TL;DR. In the long run, you can’t compete with the combined network effect value of all business running on the same permissionless and open shared database.

The 2-sided marketplace business model is central to commerce on the current version of the internet. Unicorn scale companies that connect buyers with sellers exist in nearly every vertical. The only common thread uniting them is they all use the same playbook:

1. Keep users locked into your walled garden at all costs

2. Find new users using increasingly cheap equity and debt capital to reinforce said garden

3. Squeeze more out of users once monopoly is established. Bonus points for buying out competitors, and creating new regulations to make operating costs too high for new entrants.

Cold start problem

The flywheel for Autotrader, Airbnb, Angie’s List (and to a certain extent) Google and Facebook work the same way.

They convince producers with valuable information of some kind (cars for sale, rental listings) to post their wares inside of their walled garden. Because the party is already there, buyers know where to go to see highest quantity and quality of listings.

The barrier to starting a new party (cold start problem) is why stock valuations for these behemoths are so high. What new up and coming David could possibly unseat these Goliaths. Once a network-effect laden flywheel is going, the cost of incremental expansion is much lower than starting from scratch.

With the ongoing health of the capitalist system at stake - this author posits the seeds of Web2 destruction are written into its proprietary DNA.

Try sourcing listings from Airbnb or VRBO to populate your up and coming rental marketplace. That’s “proprietary” they will say. We’ll sue you they’ll say. Those are OUR nodes on OUR network they will say.

Enter monkey pictures stage left.

Monkey Pictures

In Web3, we also have marketplaces. We also have behemoth marketplaces (Opensea) with first mover advantages that gobble up massive marketshare early on and are happy to sit on their laurels.

When users want to trade their monkey pictures, they need a 2-sided marketplace to do so. Sellers wishing to sell their monkey pictures, then buyers wanting to buy said pictures.

But something special is going on under the hood. Rather than using a proprietary closed database to store all of the listings, web3 actually does use this miraculous technology called “the blockchain” under the hood. An open source tamperproof database for all to see.

This means when the next marketplace comes around. X2y2, Blur, etc they have a more fair playing field in which to recruit their network effect driven moat.

Come join our party they can say - we’ll give you tokens.

Where this is going

Not just monkey pictures, but all listings on the internet. This is the Sword of Damocles hanging over the market capitalizations of all incumbent tech platforms.

Even if Web2 embraces this technology, Web3 is a trojan horse to destroy margins and redistribute wealth to the next evolutionary fitness peak. Maybe this is why Zuck is so into ancient history.

The dirty secret at the core of the internet will be exposed

Web2 = closed ecosystem running on proprietary databases

Web3 = open ecosystem running on public databases

As each incremental user wakes up to the power of owning their own data, self sovereignty, and of course the lucrative gambling mechanics offered in web3 - the power of web2 network effects will slowly begin to wane…

Until one day - you’ll wake up and list your home for sale on web3 Zillow. Selling and transferring title securely with one click. No middlemen, no realtors, no origination fees, just pure unadulterated capitalism with crony elements removed. That and a lot of realbuxx tokens floating around.

How it will happen

Web3 will (eventually) reduce friction on par with Web2. The (eventually) is repeated over-and-over as this will surely take time. If not years then decades to hollow out the corpse of the legacy financial system and reconstitute its corporeal being into something that looks like Bitcoin or Ethereum.

-This will be done through conduits like Coinbase et al helping the masses to onboard.

-Initiatives like ERC-4337 and easy social login wallets will make seed phrases a thing of the past for neophyte internet users used to being coddled by a custodial big daddy.

-Equally compelling Web3 marketplaces will offer token incentives to move liquidity over from Web2.

Why not take a chance on Web3 eBay to mine token rewards when all regular eBay offers you is a 3% fee and an interface straight out of 2006. If web3 eBay works out you’ll be rich for getting in early. In all likelihood 50 web3 eBays will get shot trying to go through the door first but hey- sure beats the public equities market.