Ownership Rights and Ownership Networks, a web3-native asset and network primitive

TL;DR ownership rights are an emergent asset class akin to financial derivatives and ownership networks an emergent distribution primitive akin to social networks

Ownership Rights, the asset

Rights in things have value separate from things

Colloquially this distinction is semantics, on Wall St. it’s called the derivatives market (and has a $558.5T notional value), and in web3 it’s a framework for understanding the next meta trend: ownership right derivatives.

Think of a house, a thing.

As an owner of the house you hold the rights to use, restrict, sell, rent, and convey it (collectively, “Ownership Rights”). As a renter of the same house you hold the right to use it with restriction. The thing (house) is the same yet its market value to you is different.

This is because Ownership Rights have standalone value:

• They permit uses of the thing — I can live in and rent this house (utility)
• They restrict uses by others — Only I can use this house (scarcity)
• They are enforced by law — The state will arrest you if you try to use my house (trust)

In summary, things underwrite the value of Ownership Rights and Ownership Rights have standalone value.

The market has been restricted from trading Ownership Rights separate from the things that underwrite them

This is because traditional legal and financial infrastructure (the market) is unable to at scale (IE without human intervention):

1. separate Ownership Rights from things;
2. trade Ownership Rights separate from things; and
3. enforce Ownership Rights separated from things as a standalone instrument of value.

Notwithstanding, Wall St. has been trading Ownership Rights for decades and enforcing them within a closed market (IE financial derivatives). Outside of Wall St. we have transactions for Ownership Rights such as IP rights which are traded and enforced in individual corporate transaction (IP M&A rights reached $5B in 2021).

Enter blockchain.

Curve Wars: Ownership Rights are traded separate from things

The Curve Wars exemplify that Ownership Rights in web3-native things are valuable, separable and tradable at scale. In this case, the right to vote on the distribution of CRV emissions (an intangible asset) and direct funds from a limited pool of capital (a tangible asset) created a land grab for Ownership Rights (specifically the right to vote on emissions and not other Ownership Rights like governance voting and receiving fees) and a secondary bribes market which reached a 40% annualized yield.

The Curve Wars also serve as a price discovery precedent for a more efficient derivatives market. More efficient in contrast to Wall St. — less participant restrictions and enforcement is done via code — and more efficient in contrast with IP rights which are traded in a closed market with inefficient price discovery.

How valuable are Ownership Rights? S&P500 Analysis

We can look at derivative market comparables and estimate the market size of Ownership Rights as a percentage of the S&P500’s value. Specifically, we look to intangible assets (e.g. brand, data, software) because of the asset class’ Internet-driven value creation.

Of the S&P500’s total assets of $33.1T, ~90% ($29.79T) are intangible assets; a proportional increase from 17% in 1975 and a x172 net increase in value since 1970.

The notional value of the world’s financial derivatives market is an estimated $558.5T (low end estimate), ~6.24x the stock market’s value of $89.5T. On this basis, the notional market value of locked S&P500 intangible asset Ownership Rights is $185.9T.

web3-native things and Ownership Rights: TAM

The market value of NFTs in Sep. ’22 was $11.8B. Using the above approach, this is a locked NFT Ownership Rights notional value of ~$73.6B.

Shortcomings of these sizing calculations

First, the NFT calculation assumes all NFTs have Ownership Rights to unlock, that they can be unlocked, will be unlocked and that there is a market for them if unlocked. NFT Ownership Rights for example can include the rights to vote, tokenize, combine, use IP, receive fees and more.

Second the derivatives market as a percentage comparable is rudimentary. For example, in the case of derivatives with physical delivery the holder receives the underlying asset and Ownership Rights whereas we’re concerned with isolating only the intangible (Ownership Rights) in our analysis.

A more accurate calculation would build bottom-up by adding specific intangible asset verticals, such as user data which we assume is prima facie user-owned in web3. For what it’s worth, the World Economic Forum implied a $3T global data economy value in 2017, which would translate into a $18.72T notional market value for locked data derivatives using the same approach.

Though rudimentary the TAM calculations are illustrative of first principle conclusions:

1. Blockchain has enabled the Internet consumer to own the intangible assets they create and their associated Ownership Rights
2. Curve Wars are a proof point of consumers monetizing their Ownership Rights separate from the underwriting thing
3. The intangible assets consumers have historically created and contributed to are valuable (90% of the S&P500)
4. Ownership Rights as an asset class have value “IRL” pre-blockchain (derivatives on Wall St., IP M&A)
5. Consumers will increasingly own more intangible assets and therefore create more tradable Ownership Rights as blockchain adoption increases

Notwithstanding the calculation is basic, it shouldn’t necessarily imply that the market size for Ownership Rights at maturity will be lower.

Ownership Networks, the network primitive

The Internet has twice changed our mental models for value creation and it’s now happening a third time.

Web1 = information networks

First, the creation and exchange of information via information networks (web1) enabled the creation of customer data and software, a new type of intangible asset.

Web2 = social networks

Second, the value of these novel data and software assets and of traditional intangibles (brand) compounded through the distributed exchange and co-creation of information enabled by social networks (web2).

Web3 = ownership networks

Now, blockchain is creating ownership networks — a network primitive growing the value of all intangible assets through the distributed exchange and co-creation of value, starting with Ownership Rights.

Frontiers for development

We’re seeing several user-own/user-earn experiments take place and be funded: vana.com (consumer ownership of user data), mirror.xyz (consumer ownership of user content) and farcaster.xyz (consumer ownership of reputation).

Notwithstanding, we’re missing key pieces of digital asset infrastructure and have yet to comprehend the impact of digital Ownership Rights. Things that will likely emerge as critical infrastructure:

• tooling to decouple and resell Ownership Rights separate from NFTs
• an IP rights marketplace
• ownership network DAOs (akin to an IRL holding company)
• legal oracles

If you’re building in this area, please get in touch on Farcaster or email.

Thank you Brett Palatiello, Dan Romero and Silvermohawk for contributions to early drafts.