A first-check crypto fund investing in the

We believe next-generation networks will grow bigger, faster because they are owned and operated by users.  

Variant partners with founders at the earliest possible stages.

/writing/the-ownership-economy-crypto-and-consumer-software

Variant Team

Silicon Valley has known for years that ownership is a keystone of building great products. In order to build the best products, startups need to attract the best talent, and to attract the best talent, offering equity in the form of stock options is a best practice to align employees with the company’s success. But today, only a small group of insiders — founders, investors, and employees — get to reap the rewards of ownership, while the broader community who are also instrumental to a company’s success are locked out of this opportunity for life-changing wealth creation. Just imagine: if every early Uber driver had received $5,000 of Uber stock when it was a seed-stage company, that equity would be worth $25 million by the time the company went public. 

Given the overhead of legal contracts and legacy financial infrastructure, it has historically been infeasible to distribute ownership at the scale required to reward every user who participates in the value creation of today's largest platforms. Crypto tokens are an innovation that enables the movement of value with the speed of information, akin to data packets. Tokens can unlock the vision of more meritocratic distribution of ownership and align incentives toward building networks that grow bigger, faster. We call this the ownership economy — products and services that are built, operated, and owned by their users — and it is unfolding even faster than we initially imagined when we started Variant. 

We believe that ownership will be a keystone of all next-generation products and platforms. The first to realize this were the developers and technologists who contributed to the movement by building and operating the first multi-billion dollar internet scale networks: Bitcoin and Ethereum. Now, a new generation of entrepreneurs are rebuilding the internet with this more meritocratic and competitive model in mind. From developer-facing infrastructure to financial marketplaces, social media, gaming, digital art and collectibles, ownership has unlocked a new design space for scaling products faster than predecessors because users are aligned with their success. Some examples from our portfolio: Uniswap is a financial exchange, similar to Coinbase, where users who make the exchange liquid are rewarded with fees and given tokens conferring governance rights. Mirror is a publishing platform and toolkit for Web3 creators, where users — rather than the core team — decide how to grow the platform. Blitmap is one of the healthiest communities in Web3, whose users are anchored around ownership of NFTs created by artists and remixed by community members. And the list goes on.

The insight that next-generation networks would be built, operated and owned by their users is the reason why Variant was founded: to support and push forward the ownership economy. Beyond driving positive social outcomes in terms of how wealth is built and distributed, we believe that moving and distributing ownership at the speed of information is also the most optimal way to scale software services and communities. This is proven out by quantitative data: in April 2021, $122 billion in transactions took place on decentralized exchanges, up from less than $1 billion a year earlier. Ethereum settled more than $6 trillion in transactions in the past year despite being only 6 years old. Art Blocks, a curated digital art marketplace has seen billions of dollars in transaction volume grow alongside a fanatical community of collectors, including us.

Success for Variant is a world in which everyone becomes an owner of the products and services that they use. For this future to become reality, we need to continue to pull it forward. We believe it will take the support of a new kind of investor — one that is crypto-native but also has deep empathy and intuition for mainstream consumers. That is why we are thrilled to announce that Li Jin — our friend and a former colleague at Andreessen Horowitz — is merging her esteemed Atelier Ventures with Variant. The New York Times called Li the “It girl of venture capital,” but those that have worked with her know that she is an incredibly smart, thoughtful, and mission-driven investor. Li deeply believes in the values of the ownership economy, and her expertise in consumer and creator products is unparalleled in the crypto space.

As Li beautifully outlined in her blog today, crypto and the ownership economy are how we fully realize the vision of the passion economy that she laid out in 2019 with her seminal essay. The future of consumer technology is in crypto, and for it to fully blossom, we need investors who can help navigate the next wave of adoption from the early majority of internet users.

With that, we are pleased to announce a new $110 million first-check fund to continue investing in the ownership economy — from consumer platforms to gaming to infrastructure to DeFi. By design, we are sized for early-stage investing, where our expertise in startup building, protocol design, and consumer-focused go-to-market strategy can really move the needle for companies, networks, and DAOs.  

Given our vision of user ownership, we also felt that it was imperative for Variant to embody and live our own thesis as a firm — to be owned by our users, the founders that we back. Therefore, we purposefully expanded Variant’s investor base to include over 100 of the brightest minds and builders in web3, crypto, and technology, including builders from Uniswap, Compound, Foundation, Zora, Yield Guild Games, Mirror, and more. This enables us to take a decentralized approach to scaling our operations. The Variant Community will take an active role in shaping the fund's success and supporting projects in our portfolio. We aim to build a firm that adds value by turning our network into a product that founders can use and own.

If you believe in a more equitable internet and are building a crypto project in the ownership economy, we’d love to hear from you.

A first-check venture fund investing in the Ownership Economy

Variant Fund II: $110 million fund built for the ownership economy - Variant

Variant Fund II: $110 million fund built for the ownership economy

Geoff Hamilton

I’m incredibly excited to announce that I’ve joined Variant as an investment partner. I’ll be working alongside Jesse, Li, Spencer, and Medha and collaborating with our network of venture partners and builders.

Before joining Variant, I spent over a decade investing in public consumer and technology companies. I was first exposed to crypto by a trading colleague around 2017, but it took a little longer for me to see beyond cryptoassets as speculative instruments and fully appreciate the potential of the technology. Over the last several years, a series of conversations with crypto founders, traders, and venture investors pointed me in the right direction. Inspired by these conversations, I started spending most of my free time reading and learning about crypto. Soon, “most of my free time” became “all the time I wasn’t eating or sleeping,” and it wasn’t long until it was clear that I wanted to focus exclusively on investing in the space.

Builders and creators in Web3 are creating technologies, organizations, and cultural assets that are transforming our world. Whether they intend to or not, everyone who contributes to Web3 is taking part in this transformation, which goes beyond building a better internet, or better financial technologies. Thanks to the hard work of many, we’re at an important inflection point in this transformation–a time when many different event paths seem possible.

For me, this is both the “why” and the “why now.” I believe strongly in the power of Web3 to benefit a broad swath of people–to create broad opportunities for wealth creation, to restructure and revitalize work, to enable richer modes of social interaction, and to unleash latent creative potential. Projects in Variant’s portfolio are among those leading the way. For example, Goldfinch is enabling uncollateralized loans that expand access to capital for underserved borrowers in emerging markets. Braintrust, a talent network, helps freelancers maximize their earnings by connecting them with work and by distributing ownership of the platform itself in the form of BTRST tokens. Sound, a music NFT platform, is enabling musicians to develop a new source of income and creating new ways for fans to express their passion. Syndicate is democratizing investing, lowering the barriers for starting an investment fund. And Mirror is enabling communities to raise funds, in addition to providing a publishing platform and other creative tools. 

To realize its full, transformative potential, Web3 needs determined, visionary, and values-driven builders. And the builders deserve all the help we can provide. I joined Variant because I believe the team is truly committed to supporting founders and the Web3 ecosystem more broadly. The fund is sized for its dedicated focus of seed investing, and every investment we make receives the support and resources of the entire partnership. The partnership is made up of true community builders, who have created some of the canonical educational resources for web3 and early-stage startups. And all of our work as a firm is supported by the Variant Community, a network of 100+ LPs who represent the top builders in the space. I’m inspired by the mission of investing in the ownership economy and humbled to be working with people I view as thought leaders in the space.

At Variant, I’ll be investing in all areas of Web3 that align with our thesis and mandate. If you’re working on something that sounds like a fit, hit me up on twitter or by email at geoff@variant.fund.

Alli Pope

I could not be more excited to announce that I am joining Variant as the Director of Education and Events. I will be working alongside Li, Jesse, Spencer, and the rest of the incredible team to proliferate learning and knowledge sharing around building for the ownership economy.

For the past several years I have spent my time learning and working in the realm of education, with a focus on increasing opportunity and access to quality learning for all. As the world shifted into the pandemic and so many existing inequities in our educational system— and larger, our society— were magnified, I began searching for what a more equitable and accessible future might look like.

Historically, many have perceived education to be a catalyst for promoting economic mobility. It is largely true that higher levels of educational attainment positively correlate with increased income, but these gains exist relative to the different socioeconomic positions that dictate when, how, and if students enter the educational system. As a result, the average impact of education is to reinforce the differences and inequities that students bring with them into the classroom. The pandemic both exposed and exacerbated such inequities. So where do we go from here?

Insert the ownership economy. Our current systems— of work, education, and more— are flawed. Wealth, power, and opportunity continue to lie in the hands of a privileged few; the ownership economy aspires to change this. Both Jesse and Li have written extensively on the potential of the ownership economy in creating personal economic empowerment, and combating economic inequality by enabling everyone to become an owner of wealth-building assets. Further, Spencer is working to make building said ownership more open and accessible. Variant does not simply aim for financial returns, but to support and empower the builders and companies that will enable larger economic and social equality for the masses. Variant understands the power of community ownership and the vast impact it can have in building networks that grow bigger, faster, and as a force for developing more economic opportunity across the internet. 

As Director of Education and Events it is my role to partner with founders, builders, and community members alike to provide the tools, education, and support needed to bring the ownership economy thesis to fruition. This includes fostering connections and knowledge sharing opportunities for the talented founders in Variant’s portfolio in addition to ensuring that as builders, they have the resources, support, and expert mentorship they need to achieve their goals. It also includes working with the community LPs, experts, and larger community in Variant’s network to create educational materials and programs that help onboard and assist current and future builders understand emerging best practices in this still-nascent space. Variant is excited to partner with founders at the earliest possible stages, and my role is to help guarantee we have the best possible resources, materials, and know-how to do so. 

If you are a founder, aspiring builder, LP or community member, I would love to get to know you! You can reach me via DM or at alli@variant.fund with any questions, comments, event requests, etc. at any time. I can’t wait to hear from you!

Education to accelerate the ownership economy

By Li Jin, Geoff Hamilton, Jesse Walden, Spencer Noon, Derek Walkush and Medha Kothari

Thirty years into the development of the world wide web, a handful of companies control most user attention and advertising revenue, with closed ecosystems that hold back innovation by independent developers. The economic interests of the biggest internet platforms are poorly aligned with their most valuable contributors: their users. 

Ownership has long been embraced by Silicon Valley startups to align incentives among employees through option grants. Still, the vast majority of internet users own exactly 0% of the services they contribute to. Creators don’t own their content, developers can’t control their code, and consumers can’t influence the policies or decisions of the platforms they use. This scenario, which once went unquestioned, looks increasingly archaic. 

This is starting to change via the ownership economy—often referred to as web3—with products and services that turn users into owners.

What started with Bitcoin and Ethereum—both of which reward participants who secure the network with their native tokens—is becoming prevalent across all categories of software, from developer infrastructure and new financial markets in DeFi to consumer products, marketplaces and social. 

If the last generation of software was built upon a foundation of user-generated content, the next generation of software will be user-owned, with digital ownership leveraged as a building block to enable novel user experiences. At its core, the ownership economy not only offers a powerful new tool for builders to leverage market incentives to jumpstart new networks—it also holds the potential to create positive social change through the wider distribution of wealth-building assets.

In the two years since Jesse Walden published the initial vision for a user-owned internet, the landscape has dramatically shifted and expanded. There are now more than 15,000 projects in the ownership economy, from user-owned financial markets to user-owned social networks, investment clubs, and digital assets. While the ownership economy still represents a small portion of all internet platforms, it’s a fast-growing segment. Ethereum, one of the more mature networks that supports the ownership economy, grew 46% in monthly average accounts in 2021.

Amidst all this growth, we wanted to take a step back and re-introduce this ecosystem through some fundamental questions: what is the ownership economy? How big is it, and where is it headed? What trends are defining its current state, and possible future? To answer all of these, we’ll turn to data and case studies that illustrate how the ownership economy is playing out in real time. 

This report is meant as a primer for new entrants to web3 who are looking to go one level deeper. We’ll also be using it as a jumping-off point for more in-depth pieces that we’re planning to publish this year on topics like token distribution strategy, regulatory issues and more. 

Simply put: the products and services that will define web3—and the next generation of the internet—are those that transform users into owners. We call this the ownership economy.

Still, identifying this phenomenon isn’t always simple, or obvious. That’s because ownership manifests across a spectrum of experiences that range in user effort, responsibility and degree of collectivity. One user might own a single digital media asset, like an NFT. Another might influence a network’s operation via a governance token. The experience of being an owner encompasses both passive (i.e., hodling) and active participation.

Note that for this report, we focus on crypto tokens—rather than equity—as the basis of the ownership economy. Tokens have a richer and more frictionless design space. They can be distributed programmatically, with the potential to reward participants versus those who buy in; they are effectively free to deploy, and they can transfer value in the same way we transfer information—instantly, to anyone, anywhere in the world. 

The ownership economy is big—and growing

As of April 26th, 2022, the market capitalization of the over 19,000 tokens tracked by data aggregator CoinMarketCap is $1.76 trillion. For comparison, the market capitalization of global stock markets is over $100 trillion. 

The largest cryptonetworks by market capitalization are established layer 1 blockchains: Bitcoin ($725 billion), which was launched in 2009, and Ethereum ($337 billion), which was launched in 2015. Other layer 1s in the top 20 tokens by market capitalization include Solana, Polkadot, Terra, and Avalanche. 

We can also think about the scale of the ownership economy in terms of people—the users who become owners in the networks they build. 

The Financial Times and Chainalysis estimated that there were 360,000 owners of NFTs as of 2021. Beyond that, there are tens of millions of users of cryptonetworks. Metamask, a wallet that is used to connect to decentralized applications, recently announced that it had 32 million monthly active users as of February 2022, and Phantom (a wallet currently focused on Solana) announced monthly active users of 2 million in January 2022. In the fourth quarter of 2021, Ethereum had monthly average transactional users of about 6 million and daily active transactional users of about 400,000. From a multi-chain perspective, there were approximately 2.5 million average daily active users interacting with the smart contracts tracked by DappRadar. As a rough approximation, if we extrapolate these 2.5 million daily users to calculate monthly users using Ethereum’s DAU/MAU ratio of 0.06, we could estimate MAU of 39 million across the 29 networks covered by DappRadar’s data.

DAOs, decentralized autonomous organizations, are online communities owned and governed by their members. They can be thought of as the organizational building blocks that make up web3’s economic, social, and cultural landscape. New DAOs are forming at such a rapid pace that it’s difficult to count them, but it seems safe to say there are over 1,000. DeepDAO, a data source, tracks detailed information about around 180 DAOs. In these DAOs alone, there are 1.7 million holders of governance tokens, and about 500,000 of these holders actively participate in DAO governance. And some of these DAOs are quite large: 69 of the 180 have more than 1,000 members.

Today, user ownership is transforming how people transact, invest, create, build, play, learn, communicate, and socialize. 

Don't see your project on this map? Submit it here.

Walden’s original essay “The Ownership Economy” posited that user ownership could result in “platforms that can be larger, more resilient, and more innovative.” As we discuss throughout this report, many of these aspirations are not yet realized, or have mixed results, owing to nascent playbooks on how to best effectuate user ownership. Still, we remain confident in the power of user ownership to build bigger, more defensible networks and to catalyze positive social change. Realizing that potential requires additional research on best practices regarding ownership distribution and education geared towards developers and users. As a step towards that, we wanted to share a few key insights on the state of the ownership economy today.

1. User ownership can jumpstart growth, but sustaining it is more challenging

Giving users ownership in the form of tokens can be a powerful alternative to paid marketing, helping to bootstrap networks and overcome the cold-start problem.

But before we dive into that, let’s consider how much it costs for non-crypto services and products to bring users on board. In 2015, Facebook's mobile app install advertising business reached $2.9 billion in revenue, comprising 17% of Facebook's total ad revenue. That’s a huge sum of money going into the pockets of an intermediary platform—Facebook—rather than flowing to app developers to invest in R&D and product improvements, or reaching the end users in the form of lower prices or greater rewards. The hefty upfront fees for user acquisition also means that consumer apps that are unable to raise outside capital are hard-pressed to get off the ground: the average cost to acquire an app user was $3.52 in 2019.

In contrast, for crypto projects, giving users ownership can function as marketing, drawing in new users through the promise of ownership and increasing engagement as a result of having skin in the game. A case study is Coinbase and Uniswap, two cryptocurrency exchanges that enable users to swap various tokens. 

While Coinbase is a centralized exchange that custodies users’ wallets and funds and matches trades using its order book, Uniswap is decentralized and facilitates automated transactions entirely through smart contracts. Coinbase was founded in 2012, and employs 3,730 people as of 2021. In contrast, Uniswap was founded in 2018, and has less than 100 employees. With just 3% of the headcount of Coinbase, Uniswap does 73% of its trading volume. How is this possible? Importantly, Uniswap makes its users owners via governance tokens and LP shares, giving it leverage to grow bigger, faster. In addition, because Uniswap is decentralized, anyone can add any asset. If all the world’s value will be tokenized in the same way all information was packetized on the internet, then we should expect decentralized exchange growth to outpace their centralized counterparts.

Tokens aren’t a replacement for product-market fit

However, in our analysis, it is clear that simply giving users ownership is not sufficient to ensure that a product wins out over its competitors. Tokens can be useful in capturing user attention and bootstrapping initial adoption, but they need to be coupled with strong product-market fit—solving a widespread need for users—in order to sustain usage.

The NFT landscape is a prime example of the insufficiency of ownership to drive consistent, ongoing engagement. The dominant NFT marketplace, OpenSea, has over 90% market share of transactions despite not having a token, whereas multiple competitors do (e.g. LooksRare, SuperRare, Rarible). Notably, after Rarible launched liquidity mining—token airdrops to users who buy and sell NFTs on the Rarible marketplace—in summer 2020, its volume briefly surpassed that of Opensea, but Opensea’s deeper liquidity, stronger product, and better search features helped it to win out over time. For users of marketplaces, liquidity—the presence of a counterparty for one’s desired transaction—is still the strongest motivator to choose any marketplace over another. The existence of a token that incentivizes transactions in alternative smaller marketplaces is insufficient to overcome OpenSea’s advantage in meeting the core user need of transacting.  

Another example is layer 1 blockchain ecosystems. Despite L1 blockchains all offering their own native token representing network ownership, Ethereum is still the fastest growing platform because of the network effects of users and developers, more mature developer tooling landscape, and ability to compose with other existing applications. Those factors indicate that even the lower fees of alternative blockchains are not sufficient to overcome Ethereum’s network effects (though whether it’ll maintain its advantage is unknown).

There is also the question of whether ownership actually crowds out intrinsic incentives to use a product, causing users to engage with products in a more mercenary, transactional (and likely temporary) way. There has been an abundance of research on the interplay of extrinsic motivations—behavior undertaken for some external reward like financial benefits—on intrinsic motivation. According to some studies, extrinsic motivations can undermine intrinsic motivation, especially when users previously found that behavior intrinsically rewarding. The implication is that token incentives should be optimized in terms of timing (via progressive decentralization), magnitude, eligibility, and other factors so as to preserve users’ intrinsic motivation.

2. New token distributions designs are boosting user loyalty

In theory, when users become owners and are (literally) invested, they should become more highly engaged and retained. Today, the reality is mixed.

One powerful illustration of ownership engendering loyalty is the success of play-to-earn games like Axie Infinity. Axie Infinity is a blockchain-based game in which users collect, breed, and battle digital creatures called Axies, which are NFTs. The ownership of in-game assets is a key difference between blockchain games like Axie Infinity and non-blockchain games: in the latter, “owned” assets generally cannot be exchanged for money or transferred outside of the game.

Ownership of in-game assets can engender more player loyalty.

Powered by a play-to-earn mechanism in which players earn tokens in the game that can be exchanged for their local currency, Axie Infinity has achieved significant scale, with over $1 billion in cumulative revenue and nearly 3 million daily active users. And the game’s player retention is dramatically higher than that of traditional mobile games. Axie Infinity’s player retention has remained strong and consistent over time, suggesting that engagement is not simply a function of the game’s novelty.

Axie Infinity’s retention has remained strong over time compared to traditional mobile games, highlighting the importance of digital ownership.

But there are counterexamples of token incentives’ mixed impact on user engagement. The entire field of tokenomics is in its infancy, with best practices around ownership distribution still unknown. To date, users have raised important questions and made critiques around token incentives and the efficacy of ownership to translate into user loyalty or desirable societal outcomes.

While liquidity mining programs (rewarding users with ownership via tokens for providing liquidity) have become pervasive and driven short-term participation in new products, they have not historically contributed to long-term sustainability. According to research from Nansen, "A whopping 42% of yield farmers that enter a farm on the day it launches exit within 24 hours. Around 16% leave within 48 hours, and by the third day, 70% of these users would have withdrawn from the contract." The extrinsic nature of token incentives means that many liquidity providers are financially motivated by the highest rewards, leading to churn.

Furthermore, while almost impossibly high token incentives became a defining feature of the “DeFi 2.0” wave, their sustainability is now in question. Changing market sentiment led to dramatic price crashes for many of these projects, and their tokenemonic models became the subject of serious debate. These downturns most acutely impacted contributors paid in a project’s native token—often subject to vesting schedules—and the project’s most passionate supporters. 

As a result, many projects are rethinking token incentive mechanisms, and a wave of new models is beginning to emerge. For example, Curve’s voting escrow (“ve”) contracts use lockup periods to increase token rewards; Gro also introduced a vesting mechanism to encourage long-term engagement. As scholarship about token engineering and cryptoeconomics proliferates, these models are increasingly tested and scrutinized, suggesting the next generation of tokens will more effectively engage users and incentivize long-term contributions.

At a high level, the opportunity is to make token distribution more granular and targeted in rewarding behaviors that actually contribute to a network’s retention and sustainability, versus simply rewarding users whose tech-savvy networks translate into early knowledge of new products or who engage in mercenary behavior. Such distribution would result in more accessibility than first-generation projects that priced out later users, and be orders of magnitude better than compounding returns to capital that exist in the real world, where capital needs to be bought rather than earned. As an example, the token-gated social community Friends with Benefits (FWB) requires 75 FWB tokens to join, which at one point was equivalent to over $12,000. But beyond buying the tokens, there are ways to join the community through earning ownership, including writing, designing, creating artwork through FWB’s studio, or contributing to various work streams. 

Beyond direct contributor rewards, some DAOs began implementing bounty programs to attract users and delegate work. These one-off tasks range from short-term developer assistance and business development to simple community participation, with payouts in the project’s native token. Platforms such as Rabbithole and Layer3 aggregate these bounties for multiple DAOs, giving potential users the opportunity to search for both projects and tasks that fit their interests. A new generation of token incentives seems to be placing greater emphasis on contributor growth compared to solely deepening liquidity—an imperative transition to grow the ownership economy’s user base. 

3. User ownership can foster richer ecosystems of projects and contributors

When they combine distribution of ownership with permissionless access, user-owned projects can foster rich ecosystems. Deployed in this way, distributed ownership can be a catalyst for projects to become platforms that third-parties build on.

Ethereum is one of the most powerful illustrations of this. The distributed ownership of the network has fostered a community of developers and users with an interest in the continued success of Ethereum: the value of their stake in Ethereum—their Ether—supplies ample incentive to continue building on and using the network, engendering an ecosystem of applications across social, marketplaces, DeFi, and more. Shared ownership reinforces network effects and creates a disincentive to switching to other blockchains. Of course, Ethereum’s success is not only a consequence of distributed ownership; it has also benefited from capable leadership and from embedding values that have helped align and motivate its community. 

In the NFT space, another manifestation of decentralized ownership is emerging in the form of CC0 (or “no copyright reserved”) projects—those that relinquish all copyright and turn over their work to the public domain. Nouns, Cryptoadz, Chain Runners, and Loot have placed their assets in the public domain, allowing their intellectual property (IP) to be freely used, remixed, and commercialized.

As a result of their permissionless nature, users, creators, and developers have been attracted to these projects and have begun building around and on top of them. Loot is a CC0 NFT collection that exploded in popularity in September 2021, with each NFT containing a simple list of fantasy adventure gear. There are now more than 53 Loot derivatives and at least nine guilds—groups for owners of specific items in the Loot universe.

CC0 NFT projects create the potential for their IP to be used in novel and generative ways—increasing the reach, relevance, and, ultimately, the value, of that IP. 4156, a contributor to Nouns DAO, said: “In the same way that academic citations make the original paper more important, citation of Nouns in whatever form … will make the originals more important and more valuable.” Nouns is putting this theory into practice by catalyzing the proliferation of its IP and pursuing collaborations with other brands (like Bud Light, which incorporated the iconic Nouns glasses in a Super Bowl commercial) and traditional media companies. 

Similarly, the team behind Cryptoadz collaborated with Arcade NFT, an art and gaming studio, to produce Toad Runnerz, an NFT collection in which each NFT is a playable arcade-style game that incorporates Cryptoadz as in-game assets. Arcade NFT hosts exclusive tournaments for Toad Runnerz NFT holders, further extending the reach and content of the underlying Cryptoadz IP into the gaming space.

By enabling free use of their assets, CC0 NFT projects extend the definition and possibilities of ownership. This approach has the capacity to stimulate building, creation, and collaboration—and we’ve only just begun to see its potential.

4. The ownership economy allows users to become owners earlier and participate in value creation

A key theme of the ownership economy is that users become owners faster than in their centralized counterparts, allowing them to contribute to and benefit from value creation. 

In our analysis, we found that on average, web3 companies that launched a token did so 2.7 years after founding; in 2020, VC-backed companies went public approximately 5.3 years after securing their first VC investment. The timeline of IPOs, compared to token launches, serves to eliminate a significant amount of upside potential for retail investors.

This phenomenon comes into sharp focus when comparing Coinbase and Uniswap. Coinbase went public in April 2021, nearly nine years after the company was founded. The stock ended its first day of trading with a market capitalization of $85.7 billion, an incredible outcome for private investors such as Y Combinator, which seeded the company in 2012 at a valuation of roughly $2 million.

However, Coinbase’s public listing did not represent a great outcome for retail investors, whose opportunity to invest only came after the company’s valuation had multiplied 40,809x from its first private investment round. In fact, every retail investor who purchased and held Coinbase stock since its public listing has lost money on their investment, as of April 2022.

In the ownership economy, by contrast, projects exit to their communities much earlier in their lifecycles, allowing users to contribute to and benefit from greater value creation. Uniswap launched its UNI governance token in September 2020, less than two years after the protocol was originally deployed onto the Ethereum mainnet. Unlike Coinbase, whose direct listing meant no new shares were issued when it went public, 60% of the UNI genesis supply was allocated to Uniswap users. This profile is commonly seen with projects in the ownership economy.

The playbook is still being written, but one thing is certain: ownership is becoming a keystone of new experiences across all categories of software products. Web3 started as a developer phenomenon with layer 1 blockchains, and most innovation has historically been developer-facing initially. But Chris Dixon predicted with his adage—“what the smartest people do on weekends is what everyone else will do during the week in ten years”—ownership is now extending to all kinds of products and networks. 

We are eager to work with builders who are applying new models of ownership to design a more meritocratic internet. If you are working on a project in this space, please reach out.


To learn more about some of the projects that comprise the ownership economy and Variant’s growing portfolio, see below. 

This report is the result of input and contributions from many people. Variant would especially like to thank Chuxin Huang, Kate Lee and Caleb Halter. In addition, many others contributed both data and advice: Mohammed Nasirifar from Chaincrunch, Rob Hoogendoorn from DappRadar, Adam Whitaker-Wilson from Covalent, @ruvaag, Adam Delehanty and Mason Nystrom.

The Ownership Economy 2022 – Variant

Li Jin

The passion economy is the what, the ownership economy is the how

Last summer, I left Andreessen Horowitz to start Atelier Ventures, an early-stage venture firm devoted to the passion economy: new platforms that enabled users to “monetize individuality.” In a world in which one-third of people’s lives are spent working, providing more freedom in how people make money is a direct way to improve their quality of life. The mission has been crystal clear since day one: to create paths for economic mobility at scale by allowing people to monetize their skills and creativity and lowering the barriers to entrepreneurship. In the midst of COVID lockdowns, that mission became even more urgent as large swaths of the population suffered job loss and turned to online platforms for income.

As I was starting Atelier, Jesse Walden was working on Variant Fund, a seed-stage venture firm focused on the ownership economy thesis, backing software that is built, operated and owned by users themselves. I first met Jesse Walden when we were both working at a16z: he was on the crypto team, and I was on the consumer team. In those days (2018), there was a wide gulf between consumer applications and crypto, and the deals that our respective teams evaluated hardly overlapped — yet in spite of that, we often mind-melded over internet creators and online platforms. 

Fast forward to today. Both of our funds are notably different in a sea of venture firms: they exist not just out of a desire for financial returns, but to support companies that catalyze greater social and economic equality. Our missions were, and are, two sides of the same coin: ownership is a cornerstone of financial freedom and enables greater enfranchisement of participants in the networks to which they contribute their time and energy.

The ownership economy has the opportunity to address one of the biggest and most morally troubling issues of our time: economic inequality. As the wealth gap continues to widen to levels not seen since just before the Great Depression, the best way to combat this is to enable everyone to become an owner of wealth-building assets. For too long, ownership has been restricted to a privileged set of individuals — whether on the basis of geography, network, expertise, access, or for regulatory reasons. This phenomenon is especially true in the online creator economy: despite platforms’ critical dependence on the contributions of creators and users, platforms’ value accrues to a cadre of founders, early employees, and investors, rather than to users themselves. Furthermore, to maintain defensibility, creator platforms own and lock in users’ data, content, identities, and interactions — leading to erosion of creator leverage and lack of control of their own businesses. As more of our time spent and work opportunities become mediated by online platforms, giving ownership of these platforms — in terms of value, content, and data — to their participants becomes a powerful vector for facilitating social and economic empowerment. Yet, broader distribution of ownership isn't just a more socially optimal outcome, it’s also the most optimal way to scale a network. Platforms that reward their users with ownership align incentives towards creating internet-scale armies of talent that will enable them to outcompete those who don't.

Crypto has showcased the power of ownership in rallying independent participants all over the world to help steward and grow internet-scale networks. The first to realize this opportunity were developers and technologists who were critical to the growth and operation of networks like Bitcoin and Ethereum; since they owned a piece of those networks in the form of their native tokens (BTC and ETH, respectively), they were eager to contribute to those protocols in deeper ways. Now, founders are pushing this more cooperative economic model towards mainstream consumer adoption, resulting in an avalanche of new platforms whose participants engage with the products and services they use in deeper ways because they’re aligned with their economic success. The future of consumer software is crypto, centered around the belief that what users create and the value they engender belongs to them.

User-owned and operated networks are nascent but already percolating in various verticals. For example, in gaming, Yield Guild Games is providing on-ramps to income-earning opportunities in the metaverse via a scholarship program that is community-owned and operated. In the creator economy, Mirror offers crowdfunding and publishing tools and plans to distribute governance tokens to its community; members can use these tokens to propose grants from Mirror’s treasury and influence how its product works. Uniswap, a crypto exchange, distributes its fees to the traders that provide liquidity and make the product useful. And this is just the beginning! 

Today marks a new chapter for both of our funds as I’m excited to announce that Atelier Ventures and Variant Fund are joining forces to invest in software that is owned and operated by its users. Together, we will lead investments in early-stage crypto companies out of our new $110 million fund. Enabled by crypto, the ownership economy is how we can truly deliver on the promise of the passion economy, and consumer technology more broadly. As someone who has worked and invested in Web2 companies for my entire career, this was not a decision I took lightly. But I arrived here in full confidence that the intersection of the passion economy and ownership economy is the future I want to work towards, and the area of technology that holds the most entrepreneurial and equitable potential for humanity. 

Our merger represents a belief that the future of the passion economy, and of consumer software, is crypto. Together, our partnership — Jesse Walden, Spencer Noon, and I — will back founders at the earliest stages. Jesse was an early believer in crypto’s consumer potential and gained hard-won insights from a number of vantages: as a founder of Mediachain, an early protocol that pioneered ideas since popularized by NFTs; a research lead at Spotify, which acquired his startup; and as an investor, where he has written the playbooks on emerging best practices for founders building in the crypto space. Spencer was an early expert in DeFi; a one of the first crypto investors to leverage on-chain analytics to value the fundamentals of new financial marketplaces at DTC Capital; and was also a crypto entrepreneur, starting Bitcoin on-ramp company BTCity in 2014. Together with my expertise in consumer marketplaces and platforms, we provide a diverse and unique perspective that will help founders execute on strategy decisions unique to crypto projects, but also bridge the gap in go-to-market for crypto’s next leg up towards mass-market adoption.

If you’re a founder aligned with our vision for a more meritocratic internet, we’d love to chat.

Atelier Ventures and Variant Fund are joining forces - Variant

Atelier Ventures and Variant Fund are joining forces

The Creator Economy is in Crisis. Now Let’s Fix It.

Jesse Walden

At a16z crypto, we’ve talked a lot about how crypto networks are analogous to cities in that both cities and crypto networks benefit from bottom-up growth on top of shared infrastructure.

A traditional business is generally best positioned setting up shop in a location with existing residents, utilities, law, security, and a vibrant market economy.  Similarly, developers benefit from building on top of shared resources such as an existing user base, data, security and running code.

We call this composability. A platform is composable if its existing resources can be used as building blocks and programmed into higher order applications. Composability is important because it allows developers to do more with less, which in turn, can lead to more rapid and compounding innovation.

The trustless nature of blockchain computers is a major unlock for composability, as it allows developers to build atop shared infrastructure without fear of lower-level dependencies being yanked from underneath them.  This is true because blockchains are both permissionless (what’s great about open source) and stateful (what’s great about APIs like Twilio and Stripe).

In looking at the evolution of blockchain computing, I’ll sketch out a mental model of four distinct eras, each with varying architectures and priorities with regards to composability:

Calculator Era – application specific, limited composability

Mainframe Era – turing complete, high composability

Server Era – application specific, punt on composability

Cloud Era – turing-complete, scalable composability

As I describe these, I will walk through the pros and cons of each as I see them. But let me say up front, there are many open ended research questions in this domain, and it is not at all clear how things will shake out. Each is an experiment worth running.

Bitcoin is the forebearer of blockchain computing. It is a full-stack solution to an application-specific problem: sound money or digital gold. Besides the simple function of tracking balances and transfers, bitcoin offers a scripting language that can be used to construct more complex functions.

A number of projects have leveraged Bitcoin Script to compose higher order applications. For example,  Proof of Existence leverages the OP_RETURN  datastore to create a proof that a specific person had a digital file at a given time. Projects like Colored Coins and Counterparty enable the creation of custom tokens atop the pooled security of Bitcoin’s blockchain. But a number of other attempts to further extend Bitcoin’s functionality, or the functionality of tokens, have been limited by the intentional constraints of the Bitcoin scripting language.

Many argue that that the most important property of a decentralized money system is security, not programmability, and that a limited scripting language is thus a feature, not a bug. Through that lens, we can view Bitcoin as more of a calculator than a computer (and that is intended as a positive remark!). It is purpose built and good at it’s task, but for developers keen to tinker and build new applications an evolution to a new architecture was required.

Built upon the key ideas pioneered by Bitcoin, Ethereum generalized the blockchain computer by including a turing-complete virtual machine. This means developers can deploy and run any program across a decentralized network of machines.

Today, for veracity, each node in the network must execute every program function. This makes it slow and expensive to use, but Ethereum is unrivaled on one dimension: its computations are trustless. Each program can be expected to obediently execute (as verified) and it’s output, or state, is available for all others to see. A program on Ethereum can thus serve as a dependable and neutral building block for developers to compose into higher order applications. We see this happening today:

Marble enables flash lending for exchange arbitrage: “A trader can borrow from the Marble [smart contract] bank, buy a token on a DEX, sell the token on another DEX for a higher price, repay the bank, and pocket the arbitrage profit all in a single atomic transaction.” To do this, Marble leverages Ethereum’s singleton VM to execute a sequence of functions across independent projects, and the result is a simple utility that anyone can use.

Primotif is a financial derivative that can track real-world indexes, like the S&P 500. It uses Augur shares to track the price of the underlying index, dYdX  short tokens to  hedge against the volatility of ETH, and dYdX use Maker’s Dai stablecoin under the hood.  Built in a weekend, Primotif is a great example of composability leading to compounding innovation and strong developer network effects.

Network effects through composability are not a new phenomenon. Here is Biz Stone, founder of Twitter, on composability of their API in 2007 (via AVC ):

“The API has been arguably the most important, or maybe even inarguably, the most important thing we’ve done with Twitter. It has allowed us, first of all, to keep the service very simple and create a simple API so that developers can build on top of our infrastructure and come up with ideas that are way better than our ideas, and build things like Twitterrific, which is just a beautiful elegant way to use Twitter that we wouldn’t have been able to get to, being a very small team. So, the API which has easily 10 times more traffic than the website, has been really very important to us.”

Unfortunately, composability didn’t last on the Web 2.0 scene. One problem was that there was no way to “send money through the API,” nor an effective and fair means to govern the rules of the platform, such as ad display. This created an incentive misalignment between developers and platforms that resulted in the re-centralization of data and the loss of third-party innovation.

My partner Chris has written about how crypto tokens can better align incentives around sustainable, open networks. The foil, today, is that incentive-aligned, composable networks do not scale.

This is the “mainframe era” of blockchains. While there are no doubt early network effects due to composability—pooled security, userbase, data, and running code—this comes with diminishing marginal returns as adoption pushes against the throughput limitations of the mainframe. This, in turn, drives up cost for each additional user and developer. Plotted on a chart, it looks something like this:

Due to resource constraints, the marginal cost per user increases and eventually exceeds the marginal value of composability (shared resources and developer network effects)

In search of scalability, some developers are foregoing composability and shared network effects, and are instead reverting to application-specific architectures. The vision of projects like Polkadot and Cosmos is one of multiple, heterogeneous chains—each custom tuned for it’s bespoke application. Polkadot’s Substrate and the Cosmos SDK are modular blockchain building kits to roll your own full-stack “app chain.”

Going full-stack is a lot more work than composing atop existing network resources. For developers, it means means building down to the state machine and up to the application interface, bootstrapping minimum viable security for the network, and sussing out interoperability with the others in the ecosystem.

But historically, full-stack strategies have proven successful at pulling the future forward and bringing early technologies to market. Wang Technologies offered a very functional word processor as a bundled hardware/software solution long before PC applications were up to par. Later, AOL bundled an ISP, a content delivery system, email and instant messenger—a superior user experience to the early web while it was under construction. And RIM bundled together a mobile device, operating system, and early applications like BBM and push email in order to catalyze smartphone adoption.

full-stack platforms, pulling the future forward.

In the early days of the web, each website had a custom-built server running in a closet somewhere. In order to own the experience end-to-end, developers needed to own a slice of the infrastructure too. The same may be true for the next era in blockchain computing. This is what I’ve been calling “the server era.”

“Server era” blockchains explicitly trade off composability for control. And this plays out on two-dimensions: control over the end-user experience, and more granular control over the economics of the supply-side resources of the network. An assumption of “server era” architectures is that network resources, such-as security, storage, and compute are demand constrained. That is, they can be scaled up, on demand, as the application gains adoption. This stands in contrast to “mainframe era” architectures where resource costs vary as a function of all of the other traffic on the network. The theory is that a full-stack “server era” architectures can mitigate the risk of a gentrifying “mainframe” chain.

“Server era” blockchains are different from their full-stack platform predecessors in that they’re still blockchains! Whereas Wang, AOL and RIM were closed platforms, “server era” blockchains are still verifiable, open data structures with programmable incentives. This property enables them to be composed into hubs (which is what both Cosmos and Polkadot do.) One blockchain can be a light client of another, developers can build atomic swaps, and otherwise extend functionality.

This means that even “server era” blockchains are still composable, but on a different dimension than “mainframe era” blockchains. Rather than running a single virtual machine, these blockchain computers require new standards for communicating with one another in order to enable composition across applications. These communication interfaces are the subject of ongoing research and standardization, and will no doubt add complexity to the developer experience with regards to composibility. But in spite of that drawback, the benefits of a bundle may prove to be the catalyst for a new wave of blockchain architectures and I expect we’ll see many more projects taking a full-stack approach in the near term.

The “cloud era” is meant to invoke a scalable, generalized substrate for trustless computation. This is the promised land, where composition is only bounded by creativity, not scale or communication complexity, and where innovation can compound without hitting diminishing returns.

How exactly this will work is very much in the realm of open research. Proponents of “server era” architectures posit that a “cloud era” experience will emerge through standardization and abstraction of inter-blockchain communication among heterogeneous blockchains. Others, like Ethereum 2.0 (Serenity) and Dfinity, are converging on sharded versions of homogenous, turing-complete chains. You can think of this as a world of many “mainframes” that share a pool of security, but split state and computation among homogenous virtual machines. And still others are researching entirely new architectures that move computation off-chain.

Given the size of the research community, and the potential prize for such a solution, I would not be surprised if “cloud era” blockchain computing is hot on the tails of the so-called “server era.” We’ve already laid the cables and built the data centers— “cloud era” blockchain computing is mostly software innovation. Whenever we get there, it seems clear that trustless composability will be a new superpower for developers, and when developers can do more with less, we’ll all be the beneficiaries of more collaboration, creativity, and choice on the internet.

At a16z crypto, we’ve talked a lot about how crypto networks are analogous to cities in that both cities and crypto networks benefit from bottom-up growth on

4 eras of blockchain computing: degrees of composability – Variant

4 eras of blockchain computing: degrees of composability

One of the most stunning things about the technology we consume everyday is the degree to which it is built, operated and even funded by its users.

The device you’re using to read this post, the software that’s displaying it, the server hosting this content and so much else on the internet are built with open-source code contributed by a global community of developers. Platforms like Wikipedia, YouTube, Twitter, Facebook, and Airbnb all operate around content and products sourced from individuals, not corporations. And increasingly marketplaces like Kickstarter, Patreon, Substack, and many other Passion Economy platforms enable users to directly fund the products, information, and services that they consume.

As the role of the individual in value creation becomes more commonplace, the next evolutionary step is towards software that is not only built, operated, and funded by individual users—but owned by users too.

Ownership, via employee stock option plans, has been a powerful tool for incentivizing talented people to dedicate their skills to building startups in Silicon Valley. While this model has been extremely successful, it hasn’t been accessible to all, constrained by geography and legacy financial infrastructure, among other factors. One result is that the economic interests of the biggest internet platforms are concentrated and often poorly aligned with their most valuable contributors, their users. Now, new technologies are shifting work and value distribution to be accessible online, resulting in a new generation of platforms that thrive on contributions from a permissionless and global talent pool.

Ownership is a powerful motivator for users to contribute to products in deeper ways, be it with ideas, computing resources, code, or community building. This more cooperative economic model helps ensure better alignment with users over time, resulting in platforms that can be larger, more resilient, and more innovative.  This is the Ownership Economy, and beyond being a positive social endeavor, the platforms building it are able to leverage the strongest form of market incentives to grow network effects.

While most prevalent in crypto today, The Ownership Economy is expanding to other areas in tech. To understand why, we can look to recent history and observe how protocol innovations often expose disruptive new models that, when productized, influence broader trends and go on to impact billions.

Identifying Disruptive Models Through Protocol Innovations

The history of protocol adoption fits a pattern: first, early-adopters use new protocols to do things that were impossible before the new technology empowered them to do so. Very often, this new behavior involves breaking the rules. Then, a winning strategy for founders is to build products that make these new models more accessible to a wider audience. 

Consider the early web protocols: IP, HTTP, standards like HTML, then RSS. At first, popular websites used these protocols to create carbon-copies of physical analogues, like newspaper cover pages or classified ads. But as internet adoption went mainstream, users began publishing their own content: independent blogs, podcasts, newsletters and forums paved the way for the user-generated content platforms that dominate publishing today.

Another example is BitTorrent, a protocol innovation of packet distribution, but a disruption that underpinned the streaming revolution. When BitTorrent first became popular, Netflix was still mailing DVDs in the mail. Meanwhile, the peer-to-peer technology enabled consumers to access music, movies, software, and video games instantaneously, as if the files were already on their hard drives. By 2004, BitTorrent comprised one-third of all internet traffic.

Consumers’ passion for torrenting signaled that they wanted to access the world’s media at their fingertips, but for many, BitTorrent wasn’t a user-friendly experience; trackers were moving targets, cluttered and difficult to navigate. 

One person who saw an opportunity through the noise was Daniel Ek, founder of Spotify. As CEO of µTorrent, one of the most popular BitTorrent clients, Ek understood that piracy wasn’t about stealing—it was about access. The winning formula was providing access to the world’s music in a clean, well-designed product.

Today, crypto tokens are the latest protocol innovation to expose a disruptive new model. Just as BitTorrent allowed us to exchange packets of information instantly and without an intermediary, crypto tokens let us distribute value in the same way.

The protocol innovation of tokens is akin to packets for value, but the disruption is in the way new software platforms can be built and gain adoption. The breakthrough of early crypto networks is a new model for market-driven networks, where users build, operate and own a piece of the products and services that they use everyday.

The Ownership Economy, Pioneered by Crypto

The idea of user ownership is at the core of the success of Bitcoin and Ethereum, the first user-owned and operated networks at scale. Bitcoin arrived in 2009, the year that marked a rapid acceleration of economic inequality and the role of the internet in people’s daily lives. Bitcoin promised a new economic means to participate in modern technology history, simply by running open-source software on your computer. Rather than needing to live in a specific place and pursue a specific career in order to reap the benefits of the new economy, anyone with an internet connection could participate by “mining” or securing the network. In return, they earned newly minted Bitcoin, an ownership stake in the network itself.

Ethereum’s 2015 launch expanded the type of computation possible on blockchain networks, enabling a broader range of applications and allowing developers to experiment with new ways of expressing ownership in code. The best-designed Ethereum-based applications leverage a business model similar to traditional Web 2.0 marketplaces, but encode them in autonomous “smart contracts” run by Ethereum’s network of miners. This means these applications have no central operator. Rather than a platform’s inner circle of founders and investors taking home the value, users are able to earn the majority of value generated from their collective contributions. 

Needless to say, one of the most challenging problems any startup or new technology faces is adoption, especially where network effects are necessary—and even more-so when competing against the existing network effects of today’s dominant platforms. As the early Bitcoin and Ethereum communities came to realize, ownership is a tool to help surmount this problem. Those early communities were largely composed of technologists, developers, and enthusiasts who were naturally among the first to recognize the power of tokens as direct economic incentives. But today, founders are bringing the idea of ownership —  or at least, better economic alignment between platforms and participants — to new verticals in tech, from developer infrastructure, to financial services, and from consumer marketplaces to social.

How next-generation platforms are driving an ownership economy

The ownership economy doesn’t always mean a literal distribution of tokens, stock options, or equity. It also doesn’t necessarily mean that an application or service is entirely built on a blockchain. Rather, it means that ownership — which may manifest in the form of novel economic rewards, platform governance, or new forms of social capital — can be a new keystone of user experiences, with plenty of design space to explore.

Some examples: In payments, Celo is making digital dollars and financial applications accessible to anyone with an internet connection via a blockchain network that, like Bitcoin, is entirely user owned and operated. In finance, startups like Binance and Numerai have leveraged tokens to distribute revenue from the platform directly to their users, fueling brand loyalty and growth. Compound, a money market, recently completed its journey of progressive decentralization to become a community owned marketplace for borrowing and lending.

Uniswap, a crypto exchange, has a business model similar to Coinbase or Binance in that it imposes a fee on transactions. But rather than the company capturing that fee, it’s instead distributed to the market-making traders that provide liquidity and make the product useful. Since Uniswap is open source and user-owned, third-party developers can have confidence building on the platform and a rich ecosystem of integrations has grown around the project.

In social, Reddit recently announced that 300 million users will have access to tokenized community currencies through their mobile app. The platform will reward participants in the r/FortniteBR and r/Cryptocurrency subreddits with tokens that can be used to pay for membership, tipping, and badges in the Reddit app, giving them ownership over the economy of each subreddit.  

Consumer marketplace Foundation is transforming the Kickstarter model by allowing creators to tokenize their projects in a marketplace where tokens can be bought, sold or redeemed for goods or services. This programmable, digital representation of ownership unlocks new revenue streams that gives buyers and creators access to new value streams in secondary markets. 

Global talent marketplace Braintrust connects top tech talent with large companies looking to hire them.  Their marketplace transacts in USD but uses an Ethereum-based token as its core incentive and governance system to distribute value to contributors.  

In consumer products, the house-of-brands startup Arfa is rewarding customers who contribute to product development—The Arfa Collective—with a 5 percent share of company profits. They hope these direct economic incentives can help build a more loyal customer base with lower marketing costs over time. 

Other platforms like Bird and Dumpling are putting a new spin on the gig economy by allowing suppliers in their marketplaces to run independent franchises, which they own and operate. These platforms combine the scale of software-driven marketplaces with equity value accrual for operators.

The world increasingly understands that “software is eating the world,” so it’s no surprise that narratives around personal economic empowerment on the internet are resonating now more than ever. Just as the barriers to professional productivity online have fallen dramatically, so too have the hurdles that previously prevented the equitable and secure distribution of economic value. 

Introducing Variant: a firm dedicated to the ownership economy

Crypto exposed the power of ownership as a tool to drive users to contribute to protocols they use in deeper ways. Now, the opportunity is to follow the pattern, and build more accessible products (and protocols) that bootstrap adoption & participation through better economic alignment with users.

After building and investing in the space for nearly seven years, I am doubling down on the pursuit of a more equitable and innovative internet. In 2014, after starting my career in music as an artist manager, I cofounded Mediachain Labs. The company’s goal was to build infrastructure that would allow creators to capture more of the value they generated on media platforms. That project was acquired by Spotify, where I led blockchain R&D with similar goals in mind.

In 2018, I joined the investment team at Andreessen Horowitz to take a wider view of crypto networks, their capabilities, and their applications. And now, at Variant, I hope to work with this generation’s Daniel Ek’s: product-driven founders who understand how ownership can be a disruptive cornerstone of new products. 

To help build the ownership economy, I’ll partner with entrepreneurs and communities at the earliest possible stages.

If that’s you, please reach out — I’d love to hear about what you’re building.

Join the discussion on Twitter and subscribe for updates from Variant.

From crypto to consumer, ownership is emerging as a new tool for bootstrapping network effects in new software platforms that are increasingly operated by their users.

The Ownership Economy: Crypto & The Next Frontier of Consumer Software – Variant

The Ownership Economy: Crypto & The Next Frontier of Consumer Software

Derek Walkush

I couldn’t be more excited to announce that I’ve joined Variant as an investment partner. I’ll be working alongside Jesse, Li, Spencer, Medha, and Geoff, and collaborating with our network of venture partners and founders. At the conclusion of this semester, I’ll be joining the team full-time in June and going on leave from university.

After being briefly introduced to Bitcoin in high school, I grew interested in crypto around DeFi summer in late 2020. I then applied to intern at Accolade Partners, one of the top crypto fund of funds. The experience completely changed my view of the industry. Watching capital swarm the sector, talent flood in, and the ecosystem’s rapid growth made it hard to ignore what seemed to be occurring: a once-in-a-lifetime technological transformation. Accolade also invested in early-stage consumer and enterprise tech funds (the other hottest segments of the VC market), yet the developments in crypto dwarfed that activity.

I started spending my nights and weekends teaching myself the basics of distributed systems and low-level computing while beginning to experiment with on-chain DeFi apps. My conviction and interest only seemed to grow. To get more involved in the on-chain world, I joined Index Coop as a part-time contributor to help with some BD work; I also became a core contributor at AladdinDAO, developing a content strategy for their yield farming research. Around the same time, I started writing for Spencer’s newsletter, OurNetwork, to become more familiar with on-chain analytics and DeFi fundamentals, teaching myself SQL to query data on Dune. 

While at Accolade, the extremely thesis-driven funds, with investors proudly wielding contrarian, independent thinking always stood out. Of those, Variant’s ownership economy thesis seemed most powerful: growing up through the highly centralized, “walled garden” era of the internet, the flaws of a small group of often quite personalistic companies controlling the consumer web experience became increasingly apparent. Ownership through token networks introduces an entirely new design space for web applications; to me, it offers a multitude of new attack vectors - including airdrops, vampire attacks, and others - for challenging seemingly invincible incumbents, creating an opening for a new generation of highly innovative tech startups. 

Looking to learn more about web3 and VC, I applied to join the Variant team in early January as an intern, initially assisting mostly with OurNetwork, and then dove more into supporting investment research and diligence. Interfacing with top entrepreneurs only furthered my conviction; their stories and determination inspire me. Watching the space evolve for just over a year, I realized I was facing a generational opportunity, and couldn’t miss out on it. I couldn’t be more excited to start this next chapter of my career at Variant.

My primary research interests are on-chain data analytics and token distribution. Public ledgers unlock unparalleled availability of real-time data for any protocol. Unlike TradFi, where the market gets four quarterly snapshots of a company’s fundamentals-based health, protocols can be constantly monitored. At scale, these data flows can be more efficient and reduce the need for a “guessing game” of key indicators each quarter. I also grew fascinated by token design as an economics and math student. The scholarship coming out of centers like the Research Institute for Cryptoeconomics in Vienna, especially that of Sherman Voshmgir and Michael Zargham, fascinated me; I quickly sought to learn more about the topic. Token engineering is one of the most exciting greenfields in economics, with unparalleled applications and importance for the entire field. 

At Variant, I will primarily be focusing on DeFi investing. Even with limited experience at TradFi startups - covering solar investing and income share agreements - during the pandemic, the unlocks of DeFi’s composability and trustlessness became apparent; taking classes on the history of the financial system at Georgetown, it became easy to contextualize DeFi and realize that smart contract-based finance represents one of the greatest advances in modern economic history. Broadly, two themes excite me: consumer adoption and token distribution innovation. 

First, more consumer-facing, retail adoption is a necessary step in DeFi’s path to mainstream adoption. 2021 was a record year for crypto-asset allocations, and for part of the year, the majority of DeFi transactions were from institutional investors. Retail adoption, however, is lagging. The entire sector has only seen about 4m unique wallets, about 1/80th of the DAU of Snapchat. Despite small user numbers, equating TVL to assets would rank DeFi as the US’s ~17th largest bank. I believe projects building smooth, user-friendly onboarding experiences are poised for massive expansion; these kinds of products include wallets/fiat on-ramps for new crypto investors, abstractions to access DeFi yields through easy bank account integrations, and user-friendly mobile apps.

Second, token distribution design seems to be having a “wake-up” moment. Many projects understandably prioritized security, smart contract optimization, scaling, and other technical features for their initial launches, with token design taking a backseat. Even just the past few months have seen new, highly experimental distribution mechanisms, utilizing lockups and new programmable auctions. These innovations can be used to transform token distribution from primarily ensuring secondary market liquidity to better aligning the long-term incentives of network participants. Founders ideating net new, experimental token designs that translate to novel game-theoretic mechanisms interest me most; like ownership, token-based incentivization creates an entirely new design space. 

DeFi still feels like an experiment; a distributed, global community is currently building an alternative financial system that’s decentralized and permissionless. In other words, anyone can participate or build; the same composability of open source code now applies to finance, creating an entirely new opportunity set of products and strategies. It’s certainly a lofty mission, but I couldn’t be more excited to play a part.

Here are a few categories that I’ve been tracking:

Experiments with under-collateralized lending

Bringing RWAs on-chain to serve as collateral

Consumer-friendly DeFi apps for retail investors

Abstractions to help non-crypto-users access DeFi yields

If you’re working on something that sounds like a fit, reach out on twitter or by email at derek@variant.fund.

I couldn’t be more excited to announce that I’ve joined Variant as an investment partner. I’ll be working alongside Jesse, Li, Spencer, Medha, and Geoff, and collaborating with our network of venture partners and founders.

A first-check crypto fund investing in the

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