In Praise of HODL: Creating Owners Out of Speculators

We Need More Owners

Carta deserves our respect: their mission “to create more owners” is ambitious and subtly takes on the global challenge of income/wealth inequality.

Credit unions are in the same boat: they are financial institutions owned by their members that (in some instances) return capital to their members each year in the form of an ownership or profit-sharing dividend.

Along the same lines, Moves Financial’s Collective is another excellent example of a financial services firm building for their segment and creating an easy way for Gig economy workers to become ‘owners’ in the equity of the platforms they use everyday.

Drawing on the commonalities from the three examples above, crypto and web3 also deserve some kudos for their role in growing the ‘ownership economy’. Thanks to some of the many branches extending from the crypto tree, Art may now have a new business model through NFTs, organizations may now have a new decentralized ownership option through DAOs, and gaming may now have a new business model through in-game native tokens.

There is a theme here: each of these companies offer their customers/members/employees a path to participate in the upside of their ventures by, in Carta’s words, creating more owners. Owning assets is not just important as an alternative compensation mechanism to traditional income streams, it is also an important leveler of the playing field. With the return on capital continuing to exceed the return on labour in the economy, the only way for the masses to keep pace with the elite is to join them by using the same wealth accrual mechanisms: that is, build an asset base and gain exposure to the exponential power of compounding.

Capital is infinitely scalable through its compoundability (that’s a word, right?). The power of compounding is indeed the eight wonder of the world and it’s the ultimate form of leverage. Capital can create more capital.

On the other hand, Labor is a function of time and productivity. While there are some non-linear returns to productivity, time is a linear resource. It is not scalable. It does not compound. Time cannot create more time.

Looking Down on Speculation

The creation of more owners is an admirable goal in today’s economy. However, owners of assets can often become distracted by the seductive call of speculation.

I used to love $0 commissions, robo-advice, and for that matter, most lot of the innovation taking place in the investment and wealth management industry. A lot of which was geared towards taking [very analog and manual] tools and strategies that were once only available to institutional and high net worth investors and making them available to everyone thanks to the scalability of automation and digital interfaces. But most of the attention in the space gravitated toward speculation and trading, rather than owning truly appreciating assets.

This is also true for crypto. The world of web3 holds huge promise “to create more owners”, probably moreso than any other industry or business model with a material market presence today. The challenge with crypto is that it has also gravitated toward trading and speculation. Sure, there are exceptions to the rule, but they tend to be institutions and sophisticated investors, rather than Mom and Pop, who culturally drift toward speculation’s gravitational pull.

As a side note, speculation can be a positive on the macro scale: it can temporarily fund the innovation necessary to usher in new value creating systems. The gravitational pull of speculation also works wonders to get people to try new things. Nothing attracts people faster to a new tool or service than the prospect of making money or getting rich quick. Speculation has introduced more people to investing over the past several years than has long-term wealth accumulation through the responsible building of a nest egg through mutual funds and savings accounts. But just as fast as they come, when things go awry, they will also leave.

Speculation is short-term. It’s “get rich quick”. It works wonders to grab attention and draw people in. For fintech, it is a customer acquisition cheat code.

Of the many models tackling the problem of creating more owners, I still believe crypto has the most outsized potential to make an impact. But speculation in the space can only have a positive impact on inequality and fulfill the promise of creating more owners if it can translate that attention into things that compound as long-term wealth builders.

What has to be solved for is the ability to bridge the gap between speculation and long-term wealth accumulation. Ironically, speculation makes progress on Carta’s mission – it helps to create more owners. But how do we keep people as owners?

In Praise of HODL

Can we translate speculation into permanent ownership through tools and design?

Shares in private companies are great. They are out of sight, out of mind. There is little liquidity and cultural guardrails that keep people invested. It is a strong tool for creating owners. It has the right structures and incentives.

In contrast, investing through Robinhood or Coinbase is the opposite. It is loud and in your face. The focus is on dollars gained rather than wealth accumulated. The measure for success shouldn’t be short-term investment gains, but rather, days held in an account. It is a weak tool for creating owners. The incentives are misaligned.

The design of the ‘ownership system’ and its incentives are certainly an important factor in making progress on the ownership mission. But what if there was another way? A more effective way? One that might already exist today?

While system design is a powerful way to create the right incentives, culture is perhaps a more powerful influence on people’s actions. Yes, I am saying MEMES > Design… I’ll meet you in the comments section.

In crypto, one of the most foundational memes anchoring the community is HODL: hold on for dear life. Whether it arose through a misspelling or some other circumstance, HODL has encouraged millions of people who came for the speculation to stay for the ownership. For that, it deserves our praise.

Yes, relative to other assets, crypto trading volume and turnover is remarkably high. And yes, perhaps the system design today does not have the right incentive structures built in to encourage long-term ownership. But the community, on the other hand, has the right meme and the right narrative in HODL.

In the latest crypto cycle, HODL’s more degenerate Jekyll and Hyde cousins, WAGMI and NGMI, have started to crowd out the long-term narrative. WAGMI/NGMI have resulted in increased tribalism around different projects, breaking up the old mantra and creating a more combative and speculative environment.

While other more vicious memes may arise, I’m here to say HODL needs to make a comeback. Culture is an incredibly powerful force, turning speculators into owners is an honourable mission, and right now, HODL is the best we’ve got.

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