What is the biggest value proposition of “crypto”? Simply put, crypto is an upgrade to the internet that allows transfering and programming of “value”, or “assets” (used almost interchangably), besides just information. It does this through two key components:

1. the creation of a common language of assets, i.e. the ATP, or “Asset Transfer Protocol”, which is the asset equivalent to “HTTP”, or “Hypertext Transfer Protocol”, the common language of the information; and,
2. the creation of the first the common infrastructure of assets, i.e. the first “web services”, which enables the core set of value-bearing apps and primitives to be built upon the common language in a free, but compliant, way.

Tldr: The internet allows free flowing and programming of information, and crypto upgrades the internet to allow free flowing and programming of assets/value (encodable with any arbitrarily complex compliance restrictions that may be needed). The rest of the article is just more to this, but that’s the big idea.

Abstract

“What is the killer value prop of crypto networks?” The answer is in the functionalization of asset flows (see my previous post about functionalization theory). In particular, there is a big opportunity in breaking down the division between private/off-chain and public/on-chain assets, enabling them to flow through the internet effortlessly, thus enabling brand new forms of network effects. This is done through an interoperable and common network for assets, where assets will be treated as first-class programmable objects, and where they will move around the network freely through simple API calls. Said differently, assets will defragment by moving from bespoke, siloed, and offchain solutions to a single common, interoperable network.

What is Functionalization?

Functionalization theory (see [2] for more details), is an attempt to model market innovation through an abstract functional process. The theory of functionalization is generic enough to itself include market theories such as “Aggregation Theory” [1] by Ben Thompson, which we highly recommend to the reader of this article. At a very high level, the statement of the theory is simple (excerpt taken from original article):

… functionalization is the process [of] making the consumption of a set of products or services by the end user repeatable, scalable, and predictable, which in turn makes them cheaper and better.

[Functionalization is] the composition, transformation, and standardization of a set of platforms (services/products) into a modular and callable function, rendering the platform scalable, repeatable, and predictable.

It is effectively the process by which we create higher-level “functions” out of existing services through composition. Simple example: Amazon.com. On the buyer-side, Amazon.com composes together three key services through one function: searching (i.e. discovery), purchasing, and delivery of consumer products. Before Amazon.com existed, consumers were still able to do the same exact thing you are able to do now. However, until Amazon.com packaged all these three services as one single service, it was just significantly more difficult. Shopify is another great example of functionalization of “payments, marketing, shipping and customer engagement tools to simplify the process of running an online store for small merchants”. Those are the basics of functionalization: take multiple products and/or services that exist independently, and compose them together into a single new product and/or service that is repeatable and scalable. This, in turn, makes the selling of the service as a whole cheaper and better than the selling of the sub-components independently.

The Big Opportunity: ProCap (Programmable Capital), i.e. Functionalizing Asset Flows

Capital is used almost incorrectly here, but I like the term. It just means “assets”, or “value”, very broadly speaking. These can be any forms of digital goods. Now, going back to functionalization: let’s imagine markets withouts these prohibitive restrictions. Instead, what if we could move any asset class freely (modulo meeting various conditionals) from one owner to another? If we are able to create digital representation of any contract (i.e. asset) and move its ownership set as easily as transferring data over the internet. This is what functionalization of asset flows would entail. If a generic way to encode contracts digitally is enabled, we can now not only move from issuance to discovery of assets much more easily, but it would also be done in a way that still enforces the necessary regulatory conditionals required to comply with local, national, and international regulatory bodies.

Acknowledgements

References

1. Ben Thompson. Aggregation Theory. Accessed 2019. https://stratechery.com/2015/aggregation-theory/
2. Kevin Sekniqi. Functionalization Theory. Accessed 2019.https://kevin.sekniqi.com/functionalization-theory/