The identity crisis Web3 faces
“The future belongs to those who transcend a single story or identity.”
- Ozan Varol
It’s known in sociology that labels create expectations about role behavior, resulting in people behaving in ways that reflect how others label them (aptly named labeling theory).
In other words, labels create behaviors.
Labeling theory is the reason some avoid ‘defining the relationship’ when dating because the label boyfriend implies a behavior change. These behavior changes have massive implications on one’s life, like not dating other people.
Some chase labels, like wealthy, narrowly focusing their behaviors on accumulating money. But they’ve confused the behavior of accumulating money with the label wealthy and often end up feeling scarce.
If we, as individuals, don’t stop to set our labels intentionally we end up imprisoned by them.
Extending labeling theory into the world of Web3 allowed me to understand why Web3 teams fall in and out of identity crisis’.
Web3 teams, based on certain actions, have unintentionally assigned themselves conflicting labels leading to conflicting behaviors.
How we got here: pre-existing labels in a post-paradigm mindset
Web3 teams set out with the vision of creating a paradigm shift. The founding teams dedicated themselves to their vision of an idealized world, a world that did not yet exist.
Every day, these Web3 teams forge a path that has never existed before. There are no established standards. When you are building for a future which will be very different from today, how do you fit in with current regulation, language, and socio-institutional practices? How do you live with one foot in the future while addressing the requirements of the present?
Bringing pre-existing labels of society into the post-paradigm mindset is the default for most. We overlook the undertaking of intentionally setting labels and instead allow our day to day, seemingly routine, choices to stack up into an unintentional definition of who we are.
For example, we believe Web3 is a category of its own, but outside our tunnel vision, the word blockchain, crypto, crypto-network, or protocols has not proliferated into society to become common sense. If in fact, Web3 is what we will continue to call it. Or is it cryptoasset, or cryptocurrency, or protocols? Lack of consistent naming is a clear indicator that the paradigm shift is not yet a reality¹.
As a result of having language others can’t yet grasp, Web3 teams must choose labels that are ‘close enough’; labels from the pre-existing reality. Post-paradigm shift, these labels will become irrelevant but today they create our behaviors. We must use labels to enable us, while avoiding getting trapped.
The mass delusion of our industry is in not realizing we are default projecting our pre-paradigm labels, even while we aspire in mind and technology to post-paradigm ideals.
The invisible shackles of each label
Web3 has its hands tied when trying to make seemingly simple decisions about launching a network. Consider the following actions and their commonly associated labels:
Raising money from VCs/HFs potentially labels a Web3 project a Private Company
Pre-existing reality sets up a clear path for private companies to raise money from existing investors. The investors (often VCs or HFs in crypto) get money from LPs. The expectation is that investors will use the money from LPs to make more money under the thesis of long-term innovation. The LPs look to the investors, who then look to the companies to show the money has made more money, at least on paper.
When a Web3 team raises money from a VC or HF it shackles the team to demonstrate progress through the lens of profit. The shackle will be different if money was raised from a VC or a HF, with VCs more focused on long-term profits and value creation, and HFs more inclined towards short-to-medium term profits.
As is common when a private company raises money, Web3 projects receive a valuation. In the pre-existing world, a private company valuation changes only when another event (such as a new fundraise) occurs. Institutional investors and LPs in the pre-existing system expect at least 18 months before another event occurs.
In crypto, network valuations set during private fundraises are exposed upon launch to a public market. Similar to a public company, when the project goes live the market begins to set its value.
Adding another invisible, and conflicting, shackle: Public Company.
Launching the network with a token that can be bought/sold on an exchange, labels a project dangerously close to a Public Company
Unlike private markets, in public markets anyone can weigh in. As Matt Levine says, “In private markets, the only investors you deal with are the believers. Some people won’t believe in your long-term vision, but you’ll never hear from them. In the public markets you will, and you might not like it.”
When a project launches, it becomes shackled to produce value in the eyes of the public, who, in crypto especially, has a widely diverse and unpredictable perspective. When a Web3 team begins to think about launching, the invisible label of “private company” starts conflicting with the label “public company” and creates a catch-22 the team needs to face. This conflict is amplified during the bear markets of crypto.
Valuations, which were instilled as part of the “private company” label during fundraising, were often set higher than the current public crypto-bear-market will accept. The public vs private market conflict, present in other tech IPOs, is particularly sharp for Web3 since the turnaround time in which they “go public” is relatively short.
Furthermore, a private company will have a product on the market while they are private allowing investors to see indicators of success. Not true for a Web3 project. Launching your project is equivalent to bringing your product to market.
Private investors, those who hold Web3 teams accountable to the private market label, are anxious for projects to launch since their tokens were received at the discounted price of earlier stages. On launch, if the investors’ paper profits increase, the LPs are reassured in a bear market.
Web3 teams, now shackled to the conflicting labels of public and private company², are often in denial of the pre-existing world and choose instead to focus on how they develop technology, framing themselves as “an open-source project (or a DAO) developing a decentralized software”.
Developing decentralized software creates the label Open Source Project
Although many protocol teams define themselves as “open source projects”, the mindset of the founding team will determine which label the team uses.
I have come across three main mindsets when teams are developing a Web3 project: research, start-up, or open-source. These labels, and the behaviors they imply, create another layer of invisible, and conflicting, shackles inside the organization.
Of the Web3 teams I’ve seen, none are explicit about which label, or hybrid of labels, form their internal engineering team identity. Instead, protocol teams end up making decisions using some combination of all three mindsets, occasionally inhibiting their ability to make decisions at all.
Researchers value thinking a problem through from every angle.
Engineers value shipping and iterating.
Open-source projects value openness and community contribution.
When Web3 teams, even those who are defined as “open source projects” take steps to hire developers, they are, in that action, not hiring open-source contributors; they are hiring employees. Employees, unlike open-source contributors, have certain demands, such as a paycheck. To aggregate and manage these demands, the hierarchical structure of a company has proven to work. If protocol teams think of their developers as open-source contributors, they won’t be able to manage these demands and conflict is inevitable.
Zaki Manian appears to be describing such an issue at Cosmos writing, “Recent events have forced me to consider what possibilities exist for sustaining the ongoing development of Cosmos in the absence of a single company that employs the majority of developers.”
This is one example of many and something we experience across crypto: researchers, engineers, and open-source contributors are different labels each with different value sets resulting in different behaviors. If we leave these labels unacknowledged they will continue conflicting and further exasperate the identity crisis at teams building Web3.
Conclusion
As an industry, Web3 teams are utilizing pre-existing labels in a paradigm where they will eventually be irrelevant. Creative destruction of the institutional labels will naturally take place as crypto is gradually installed as common sense in the world.
Rather than be invisibly shackled to pre-existing labels, strong leadership teams need to step up and create clarity internally and externally. Brian Armstrong did this at Coinbase when we struggled with the conflicting labels “tech” and “finance.”
As an industry we need to:
- Acknowledge the current identity crisis and articulate misplaced labels
- Avoid falling into labels
- Instead, now is the time to begin iterating and experimenting with applicable labels for the post-paradigm world
- Begin running our organizations under the mindset of discovering new organizational structures, not unintentionally being held back by old standards.
Web3 & DAOs are creating a new form of institution, one that is more cooperative than corporation. Those who change their labels, and as a result their behaviors, will be more likely to succeed in the long-term.
Being mindful of our labels is a responsibility for every individual in this space. We need VCs who acknowledge the position projects are in, we need operators who are willing to stand up to the labels of the pre-paradigm shift world, and we need leadership across the board to accept the responsibility of building a new paradigm.
Footnotes:
¹In the evaluation of revolutionary technology, when technology is generally adopted the technological and organizational principles accompanying the technology become the common-sense basis for organizing any activity and for structuring any institution.
² Part of me intuites this challenge may be a reason protocol teams have subconsciously avoided launch for exteneded periods.
Thanks to Mario Laul, Nathalie McGrath, Ozan Varol, Chris Burniske, Nadia Eghbal, Ali Yah, Matthew Werner, and Jesse Walden whose incredible work inspired this piece.
