doesn’t know what goes under the hood— they only see the numbers that are shown by the bank account, rather than where these numbers come from.
Let me paint a picture: everyone has a high yields savings account that gives you maybe 3-4% APY right? This is the returns you get for lending the bank money. The bank then lends money to some private equity firm for 10-12% (which is mostly justified for the PE firms because they generate much higher yields on this). This private equity firm then invests into companies which aren’t even fully theirs anymore, and relies on the company extracting margins from the end consumer. Every dollar that you buy into the stock market all go into the pockets of private equities and banks, while you get much smaller returns. When we open up the job market to emerging countries, there’s now another counterparty that gets abysmally fucked and shot to the bottom of the totem pole.
There are two reasons why this is not a capitalistic society: No access to financial opportunities and insufficient access to education/transparency. As I said before, if you dont have money and power, you are at the bottom of the totem pole— this is how our socioeconomic landscape evolved.
I come from a very impoverished background, so learning this made me equal parts disturbed and angry at this country. From here, I made a vow to crumble down these different systems— to provide an experience for citizens to have equal opportunities and the “American Dream” that they pay with taxpayer dollars and hours of hard work. I want to invest into companies that have the power to disrupt these systems by penetrating into a market without middlemen that take value from the consumers down the supply chain. This is the biggest value proposition of crypto that I see today, and the biggest reason why I continue to stay in the space.
I do it for my mom, for my brother, for my grandmother, for my late grandfather, for all of the times that our family was taken advantage of without fully knowing we were playing into the system. I do it for everyone that’s been taken a shit on by Milburn Pennybags and are forced into dangerous lifestyles. This blog is a vow to follow the path that I carved for myself the past few months of discontentment.
This is an incredibly compelling and well written manifesto for your own life and decentralization as a whole. As I move through adult life, I’ve come to similar conclusions (but of course different call to action). I’ve come to regard “rent seeking” and concomitant power accumulation (and stagnation) to be at the core of most, if not all of our problems. The issue is that extraction is always cheaper and easier in the short term, so there has to be a mechanism or regulation to reward value production.
Obviously rents are the classic example of rent seeking — landowners who extract higher rents have soaked up a large part of society’s marginal gains in wealth. I recommend reading the book How Asia Works, which compares why East Asian countries are more successful than Southeast Asian countries (largely due to land reform and power dynamics with the gentry). But I think your case with banks and artificially low yields for consumers is another perfect example. Or companies doing buybacks instead of capital investments, etc etc.
I am generally sympathetic to the defi / blockchain community, but am worried at its politicization and other inherent risks. The fact remains that for a marginally knowledgeable consumer like me, there still is not a single use case for crypto in my daily life other than gambling. I hope your diligence in VC will grow companies that can improve my life, as soon as possible.
Great piece! Your writing has improved so much!! Hope to see more