In order for digital assets to be brought into an adequate regulatory framework they have to establish legitimacy. If digital assets are not legitimate, then they will continue to be scoffed at as an immature casino of amateurs and shady actors. And they will be regulated as such. That is the perception that many people in Washington and on Wall St. have, and much of the general public as well. This perception is not without some truth (degen is after all a term of art), but it is far from the whole truth.
What needs to be done to establish the legitimacy of digital assets? It needs to be shown why and how digital assets constitute an objectively better economic system. Meaning, even more work has to be done to show why and how digital assets solve some of the major systemic problems with our current financial system, and at the same time, do not pose a major structural threat to that system.
The legitimacy of an economic-financial system depends on an adequate theoretical framework for how it operates in practice. Adam Smith’s classical political economy accurately describes industrial society. The marginal utility theory of the mid 19th century gave the framework for financialization and business planning. Game theory mapped out negotiation and group dynamics.
A general economic theory for digital media does not exist yet. Such a general theory would allow for much more effective coordination of actions and outcomes in the digital economy.
People do what they do, and then a theoretical framework emerges to explain the structure of what they are doing, which then in turn reflexively influences what those people do, which causes another framework to emerge, and so on. This is George Soros’ theory of reflexivity. People started using digital assets, now an economic theory emerges to explain digital economy, which then in turn reflexively influences how people use the digital economy, etc.
Many builders or pragmatists may scoff at the idea that theory is useful for anything. But having a generalized framework that can accurately explain the structure of many specific, actual endeavors brings them into harmony with one another. The shared framework lowers transaction costs by establishing sustainable social norms and shared presuppositions that are necessary for legitimization. This is the formation of culture that is sort of starting to happen with NFTs.
The economic theory that underpins most of the incumbent financial system is utterly inadequate to explain digital asset markets. That is why so many investors and economists have come out saying that digital assets are worthless. That narrative has been dying down, and can be silenced for good. A general theory of digital economy will be immensely valuable to investors, regulators, and to the digital asset ecosystem.
The long term approach to a coherent regulatory framework for digital economy is to have a crowdsourced distributed research project to converge towards the general theory; a Manhattan project or a CERN for digital economy. Put out research and then use the dynamics of the NFT to market converge to the best framework. Only once there is a solid general theory of digital economy, it possible to have the language necessary to craft appropriate legislation.
It is unacceptable to regulate the digital economy within the framework of the defunct, failed Wall St. regulations that gave us the 2008 financial crisis. A new financial system demands an entirely new regulatory framework. Would regulators actually take this claim seriously? Well, let’s put it this way: when GameStop stock went from $18 to $347, they kind of had to listen. And now, what if instead of rallying around failing companies, Wall St. Bets had rallied around actual intrinsic value in the creator economy? Regulators would have to look at it differently than WSB, because they would be confronted with legitimately productive economic activity.
nf.carlo.acutis is the founder of Intrinsic Research Company, a research DAO on foundations of digital economy. IRC pays contributors and provides a margin of safety for patrons / investors through treasury-reserve backed non-fungible objects.