By Adi Sideman
The overall concept of an ownership economy isn’t new. However, the means for operating an ownership economy have, until now, been somewhat limited. But the emergence of blockchain and the “internet of value” brings about a step-change in enabling ownership economies involving all kinds of stakeholders. Furthermore, with cryptocurrencies reaching a new all-time high and ongoing public dissatisfaction with the centralization of wealth into the hands of the few, the time is ripe for operators of ownership economies to seize a competitive edge.
What is the Ownership Economy?
An ownership economy is any economic system where those who participate also hold an ownership or financial stake in it. If you’ve ever been given employee stock options, then you’ve been a member of an ownership economy. The principle behind employee stock option plans is that a long-term financial stake aligns between the enterprise and its workers and that alignment is critical to the long term success of the enterprise.
Some companies take this a step further. For instance, King Arthur Flour in the United States, or the John Lewis Partnership chain of department stores in the UK, are both companies that are owned entirely by employees. The British Employee Ownership Association has performed research that shows employee-owned companies see an average 25.5% increase in operating profit year-on-year, thanks to a more engaged, talented, and committed workforce.
If companies can significantly increase their bottom line by sharing the wealth with their direct contributors (staff), then imagine the compounded impact of expanding such wealth sharing to the long tail of digital networks’ users, who contribute value to the network.
Owning a Stake in DeFi
The idea of a broader ownership economy is a cornerstone of the cryptocurrency sector, and playing itself out today, in decentralized finance. When Ethereum first became popular in late 2016 and 2017, it was thanks to the idea that project owners could mint their own tokens to represent anything of value. At that time, the idea ran away with itself as investors flocked to pour money into mostly useless ICO tokens that had been sold to them by entrepreneurs seeking to make a quick buck.
However, the idea of a token economy continued to hold water nonetheless. At the start of 2020, DeFi started to gain significant ground, seeing a groundswell of investment comparable to the ICO boom of 2017. However, the founders of the most successful DeFi projects have their eyes on the long game. In June 2020, Compound became one of the first high-profile projects to launch a governance token, conferring voting rights to holders.
It was an immediate hit, and several other projects followed suit shortly afterward. Now, DeFi tokens are some of the best performing crypto assets in the ranking tables, with Aave’s token and Uniswap’s UNI staples of the top twenty.
Tokenizing Loyalty for Broader Adoption
Arguably, DeFi projects don’t operate as a regular company, as they’re based on open-source protocols. However, on the flip-side, the value that these projects have generated should be enough to make any CEO sit up and take notice. For instance, Aave only launched in its current form in January 2020, and the combined value of all its AAVE tokens is currently $6.3 billion.
The value in tokens doesn’t need to be limited to open-source protocols. When rumors emerged that Twitter was going up for sale in 2016, one user came up with the idea of the platform being owned by its Tweeters instead of shareholders. A Dutch Main Street chain is offering loyalty points to customers as a minor stake of ownership in the company.
So the idea is there, even if in its infancy. However, using blockchain-based tokens to represent this kind of user-ownership makes perfect sense. Tokens are represented immutably on a blockchain. The user can prove their ownership, and the tokens can be easily traded, exchanged, or redeemed for goods and services in a way that’s even more flexible than traditional share ownership. It’s even possible for token issuers to program certain conditions into the token itself, such as exchange or sale conditions, or associating the token with a legal ownership document.
The Potential for Wealth Redistribution
If employee-owned businesses have the potential for greater profits and revenues, then imagine the potential for user-owned platforms and enterprises. Users who own a business are more likely to spread the word to other users, as it will increase the value of their own stake. They’re more likely to participate in developing ideas for improvements or growth.
Furthermore, the increasing wealth divide is proven to make the world an unhappier place. Countries with the lowest levels of inequality, such as Denmark, Norway, or New Zealand, show better overall well-being than countries like the US, South Africa, or Columbia, where wealth inequality is at its highest.
Therefore, there’s a case to be made that spreading the ownership economy into the broader economy could benefit all of us. If people are more invested in the companies that make a lot of money and can share in that wealth, overall health and well-being could also start to improve at all levels of society.
Cryptocurrencies are just a microcosm of the broader finance and business sectors. However, this nascent segment provides a blueprint for how the ownership economy could work in the real world, for the benefit of all its inhabitants.
About the author: Adi Sideman is a pioneer in participatory media, an entrepreneur with more than 20 years of experience creating apps and companies in the UGC and digital currency space. Prior to Props, Adi ran YouNow, the live streaming service that grew to over 120 million user sessions per month and was a finalist for TechCrunch’s Fastest Rising Startup of 2015.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.