4 Truths: A Framework for How Tokenized Networks Will Disrupt and Expand Marketplaces
by Adam Jackson
Co-founder & CEO, The Braintrust Network (Freelance Labs, Inc.)
Having started 4 venture-backed marketplaces over the last 15 years and invested in many more, I have always been a big fan of the business model. Create a trusted environment to transact, build supply and demand in a hopefully someday profitable way, and extract fees as long as you can maintain strong network effects. They’re a beast to start but very hard to stop once the flywheel is spinning.
Then along came the blockchain and a token paradigm that enabled marketplace incentives to be configured in a whole new way. What if the users could control the network and we could cut out the middleman? What if we could configure a token such that as network effects build, the users retain control of the network instead of a rent-seeking corporation in the middle?
What will it look like when incumbent marketplace operators that extract disproportionate value from the networks they operate face a User Controlled business model?
“User controlled” is a new network model empowered by a new technology platform. It reminds us a lot of what SaaS did to on-premise software. Sure, it can be disruptive … but can it grow markets by orders of magnitude as well?
That question drove my friends and now business partners, Gabriel Luna-Ostaseski and Brian Flynn, to do a deep dive on this topic in order to better recognize these new entities (not necessarily companies) when we see them. Together, we came up with four criteria that we believe will need to be met. This exercise is also what led us to conceive of Braintrust — a new kind of global freelance marketplace.
ONE: In order for a User Controlled network to take off, there needs to be a strong economic incentive for one or more sides of a marketplace to disintermediate the operator. Good examples of this dynamic include:
- Yelp: businesses generally don’t like being held hostage by Yelp in order to manage their only SEO-friendly internet presence. They end up being pushed into high-fee plans just to maintain their profile and respond to reviews.
- Uber: Uber is a clear example of the supply side of a network underwhelmed by their upside and overwhelmed by the high fees and lack of voice on the network.
Don‘t get me wrong: these operators created incredible innovations around building trust and balancing supply and demand. The problem is that over time, the incentives of the operator and the network participants start to diverge and become unsustainable.
TWO: The success of a User Controlled network relies on goods and services that are provable, measurable and easily replicated. Food delivery platforms do this well because it’s simple to prove that a service was provided from start to finish and this service can be scaled almost limitlessly. Some goods (take Etsy for example) are more complex. Many of the goods users sell through Etsy are creative and customizable, leaving ambiguity in terms of measurability and replication.
THREE: It’s important to consider token incentives. As this piece by Chris Dixon explains, token networks remove friction by aligning network participants to work together. When the network grows, the usefulness of the token should grow along with it, through uses like staking and governance. If you want a User Controlled network (powered by a token) to take off, your target audience needs to understand A) what a token is, B) how to use it on your network to help build their business.
This is largely a matter of timing. Before the dot-com boom, email faced this same challenge. While many people understood fairly early on what email was, it took time for the network effects to take off. Tokens are already following this arc, but faster. Just like with email in the dot-com era, UI improvements by major players are accelerating adoption among users who understand tokens and their usefulness.
FOUR: For a User Controlled network to generate broad adoption, it should help expand the market instead of just eat someone else’s lunch. Many of today’s marketplace operators rely on exorbitant fee models. Replacing these outdated systems with User Controlled network models could potentially enable an entirely new class of products and services to transact within a marketplace.
With the goal of discovering which industries are ripe for “User Controlled” disruption, my partners and I leveraged these four criteria to analyze existing businesses with strong network effects. We analyzed insurance products, financial suites, ecommerce marketplaces, room sharing, ride sharing, food delivery, and much more. We started to think that there were no viable near-term opportunities to disrupt incumbent, centralized marketplace operators — until we looked at freelancing.
The 4 Truths Applied to a Freelance Labor Marketplace:
ONE: The freelance workforce is growing three times faster than the overall workforce, and freelancers are expected to represent more than 50 percent of the U.S. working population within the next decade. Still, today’s freelancers are being exploited by market operators that charge fees ranging from 20% to as high as 50%. Clearly, there has to be a strong incentive for the marketplace to disintermediate, checking off number one on our list of criteria.
TWO & THREE: The freelance labor market met our second and third criteria because many of the services provided by freelancers are provable, measurable and easily replicated. It also helps that a large contingent of the freelance community already fairly tech savvy. Freelancers understand online payment systems and are likely to be receptive to learning what tokens are, how they work, and their long-term benefits.
FOUR: Perhaps most importantly, the creation of a User Controlled network has the potential to expand the freelance market like never before. By disintermediating the freelance marketplace operators and dropping fees to zero, freelancers can keep all of the value they create. This incentivizes more talented and experienced professionals to join the marketplace, and where the talent goes, so does business. 66 % of large companies are already using freelancers to help lower costs, and this number is poised to grow. With a User Controlled freelance marketplace, more and more companies will be connected with high-caliber talent previously only accessible by word of mouth.
From this analysis came the concept for the Braintrust Network:
- The new network model of “User Controlled” instead of high fees means the best talent will be drawn to the network.
- Top-tier talent will always attract buyers looking to outsource increasingly complex projects.
- With no economic incentive to leave the platform, reputation and attribution for real work done can be stamped onto the blockchain, thus allowing the best people to get full credit for their work without being hidden behind a walled marketplace garden.
- Transparent reputation + no middlemen taking fees = a level playing field that allows real market rates for services to emerge. Buyers will no longer be left wondering who is doing the work on their projects and if they’re overpaying.
- With a properly designed token and referral engine, control over the network remains with those who build the network (invite valuable users), not just the people who created the network. This keeps incentives aligned instead of diverging over time.
With Braintrust, we’re building the type of User Controlled network that will benefit both sides of the marketplace, and ultimately provide a use case for this technology that converges with the future of work. We want to thank our advisors and investors for sharing our vision and supporting us along the way.
To stay up to date with Braintrust, please join the beta invite list at www.usebraintrust.com
