We’ve been gifted another episode of “Tech versus Tech: Crypto Edition” today.
The argument among the tech elite about just who owns what in the Web 2.0 and web3 worlds continued this weekend. And once again the dustup featured former Twitter CEO Jack Dorsey and a16z, the investing firm best known in recent years for its capital deployments into the blockchain domain.
Dorsey, after pulling the rip cord from his perch atop Twitter and rebranding his fintech firm Square to the more crypto-friendly “Block,” has decided to talk more publicly about his views.
And views he has. The well-known tech exec is a known Bitcoin fan, which you might think would slot in nicely with a16z’s general crypto bullishness.
It does not.
Jack, web3 and who owns what
We dug into the early Dorsey-versus-a16z arguments here but will provide a summary for those of you who would prefer something brief.
Dorsey’s ideas surrounding Bitcoin are centered around his belief in decentralization as a good. Bitcoin is a reasonably decentralized system. Its founder is out of the picture, it is owned by no single entity and its community has managed to keep working on the project despite it lacking a traditional leader or external investment.
How does that contrast with web3, the blockchain projects that also trumpet the power and importance of decentralization? Dorsey thinks that web3 is, in fact, centralized due to ownership — control — accruing in the hands of external investors, a16z among them. This is because, unlike with Bitcoin, web3 companies are busy hoovering up venture capital at a rate that is frankly staggering, meaning that many decentralized projects are racking up large external investors in their central holding companies — centralization squared, I suppose.
Dorsey’s complaints about ownership, web3 and the role of external capital in funding so much of the crypto market came to a head in a series of tweets posted between December 20 and 22, with the well-known Twitter user taking potshots at venture capital in crypto more generally, and a16z in particular.
One example for flavor:
You don’t own “web3.”
The VCs and their LPs do. It will never escape their incentives. It’s ultimately a centralized entity with a different label.
Know what you’re getting into…
— jack (@jack) December 21, 2021
Them’s fighting words.
So what happened most recently? Well, a16z denizen and prolific Twitter blocker Chris Dixon took a shot back at Dorsey’s argument yesterday with the following:
Who owns web2? pic.twitter.com/F7gaHwBCga
— cdixon.eth (@cdixon) January 3, 2022
In case you aren’t in the mood to click through, the charts show aggregated ownership of different Web 2.0 companies by different financial holding companies. Vanguard, for example, holds around 6% of Block stock.
What’s the argument here? Aside from being an obviously childish retort of the Dorsey critique of a16z and other venture investors collecting enough ownership of web3 companies as to constitute a centralized authority, it’s a little hard to parse.
Is Dixon:
- Arguing that all tech companies have centralized ownership, and therefore decentralization isn’t possible? Presumably not, as that would undercut the crypto ethos that underpins web3, and, we would think, part of the a16z crypto thesis.
- Arguing that centralized Web 2.0 companies have decentralized ownership, and therefore pass the crypto ethos test? Presumably not, as that would effectively evacuate a key plank of what makes web3 different and, therefore, interesting.
It’s hard to say. Perhaps Dixon is saying that Dorsey’s overall critique is simply hypocritical and that he should shut the hell up. That’s my read of what the investor wanted to say. Sadly for a16z fans, that’s just not a clear or reasonably fair read of what he actually posted.
The charts that Dixon shared show that Web 2.0 companies are owned by a shitload of individuals. For example, Vanguard and Fidelity “own” around 9% of Block stock, per Dixon’s chart.
But Vanguard and Fidelity don’t really own that stock. I know that because I do. I own index funds and target-date funds at both Vanguard and Fidelity, in both taxable and tax-advantaged accounts. I surely own a share or two of Block in those asset collections. So when you read the charts, just keep in mind the number of 401(k)s and investment accounts that are being tallied up.
What goes for me goes for a lot of you. And your family. And your mother-in-law. Yes, your mom owns Web 2.0. At least part of it.
Dixon’s point becomes, effectively, that ownership of Web 2.0 companies is pretty decentralized, with the largest aggregated bucket of control managing single-digit percentages of any particular company. Oh no. What a diss.
The only way to unknot what Dixon posted is to admit that, yes, venture investors do own large stakes in many web3 companies, but as VCs represent other buckets of capital, their ownership is more distributed — and therefore more decentralized — than you might think.
It’s a pretty weak argument. First, because we don’t actually know who venture investors’ investors are, and they are often wealthy individuals (family offices, etc.) and the like. The idea that it’s all pension money is a canard at best. (Feel free to prove me wrong, VCs, by sharing your LP table!)
Second, there is no equivalent owner/controller of the Web 2.0 companies that Dixon posted, even if we buy his argument at face value. (In the Coinbase S-1/A filing here, we can see that Brian Armstrong and Marc Andreessen controlled more than a third of the voting power in the company around the time of its IPO.)
Indeed, Dorsey’s response to the Dixon tweet is pretty good:
now do your LPs
— jack (@jack) January 3, 2022
So what?
I promise that this is not all a tech elite rubber-noodle fight. The drama, instead, highlights an interesting issue that venture capital has with the web3 world.
Dixon and other investors are largely bringing Web 2.0 venture capital methods to web3, and it doesn’t really work. What are two key planks of investing in startups today? Founder control and super-voting shares. The latter supports the former, but both are a method of centralizing control, power, and, ultimately, returns. Great, but that’s the ass-backward image of what web3 is supposed to be about, namely decentralization of ownership and control.
How should venture capitalists invest in web3 startups to avoid running afoul of what web3 claims to be about? Beats me, aside from buying into DAOs as minority shareholders at market rates. But that’s just running a mutual fund by another name.
A shorter summary of what Dixon said can be found below:
"im not owned! im not owned!!", i continue to insist as i slowly shrink and transform into a corn cob
— man of bible (@dril) November 11, 2011
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