Value Created vs Value Captured

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To investors,

There is a big difference between getting rich and solving a real problem in society. The promise of capitalism is that these two ideas will overlap in a meaningful way.

Entrepreneurs take immense risk to identify a problem, design a novel solution, implement their product or service, and receive a financial reward for improving the lives of other people or companies.

However, I am noticing the emergence of something slightly different in the last 12 months when talking to various friends.

There are numerous people who seem to be optimizing for getting rich without solving a real problem in society. These individuals have concocted a variety of schemes that end with them capturing monetary value, although it is unclear where the value was created.

Let me give you a few examples of what I am talking about.

First, bitcoin is a product that protects the purchasing power for anyone who holds it. The debasement of fiat currencies will only continue, so having a piece of technology that can protect you from undisciplined monetary and fiscal policy is objectively valuable. Because of this value that is created, the people who buy the asset early and hold it over the long run will accumulate wealth.

Value created, value captured.

Second, use meme coins as the counterexample. These assets are being traded freely on various exchanges and thousands of individual investors are winning or losing money. There is no clear value creation that is occurring though. Some will argue there is an entertainment value to the coins, but that is a stretch given how stressed out most of the meme coin investors are constantly.

No clear value created, yet value is being captured.

We can look outside of crypto for examples as well. Amazon, Google, and Facebook have obviously created tons of value for users. You can press a button on your phone and products you purchased will show up within days. You can ask any question and get an answer. You can communicate with billions of people globally in an instant.

Immense value created, immense value captured.

But use the “product flipping” culture as the counterexample. There are many young people across social media bragging about making tens of thousands, or hundreds of thousands, of dollars by arbitraging the price of a random product. They purchase the product off Alibaba and resell it on Amazon.

The money falling into these young people’s pockets is real, but the value being created is less obvious.

So lets bring this idea back to the crypto industry.

I have been thinking at length about how much value is being created in the industry. Not how much value is being captured, but how much is being created. It is clear that bitcoin is one product that has good product-market fit. Another product with similar product-market fit is stablecoins. There are trillions of dollars in transaction volume coming from these assets.

After those two products, the answer to this question gets a little murky. Some will argue decentralized exchanges, others will argue smart contract platforms. It is hard to dispute the popularity of these products, but going back to the nuanced question — how much value is being created vs how much value is being captured.

The hard part about this question is no perfect answer exists. You can’t quantify the value created. It is the typical “you know it when you see it,” which makes analyzing the situation difficult.

But I present this question as a thought starter for each of you going into the weekend. The promise of bitcoin seems to be coming to fruition. The promise of crypto more broadly is still in the early innings, but the more we can focus on “value created” instead of “value captured,” the better off we will be as an industry.

Hope everyone has a great weekend. I’ll talk to you on Monday.

-Anthony Pompliano

Kian Sadeghi is the Founder & CEO of Nucleus Genomics.

In this conversation, we talk about DNA sequencing, how he is disrupting the old school companies, why he believes so much in giving power to the people, taking control of your health with your DNA, regulation, ethics, and more.

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