In Defense of Joe Lubin & ConsenSys
Last months layoffs at the incubator arrived like a crescendo in the bear market, with some people eager to turn the story of the quick expansion and quicker decline into a broader metaphor for the industry. Much of that criticism is unfair, and based on a misunderstanding of why ConsenSys was invented in the first place.
Most incubators exist to generate a positive return on investment. ConsenSys on the other hand was created to push Ethereum’s first mover advantage to a point where a newer platform couldn’t catch up. That distinction seems lost on most critics, even though Lubin has been practically shouting it from the rooftops — and the company’s About page:
Our focus is on the ecosystem, the growth of the Ethereum network, and global integration of the benefits of blockchain and tokenization.
Now compare that to the About page of a more standard incubator, like Y Combinator. The latter is all about helping individual companies succeed, while Joe’s mission is the platform. The distinction leads to very different decision making. When you focus on companies, then every failure is just that. But when your focus is on the platform, some failures could still be a successes, so long as they advance the cause of adoption.
Take the example of a hypothetical blockchain scaling company working on things like sharding and plasma. If it were to go through a vanilla incubator, then the rudder for all decision making would be finding a viable business model. It wouldn’t matter how many cool things the founders tried if they never turned a profit. But that same company, trying the same approaches, and even ultimately being shut down for the same reasons, could still be considered a success at a place like ConsenSys — in the same way that Lightening Labs might simultaneously turn out to be a bad investment but great for Bitcoin.
I’m not a fan of decentralized organizations and believe that most human activity works better as a hierarchy. But I’d make an exception if I were a co-founder and major stakeholder — possibly the biggest — of an experimental new platform with competition on the way. In that scenario, I too would take a bunch of money and fund almost every idea. My ultimate batting average wouldn’t matter, because every project would still bring more people, attention and ideas. This, I believe, is what Lubin meant when he referred to “ConsenSys 1.0” in his recent letter to employees:
For ConsenSys 1.0, It was enough to just show up…and do something cool. Everything we built, every story we told, had real impact.
When it comes to new technology, it’s usually the first iteration to reach a critical mass of human attention, as opposed to the best, that wins out. ConsenSys was designed to push Ethereum to that point. Critics only give it credit for the projects that did succeed, like MetaMask & Truffle, but miss the aggregate benefit of all the ones that didn’t. There’s now an army of entrepreneurs, designers and developers who have lived and breathed that platform for years. Even if their tenure at ConsenSys comes to an end, their most likely career path is to stick with Ethereum.
I feel bad for the people who have recently lost their jobs, a few of which were my friends. But that doesn’t change the fact that the ups and downs of ConsenSys were based on sound economic principles for its founder, even if they were made more extreme by the surge and crash in the price of ETH. If you’ve gone all-in on a particular platform with your time and money (check out Joe’s Twitter handle if you doubt that he has), then it makes sense to initially treat your incubator as a loss-leader. So long as your native token stack is big enough, then your ROI on the platform will always exceed your ROI on any one project. This is why most new platforms now launch with an incubator baked into the road map.
“Failing fast” is a popular mantra for startups, and the idea takes on a whole new form with blockchain since you can now own a piece of the platform on top of which the failures take place. We’ve all heard of the historical adoption cycle where the sustainable businesses of the second wave are made possible by the infrastructure and attention brought by the failures of the first. When you own the platform, you can accelerate this process by initially funding everything, including projects that are unlikely to succeed.
Some of the critique of ConsenSys is just schadenfreude from those who have been gunning for Ethereum’s dominance. What these people don’t get is how much tougher that task is thanks to “ConsenSys 1.0.” It still remains to be seen how much the world actually needs a decentralized computing platform, which one should be dominant, and how valuable its native token will be. Years from now, if the answers to those questions turn out to be Yes, Ethereum & a lot, then Joe Lubin & ConsenSys will be a major reason why.
