#12 <YouAPI/>

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Programming Note: I’m re-branding this newsletter due to some ongoing legal discussions around using “HAX”. When ppl care about what you’re doing, it means you’ve made it 😜

1 Concept 💡

OK, I’m so fresh and so clean clean from a week off - what should we talk about today? It would have been natural (or you might even say meta 😜) for us to go deep on the metaverse given recent news (more on that in our 2 Things section at the bottom) but I thought it’d be fun to take a little trip down memory lane and share the first time I began to see crypto as not just an investment, but as a potentially world-altering technology.

When my worldview changed
Let’s rewind back to January 2018: my crypto journey was barely 8 months old and basically consisted of price-checking multiple times a day. Around that time, I came across this piece from Stephen Johnson called “Beyond the Bitcoin Bubble”, which turned out to be a super prophetic title since January 2018 was literally when the 2017 crypto bubble popped. There’s a paragraph/example in his piece that generated that first “a-ha!” moment and really touches at the ethos of crypto:

“Imagine some group like Protocol Labs decides there’s a case to be made for adding another “basic layer” to the stack. Just as GPS gave us a way of discovering and sharing our location, this new protocol would define a simple request: I am here and would like to go there. A distributed ledger might record all its users’ past trips, credit cards, favorite locations — all the metadata that services like Uber or Amazon use to encourage lock-in. Call it, for the sake of argument, the Transit protocol. The standards for sending a Transit request out onto the internet would be entirely open; anyone who wanted to build an app to respond to that request would be free to do so. Cities could build Transit apps that allowed taxi drivers to field requests. But so could bike-share collectives, or rickshaw drivers. Developers could create shared marketplace apps where all the potential vehicles using Transit could vie for your business. When you walked out on the sidewalk and tried to get a ride, you wouldn’t have to place your allegiance with a single provider before hailing. You would simply announce that you were standing at 67th and Madison and needed to get to Union Square. And then you’d get a flurry of competing offers. You could even theoretically get an offer from the M.T.A., which could build a service to remind Transit users that it might be much cheaper and faster just to jump on the 6 train.”

Johnson contends that crypto can offer a completely brand new paradigm: instead of going to closed platforms to express your intent, you can express your intent on an open platform and have services come to you 🤯. Ok, let’s begin to unpack…

Centralized Aggregators
Most things you do on the internet — whether it’s searching on Google, scrolling on IG, shopping on Amazon or booking a car on Uber — can be simplified to 1) you expressing some intent to do something on a platform, and 2) that platform responding in a way that satisfies that intent, thereby generating value. But if we peel the onion one layer deeper, it gets a little trickier. See, many of these platforms masquerade as service providers but really act as pure or indirect “marketplace aggregators”.

  • Pure Aggregators (Uber, DoorDash, Amazon, AirBnb, etc) don’t directly provide you a service - rather, they match you with somebody that can provide that service for you (a driver, restaurant+delivery, seller, etc).

  • Indirect Aggregators (Google, IG, etc) directly provide you the service (e.g. search results, social media feed, etc) but then indirectly match you with an advertiser.

In both of these models, the job of these platforms is to build (or aggregate) demand on both sides of the marketplace, act as a matchmaker, and then take a hefty cut — basically like a real matchmaker!

In order to maintain demand and pricing power, these platforms operate effectively as closed economies. If you’re an Uber customer or driver, you don’t have access to Lyft network or vice versa. Moreover, these platforms find clever ways to “lock in” members so they stay on the platform and don’t go elsewhere. This could be in the form of amazing experiences (Google Search), addictive experiences (social media), your data (followers, payments, etc), or loyalty programs such as Amazon Prime. As a former Amazon employee, I can tell you that the single biggest value proposition of Prime is to retain customers and keep them shopping on Amazon. The idea is to make the switching cost of you using another platform so painful that you won’t wanna.

But as you’re probably beginning to notice, there’s an inherent tension between platforms and users since they have mis-aligned incentives. Platform aren’t doing what’s best for users, rather they are looking to maximize value to shareholders. To do so, they need to ride their backs off of their users by extracting as much value as possible. Instead of me trying to explain it, I’ll let Packy McCormick do so in his own words from his piece yesterday:

In Why Decentralization Matters, Chris Dixon wrote about why centralized platforms always do this. In the early days, centralized platforms do anything they can to attract users, developers, and businesses in order to build up multi-sided network effects. 

Once they’ve built those network effects, though, and they know that users, developers, and businesses are locked in, they switch from “attract” to “extract.” The easiest way to grow revenue is to start charging businesses and developers to reach customers, and to serve customers ads or products based on the data they’ve accumulated. 

This isn’t evil. It’s just how the incentives work. Users are free to move, although currently, moving to a new platform does mean leaving behind the data, friends, points, followers, likes, assets, and other digital artifacts they’ve created on the platform. 

So we end up in a world that looks a lot like today’s where platforms wield all the power: they extract as much value from users as possible. This doesn’t seem ideal…

Let’s talk about APIs for a sec
API stands for Application Programming Interface and enables two applications to talk to each other. For example, booking an Uber is effectively your Uber app hitting a Uber API with your location, identity and preferences as input, which in turns returns the closest cars and prices that get displayed to you. Because platforms have the power, they own the APIs and treat you and your preferences as an input. This is important to remember - we’ll come back to this in a sec.

Crypto changes the game
One of the reasons that we’ve ended up in this space goes back to what we discussed around back in edition #4: you as a user don’t own your digital identity. Rather, it’s owned by the various platforms — they just give you the ability to access it. As a result, that identity and its associated metadata (payment, history, etc) is stored and only available on that platform.

Crypto changes this dynamic by offering two key properties:

  • Shared open state - as a user, you can now own data including your identity on a decentralized network (blockchain) that no single entity owns and is publicly accessible. A digital wallet is a perfect example of this.

  • Interoperability - this is a fancy word for saying that applications can access this shared state and do stuff with it.

With these two properties, crypto enables the opposite of a closed ecosystem. Rather, you can save your data/state on this open blockchain network, and then any application known as a distributed app or dApp (built with tools such as Alchemy) can access that state. Crypto wrestles the power dynamic away from the platform and back to you, the user.

Much like YouTube inverted entertainment by enabling you to be on “the tube”, crypto enables YouAPI - the ability for you as the user to become the API and treat service providers as the input. In the example at the top, the user declares their intent to travel from location X to location Y on the Transit protocol and then service providers compete for their business because they can all access this shared state. Said another way, instead of you checking on Uber, Lyft, and other platforms individually for the best option, you express your intent to go ride to the airport once and they come to you. This creates a user-centric business model that maximizes value for the user, not the platform.

You might say - well what about these protocols and dApps, won’t they eventually look to extract value from users the same way that platforms do today. We go back to Packy from his piece yesterday:

In his 2019 piece, [Chris Burniske] laid out a short but compelling argument that protocols will need to extract as little value as possible or risk being abandoned or forked (essentially copied). You should take a couple of minutes and read it, but this summarizes it well: 

Protocols provide structure for businesses, but are not businesses themselves; they are systems of logic that coordinate exchange between suppliers (businesses) and consumers of a service.  As coordinators of exchange, protocols should be minimally extractive, whereas businesses are incentivized to be maximally extractive (that’s profit, and a business is valued as a multiple of its profit). 

From this angle, protocols can be seen as routers of economic activity. Just as the routers of the internet are as lean and efficient as possible, so too should crypto’s protocols trend. The less extractive a protocol is in coordinating exchange, the more that form of exchange will happen.

Protocols can still charge fees. They shouldn’t lose money. They can become incredibly, incredibly valuable (see: Bitcoin, Ethereum, Uniswap, and on and on). But if they charge fees that are too high, they’ll lose

Effectively, because of a shared open state, the switching costs are much lower. If a protocol or dApp chooses to be too extractive, users can much more readily decide to use a different one.

What might a future world look like and is this realistic?
Let’s first do some fun imagination of how this potential future world might feel:

  • You wake up and decide you need to order a new TV. Instead of going to Amazon or Target, you log-in to a dApp via your wallet built on top of the new “ECommerce” protocol that allows you to declare your shopping intent, returns all available options from various platforms/stores, and lets you purchase your favorite. The dApp may even rank the options based on your past purchase history available in your wallet.

  • You realize that your skin is itchy and you want to see a dermatologist. Instead of going to Google or ZocDoc to find a doctor appointment, you visit a dApp built on top of the new “Health” protocol that allows you to express that your skin is itchy / what times you’re free / where you’re based and enables dermatologists to compete for your availability. You found a dermatologist that will see you at noon today in <5 mins which normally would have taken you 30 mins paging through various doctor’s availabilities.

  • You are excited to go on a trip to Paris but all the flights on Kayak are all expensive ($1,000+). Instead, you visit a dApp built on top of the Transit protocol that has smart contract functionality which allows you to state that you’re in if an airline can give me a seat on a non-stop flight to Paris for $800. You wake up the next day to pleasantly see that an airline had a seat open up, was able to see your bid, and book you!

  • After this long day, you’re ready to chill and watch something. You log into a streaming provider dApp with your wallet that sits on top of the new “Advertising” protocol. Instead of the advertiser paying the streaming provider, the advertiser will ask you if you want to get paid $1 to watch their 15 second ad. Further, because the protocol has access to your wallet including your purchase history, it will likely be a product that is relevant to you. Side-hustling on the couch, can’t beat that!

This all sounds amazing, but how realistic is any of this? The honest answer is I don’t know. I do know that for the first time, it’s technically possible and it’s on us as users and advocates to shape the world we want to live in. These platforms are insanely powerful and rich so they won’t leave without a fight.

So how badly do we want the power? Are you ready to YouAPI?

Side note: I fell short of my goal to reach 500 subs by the end of October 😔, but I appreciate all the help and ask you to share this with atleast 1 other person who might like this!

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2 Things On Our Mind 🤔 

1. So the big news this past week was Facebook’s official rebrand to Meta and its mission to help shape (or maybe more cynically own) the metaverse. There’s been so much chatter on the metaverse, but this recent tweet from Shaan Puri is such a great way to think about it: the metaverse isn’t necessarily a virtual reality, it’s a point in time when our digital self is worth more to us than our physical one. And that point in time is likely coming sooner than we think.

As mentioned, I will have much more on the metaverse soon, but another one of my favorite reads in this area is from Kelsey Willock’s Not Your Boyfriend’s Investment Advice take on the metaverse.

2. Shibu Inu ($SHIB) is a meme coin that has gone literally to the moon. There’s a story about someone who bought $8,000 USD worth of $SHIB back in Aug 2020 that is now worth $5.7 BILLION dollars. To me, above all else, there’s one really big takeaway from $SHIB that I believe will prove useful to all of us: never ever EVER under-estimate the power of the meme. If something has an organic groundswell + a community behind it, it’s probably a good idea to hop on board. But whatever you do, don’t bet against it or you might just get run over.

Until next week, always be learning
Karthik