Excerpted from WEB3. Copyright © 2023 by Alex Tapscott. Reprinted here with permission from Harper Business, an imprint of HarperCollins Publishers

An American-born graduate of Canada’s McGill University, Jesse Walden — cofounder of Variant Fund, a leading Web3 venture capital firm — started his career in Montreal as a manager for emerging indie musicians like Solange Knowles and Blood Orange — the “types of artists you read about in Pitchfork,” he quipped. “Music is one of the most Luddite industries, when it comes to new technologies,” he told me. Walden saw an opportunity to help the artists he managed leverage technology platforms, “to reach their fans directly and monetize, independent of any major label third party.” 

Applying what he knew from his time in the music industry as an agent, Walden founded Mediachain, a blockchain data solution to help creators get paid for their work online. “Bitcoin was the best-known thing going in the crypto space in 2014. We were interested in what blockchains could do for different kinds of digital assets. We did all media assets like images, videos, songs,” Walden explained. Mediachain was a good idea, and many of its core concepts are now commonplace in the NFT market. In 2014, Mediachain’s time had not yet come, partly due to the lack of a good technology platform to make it work. “This was pre-Ethereum launch,” he said. “So, a little bit too early, frankly.” 

Still, Walden’s time as artist manager and media entrepreneur helped sharpen his thesis for Variant, which he started in 2018 after a stint at Andreessen Horowitz, where he helped launch its first Web3 fund. He said, “We’re all creators online of one kind or another. It doesn’t have to be music. It could be code or could be content on social media. Web3 has this potential to make all of the creators online, all of the users of these products and services, into owners.” 

If Variant’s thesis is correct, and if all five billion Internet users worldwide become owners of the services they consume, with all the rights and responsibilities that ownership entails, then we must try to answer the many pressing questions about what this means for businesses and how today’s leaders should respond. 

Let’s start with what to call these new user-owners. Commonplace in corporate circles is “stakeholder capitalism,” the notion that companies should act not only in their shareholders’ interest, but also in the interests of their customers, supply chain partners, employees, and the communities in which they operate — and that includes the environment and the companies’ impact on climate and social inequality. While stakeholder capitalism has its flaws — after all, does society want corporate leaders deciding what’s best for society rather than the citizens themselves through their elected representatives? — by and large, stakeholder capitalism has made better corporate citizens of many a capitalist enterprise. 

But for user-owned networks, let’s coin a new term, stakehodler. It combines hodler — derived from the typo HODLING, meaning hanging on to one’s tokens for the long-run and expecting future value worth the pain of riding out market volatility — with the word stake, to mean an Internet user with ownership of a digital self and digital assets, who earns a fair share from whatever the user creates online. A stakehodler has both a voice and a vote, an economic interest in how each network stewards important global resources. Like hodlers, stakehodlers own tokens, not solely as long-term investments but as day-to-day experiences as Internet users. 

What should we call these global, decentralized, and Internet-native organizations, built on a model of token ownership, where users get a slice of the pie? Decentralized autonomous organization (or DAO) is the common term used today, suggesting something alien and technically complex. While DAOs are novel, they share a common economic thread with Silicon Valley startups, which are rooted in the human response to incentives. 

“If you want to get the best talent in the world to come and work on your moonshot project, you’ve got to compensate them with ownership in it,” Walden said, articulating a key Silicon Valley maxim. Owners care more. They take pride in what they do and work hard to make it succeed, because they have a stake in its future. Web3 applies the concept of ownership, normally reserved for founders, VCs, and key early employees, to entire networks. 

“Going all the way back to Bitcoin, where the earliest developers and technologists who built and operated the Bitcoin network were rewarded with ownership for their contributions,” said Walden. So, as an investor, Variant views itself very much as a partner not only of the teams it backs, but of the user-owners of these platforms. “What really struck me and captured my attention early in my journey into crypto was, the earliest networks in the crypto world were not built in Silicon Valley. Yet, they were using the same model of ownership to attract the talent to build and operate the networks.”

Wikipedia founder Jimmy Wales raised the hypothetical of a peer-produced film, suggesting that, through a DAO, people in dozens of countries could participate and earn an interest in some undertaking on equal terms. Such an initiative would be nearly impossible in a Web2 world, said Wales, because “doing contracts that are legal in all those countries and then paying people is super complicated,” indeed prohibitively complicated. Instead, said Wales, “We’re going to do it as a DAO.” Sure, these kinds of early-stage ventures are risky, Wales acknowledged, but the experience of Silicon Valley tells us that plenty of knowledgeable people will accept risk in the short term for a long-term reward.

This model departs from the past. In the same way that the Hollywood studio model demands creative control of IP, traditionally VCs want control over their investments or, at least, a big say in how entrepreneurs run their operations. After all, backing early-stage ventures can be risky and comes with opportunity costs. In Web3 networks, VCs (and founders, for that matter) often make up a small minority of token holders, with users owning the rest. 

The emergence of token-based Internet-native organizations (DAOs) represents the biggest disruption to business and the firm since the invention of the limited liability company two hundred years ago. New technologies and innovations compel business leaders into tough choices about how they move forward. At the early stages, where we are today, there are often more questions than answers, and leaders reveal themselves by the quality of their questions.