Bankless - 194 - How Crypto Saves The Internet | Li Jin & Eugene Wei

Episode Date: October 30, 2023

Many of our listeners are familiar with Li Jin, an investor and co-founder of Variant Fund and is one of our favorite thinkers on crypto and the creator economy. Li is also joined by Eugene Wei. He’s a web2 product visionary. Listeners may be familiar with some of his incredible blog posts such as, “Status as a Service”, “Invisible Asymptotes”, “Why Information Grows” and more.  In today’s episode, these two gigabrains, one from web2 social, one from web3 crypto, talk about the future of status as a service, psychological ownership, and the future ties between social and crypto.  ------ ✨ DEBRIEF | Ryan & David unpacking the episode: https://www.bankless.com/debrief-li-jin-eugene-wei  ----- 🏹 Airdrop Hunter is HERE, join your first HUNT today https://bankless.cc/JoinYourFirstHUNT  ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE ⁠https://k.xyz/bankless-pod-q4   🦊METAMASK PORTFOLIO | MANAGE YOUR WEB3 EVERYTHING ⁠https://bankless.cc/MetaMask   ⚖️ ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum   ⁠  🔗 CELO | CEL2 COMING SOON https://bankless.cc/Celo  ------ TIMESTAMPS 0:00 Intro 8:00 Web2 Social History 18:55 Is Web2 Ending? 24:50 Network Effect Theory 27:45 3 Paths to Break Free 32:17 The Internet’s Good, Bad, & Ugly 41:48 The Algorithm’s Constraints 46:25 Web2 to Web3 Learning Lessons 54:40 Love vs. Fame 1:00:24 Web3’s Potential 1:07:00 Crypto's Social vs. Financial Problem 1:19:30 Ethereum’s Social Network 1:25:14 Increasing Psychological Ownership 1:31:25 Price vs. Psychological Ownership 1:35:00 Eugene’s Advice to Crypto Builders  1:42:00 Li’s Take on Crypto’s Potential Closing & Disclaimers  ----- RESOURCES Li Jin https://twitter.com/ljin18 https://li.substack.com/p/the-ownership-economy-2022  https://www.youtube.com/watch?v=N6AJlmB2h8k  https://li.substack.com/p/building-psychological-attachment   https://li.substack.com/p/love-vs-fame-a-framework-for-social  Eugene Wei  https://twitter.com/eugenewei  https://www.eugenewei.com/blog/2019/2/19/status-as-a-service  https://www.eugenewei.com/blog/2018/5/21/invisible-asymptotes   ----- Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures 

I think there's no better time to build in social than now because we have all the factors that I talked about. We have a new business model in the form of ownership. We have a new computing platform in the form of crypto. And then we also have a new generation of users who I feel like have this sense of frustration and resentment towards the existing social paradigm and are just like so ready and craving something new. So all of those factors mixed together really makes us primed for. something new to arise. Welcome to bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, how to front-run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more

bankless. A message to the algos, we're not your dance monkeys. What's been one of the most important hidden forces shaping our world over the last decade? I think we'd say it is actually engagement algorithms. We've gone from social networks to social feeds without any of us noticing and the social feeds, that part, that's powered by a very powerful engagement algorithm. We've become a bunch of monkeys dancing to the latest TikTok algo. How much autonomy do we even have? Is this the promise of the internet? If so, how come so many of us feel trapped? We're like ready for something new. And the question in today's episode, can crypto fix any of that? That's the context. And to discuss this topic, we brought on Eugene Way. He is the author of

status as a service. He's one of the smartest product people in Web2 social that we know, and also Legion. She is a crypto investor. She's a thinker who popularized the term ownership economy to describe the future of crypto. A few things we talk about. Number one, the history of Web 2, the origin, its development, in all of its goodness, and all of its sins, and why Web 2 is stuck. Number two, business models, why business models are destiny. Number three, what parts of Web 2 are actually worth keeping and what parts are we throwing out? And number four, why Legion has abandoned the term Web 3 altogether. She doesn't like it anymore.

I was news to David and I. Five, fame versus love. Six, what is psychological ownership and why does crypto need more of it? And seven, Eugene's best advice for crypto settlers. David, why is this episode significant to you? Are you feeling like a dance monkey these days dancing for the algo? Well, since I've never succumbed to a dance monkey, I've never been elevated by Web 2. I've had to do it the old fashioned way, the old hard way.

Oh, yeah. Not the cheap way of just dancing. Yeah, dancing for the Algos. So you don't dance for any Elgos? I have not danced for the Algos yet, yeah. Are you sure? I feel like our tweets are dancing for Elgo's. Oh, our tweets, I definitely, well, once I've, I no longer dance for the Twitter algorithm anymore,

but once upon a time I definitely did. Oh, you were talking about... I mean, you're the one with daughters. Do your daughters play the dance Algo game? They don't. I don't, so I don't dance. And I think, like, genetically, that probably carries forward. Actually, my youngest daughter, she's an incredible dancer, but it's more like ballet.

She hasn't gotten to the TikTok dancing. Right, right. Not Web 2 dancing. Well, like, dancing for Algos, that's a metaphor. Right. For all of the crazy things that we do, that shape society, for, like, adapting our behavior so that we can get Instagram famous or YouTube famous or, you know, spreading our content and message in those feeds.

That's what we mean by dancing to the Algos. Yeah, there's this friend going around in New York of people. influencers filming themselves dancing on the streets of New York, just completely cut off from reality, not caring about where they are. And then the trend had had gotten so big that now people are filming, you know, influencers in the wild. And everyone's just like on the street corner dancing. Like, who is the puppeteer behind these people that are making them dance? Oh, it's the Instagram algorithm. It's the TikTok algorithm. This algorithm is making us do things and we don't have control over it. If there's one thing that crypto, Web 3, being on chain,

is here to do is it's here to set us free. The banks control our money and our finances, but Web 2 controls our behavior and our social engagements. I would like to break free from both of these things. And that we need a new form factor. We need a new substrate to build this new social landscape if we're going to do the thing that Eugene is saying we need to do, which is get out of the dead end that is Web 2 and hop over into a new fertile landscape of experimentation with Web 3. One of the big themes I think in this episode is understanding how Web 2 came to be. What are the components of Web 2, like the ad model, the feed model? And some of these components are going to persist. Some of these things are just true about the way that the universe operates.

So some of these things are forces that Web 3 will also be shaped by, but some things we can throw out. Some things we can just jettison and not take with us. And learning about the history of Web 2 and applying that as a pattern to match upon layer on and understand the future of Web 3 is what you, bankless listener, are going to get out of this episode. Once you see it, you can't unsee it. The algorithms that shape society and how to break free, let's get right to the conversation with Lee and Eugene. But before we do, we want to thank the sponsors that made this episode possible, including our number one recommended crypto exchange, Cracken, go create an account. Cracken Pro has easily become the best crypto trading platform in the industry. The place I used to

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start building your first app with Arbitrum. Experience Web3 development the way it was always meant to be. Secure, fast, cheap, and friction-free. Bankless Nation, we are incredibly excited about this episode because we have two gigabrains on today, one from Web2 social and one from Web3, talking about the future of status as a service, psychological ownership, and the future ties between crypto and social. Many of our listeners will be familiar with our first guest. She is Lee Jin. She is an investor and co-founder of Variant Fund, and she's one of our favorite thinkers on crypto and the creator economy. In fact, she recorded with us a legendary episode in the canons of Bankless called How to Own the Internet. Lee, welcome back to Bankless. Thanks so much for having me back. It's great to be here.

Thanks, guys. It is very exciting to have you back. And you brought a guest, you brought a friend with you. I did. Someone that we at Bankless have admired for quite some time. Eugene Way is a Web to You product visionary, and listeners might be familiar with some of his incredible blog posts, such as, this is one of my all-time favorites, status as a service, also invisible asymptotes and why information grows. What Eugene does very well is make sense of the growth of social media and predict what's

about to come next. Eugene, welcome to Bankless for your first time. It's a pleasure to be here. Thanks for having me. Okay, so I set this up, and I hyped you guys up for this conversation. So we've got our two brains here, one from Web2 social, one from Web3, Crypto, and we're talking about the future. But I think in order to talk about the future, we have to lay some groundwork. We have to maybe take a peek at the past. So why don't we start with a conversation about Web2 social so we can kind of get our groundings and the primer of Web 2. So there was a time when Web 2 social didn't exist when it wasn't a thing. We had the internet and it was good for stuff

like e-commerce and PayPal, right? And it was starting to peak there. And then Facebook entered the story. Eugene, could you take us all the way back to the early 2000s and explain the story of Web 2? Why did it take off? So the typical way that we hear Web 1 and Web 2 delineated is that you know, Web 2 brought with it the ability for users themselves to sort of have more right. access, the ability to publish content to the internet. But I think even back in the web one day, we saw that people are social by nature, and social is one of the most popular use cases for the internet. So there's a legendary story of a very early hackathon when the internet was built, and a lot of people submitted different projects. And one person built a project for mail. It was like a very

early prototype of email. And a lot of people said, well, this is just borrowing a metaphor from the physical world. No one's really going to use this. This seems very trivial. And it turned out that that was immediately the application that got the most use. And then we had news groups and, you know, email and all these things were being used at scale. With Web 2, I typically mark that with MySpace just for, you know, sort of my life, that was sort of the first thing that was a little different. Oh, so you don't start with Facebook. You start with MySpace. Yeah, I think of MySpace is like a very, you know, like the first sort of scaled social network that I remember using with a lot of friends and became kind of a model for Facebook. But, you know, suddenly you had this idea of a social graph, like being able to map out people's relationships on some service that existed in the cloud. And that service being, one where, you know, people could start to publish content to each other. So it was a different way of communicating with people that you knew. And that really, you know, it really took off with Facebook.

I think for a variety of reasons, you know, every social service that scales tends to build on the learnings of the previous social network. But Facebook, you know, I think did a smart thing by building on top of the college graph, and specifically in starting out with the Harvard graph, a very prestigious rung on the social ladder, and then slowly scaling out from that. And probably the biggest innovation that Facebook then brought to social

was this idea of a feed. So today we take feeds for granted in this sort of mobile phone-centric era, but you have to remember that Facebook started before the iPhone, the first iPhone, the smartphone, So we were largely using it on laptops and desktops. And the very first versions of Facebook were like MySpace in that if you wanted to see what content or updates your friends had published, you had to go to each person's Facebook called it a wall.

But essentially, you were going to each person's profile to see if they had published an update. And so it was very inefficient. The more friends you had, the more work that was. So the feed said, well, why don't we just bring all those updates into one, you know, geographic space? So it's easier for you to find out. You don't have to go searching around. If someone publishes an update just shows up in your news feed. It was very controversial at the time.

But in hindsight, it makes a lot of sense that there's no reason to go to everybody's profile to see if something's changed. Why controversial? Well, you know, within companies, it's always controversial when you make such a whole whole. wholesale change to the way the site works. And, you know, you hear stories about Zuck getting a lot of pushback from different people inside the company. And, you know, as CEO, he had the prerogative to push it through. And as with most big changes to any product or service, initially a lot of users complained. But it was very logical. And by the way, it made even more sense in the era of the smartphone, which has become the dominant computing interface, the dominant computing platform

of this era because the smartphone has less screen space. And so vertical scrolling news feed is actually just the most efficient sort of a way for users to go through a lot of content. Like you can just hold your phone in one hand. You can use your thumb to just throw the screen up. And by the way, it's also the most efficient way on a mobile phone to put ads in between posts of content. Like you don't have to leave the screen to go see other stuff to find ads. We know that most users tend to stay on the home screen of whatever app they're on. And so for all sorts of reasons, this made sense. But I also think that if you think about all of, you know,

and here I'm referring to Western Social, if you think about Web 2 as a whole, this move to ad subsidized social had a lot of consequences downstream. On the one hand, it makes a lot of sense because typically one of the biggest problems for social is the cold start problem. How do you get enough people using your product to gain the benefits of the community? Advertising is great for this because it keeps the product free, so more users will try it. So it's very logical business model. But I think when we think about the end of this era of social, the end of the era of Web2 social,

I think a lot of it is because the ad business model has sort of, eliminated a lot of other possible ways to build out social. So if you think now about Instagram, Facebook, Twitter, if you think about all of our sort of dominant social products, even if you include TikTok and things like that in there, they're all ad subsidized social networks. And so that's become this large scale zero-sum game because we know that attention is the scarce resource in this economy. And so, you're almost forced by your competition to fight for that attention. If something like TikTok comes along and becomes more entertaining and addictive,

then you're going to see Instagram and Twitter and everybody else start to copy TikTok because it's a zero-sum economy. We know that CPMs for advertising online have tended to go down over time. At least that's been the trend thus far. And so to raise your revenue as a social media company, you have to drive the M part up because the C is going down. And that means more and more we see all these companies fighting to be more addictive and entertaining. And I want to highlight one thing, which is that there was a big transition when we went to the feed,

which was initially the feeds were deterministic. That is, if I was friends with Lee on Facebook and she published something, I would just see it in my news feed. or if I followed Lee on Twitter and she posted a tweet, I would get it. But at some point, if you have enough friends and you follow enough people on Twitter, you start to get a signal-to-noise problem. You're like, oh, okay, yes, I'm friends with these people, but not everything they post is interesting to me. And so the way to combat that, to keep these products from being too noisy,

all the companies started to introduce algorithms over the top of the feed. And these algorithms try to determine what, stories you would enjoy more than others, which were more engaging than others. And this, I think of as the transition from social networking to social media. We went from deterministic feeds to probabilistic feeds. This is the era when people started to think of themselves as media figures, because essentially you started battling the algorithm. If you were going to post something to Instagram and get through that algorithm, you had to post,

like your best photo. If you were to write a tweet, you had to make sure that it was pretty engaging or funny or witty in some way. And I think this is underrated. The fact that we started to think of ourselves as media figures. And even, you know, you started to hear people talk about their personal brands. I think this is a natural consequence of all of us suddenly feeling like, all right, you know, if I'm going to get through this algorithm, I have to behave like a media figure. And I think, you know, it goes hand in hand with this advertising business model. And that's why for me personally, I feel like we're at the end of this era of Web2 social. With this ad business model, there just aren't too many other ways that you can have people interact. And, you know,

the incumbents are very, very strong in Web2 social. And that's why a lot of people, I think, are thinking about Web3 social and crypto and things as maybe a way to go back to something different by changing the business model of social. I really, really appreciated that story arc. Eugene, it kind of just took me down memory lane, starting with, of course, MySpace, being able to customize my profile, then moving into Facebook, the pre-feed version of Facebook. And I've, of course, reminded that any time Facebook made any change, the whole entire platform just got angry. And then we accepted it and it became better and we realized that no Zuckerberg does have like this particular vision for it. The way that I interpret this arc that you gave us is trying to scale,

right? Like I have my 50, 150 friends. I can only keep track of so many of them. And so what does Facebook do? They present this new technology called a feed that allows that to scale a little bit better. And then I can keep track of more friends, have more friends, make more connections, look at more content because of the feed. And then introducing a second technology, the algorithm allows that to also scale. So these social networks are also scaling. And I think, you know, bankless listeners can kind of just use their imaginations and understanding as these are the lessons that we learned in Web 2. The lessons that we learn in Web 3 social are going to pull from some of these lessons throughout history. And all of this was motivated, like you said, just by the ad model, because

scaling social networks scales impressions, which scales ad revenue, which is how we're we get to this logical conclusion. I want to just double tap on the logical conclusion part of this whole thing because you sound like this is where Web2 ends and there's no really like, oh, we only are at marginal improvements here. Like I can see TikTok starting to converge with Twitter, starting to converge with Instagram. There's a lot of shared platforms, shared components of these Web2 apps. I just want to double down on the conversation as to why you actually think that we are kind of walking towards the end of the road in Web 2 and why you believe that. Yeah, I mean, partially it's the strength of the incumbents.

You know, we have an advertising duopoly in the U.S. It makes it very hard to build a new social network. You have a very small window to scale to become even like partially relevant in the advertising space. And that makes it difficult. But I think that business model itself kind of constrains other options for social. You do have some other networks now trying more paid options. You have Snapchat Plus. You have Discord, you have Slack, which, you know, try to monetize in different ways.

None of them have achieved the revenue scale of like a Facebook or things like YouTube. So I think that's part of it. But the other part of it is that I think the graphs themselves were built out in a very particular way. And I don't think it was always thought out from the very beginning what social graphs they wanted. but the graph of people you're connected to tends to kind of determine how you'll use a network. And the fact is that most people don't really prune their graph or redo their graph that often. Typically, that happens when you join a new social network. You're like, okay, this time I'm going to follow different people or I'm not going to follow all the same people.

But you don't see people on Facebook or Twitter or Instagram, you know, unfriend or unfollow people at scale. Only, you know, some people will do it and make a big announcement, like, I'm unfollowing everybody on Twitter. I'm going to redo this. But typically you don't. So we have a form of graph lock-in that also kind of constrains how we interact with each other. And the fact of ads being the primary business model also constrains just the number of UI variants you can build within your product. I would probably say that messaging apps have been the other area where we're we've seen a lot of new social things get built out. You have Telegram and Signal and WhatsApp and those things,

but they don't monetize that well. And it's partially because the UI isn't feed base where you can just jam ads in between posts. It would be a little weird if you were in a messaging app and then an ad showed up in between your messages to people. It'd be creepy, honestly. Yeah. It's been very difficult to monetize alternative social networks. So that's why I feel like, you know, we're at a stasis. And one of the ways you can tell this is that Instagram is copying TikTok.

Twitter is trying to copy TikTok. TikTok is trying to copy Facebook. You know, I feel like we're in this circular Spider-Man meme where everybody's just trying to copy everybody else. And I don't see that many new ideas out there. Even the photo apps, these small social photo apps that have popped up recently, all of these are hearkening back to a previous. era of social. They're like, you know, let's go back to photo tagging from the early days of

Facebook or let's build an early version of Instagram again when it was just photos from our friends. So that's why I say, you know, it feels like we're kind of at an end point or, you know, we went down a cul-de-sac. Lee, you look like you want to reflect on the story so far of Web2. Oh, I mean, always, yeah, I always have thoughts. I definitely echo a lot of what Eugene has mentioned about the history of social and where we are today. It's also useful to think about the stage of social that we have today per the lens of like traditional network effects theory. So network effects theory is the idea that like the utility of a network grows as the number of users scale. So the canonical example of this is like the telephone network where as the number of people

that are connected to the network grows, the more utility that the network actually has. Like the telephone network has no utility when it's literally yourself with a telephone. But when there's 10 users, then it grows exponentially. And so a rational user who is using a product would naturally be inclined to join the larger network that has more utility, more content, more potential connections than a smaller one. And so I feel like after, you know, a decade and a half of the existing social networking paradigm, we're at this point where now the incumbents have scaled to such a a point where it's really, really difficult to compete against them because any innovation that you introduce in terms of new products, new features can easily be grafted on to an incumbent

and offered to its mass distribution of users that it already has. To illustrate this, like Facebook has three billion, with a B, monthly active users. That's literally half of the world. That's a monthly active user of Facebook. And so if you're a startup that's trying to compete on the basis of, let's say, a new content format or a new feature or a new way of interacting with your friends, it's so easy for an incumbent with all of those resources to just take that feature innovation and add it to their existing product and then offer it to everyone who's already using that product and thereby like short-cutting the utility of that new feature by offering it to all of these connections. And so we're kind of like stuck right now because all of these startups feel

like they're unable to compete. All of the scaled social networks are already scaled and they're just sort of co-opting all of the innovation in the space. And it's been like this for a while. By the way, when I first started investing consumer startups in 2016, back when I was still at A16Z on the consumer team there, I remember other VCs from other peer firms asking me, like, what is they're even left to invest in in consumer, isn't it all just like incremental innovations from here on out because we have all of these scaled networks? And I feel like if you reflect on what's happened between 2016 and now, they were kind of right. Like we haven't really gotten major new scaled social platforms. There's been a lot of feature innovation. There's been a lot of

innovation in terms of content format. We had like live audio and things like that, but nothing has really broken out and become a standalone business. And I think it's because of this, like, kind of powerful network effects thing. And I want to posit three possible paths out of here. Like, how do we get out of this situation and three possible paths that we can actually, like, break the dominant structure of the current social paradigm? So one of them is a new generation of users that arises and wants to use something different than their previous generation. of parents or whatever. I think the way that the network effects theory breaks is you can actually have negative network effects where the greater the number of users on a network, the less

utility it actually has for you. We see this all the time where we're hesitant to post something maybe on Twitter, but we're more likely to post it in a small friend group or we don't want to post something on Instagram feed, but we're okay with posting it on our stories to our close friends. So more users can actually be bad sometimes. And so perhaps a new generation that arises of young people doesn't want to use the same social network as the previous generation. And that actually enfranchises like a new social player that comes up. So that's path one. I think path two is we get a new computing platform. And with a new computing platform, it enables a new startup to be able to innovate faster and win on a new basis of differentiation than the old winners. And so you could

sort of map like the chronology of social that Eugene painted to like different computing platforms where in the web one era we had a different set of social platforms, probably like the blogging platforms, than we did in the mobile era. And then you can chalk up the mobile era into different levels of bandwidth that we had where with less bandwidth we had like photo based social networks like Facebook, and that moved towards video-based social networks like TikTok with growing bandwidth. And so perhaps the next computing platform is, I mean, I think there's a question mark as to what this is, but maybe it's VR, maybe it's AR. But I would also say, like, I think crypto is a really powerful new computing platform.

It's literally a world computer that we're building where any, you know, function API could call another API. And so perhaps that is the substrate of a new social application. And then lastly, the third path towards building a new social network, my hypothesis is perhaps there comes along a new business model for monetizing a social platform that then would advantage a new player. And this is where I kind of want to bring in like the idea of ownership, crypto ownership, as a potential new basis of a new business model that goes beyond advertising. So as we mentioned, advertising is basically the monetization of attention, but monetizing it in a way that treats all attention as fungible. And it's a zero-sum game. You're all competing for attention. And the more attention you have, the more money that you earn. But at the end of the day, you know, all attention is fungible. It's all interchangeable. Whereas ownership, I think the potential of ownership as a new business model lies in the fact that with owner,

you can actually sort of discriminate between different flavors of attention. You can distinguish between superfandom versus casual fandom. You can distinguish between patronage versus speculation and use ownership to monetize it in a very fine-grained way. I don't know if that makes any sense. And so with that new business model, you can actually make it possible for smaller social networks to succeed. You can make it possible for smaller creators to be successful. You can make it possible for like stand-alone communities to be able to monetize without a platform. For the first time ever, we're seeing crypto social networks that are platformless, meaning they have a token, they have a native token, but they exist outside of the confines of any given social platform or application.

And so I think ownership as a new business model is really powerful because it creates all these new possibilities for what can viably exist. I think that last piece, the new business model is really the key to unlocking Web3 and what you've called Lee, the ownership economy. And before we get there, which is what, you know, I think we want to spend some time on just thinking through, you know, how Web 3 can actually change the future. I want to talk maybe a bit about the stakes, or at least where the last decade or 15 years or so has kind of left us on the Web 2 front. So it's really interesting. I think all of us, everyone listening has their own unique experience with social media. And I love Eugene's model of, hey, we, somewhere along the line, we went from social network to like social media and the introduction of this algorithmic-based feed. And it's changed so much of society. It's changed how I work and operate. And everyone around us works and operates. And I got to say, I have like, and I think a lot of people probably feel like this, but a love-hate relationship with it. Right? So like, as a curator, I'm conflicted. Because, without social media and the algorithmic-based feed that it provides.

Yeah, maybe the podcast would be successful, but like YouTube, for instance, or our Twitter feed, right? We wouldn't have the distribution to be able to compete at bankless against a CNBC in the field of crypto or Bloomberg or traditional media. So I love that. The distribution is so great. And yet, as a creator, it feels like more and more I'm working for the algorithm and not for the community. It's like, you should see the way we actually have to edit and modify our. YouTube thumbnails, right? You know, like big, exasperated faces, like mouth, oh. And the reason we do that is to help spread our message. People click on that type of a thumbnail title more. And so I'm like,

who do I even work for anymore? And then as a user, right, I'm conflicted as well because amazing things have happened on social media. I learned about crypto from Twitter and social media and red and all of these things. I met my co-founder. And yet more and more, I spend more time on Twitter X. And I feel like it's an outrage machine. It's just making me angrier. It's like the feed, the elgo is optimizing for engagement, you know, rather than like truth or rather than, I don't know, some other algo it could be operated on. And then society, we don't even have to dig into the societal problems because by now they're kind of well known, right? On the one hand, you've got this global conversation that can happen on the other. You've got like bad information,

writing fast, you've got sort of mob behavior, all of these things. So I guess my question is, at the end of this, you know, 10, 15 year sort of era of Web 2 social, where are we left? What's kind of the good and the bad and the ugly? And do you think, Eugene, that Lee's thesis is right here that what we actually need is a new business model here? It's because we've squeezed all of the juice out of this kind of engagement feed algorithmic business model. and maybe we need something different, something that goes in a different direction. Anyway, tell us about the good and the bad and the ugly after this whole 15-year experiment that we've been running. Yeah, it's always going to be a mix. I'm never one to say that the Internet has been all bad.

Certainly, you know, I wouldn't be on this podcast. And most people in the world probably wouldn't even know about me if I hadn't written things and put them on the Internet and the ability for anyone to suddenly publish their things. thoughts and share with the world was a huge democratizing force. And I would never say that we should go back to the gatekeeper model of media. And the other hand, I do think we're at some sort of local maximum right now. And anyway, I'm really into Marshall McLuhan and Neil Postman and media theory. And I do really subscribe to their idea that the structure of our media really affects the way we as a society talk to each other and communicate. And, you know, Postman, when he wrote amusing ourselves to death, was writing about the transition from a print culture to a TV culture.

And he said, you know, that had some effects on American society. It made everything into entertainment, including news. And the way he defined the difference between news and entertainment was, he said, news is something that will make you change your behavior. So, for example, if I said, hey, Ryan and David, when you go out later today, it's going to be raining, you might bring an umbrella, or you might not go out. You might change your plans. But if you watch the evening news, you would say a lot of it actually doesn't change your behavior. It just pushes your emotional buttons in a way. And so if Postman were still alive, I think he would be fascinated by the

transition from a TV culture to then an internet culture. What has that done to us? And I think you can't write about that without writing about the fact that the algorithms that dominate our social networks are built around engagement. So there's another way to frame Web 1 and Web 2. And this is the way I think about it, which is what was the dominant algorithm that shaped human attention in each era. And I would argue that in the Web One era, the most important algorithm that shaped everything was PageRank from Google. Because you have to remember, in a pre-social era, the internet was just this, like, huge blob. And the way that most people chose to navigate it was to go to the Google search box and type in something to go anywhere, to find any sort of

information. And in a way, page rank itself is also an algorithm that optimizes for engagement. You know, the very famously, the first model of page rank looked at the number of inbound links to web pages from other web pages as a strong signal of, you know, how to rank that web page for any particular query. That is a form of engagement. That's just a form of engagement encoded in the actual structure of the web. In the Web 2 era, the dominant algorithm is the social media feed algorithm. On a daily basis, those algorithms choose what we see and what we don't see to a degree that probably is unprecedented in human history.

And so the positive side you would say is, look, if you get chosen by the algorithm, you can reach more people today, like just sitting at your laptop or sitting in your bedroom than, you know, Julius Caesar could reach at the, you know, the peak of the Roman Empire. You know, you can make a TikTok video that's viral, have zero followers on TikTok and be seen by hundreds of millions of people overnight. That's, that is really scaled distribution that we've never had in human history. You know, that comes with a good and bad. I tend to think that social media and our media as a whole has a reflexive nature. That is, you know, how I view my fellow citizen is really determined by what I see on social media.

Until the era of social media, I had never had such sort of like deep insight into how, you know, my fellow American thought about various issues because I used to just get the version published through the nightly news, which was the same for everybody. And I think in a way it's driven us a little bit crazy because I also. think it's a distorted picture. We tend to shape ourselves or contort ourselves to the algorithm. Right? We saw this even in the page rank era. You know, the canonical example is why are all recipes on the internet on such long web pages where the recipe is hidden at the very bottom and you first have this. I hate that. I hate that. A super long story about, you know, how the recipe, how you learned it

from your mom and all of this. And it's because page rank at one point showed a strong preference for long web pages and especially web pages where people would scroll to the bottom and so that happened. Why did YouTube videos go from short to suddenly super long? It was because the YouTube algorithm changed to prefer longer videos. And so all the creators switch their movement. Why are song tracks now, you know, typically three minutes or shorter? Whereas we used to get these super long songs. And part of it is because what do streaming music sites tend to prefer with their algorithms. It's tracks of that length. So algorithms have this just like really subconscious power over all of us.

And I think that's when you say the good, bad, and ugly, a lot of it derives from the algorithms themselves. Okay, so why don't we just switch out the algorithms? This whole engagement algorithm isn't going so well. So why don't we just switch it out? Elon maybe bought the top on Twitter or X, but why isn't his next move to convert to a better algorithm. Well, it's, again, I think, you know, if you're in the ad business, you tend to be constrained. And I like to distinguish between what function a social network serves. In my piece

status as a service, I wrote about the three sort of like use cases, one being utility, one being entertainment, and one being status. And the fact is, like, I think most of our social networks have doubled down the entertainment part because we all have an infinite appetite for entertainment. And again, like Lee said, if all attention is fungible, then really you just need to grab as much of it as possible. And so when TikTok came along, I think it was so addictive and it grabbed so many hours of attention so quickly that the other social networks really treated it as an existential crisis for them. And they all went to the same sort of algorithmic model as TikTok. We just is really not dependent on the graph at all. It's just like, hey, if you have a piece of content and

it is super engaging, you are going to rail gun that thing to everybody as much as possible. But I think it's worth going back to, you know, when Lee talks about different business models, I certainly think, like, if you weren't in the advertising game, then you wouldn't need to drive, you know, daily visits up as high as possible. But it's also like business model and use case, you know, if we went away from just trying to be entertaining and engaging, and we thought about networking as a utility that we wanted to improve upon, if we thought about other graphs that we could build from scratch, graphs that maybe have higher resolution on trust and everything, you know, I think it's not just a tension that's treated as fungible now, but, you know,

I'm friends with, I don't know, maybe a thousand people on Facebook, but, you know, we all have a lot friends, and they're not all equal to us. We're closer to some people than others. That hasn't really been, I think, worked on to the extent that it could in another business model. And the last thing I would say is the problem with an ad model is that it means that you cannot share your graph with other developers, because you need to keep all the eyeball inventory for your own ads. But if we had alternative business models, then you might see social networks open up their graph to other developers to build off of. There's no reason that every developer, when they want to add social to their whatever product or service, like if Netflix wanted to do social viewing or if you want to have social shopping,

there's no reason that we should have to rebuild the graph from scratch each time. And in fact, we see an example of this in China. So China offers also a one of the largest social networks in the history of the world in WeChat. And if you look at their 2022 revenues, more than half their revenue is actually from gaming. It's not from ads. Like in app purchases in games or subscriptions? It's just games themselves because Tencent, the company that runs WeChat is one of the largest gaming studios. They might be the largest gaming studio in the world.

And so it's weird to think about a WeChat being owned by a gaming company. but that actually kind of is true. And of course, the difference in China is that the government has a very strong regulatory hand. But most apps in China, if they want to do something with social, they just build off of the we chat graph. They don't have to try to assemble their own graph. So I would love to see, if we come up with alternative business models for social, I would love to see social thought of as more a service layer of the Internet rather than a privatized thing like it is today. you know, Facebook is really like a privatized telephone network.

If you're another developer, you can't come along and really do anything with it. So far in this conversation, I think we've just really navigated some of the contours of the forces that have powered the social internet so far, like the forces that incentivize the creation of the feed, that incentivize the algorithm that created the business model. You mentioned, Eugene, the status as a service idea, the concept of where just humans or the status seeking monkeys. And this is a motivating force for a lot of the engagement that we have in Web 2. And I think if we can just draw parallels from history when something like crypto comes along and really changes the game, it doesn't change all components of the game. Some things are just fundamentally true. And I'll call like status seeking monkeys as one of those inevitable truths that Web 3 will work with. And so there are some things, I think, in Web 2 that we're probably going to crumple up and toss out.

There are some things that we are going to retain, recycle, but maybe in a different way. There are some things that are just fundamental truths about how humans work and why we're using these things. And Web3 is going to be this kind of this new fertile landscape for, I think, experimenting with all of these things, trying to find the best new form factors for putting all these components together. But, Leah, I want to turn to you with your lessons of being in the Web3 social arena as an investor, what lessons have you learned about what are the best things to reuse? What are the best things to recycle? What are the best lessons to pull from the evolution of Web 2? And what are perhaps the best things to throw out? Yeah.

First of all, I think it's useful to level set on like what even is Web 3 social. Like what are we talking about when we say Web 3 social? Because I think that term has become so all encompassing as to kind of be meaningless. Yeah. Do you even like that term anymore? Do you like Web 3 as a kind of moniker? No, we don't say it. Oh, no.

Actually, we never say that. What's the rebrand? What should we be using? We just say we're crypto investors. we invest in crypto, that we do things on chain. Would you say Web3 went through kind of a hype cycle and came away from the experience sort of like just a word that just doesn't hold a lot of resonance? Has it been just sort of defiled by the last whole cycle?

I think there's definitely part of that, yeah, where it contains a lot of baggage from the last cycle and all of the sort of negative events that have happened. I also think it was always kind of a fluffy word that was sort of invented to market crypto in a more palatable way. It's like we have Web 2 and we also had Web 1 and both of those are really transformative. So here comes Web 3. And that's why you should pay attention. Nice job, Chris Dixon. But it was never really clear like what that encompassed or what that contours of that were, whereas when we say something's on chain, like it's very clear what that means.

So is that the definition? Give us the definition of, we'll not call it Web 3, but we'll call it on chainness, maybe? On chain social. On chain social. Okay. Tell us about that. on-chain social. Or crypto-social. I think crypto-social is better, actually. Okay. Let's go with that. Yeah, I would posit a definition of crypto-social as being social platforms that feature

crypto-ownership as a keystone of the user experience. Ownership as a keystone of the user experience. Cool. And that's different from Web2 because ownership is not a keystone of the user experience. There is no ownership. There is no ownership. Yeah, there is no user ownership at all. The keystone of Web2.

might be engagement, distribution? What's the keystone of Web 2 for it to contrast that between Web 2 and Web 3? Sorry, Crypto-Social. That's a good question. I mean, Lee, would you say that economically, maybe we can use a parallel to different economic systems? Like Web 2 is sort of like the feudalist. Yeah, the feudalist attention economy. Yes. I think I said this on a previous podcast, actually. Yeah, the Web 2 internet was akin to feudalism where a handful of platforms, aka lords, owned all of the land on which we, the participants, the users, the serfs are farming, and we have to give whatever revenue share back to the platform that they see fit, that they dictate. And the Web 3 internet,

crypto is a move towards capitalism in the digital sphere versus just, you know, we have capitalism in the real world, but we've never really had capitalism, meaning a system of private property where anyone can own capital on the internet. And so crypto allows us as users, as participants, to become capital owners online. And so that's what I mean when I say, yeah, ownership as a keystone of the user experience. So in a social, context, ownership as a keystone of the user experience can manifest in all sorts of different ways. There's a huge range and spectrum of the types of experiences that you can build. On the really, really like light end of the spectrum, you have things like Twitter or Reddit where you could

say ownership is a light part of the experience in the form of your profile picture that's an NFT or the Reddit avatar, but that's not all that, you know, transformative or groundbreaking. And then on the far end of the spectrum, what ownership as a keystone of the user experience could mean is something a bit more structural, where ownership could actually unlock content. Ownership could actually mean that you own the content itself, where you own maybe writing NFTs on mirror, or you own media content on Zora. And then probably the furthest expression of this kind of idea of ownership as a keystone of the social experience is the platformless social idea that I had mentioned before.

where you actually have social networks that are platformless that exist entirely on chain, where the community itself is tokenized and operates independently of a platform. So examples of these kinds of social networks would be things like NFT communities, PFP communities, or tokenized communities like FWB or Forefront or various DAOs, where I would consider them to be social networks, where they are communities with strong mutual affinity, but they're not tied to a particular platform. And if one platform were to stop existing,

the social network would continue to exist. So anyways, I think all of that was just level setting on what crypto social even is. There's a huge spectrum and a range of it. And I think we're most interested in like the very crypto-native versions of it. That also goes back to kind of the original question I was asking. It was like, what about Web 2? Are we retaining?

What are we throwing out? What are we recycling? What's going to be remixed? And so as I was hearing your answer, I was thinking about like, okay, currently on my Web 2 Twitter platform, I have a Cryptopunk as my profile picture. And taking a leaf from Eugene's status as a service blog post, like, why do I have a Crypto Punk as my profile picture on Twitter? It's a flex. I knew it, David. I knew that's why he did it. How dare you? Right. The truth comes down. And it's a signal of the tribe that I'm in. It's more

effective as a Flex than a Rolex is, in my opinion, because more people are seeing it. And so, So I'm doing the status thing inside of the Web 2 rule set, which is engagement and broadcast and using the algorithm. But then there's also the Web 3 ownership aspect as well because it's an NFT that I own. So some of these forces are being retained. Some of them are being remixed. Some of these things are net new. Can you carry this conversation forward?

In what ways are you seeing a lot of this play out? Yeah. Well, I think at the end of the day, we're still building for people in the crypto world. And so people are actors that have complex motivations and human needs. And a lot of their decisions are driven by emotion and psychology, not just, you know, economics or, you know, rational utility. So when you talk about changing your profile picture to something because it confirms status to you, I think that is a great illustration of the point that people are using

products, they're doing things on these products because of how it makes them feel. And this ties into the piece that I wrote about psychological ownership and how first we have to get people to even feel like owners before we can expect them to care about financial ownership. And so in the crypto social world, I think the best products that I've seen are the ones that really acknowledge the role that psychology and emotion plays in building a product experience that tries to resonate with a large base of users because at the end of the day, we're solving for some sort of human emotion. And I'm actually, I'm writing a blog piece that's still in draft mode right now. So I'll drop the early alpha on the bank list podcast. But basically, I'm proposing this framework for how to

think about social and the value proposition that you give to users. And I basically say in this piece that as a social product, you have to appeal to users' desire for love or fame. You have to either build yourself as a love product or a fame product. Meaning you're either deepening connections that users have with various creators, existing friends, their existing connections where you're heightening their affinity to those people that are already known to them, i.e. you're building a social network. Or you're building a fame product where you're helping people get more reach, more fame. You're helping them play status games and become more worthy of status in the eyes of whomever is using that product. And this is kind of just broad versus deep, right? This is like quantity and quality.

These are ends of a spectrum, right? Yeah, I think the ends of the spectrum could also be termed like social networking versus social media. You're either building like a communications platform or you're building a media platform. You're either catering to creators or you're catering to communities. I just want to make sure I understand this love or fame dichotomy here. So are you saying that within crypto social you can build either for love or fame? Are you saying, like, just within social networks in general and social media in general, you could build love or fame? And, like, you know, one gleaning maybe I get from that is it

seems like crypto social is more targeted at love, whereas, you know, social networks are more targeted towards fame. But me, that's not true. The reason I would say that is because I know you've written things like 100 true fans, you know, it's just sort of about this intimate kind of relationship with a fan community, smaller groups, whereas very clearly social media is about discharges, distribution, right? Like, make me more famous than Julius Caesar, as Eugene was saying earlier. Yeah. But maybe fame has a role to play in Web 3 as well. Right. Yeah. So I'm saying that the love or fame framework applies to all social. So regardless of Web 1, Web 2, Web 3, like all social products are either a love product or they're a fame product. And whether you're catering to one

or another determines how you architect and structure the social network. It determines the features and the graph structure, et cetera. So even in Web 3, you can sort of categorize various crypto social products in this framework as well, where I would say examples like Frentec is probably a love product because the aim of buying keys is to deeply engage with a creator. Obviously, there's other motivations at play, but I think at its core, it's a love product. Whereas something like, yeah, well, there's not that many crypto social products to be kept ones. So perhaps we can't do the categorization that effectively. But you're right.

Like to date, I think most crypto social has focused on love, has focused on deepening connections to people that you already know, that you already trust, that you already love, deepening that feeling that feeling of affinity. And using crypto and the idea of ownership as a new monetization model for that kind of love relationship. to monetize superfandum. I think the reason why you haven't seen as many crypto social products on the fame side of the spectrum is because, A, there's just not that many users right now on chain. And so if you're trying to cater for fame, you'd be much better off targeting all internet users who are connected to the internet versus, you know, the 500,000 users who are using Ethereum monthly. So there's just less of an opportunity right now to deliver on the fame value. proposition to users because of where we are in the cycle, where we are in terms of crypto adoption.

But I think as crypto adoption grows, there is definitely an opportunity to build more fame products that gear towards reach, distribution, get people in front of many others, allow them to play status schemes and accrue status in the eyes of others. SELO is the mobile first EVM-compatible, carbon-negative blockchain built for the real world. And now something big is happening. Introducing the SELO layer two. It's a game-changing proposal that's going to bring Sello's rapidly growing ecosystem home to Ethereum. Vitalik has shared its excitement for the Sello Layer 2 on the Selo Forum, so has Ben Jones from optimism.

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marginal improvements. There's nothing really net new here. In contrast to that, what potential do you see in Web 3 to shake things up and allow some of these forces that power the social internet to kind of get remixed? Like, what's the fertile land that makes you be interested in Web 3? I'm not certain, but I just think the fact that Web3 by itself just being an alternative monetization model means that we'll have some more experiments tried that aren't constrained by advertising. And I think that's a good thing. I think we need that sort of experimentation. You know, I think in the end, business models end up sort of being destiny. And so it's just very unlikely that we'll see innovation from the incumbents on the social

front. So from that perspective, I think it's great. I think one thing, as Lee was talking about that maybe we'll hold crypto back in the near term is that I think if we think about crypto as a computer in the cloud, I always think that products tend to take off when they find the right abstraction level for the era that they're in. We've seen computing, you know, non-crypto computing, just regular computing, go through this huge arc of continual rises in abstraction. So, you know, the earliest computers you used, you might interact with a punch card, then you had command line interfaces, then you

had the introduction of Windows and the Macintosh and sort of GUI interfaces. And then we move to now cell phones and touchscreen interfaces. And now with AI, we're moving to sort of, you know, language-based interfaces. So at every level, you tend to abstract up one level and make yourself more accessible to more and more people. Right now, a lot of crypto is still as abstracted at like, I feel like, I feel like, the command line level for a computer. I was trying to help a friend buy a .eith domain at one point. And honestly, like, we went through so many steps where I was like, I don't even know if you got

your domain or what happened, like the wallet. He might have been, you might have been fished. Yeah, we might have lost, I might have lost all this money and gas fees. Like, there were no updates being public. It was really, it was just like, wow, this is, this is tough. So I think those things go hand in hand. I'm not saying that's like essential. Like, obviously a lot of people have out how to use crypto even in its very non-abstracted state. But I generally tend to think that, you know, higher levels of abstraction will be good. But I hope that Web3 builders and founders also can be more thoughtful than maybe some of our Web 2 social founders about the differences between financial capital and social capital and understand why they are different and what's

important about those differences. If I were to pass judgment, on like sort of the earliest Web 3 social experiments I've seen, a lot of them have been overrun by speculative behavior. And I think that goes hand in hand with building an entire network around scarce tokens. And look, I think that there's a lot of appeal to using tokens as a way to guide incentives in any space. But there's a reason that we keep financial. social capital separate in real life. One of the, I think, defining features of social capital is that it is

a little bit fuzzy, like it doesn't need to be quantified and tokenized that every step of the way. If someone does you a favor, like a friend of yours, you don't, you know, submit an invoice to them and you don't like track every favor or every second of time spent, you know, with your spouse on a ledger or something like that. And that's because by its definition, the fuzziness of social capital indicates the amount of trust that you have. But both our mechanisms, like both money and social, cultural mores are ways to scale trust. You know, you can look at all of human history as a way where we've been fighting to scale trust to higher and higher levels. The invention of money, the invention of language, the invention of religion, the invention of the nation state.

All of these are ways that we've built to scale trust to larger and larger groups of people. So I think studying the history of social capital, understanding how it works, and then starting to separate those things to more fine degrees is a very interesting topic to me. And I would love to see, you know, social graphs built that have higher resolution than the ones that we have today. Today, like, I'm trying to think of examples. Like, you know, on Instagram, you can have close friends, so you can publish a story to just your close friends versus everybody who follows you. But I think we can be even more fine-grained in understanding the relationships that we have in life. And that may be a way, you know, that may be something that you can build on chain because you may be able to keep that private to the end user and allow,

to evolve over time in an interesting way. I'm not sure, but that's what I'm hopeful for that crypto founders try to give us different ways to think about social or to interact with each other that aren't about sort of addicting people and grabbing as much attention as possible. This is so fascinating because I think there is this tension here and there is the hope that maybe crypto-social can hold these ideas in tension and, you know, financial capital versus social capital. But I've got to say there are a lot of skeptics that say that blending these two things together in the way that crypto does is just not going to work very well, right? And so bankless would be on obviously the more optimistic side of that skepticism, but we've had skeptics on the podcast

before. One of my favorite skeptic conversations is actually with someone by the name of Molly White. And she maintains this website that is called Web3 is going just great in what she posts on a daily basis is like all of the foibles of the Web 3 scam or just bad things that have happened. And of course, 2022 gave lots of headlines for her website. But her basic rationale is like, you shouldn't blend these things together. Financial should be financial and social should be social. And the whole crypto experiment of blending these things together is just not going to turn out well. And of course, she is interestingly enough a contributor to Wikipedia, which Wikipedia doesn't pay its

volunteers. They're just kind of scale via social capital. So what about this kind of pushback, Lee? I'm curious your perspective on this, right? I don't think crypto social has figured this out how to hold these things in tension. But I completely agree with Eugene is like our impact in the world with crypto is going to be predicated on the extent to which we can build out trust. And sometimes when we blend finance and social, we put an incentive structure together that is like hazardous to trust. It incensed people to take short-term games and shortcuts and scams and many of the things that we've seen. So what's your take on this? What's a more optimistic future for crypto social? Yeah, I hear that criticism a lot and I acknowledge it, but I also feel like you

shouldn't bet against innovators and entrepreneurs. And I feel like there is this right way to blend the two, to be able to hold them together that makes sense and is compelling for users. I think to date, probably a lot of the products that we've gotten in crypto have too closely equated social capital and financial capital, where they're basically just the same thing. Like you see this all the time in products where the leaderboard inside of the product is basically a ranking of who's made the most money or whose assets are trading at the highest prices or who has spent the most money or who has the highest PNL. And like I feel like that is to use the status and service framework. That's like a, you know, a status game inside of the

product that isn't really fun to play because its rules are too clear, too apparent, too straightforward. It's not a skill-based game that everyone has a shot at winning. Instead, it's like a money game where only the people who have a lot of capital are capable of even playing or winning that game. So I think the crypto community needs to be more inventive and creative with the types of status games that we're creating inside of new social products to be able to give everyone a shot at winning and make them feel like they have a chance. But I do still feel like that combination of the fact that we have this like new economic substrate in crypto, I wouldn't give up on it wholesale. And in fact, when Eugene was talking about like how,

there's been like a dominant algorithm that has shaped our worldview in each of these like eras of the web. What I was thinking was that at the end of the day, all of these algorithms are shaped by like the largest algorithm of all, which is the market's algorithm, the invisible hand of the market is the algorithm powering all of these algorithms. And so Ryan, when you ask like, why don't we just rip out the algorithm and put in a new one? It's because at the end of the day, everyone is responding to market incentives. And the algorithms that we have are the ones that are maximizing these companies' revenues under the current business model that it has. And I think what's exciting about crypto social is that it opens up a whole new world of possibilities for new business models, new incentives, that, yes, do have a financial element. But it also allows us to finally, like, distinguish between the different flavors of attention that people are recording something. because not all attention is the same, and Web 2 treats all attention as the same.

In Web 3, when you treat different flavors of attention differently and you monetize them differently because of what ownership allows you to do, I actually think that that creates new possibilities for social. And so more options, I think, is always better for consumers. It's very interesting, the idea that we have just been a little maybe lazy in terms of how we've constructed our crypto-social network so far, and there's a ton of untapped potential. I think you summarized this well in an article that I recently read that you wrote, Lee, which is Web3 has a product market fit problem, not a UX problem. That was your hot take. And then you go on to say, there's an opportunity for crypto builders to build products that better address

other human needs, such as belonging, community, and engagement. What could that look like? That is the tantalizing question, I think, for crypto-social entrepreneurs is what could that look like because we've been a little lazy in our experiments, I would say. Maybe lazy's not the right word. Unsophisticated, I would say, is another word. When you said love and fame, you said love or fame. You didn't say love, fame or money, right? And I feel like we haven't really addressed user needs around belonging, around community, and around entertainment and our crypto social network so far. We've just done this kind of like cheap financialization of it without any of the like meaningful things. Right.

Is that part of what you're saying? here. Yeah, exactly. Exactly. I think that's right. Like, I think a lot of the products that we've gotten in crypto have been really appealing to just one human need, which is income, and specifically income through speculation. But they haven't really put other human needs at before. And anyone who studied psychology knows that there are a multitude of different universal human needs, ranging from belonging to community, to love, to esteem, to entertainment. And so what could it look like when a crypto social product is built around esteem or belonging or helping people find their tribe? I think we haven't seen that full range of experimentation being run yet. So I'm really excited

for that. And I also think, like, it makes sense that we haven't seen that as much as the, like, overtly financialized version because speculation and income has like perfect product market fit. It has such strong product market fit that like people are always going to rush to use your product when you promise them an air drop. But actually building something that solves for belonging or esteem or those other intangible human needs, that's a lot more challenging. But I think ultimately it's more fulfilling and probably better for humanity. It's like a sugar rush though. Like it's just like it feels really good on the way up, but boy, does it hurt on the way down. Yes, yes.

And on a net basis, like, are we really building something that puts society in a better place? Lee's mapping of the fame and love dichotomy, I feel like a lot of crypto itself, when they want to implement token-based mechanisms, probably maps better to the fame side of things. A lot of crypto products, I feel like where there are token sharing with creators, and their audience feels to me like a form of equity of some sort. And so it's an alternative to the feudal model of Web 2, where there's a middleman that extracts rent. And, you know, we have seen creators try different experiments

even prior to Web 3 with having direct relationships and direct distribution relationships with their fans. That will always be sort of an ongoing tension. I think one thing that Web3 founders should ask themselves is to take my abstraction lens, if you were to abstract the crypto part of it away entirely, would there be any difference to the product itself? If so, then maybe the crypto part doesn't matter. I get a lot of products, or I've tried a bunch of different, like I feel like meetups and conferences, where founders come up to me and have showed me crypto-based messaging products.

It's like, okay, you buy this person's token or you find their address. And then the demonstration is also like, now send a message and then it comes through on the other side. And that one's always an odd one to me because, you know, you can just go on any messaging app now and just find somebody and send them a message. So the crypto part of it actually doesn't add anything in that implementation. Whereas, you know, some of the fame products or the crypto creator products, you know, you own the artist's NFT, maybe that comes with some benefits.

There's more like a direct understanding of why the crypto part of that is critical to the experience and why it's different from, you know, getting that person's content another way and then being monetized through ad attention. So I think that's like a useful way for founders in the Web3 world to think about, hey, does the crypto part of this add anything to the experience or not? Can I offer a rebuttal? Please. Yeah.

Yeah. So I actually think there's an opportunity to build both love products and fame products in crypto. And like I think on the love side of the spectrum, I published a tweet yesterday, but I often think of social from the perspective of is it innovating on a feature or is it actually innovating in terms of creating a new network? And that kind of distinction is really important because a new feature, is like pretty superficial. It can be just grafted onto a larger network. But if you're creating a

new network, that is really fundamental. The network is the social graph or how people are actually connected to each other on a product. And I think in the crypto social world, there's actually an opportunity to create new love products around entirely new networks or new social connections that wouldn't exist unless you had access to like on-chain information about users. So what I mean by this is like there's an opportunity to take like all the corpus of information that is on chain around ownership of assets or usage of different products or like just their on chain behavior and use that as like the substrate of a new network. A new network that is not interest based. It's not real life base. But it's like an on chain economic graph and deepen those relationships that you have with users that you might not even know that, again.

that insected through on chain ownership. I want to throw a take back at both of you and see if there's anything substantial here. This could just be a call it like a Twitter influencer take, but that doesn't actually mean anything, but it kind of sounds good. Lee, what about the possibility of thinking about the powers and systems of Web 2 that are recycled but remixed in Web 3? We're talking about like, oh, in Web 2 we have Twitter and in Web 3 we have like Friend Tech. Like this is a both are apps.

What about the concept of, well, you know, Ethereum, ENS names, NFT communities. What if Ethereum is the social network? Because Ethereum has some semblance of a social graph on it. It doesn't look or feel like any of the Web 2 apps, but it does start to serve some of the purpose of organizing humans in a social context. What about the concept of zooming out and kind of understanding the state that Ethereum holds as the social network that is just filtered by many different. ways of perceiving it. Is there something here? Yeah, I totally agree with that. And that was sort of the point that I was trying to draw earlier with the spectrum of like experiences that you can build around the idea of ownership as a keystone of the user experience, where the furthest realization of

that is where there is no product at all, where ownership is the social network, where Ethereum is the social network, where PFP communities is the social network, where holding an FWB token in your wallet is the social network. And it's platformless. It's, it's totally applicationless. You're bonded to these other users through shared ownership, but there is nothing in terms of like a third-party product that has been built by a startup that allows you to exist. And I think to me, like that's the most exciting form of crypto social because it feels like the most crypto-native, the most new. But I think it also requires probably like the right level of abstraction to go back to Eugene's point to make that legible and usable and understand.

to users. Like Ethereum as a blockchain may be a social network, but very few users understand like how to find others on it or, you know, the usability and the UI there is not the best. So I think we do need levels of abstraction in the form of products to make that on-chain ownership legible. Maybe in the like the early days of Facebook, it was a social network for Harvard students. Maybe Ethereum in the early days is a social network for nerds. Eugene, what do you see in that statement that Ethereum is a social networking of itself? Yeah, I probably agree with Lee. Like, maybe, but there's probably a long road to go.

My instinct is that traditionally, I think social networks that grow the quickest tend to be ones that build on top of existing networks in the real world. We've had our entire lives to shape that network, and it already exists. and the computing product or service comes along that just makes it more efficient to communicate among that group. So, you know, Facebook building on the Harvard graph was useful because Harvard students were already a social network. You have products like Slack that build on company networks. All these people in a company have to communicate already. Discord comes along and it focuses on the rise of social gaming and multiplayer games, and those networks existed within, like, you know, school friends and things like that. So I'm not saying it's impossible to build an entirely

new social graph, but typically it's easier if there's a graph that exists and you're mapping yourself to that. One of the reasons I think new social products tend to take off with young people first is that, you know, you go through a couple phases of redoing your social graph in life. And those tend to be, you know, when you go from high school to college, you have a new kind of reset of your social graph. And then when you leave college and go out to the real world, you reset your social graph again. And during high school and college, those tend to be the years when your social graph is the most horizontal and concentrated and dense. And then, you know, so it's less valuable for you to talk to people older than you or younger than people. You're very sort of narrow band in that era of your life. Yeah, that's kind of my general thought on that. But, you know, it is possible to make new social graphs. Like I think Twitter in my lifetime was where I met the most number of new people in my life. It was something that, like, I would not have met these people had Twitter not existed. They were out in the world. I got a really,

good sense of kind of their interests through what they were publishing. And there was an inbox. So, you know, that's kind of how Lee and I met actually was through Twitter. And so it's possible. It's just harder. So let's leave some of the builders and investors and folks on the frontier of crypto social with some ideas here, Lee. And I think we've alluded to this a few times throughout the podcast, but you wrote this fantastic post called psychological, And you illustrate the difference between psychological ownership and legal ownership. And the difference is individuals feel ownership without actually being a legal owner of the product or service. And then your post is very useful, I think, towards investors or builders. And by the way, when I say investors, I think I'm talking about kind of everybody because that is the future of crypto social. If it is a platformless asset first type of economic network that we're building, then guess what? Everybody gets to be an investor. Anyway, small tangent. Yes, I totally think that's our vision too. Everyone's investor.

Crypto enables everyone to become an investor. And that's pretty cool. But of course, not everyone is used to being an investor. And so we have to learn all the psych tricks of, you know, there's going to be spectacle of markets. Anyway, that aside, how can a crypto product, somebody who's thinking about building a crypto product or investing in a crypto product, maybe increase psychological ownership? You go through like five really practical things. One is the IKEA. effect, which is, do you know how when you build IKEA furniture, right? You're just like, you're vested. You're like, I built this. And it's like a machine. And then you just like move apartments and you bring it with you from apartment to apartments. Yeah, because you're so attached to it that you

don't want to let it go, even though you could afford a much better one. Okay. So tell us about the IKEA effect, control, intimate knowledge, some of the effects that you wrote about in your psychological ownership post so that people who are on the frontier here can think through how to redesign their products. Yeah, totally. So the backstory of this piece, by the way, is like, I mean, the firm thesis of variant is the idea that ownership is going to be a keystone of user experiences across various products, across different networks. And this is really rooted in the Silicon Valley playbook of giving your employees ownership and the company in order to make that startup more successful to incentivize them to build in this particular direction. And we think that that playbook should just be available to the entire world. It should encompass users and participants of a network, not just the employees.

But obviously to date, there's very few success cases of where token ownership has actually created better outcomes for networks. Usually it's been the opposite. And so I wanted to explore, like, why is that? Why has ownership not actually created the desirable outcomes of more sustainable, larger networks? And I think it is this distinction between psychological ownership and legal ownership. ownership, where psychological ownership is that feeling of mindness or feeling of attachment to a product that is actually distinct from whether or not you legally own something. So in the crypto world, we've given users tokens. We've given them legal ownership of something, but it hasn't been matched

by their feeling of affinity towards the product. So yeah, in this piece, I talk about all the levers that builders have to actually engender psychological ownership in their products. And that includes like getting users to invest time and energy and effort into their product, giving them a sense of agency or control where there's different like maybe features or parameters where they can actually express their preferences and customize the product. With more control comes a greater feeling of ownership. There's another driver which is called intimate knowledge. Like if you are deeply familiar with the product and all of like the power user settings of a product, you feel more like an owner of it. And then last,

is the idea of self-object congruity, where you actually feel an alignment between the product and with your own self-image, with your own self-concept. So if you have a brand that is aligned to your self-image, then you feel much more closely attached to it. And I think this is why people use brands that map to their self-image or dress.

Like David's crypto-punk. Exactly. What does that say about David's psychology, his cryptopunk, I think we have to ask David what it says. The only thing about my crypto punk that I picked it out of the crowd with is because it's got a smile. Yeah, see, it matches a self-image of being a happy person. There's something deep there.

We could analyze on another podcast. So anyways, this idea of psychological ownership, I think, is really a missing ingredient in a lot of crypto applications. And I would just encourage, like, folks who are building in crypto social in particular to acknowledge the role that. feeling of attachment and in general, like user psychology plays in what products people decide to use and how they decide to use your product. And I would also say, like, I think there's no better time to build in social than now. Like, in all of my years of investing in consumer, which has been coming up on seven years, eight years, something like that, a long time.

Like, I really don't think there is a better moment than the present day to build in social. because we have all the factors that I talked about. We have a new business model in the form of ownership. We have a new computing platform in the form of crypto and AI and whatever else you might want to explore, but I'll focus on crypto. And then we also have a new generation of users of people in the world who I feel like have this sense of frustration and resentment towards the existing social paradigm and are just like so ready and craving something new.

So all of those factors mixed together really makes us primed for something new to arise. As you were talking about the psychological ownership aspect of Web3, emphasizing user affinity with some of the things that they own, I think this is probably one of the big lessons that as an industry we really need to focus on in order to build back something more true with what actually the market wants. I couldn't help but to think of that meme that got spread around sometime, I think, in 2021, in that pudgy penguin's Twitter space where we had the guy just crying tears of joy as he talked about his resonance with his pudgy penguin and how I am my penguin and my penguin is me. I don't know if you guys remember that meme, but it circulated in the pudgy penguin community. Oh, yeah, guy on Twitter space just bawling his eyes out talking about how much he resonates with

his pudgy penguin. But I think the flaw in this model here, I'm also reminded of our Chris Berniske episode. He wasn't talking about NFTs, but he was just talking about people's perceptions of their bags based on the price that they are. Whereas I really think that these ethers that I own are just the best damn thing on the face of the earth when they're $4,800. But now that they're $1,500, they don't look so good to me anymore. I don't have that same level of affinity. And that's kind of one of the... That's not a true story.

This is the, of not me personally. I'm speaking for the general perception. I love my ether's at all prices. I know you do. I know you do, but this is one of the traps that I think financial ownership of something that also has psychological ownership kind of falls into. This cold, hard, economic financial ownership is kind of like oil and water with psychological ownership, right?

Like, I love my crypto punk and I love it way more when it's more valued. How do we get around this? I actually think it's the opposite where, I would say like people who feel that way who feel like they have really strong affinity for something when the price is high but don't care about it when the price is low. I would say that they don't feel psychological ownership over that thing. Yeah, that piece is missing because I think in the pockets of crypto where I see really high psychological ownership, it's actually anti-fragile when prices decline. People actually feel like they don't care what price it is? They actually feel more rabidly in support of that thing when everyone in the world is like against them, when they feel like it's a against the world. Like, Bitcoiners are like this when Bitcoin is down. Or, you know, I feel like the Ethereum community rallies even more when it's a bear market. So I think when you have strong psychological ownership, it actually is anti-fragile to price movements. That is a great point. And I do think our best social networks, maybe I'll call them loosely, these tribes that have rallied around

these assets like Ethereum and the Ethereum and Bitcoiners, they do have a psychological ownership element that is much deeper than the price. I think you're very right about that, right? So like they very much believe in the cause of decentralization and, you know, sound money and making the world. Like all of these things. And that is deeply imbued in our strongest tribes in crypto and puts a floor on the price, I guess I would say as well. Yeah. Through the framework, they have strong self-object congruity with that asset. Yes. Self-object congruity. So as we draw this to a close. I think we've talked about the marvelous history of Web 2 and Crypto-Social and how that can kind of change things. I want to zoom out and ask you guys the question. One of my

favorite analogies that we went through this episode is, well, maybe we should stop thinking about this in terms of Web 1 and Web 2 and Web 3. Maybe we should more think of it as, you know, the last 1,000 years in human history when we went from a feudal system to like a mercantile system, right? And bankless listeners will be very familiar with the crypto historian. He's actually a real historian. He looks through the lens of crypto. An episode we created called the Crypto Renaissance, and we very much painted this new world that crypto could create on the other side of the ownership economy that you'll cast down the feudal lords a little bit. You know, they diminished in terms of their power that platform lords, let's call them, of Web 2. And a new mercantile class

was sort of born. You know, the Crypto Medici, let's call them, right? That is a very tantalizing world and a very, like a world we're very excited about. And I think outside of crypto, right, the crypto believers believe that this is what's happening right now. But outside of crypto, mainstream's kind of looking in and it's like, are you, like, that's not what's happening. All they see is sort of, you know, scams and SBF and FTX and Ponzi schemes and that kind of thing.

I'm curious your perspective, Eugene. I'd love for you to, you know, just give us some advice, the crypto builders, the settlers, as we call them, those who are still here. How do we make crypto as impactful to the world as early internet was, maybe as social networks were before they got a little bit off track and became kind of alga-based feeds? But how do we have that level of impact on the world? What's your best advice for us? Well, one thing I always like to emphasize the founders is, you know, I go to that

E.O. Wilson quote that I cite a lot, which says that the chief problem of modernity is that we have godlike technology, medieval institutions, and paleolithic emotions. Wow. And I always use that quote as an example. To my mind, what's interesting about that quote is that it talks about three different rates of change. Technology changes the fastest of all. It's almost like irrepressible. Kevin Kelly likes to talk about technology as if it has a mind of its own. Next fastest are institutions. they tend to evolve more slowly than our technology. And you can see this when, you know, Zuck or Jack Dorsey or whoever has to go testify to people in Congress, you're like, wow, this is like, you know, Web 1 people interviewing Web 2 people. It's a total mismatch.

But the last part of it, the Paleolithic emotions, you know, human nature is the most unchanging element of all these things. you can go back and read a play from ancient Greece or read a Shakespeare play. And the emotions and everything ring true even today. You know, these emotions, you know, how human nature works. When I write about things, the status as a service, I'm really writing about human nature. And so the good thing for Web3 founders, I think you're working, if you can understand human nature and start to build around it, you have something that doesn't move as quickly as technology or context,

like you're not going to have platform shifts in human nature that cause your product to become irrelevant. So that's one thing. And to Lee's point about psychological ownership, you know, the way I like to think about it is that Fukuyama, when he was writing the end of history and the last man, he talked about an interesting fact. You know, we've tried democracy in different parts of the world, and sometimes it takes and sometimes it doesn't. And if we think democracy is a superior form of government, why doesn't it always work? And he distinguishes between democracy, de facto democracy. And what he said was, you know, democracy desir is where you just set up a bunch of laws and everything. You're like, okay, we're just going to put this all into place. And I think of that as crypto projects, which define very specific token models up front.

And so it's like, if you own this token, now you have a relationship to XYZ person. And so this is like structural relationships. But de facto democracy is more, you know, democracy took hold better in places where there were already conditions that caused the people there to feel like democracy was the right thing to do. Universal education. Christianity where, you know, people are all considered equal. Places where democracy took hold, these people had the values that are. already supported a democratic form of government. You know, when David talks about his crypto punk and feeling, you know, like he wants to use

that as his profile picture and everything, I think partially, I'm just speaking for you, David, but partially it's because it represents a value system that he believes in, too. It's a way to signal that you're a part of a community that believes in certain values that I feel like the crypto community has espoused a lot over the years. And, you know, the summer of 21, I was here in New York, and I went to a lot of crypto events. And I was very struck by how excited the community was. And they were talking about decentralization and all these things. But, you know, it felt like a values revolution, kind of a revolt against the end of neoliberalism and some discontent there. And so I think if you can build around values that already exist in a community, it's always easier than trying to just artificially force a community.

into being with tokens. And so that's like... I feel red, by the way. Good. I feel like, yes, tokens are an interesting way to align incentives, but it's also easier if values already exist that you can align yourselves around. And tokens just then are a reflection of that rather than an artificial mechanism to force something to happen that doesn't already exist.

So that's my main guidance. It's like a more specific. version of a general feedback I tend to give around founders that are building in social. That's a fantastic advice. And I want to end with you to Lee. So a lot of people outside of crypto certainly don't see the potential for crypto in general or even very specifically crypto social or on-chain social. Even people inside of crypto, I would say don't see the potential, right? There are some who only believe the thing that we've built on top of crypto is kind of like an alternative to fiat, like a, you know, sound money. Can you make the case for crypto social,

for how this will look and what this will change, you know, how this will benefit the world over the next 10 years? And can we actually solve some of the existing problems that we see in our social media networks today using this technology? I can try. So I was speaking to one of my friends, maybe a couple of years ago, this was during COVID, and she remarked that it was so strange to her that on the social networks that we have today, meaning Facebook, etc., like the Web 2 social platforms, it was really strange that you could make a living as a person that did funny dances or did, like, lots of viral trends, or sampled lots of different foods and ate them in front of a camera. but it was impossible to make a living on the social platforms if you were the world expert in some really niche area of interest.

Like to her, that was just fundamentally broken because arguably, like, the second type of information where you're actually like advancing humanity's knowledge about a certain subject is actually more valuable. But that's just not the way that Web2 social is set up from a monetization standpoint. It supports a certain class or type of content because of the way that the business model works, where it treats all attention as fungible and it's an ad-based model. And it leaves out a lot of creators who can't monetize under that paradigm. And so in terms of how crypto-social could make the world better, like the opportunity that it has in front of it, I think the new possibilities of the new social products that could be built on crypto-rails when, And you treat attention as distinct and differentiated. And you're able to like better price segment people who have really strong affinity from people who are just like merely casual viewers because ownership has different levels to it or people are willing to pay different things for it. I think that's the promise of Web3 social is enabling like many different types of creators to be able to succeed, enabling different communities to be able to viably exist.

and exist outside of the confines of one particular application to create new connections, perhaps where there previously weren't because of on-chain data. So I think there's like a really, really rich design space of new possibilities in the social sphere in crypto. I think I now have incepted in my brain the idea that all of our Web 2 algorithms are just making us dance for them. Yes. As like kind of our little puppeteers, we're like dance humans. then I'll promote you on the algorithm. Now perhaps finding a way out of that equilibrium using Web3 tools feels a little bit more urgent.

I don't want to be a dance monkey. It really puts those of us who cannot dance at a disadvantage here, David, which is like, we need Web3 to work because we can't. I am one of the underclass who cannot dance, so obviously I don't have an advantage. Yeah, we listen to. For the non-dancers. For our freedom. Eugene Lee, this has been exactly what we hoped it would be. picking the brains of two very intelligent individuals with a lot of mental models to unpack

and making sense of this whole crypto-social thing in the context of the past and the hopeful future. So this has been absolutely fantastic. I think my takeaway here from this episode is we are now in the era of amusement algorithms and they've kind of run their course. And so now maybe we can try out this new era of ownership algorithms. And that's the hope that crypto brings. Eugene Lee, Thank you so much for coming on bankless. It's been a blast. Thank you. Thanks so much for having us. Action items for you, Bankless Nation. We have a few things. You should definitely read. We mentioned them in the article. A couple are Eugene's article. Status as a Service is one of them.

Invisible Asmatoats, the ownership economy by Lee Jen. All of these are resources in the action items of the show notes. Also, if you want to catch our last episode with Lee Jen on how to own the internet, that is an absolute classic. We've included a link to that too. If you're a bankless citizen, Listen, of course, I hope you're listening to this on the bankless premium RSS feed. And if you are, then stick around for David and I. We are about to record the debrief. And the debrief is an episode that we record after the episode with our raw and filtered thoughts on what we just discussed. These are things that we might not be able to say during the show.

Thoughts going through our heads, conversations. We want to have maybe some spice. David, we got a few things to talk about during the debrief, don't we? Including, this is actually the second time we've recorded the episode. So I don't know if bankless listeners will ever hear the original recording of this. So you'll stay tuned for the story behind that. And it got to end with this, of course, risk and disclaimers. Crypto is risky.

You could lose what you put in. But we are headed west. This is the frontier. It's not for everyone. But we're glad you're with us on the bankless journey. Thanks a lot.