Digital Dives
Welcome back to Aquanow’s Digital Dives. Hopefully your holidays were spent enjoying quality time with loved ones. Despite Mother Nature’s best efforts, I managed to make it home to be with family. My flight was delayed by a few hours, but I was ok being sedentary on the tarmac following a very snowy Aquanow Run Club session along Vancouver’s Sea Wall. Not to mention, I was still feeling the buzz from the World Cup final. Many have called it the greatest soccer/football match ever played.
Since it’s announcement, the Qatar tournament was controversial, but several have proclaimed it one of the best in recent decades. Argentina, the eventual champions, opened play with a stunning 2-1 loss to Saudi Arabia. After the match, Roy Keane told viewers: “They weren’t as a team today – it’s a huge setback for them, huge.” Another commentator remarked “I also saw Argentina fall into some old bad habits, like being overly reliant on Lio Messi. Like, you know, you're the best. Go fix this. But that is not what makes a strong team.”
La Albiceleste struggled during the first half of the following match against Mexico, too. I remember watching the match and it was clear that Argentina was stumbling because everyone was trying to get the ball to Messi. In the 64th minute, he managed to sneak free from defenders and scored a beautiful goal, but the real turning point came when Lionel setup Enzo Fernandez for a strike that sent a message to the world (Argentina included) – it’s not only Messi on the pitch.
After that, La Albiceleste played like a cohesive unit rather than a group of individuals whose sole objective was getting the ball to the captain’s feet. It’s logical to lean on a talent like his, but it’s not sustainable when you’re playing at the highest level. The opposition can dedicate additional resources to isolate a superstar, choking off their play-making ability. Messi has the kind of magic which can overcome double or even triple teams, but if his supporting cast can’t capitalize on his passes or make plays of their own, then success is unlikely.
After the World Cup, I was wandering down a nerdy rabbit hole and came across this (highly recommended) talk by Malcom Gladwell at Brain Bar which discusses an analysis by two researchers (Chris Anderson & David Sally) who studied the game of soccer/football through the lens of economics. One of the questions they sought to answer was: “Is it better to improve the quality of your best player, or your worst player?” All else equal, their analysis found that teams would be best served to improve the quality of their worst player(s) rather than invest in a superstar. The reason for this is twofold – football/soccer is a game of mistakes (goals are infrequent and usually result from a lapse in defensive coverage) and it’s very interactive (typically, every player will touch the ball).
In contrast to the findings for football/soccer, a basketball team would be better off raising the level of their best player. If you’ve spent much time watching the game, this so-called key person approach is evident. Baskets are marked fast and frequently, so individual mistakes aren’t as impactful. Further, star players can, and do, move the ball up the court by themselves often. It’s not to say that bball is akin to an individual game, but teams can win by getting the ball into the hands of their star player(s). That said, put me on with LeBron James and I promise we’ll lose. The supporting cast matters for sure, but less so.
Many have drawn links between business and sport. Malcom Gladwell does this as well with an intertemporal twist on his “weakest link vs. key person” analogy. He explains that as domains of activity grow more interconnected, our systems start to resemble soccer/football and not basketball. Today, businesses tend to be described and modeled as complex adaptive systems where output depends on the collaborative efforts and links across departments.
In such an environment, an important determinant of success isn’t the firm’s ability to fill the C-suite, but rather their capacity to attract and retain high-quality employees across the nodes. When optimizing under these conditions, it matters less who occupies the CFO’s office and more about ensuring they’re getting timely, accurate, and relevant information across supply chain, operations, treasury, and accounting.
We can draw interesting parallels to the digital asset space. While his (her?) identity remains controversial, the work of Satoshi Nakamoto is akin to crypto’s big bang. Vitalik Buterin also deserves a spot on crypto’s Mount Rushmore, and he continues to be a figurehead (albeit reluctantly). These visionaries sparked the revolution we’re seeing play out today and it’s hard to imagine the space without their contributions. However, the digital asset landscape has completely changed since the days of the groundbreaking Bitcoin paper and Vitalik’s original vision for Ethereum.
We’re still super early in crypto’s development. However, the ecosystem has grown so interconnected that the community needs to shift away from “key person” to focusing on the “weakest links”. 2022 provides an exceptional case study for this. We had brilliant idols like Do Kwon, the Three Arrows managers, and Sam Bankman-Fried all go down in fiery blazes. The extent of their (alleged) misgivings varies considerably, but I think it’s important to recognize that a different perspective may have avoided much of the excess and ensuing calamity. What if, instead of praising these geniuses, and lifting them higher by supporting their narratives like gospel, the broader community emphasized the risks or weaknesses in their theses?
Conceivably, Luna and UST would have grown more modestly if the story wasn’t centered on positive reflexivity and “steady lads”. 3AC is a bit trickier because many of their activities were carried out behind the scenes. That said, lenders may have been less concerned about aggravating a major player (i.e., payer) and more focused on commanding collateral, given the inherent volatility in this nascent space. Such behaviour might have protected many who lost funds in “earn” programs, too. Finally, perhaps the idea that an exchange’s main customer was a hedge fund launched by a common owner would have generated more scrutiny and customers could have demanded assurance of arms-length dealings.
We find ourselves at an important juncture and the path forward will not be easy. As Mr. Gladwell remarks, changing from a “key person” to a “weakest link” mindset is incredibly difficult. On the flip side, the benefits of doing so are profound.
We don’t need individuals lobbying on behalf of the ecosystem. A unified community engaging with policy makers will be more effective at introducing oversight that benefits the industry and protects consumers. We don’t need single leaders steering DAOs under the veil of “decentralization”. Communities who feel their voices matter - who research and vote on governance accordingly will drive change. We don’t need high-profile CEOs to tell us how it is. Identifying the weakest links and then providing support or casting them aside will make the industry stronger.
In a system, the whole is greater than the sum of its parts. Network effects underpin the potential of digital asset adoption. However, this is at odds with the community’s historical mindset of holding up and following figureheads. The space has been stunned by the calamities of 2022. As we gather our collective senses, there’s an opportunity to refresh our mindset. Doing so could create a healthier environment where maximalism falls to the wayside (the focus isn’t on which project is “best”, but which ones leave the ecosystem vulnerable) and innovation can thrive (with no champions to rely on, everyone is incentivized to get a little creative). As Joel John recently wrote: “The thing is, networks propagate narratives. And narratives (or stories) drive human actions.” Let’s refocus the dialogue.
From CoinDesk’s 2023 Predictions:
