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“The difficulty lies not so much in developing new ideas as in escaping from old ones.”

- John Maynard Keynes

New Things vs. Old Things Done Better

Business fortunes are made whenever technology enables a new way to distribute a product or service.

John Malone’s cable empire was enabled by advances in coaxial cables and set top boxes.

Ted Turner earned his fortune when cable made 24/7 TV news possible.

Larry Page and Sergey Brin became billionaires by inventing a new way to distribute ads. 

Hordes of Netflix shareholders became millionaires when broadband internet connections offered a new way to distribute movies and TV shows.

There is, of course, a lot of money to be made in discerning these opportunities first — but the first mover isn’t always the largest mover.

In the case of CNN, which was simply a new way to distribute the same old product (TV news), the advantage was relatively short-lived.

In other cases, the technology that enabled a new form of distribution also enabled a new kind of product. 

YouTube, for example, capitalized on fast internet connections as a new way to distribute video, just as Netflix did. 

Unlike Netflix, however, YouTube used the change in distribution to create a whole new business category.

Where Netflix uses the internet to distribute the same things previously distributed by movie theaters and TV stations, YouTube uses the internet to distribute something entirely new: user-generated content.

Netflix was a new way to deliver media.

YouTube was a new way to create media.

This is not unusual: Any technology that offers a new way to distribute something familiar will also — more importantly — offer a way to create something unfamiliar.

Tokenization will be one of those technologies.

Thinking bigger

Cable was a new way to distribute TV, search engines were a new way to distribute ads and tokenization is a new way to distribute assets.

It may take a while to go mainstream — even when the tech is fully ready, a tangle of regulations will make it even harder than normal for us to escape old ideas.

Unlike with TV and advertising, therefore, the first-mover advantage in tokenized assets will probably go to an SEC-compliant incumbent, like BlackRock or JPMorgan.

But I suspect that advantage will prove to be short-lived — the first winner in tokenization will be like CNN and the first big winner will be like YouTube.

There are not many moats in finance (and even less so in crypto finance), so the first-mover advantage in tokenizing assets may turn out to be no great prize.

The very great prize is likely instead to go to whoever figures out not just how to distribute old things in a new way (CNN), but what new things can now be distributed (YouTube).

YouTube was not the first video-hosting site, but its predecessors offered mostly professionally made videos — often these were just clips of network TV shows.

Which is to say, they were using a new mode of distribution to distribute the same old thing.

There is a long tradition of this: The first automobile (pictured above) looked like a horse-drawn carriage without the horse, early telephones looked like telegraph systems, early movies looked like filmed plays. 

YouTube became one of the biggest winners of Web2 because it broke this skeuomorphic mold by being the first video-hosting service to go all-in on user-generated content. 

User-generated content was the all-new thing enabled by the change in video distribution.

In crypto, tokenization has been skeuomorphic to start, too: Tokenized dollars and Treasurys strive to look as much like analog dollars and Treasurys as they possibly can.

People are excited about this.

Larry Fink, for example, foresees “the tokenization of all assets,” including “every stock and every bond.” 

And that does sound pretty exciting! Especially coming from the CEO of BlackRock. 

But Fink’s explanation for why we should be excited is less than inspiring: “Think of all the costs of settling bonds and stocks.”

Vanguard charges me exactly $0 to both trade and settle my stocks and bonds, so no, I’m not going to think any further about it.

Instead, we should be thinking much bigger.

Fink is focused on how tokenization can be a better way to do old things — but tokenization will also be a way to do all-new things.

The real fortunes will be made by doing all new things.

― Byron Gilliam

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We're Watching

On today's episode, Santi and Jason are joined by Keone Hon, co-founder of Monad, and Jon Charbonneau co-founder of dba, to discuss building performant blockchains and the tradeoffs between modular versus integrated architectures.

Watch or listen to Empire on YouTube, Spotify or Apple.

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