Capital Is Coming, but Are We Ready?
Amid the current bull run, capital has been on my mind.
As we move into the latter half of the year, we will begin seeing project treasuries unlock. Tokens in project treasuries will go the toward likes of grants, project development, and various other programs designed at developing the native ecosystem. At least one assumes this is where the capital will be allocated. As Larry Sukernik pointed out, people don’t know how to spend treasuries.
Furthermore, Pratik and I (mostly Pratik) have been exploring governance at Covalent following the announcement of CQT and the Covalent Network. Capital and governance are closely linked. When you think of governance, it is the idea of forming consensus among a group, be it large or small. What is typically being governed is a resource, most likely an economic one. Governance could even be considered as capital depending on the form of capital. Take a new form, such as social capital, for instance. Capital here is the social following one has attained. With a significant social following, you can have a direct influence on one’s opinion or decision-making. Essentially, how they govern.
I digress. An even greater influx of capital is coming and being generated.
We are all aware of what capital is through experience, but I found myself unable to define it. So, for my own understanding, I want to delve into capital at a high level, the new forms of capital being created and how exactly we are harnessing such.
No Cap
Historically, capital has been considered a piece of stock that one holds to pursue profit (even power). An individual or party would hold physical assets such as land, inventory or stock accumulated via labour. These assets would equate to a sum of capital. This capital resulted in power. In centuries past, kings, queens and various monarchs held such power via the capital that they controlled.
The only way to transfer or attain this power was to gain their capital through war or violence. The means of transferring ownership of capital changed once legal agreements came into the fray.
Human capital can be regarded as the set of skills, knowledge, capabilities, and other attributes embodied in people that can translate into productivity. And today, there are new forms of capital, including political and social capital. The difference with these new forms of capital is that they don’t directly generate revenue when compared to the traditional forms. They do, however, give the yielder power.
Capital can even be argued to exist naturally. As Joel Monegro recently discusses on Bankless, one person will naturally have more influence amongst a friend group than another. The same can be seen in a company, although this is more hierarchical and structured. Although it isn’t visible, this power or influence is capital.
Innovation Enabling New Instruments
Innovation breeds change. The result is not only new forms of capital but making previously invisible forms of capital visible.
What makes capital visible? It must be observable, measurable and tradeable. Once capital meets these criteria, markets can be created around it.
To make capital visible, we need instruments. Instrument examples include 1) a property title that gives individual legal ownership over the land, or 2) the stock equity one holds in a company. To put it simply, anything that enables capital to be easily transferable.
Historically, writing has been the most common instrument used in making capital visible. Today, however, technology and in particular, blockchain is enabling these previously invisible forms of capital visible. Blockchain technology collapses the cost of instrumentation making it easy to create instruments for all forms of capital. And as we begin to realize these new instruments, new forms of capital will be tradeable. For example, although influence is difficult to capture, social tokens could pave the way for such. Whether it be community or personal tokens, one’s, or a group’s influence is being monetized and traded, capturing the value associated. Bitclout, for example, is an open-source project allowing people to speculate on people and posts while allowing influencers to monetize their following.
The result of capturing these new forms of capital is further wealth generation.
What Now?
On an organisational level, governance will be critical in managing these new forms of capital, especially with decentralized protocols. And to effectively govern this capital, transparency must be upheld. Tally is pioneering on-chain, transparent governance with an app that allows individuals to review data on governance systems, active and past proposals, and individual delegates or token holders. Furthermore, DAOs solve capital allocation problems for networks.
Efficient capital management will be critical if networks are to benefit from the increased capital. Llama is paving the way for such by providing a means for DAOs to easily and transparently manage their respective treasuries. Meanwhile, DeepDAO facilitates understanding how active members are in creating proposals and voting on them, as well as if members are voting for or against proposals in general.
With so much capital expected to be ‘unlocked’ in the coming years, I look forward to the innovation it will bring.