DENVER – It’s easy these days to be a crypto cynic. From the Terra blockchain’s crash to the hedge fund Three Arrows Capital’s collapse and the FTX exchange’s bust, the industry’s leaders sure seem to have a knack for disappointing investors.
After a year of fraud and catastrophe, ETHDenver, the year’s largest gathering for the Ethereum ecosystem, concluded its four-day run last week in Colorado.
The conference came amid a Securities and Exchange Commission crackdown on crypto companies. Under the leadership of SEC Chair Gary Gensler, regulators have been suggesting more frequently that many cryptocurrencies might be unregistered securities, with bitcoin perhaps as the lone exception.
But according to Kevin Owocki, the Gitcoin co-founder who now helms a newly established Web3 venture studio called supermodular, Gensler’s got it all wrong. Though Owocki’s view on securities law is not based in any formal legal training, it’s born out of a crypto optimism that fits right in at ETHDenver, where other bright-eyed crypto optimists gathered to espouse the virtues of blockchain technology.
Long at the core of Ethereum’s social impact movement has been Gitcoin – a kind of fundraising collective that awards grants to community-oriented projects and infrastructure. Recently, Gitcoin open-sourced its fundraising tools so they can be leveraged by other crypto communities looking to bring in cash.
Owocki is a programmer by trade and training; according to his LinkedIn profile, he got a bachelor’s degree in computer science from the University of Delaware, where his interests included ultimate frisbee. He has been in the Ethereum community since its early days, founding Gitcoin in 2017 as a way to wield blockchain primitives like smart contracts and decentralized autonomous organizations (DAO) to solve what he calls “human coordination failures.”
Owocki’s goal with Gitcoin, and now supermodular, is to “engineer a movement of capital and talent and attention from degenerative product projects like pump-and-dumps and Ponzi schemes to regenerative projects,” he told CoinDesk.
“I kind of think of the way I frame it is: How do we rotate capital and attention and talent and resources from degenerative projects, which are ‘number go down,’ to regenerative projects,” explained Owocki. “Regen is ‘number go up,’ positive sum games.” In other words, it’s about creating projects that add value rather than extract or reshuffle value.
While Gitcoin has pulled in over $70 million to fund “regenerative” social impact projects, Owocki admits there’s plenty of work to do before crypto can be deemed a positive for society.
“The title of my [ETHDenver] talk is ‘How crypto can regenerate the world,’” Owocki said, placing special emphasis on the word “can.”
“Nothing grinds my gears more than when I get to put on a panel that’s called ‘How crypto is regenerating the world.’ It's not yet. Look at the harm that has been caused by SBF and Do Kwon.”
Why the SEC should love DAOs
In an interview with CoinDesk, Owocki delivered a breathless explanation spanning evolutionary science, economics and legal theory. This would eventually circle back to the topic of securities regulation.
At one point, he pulled up a chart on his laptop showing his projection for where crypto is probably headed (not good), and where it could realistically head should his viewpoint prevail (good).
As for why Gensler and the SEC shouldn’t be so alarmed, Owocki says crypto has the potential to solve exactly the problems that securities law was – in his view – made to address.
According to the Gitcoin co-founder, when stripped down to “first principles,” the SEC exists to solve the principal-agent problem.
Without getting too wonky, the principal-agent problem arises when the person at the top of a company, project or organization (the principal) delegates control to someone, such as an employee or customer (the agent). When the incentives between these two parties are misaligned – which Owokcki says happens when there are information asymmetries – you can run into trouble.
To illustrate where this can go wrong, Owocki gave the example of Sam Bankman-Fried. “FTX and Sam Bankman-Fried knew that he could make more money by giving funds to Alameda from customers,” Owocki explained. “If that material, nonpublic information had been distributed to retail, then he wouldn't have been able to do it.”
According to Owocki, blockchain-based tools like DAOs and transparent, on-chain finance can add a new level of transparency to organizations, thereby solving the principal-agent problem. (Had FTX been organized as a DAO, in other words, Owocki argues it wouldn’t have been able to become insolvent.)
As convinced as Owocki is by his crypto-as-a-commodity thesis, it’s difficult to imagine a software engineer’s arguments on securities law will hold water with regulators intent on taming a fraud-laden crypto industry.
Putting ideals into practice
Owocki – like crypto at large – acknowledges he still has much to prove when it comes to putting abstract ideals into practice.
A press release announcing his supermodular project highlighted two major investments: buildbox and hypercerts – both aimed at raising money or building crypto infrastructure. Most of the highest-earning Gitcoin grantees have been crypto infrastructure projects.
Scaling blockchains and funding things that fund things is all well and good, but it is a bit hard to grasp how such applications will impact the world beyond blockchains.
Owocki and Gitcoin have funded more tangible projects in the past. They’ve helped drive experiments in Universal Basic Income (UBI), for instance.
But carbon credits – a use-case fraught with controversy – are the real-world application most associated with the budding regenerative finance, or “ReFi” movement.
The idea of commoditizing carbon and allowing companies to buy credits to “offset” their carbon footprint has, according to some activists and researchers, actually harmed the environment more than it’s helped over the years by allowing companies to engage in “greenwashing.”
Tokenized carbon credits were viewed in some crypto circles as a way to bring liquidity and transparency to an inefficient, shady carbon market. But early ReFi experiments with tokenized carbon credits, such as Klima DAO, have faced criticism for making some issues with the carbon credit system even worse. “There is baggage with that use case, and it does sink the movement,” Owocki concedes.
Owocki insists that the crypto-for-good movement – whatever its early flaws – is evolving in a positive direction.
“We’re not just starry-eyed, tie-dye, Grateful Dead optimists” argued Owocki. “I'm not a grad student that is in academia planning this – this is actually working out in the world.”
CORRECTION (Mar. 8, 17:44 UTC): Supermodular is not invested in the Gitcoin Grants Stack. A press release from supermodular was incorrect.
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