Can Elon make a decentralized Twitter work?
First DAO with global significance?
Not that I would not want to write about Elon’s hostile takeover of Twitter. I am the kind of person who reads Barbarians at the Gate with excitement and joy and the financial & legal mechanics of what is happening now are thrilling. Add to this that, yes, Twitter’s management has in fact really decided to use poison pill (flood the market with new shares or allow existing shareholders to buy them at a discount), a legal tactic originally devised in the 1980s precisely because fun horrific barbarian deals such as the one in Barbarians at the Gate were something of a fashion of the day.
But others have written on this topic. And they will, again and again, in the days to come. The other interesting and in the world of finance very strange and new idea is that Elon doesn’t do it for the financial gain, that he really means it when he says that Twitter should be “…trusted and broadly inclusive,” and that Twitter algorithm “should be public for users to audit.”
The thing is that you cannot do that much with Twitter as far as profit generation and user growth goes. Others have tried. Jack Dorsey, a friend and a supporter of Elon’s bid has stepped down after years of trying. In many ways, I feel that both Dorsey and Ev Williams are absolutely great for our planet, creating platforms for people who like to think. But, you just can’t monetize a thought like you would an aspirational image, e.g. Instagram.
In 2016, I wrote an article for Forbes arguing that Twitter should become a public good:
With 320 million monthly active users reported at the end of 2015, maybe Twitter has reached its inflection point in terms of user growth. What if all those educated, affluent users are already on Twitter? […] What if Twitter could become a public good — a medium of communication that is funded by its user base?
Ehm, Twitter’s monthly active users in Q1 2019 were 330M before the company discontinued reporting on them. Twitter’s monetizable daily active users were 217M in Q4 2021.
At the time, I exchanged emails with Fred Wilson, a well-known venture capitalist and one of the first investors in Twitter, asking him about this great idea of mine. He didn’t like it. At all. He thought that ad dollars and user growth are still the best way forward for Twitter.
Well, it seems that he changed his mind:
Others think that decentralization is a good idea. Here is Charles Hoskinson, the founder of Cardano, one of the largest programmable blockchains:
It would be easy to disregard this, except that if we know anything about Elon, it is that he doesn’t care about money (he sleeps at the office or his friend’s mansion and he despises possessions) and that he likes engineering challenges. And creating a decentralized Twitter — some form of a decentralized autonomous organization (DAO) run on a programmable blockchain powered by a user-owned token — is in its own way an engineering challenge; maybe not a rockets-and-batteries challenge, but still a universe of problems that would benefit from an engineering problem-solving.
The other reason why I find this interesting is that we’ve talked recently about the idea that valuation of all programmable blockchains, tokens and decentralized apps (dapp) built on top of them could go to zero long-term because they are detached from economic reality, i.e. they don’t (nor can they) represent real cash flows and assets.
It goes something like this: if we accept that programmable blockchains are essentially a new plumbing for decentralized networked businesses, that they are what TCP/IP was to web2, then the value of the token powering them (powering in the sense that blockchain is a decentralized database that has to be maintained by some form of a consensus mechanism and tokens are an incentive to miners to provide the processing power, energy, etc. to maintain this consensus) is equal to the cost of the miners’ computing resources. Put differently, there will be no profit. Tokens will be held by users to the extent they need them to use the decentralized Twitter; they will not accumulate them because the lack of friction and higher transmit efficiency of decentralized systems means anyone will always be able to just-in-time buy them.
My article was based on a highly cited paper from 2017 by John Pfeffer:
The disruption of traditional networked businesses by decentralised protocol challengers will represent an enormous transfer of utility to users and an enormous destruction of market value. Great for users, the economy and society; bad for investors.
And this is a good outcome for Twitter users. But it could be better. The author could not, naturally, take into account at the time that in the post-Covid world, people can pay millions for blockchain records, i.e. tokens as a social status symbol (NFTs).
What is the most valuable commodity on Twitter? Attention. Long before Twitter announced that it allows its users to show off their NFTs by connecting directly their wallet, users were putting their images of Bored Apes in their profile pictures. You can see how Twitter could become an NFT marketplace of sorts, with profits distributed among users. Of course, you can only sell NFTs as profile pictures to users once, but there is a vast expanse of other possibilities: emoji, font, sound, meme, video NFTs. Also, on a decentralized Twitter the ownership rights could become very real, i.e. no more ctrl c, ctrl v.
So, sure, fine. But wouldn’t a decentralized Twitter (in the form of a digital organization outside of human control) be prone to trolling, harassment, and the proliferation of bot accounts on the service?
Fred Wilson also has blog. A very good one. For decades now. He delves into the topic of a decentralized Twitter in one of his last articles. In the beginning, Twitter had very free API model, such that anyone could build a third-party client. People were using Twitter from different interfaces that no one controlled, and as such a lot of bad actors emerged. Now, in the interest of content moderation, hate speech control, etc., Twitter has become completely centralized and all content is controlled by 8K+ employees. A decentralized Twitter could serve as a global public square that various other dapps would connect to, users and creators of these dapps would have a common interest in maintaining Twitter because they would also be onwers of its token. Indeed, you can imagine how NFT social status symbols could be taken away from bad users.