From Mastercard to Nike, jobs in Web3 are growing. Here’s a manager’s guide to hiring (including interview questions)

This article was originally published in Fast Company (with Avery Akkenini).

While the economy has been facing headwinds ever since the onset of COVID-19, Web3 jobs have been rapidly expanding. The demand for Web3 skills has been so large that supply has not been able to expand fast enough, bidding up the average wage. For example, LinkedIn reported a nearly 400% increase between 2020 and 2021 in job titles containing the words “blockchain” and “cryptocurrency,” compared with nearly a 100% increase in the broad tech sector.

And, even with the so-called “crypto winter” in a market of polarized Web3 sentiment, the demand for blockchain developers and other Web3 professionals has continued to grow.

The myth is that demand for Web3 talent is concentrated solely among startups, but many enterprises are actively hiring dedicated Web3 teams to meet a rising consumer interest in Web3-focused applications. For example, many Fortune 500 companies across sectors, ranging from entertainment to retail to fashion to technology, announced Web3 hiring in 2022, according to Vayner3’s 2022 trends report. And we expect more to follow suit in 2023. In fact, some of these companies have even created dedicated Web3 investment teams with both non-technical and technical roles, including Mastercard, Anheuser Busch, Adidas, Nike, and PepsiCo.

We believe that these early signs of investment from enterprises provide further evidence that Web3 is here to stay, and that the technology is sufficiently general purpose that it will forever transform the way companies do business. This highlights that major brands are putting both their reputational and financial capital behind Web3, and continued education, evangelism, and community building will chart a new road ahead.

But as with any emerging technology, understanding how to hire and manage Web3 talent has been challenging. Given our expertise as professors/researchers (Christos) and executives of a leading consultancy (Avery), we believe that there are a couple of best practices that will help the hiring process for startups and enterprises alike.

CONDUCT A HUMAN CAPITAL INVENTORY

Whenever there is a new salient and trendy technology, it is easy to focus on all of its features. But we need to remember that what matters at the end of the day is value creation for the end consumer and how we treat employees. Every organization needs to understand the tasks that are involved in delivering that value, and then connect people with the execution of those tasks—even if they are yet to be hired.

Specialist organizations (like Vayner3) can emerge from established entities (like VaynerX), and we’ve seen similar things occur at much larger companies, from Salesforce Web3 Studio to Adidas /// Studio. This is often driven by a single passionate individual, who builds a business case to internal leadership; but also can occur through top-down executive sponsorship.

Possible interview questions:

• Imagine that you could work with your human resources department to survey interest in Web3. What do you specifically think Web3 brings to the table for your organization?

• What would you ask others in the survey to galvanize support for Web3 initiatives?

FOCUS ON PERSONALITY AND PASSION FOR THE SUBJECT MATTER, NOT JUST HARD SKILLS

It’s easy to develop technical assessments, especially for developers, to gauge their skill level and ability to program under pressure. These are necessary, but not sufficient. Recent research from one of us analyzing millions of observations on peoples’ wages across occupations and time in the U.S. shows that personality, namely intellectual tenacity (reflecting problem solving capabilities, mental toughness, and curiosity), is at least as important, if not more, important in explaining wage differences in the labor market than technical skills.

In the very early days of Web3, hiring “natives” who live and breathe the Web3 culture to educate cross functional teams accelerated. In particular, at Vayner3, we hired several individuals from the Web3 community, using recruitment tactics that may seem unusual to traditional human resource systems, namely identifying candidates via Discord and Twitter, compared with Greenhouse and LinkedIn. Other pioneers in the field have followed a similar strategy. The founders of Forum3 (the platform behind Starbucks Odyssey) met as part of a specific Web3 community. Even Playboy’s Web3 team hired passionate community members to their team.

The easiest trap for enterprises to fall into is to treat Web3 talent acquisition the same as other talent and assume that what matters is technical skill alone. Part of the attraction of Web3 to many community members is the countercultural elements, especially the focus on decentralization and autonomy, so filtering for technical skills on traditional job posting boards alone will risk attracting people who look good on paper, but are not going to catapult the organization to new heights—or potentially even align with the team.

Possible interview questions:

• What Web3 communities do you admire the most, and why?

• Are you personally a holder of any Web3 projects, and what motivated you to become one?

• Have you been involved in any Web3 community programming (DAOs, NFTs, metaverse experiences)?

FORMAL BLOCKCHAIN EDUCATION IS HELPFUL, BUT NOT REQUIRED

Even though blockchain has been around for years, few institutions of higher learning have any serious curricula around blockchain apart from cryptography classes in computer science departments. One of the few is University of Nicosia in Cyprus, which was the first to launch a masters in blockchain and digital currency and will be the first to launch a masters in the metaverse. Core to its success is its engagement of practitioners, not just academics, who actively work in the blockchain space, which provides learners with the opportunity to hear about real-time trends in the market and cultivate hands-on skills.

But the reality is that many programs do not yet have the support to provide significant value-added, so focusing on candidates with the appearance of Web3 or blockchain educational credentials may give the impression of capabilities that are not really there.

Instead, there are many self-trained candidates who would be excellent hires, but do not have any educational degrees to necessarily back it up. In these cases, look at what they have done and pay attention to how they talk about the Web3 community. Candidates’ aptitude to learn and thrive in the role matters even more than their current technical knowledge—that’s easy to fill in!

Practically, one way to determine whether a candidate has the right aptitude and personality (as an alternative to relying on outside credentials) is to give them a hypothetical problem to solve and see how they handle it. These hypothetical problems are thematically no different than the classic case problems that pervade the management consulting world, but here the problems and set of skills that are being tested will vary based on the role. Hiring managers should pay close attention to the candidate’s thought process and, if it is a technical problem, their approach to building a system and drawing on prior knowledge.

Possible interview questions:

• Can you show me a best-in-class blockchain-based application? Why is it a smart use of technology?

• What separates a great smart contract from a standard one?

• How would you leverage blockchain technology to solve a problem that you are especially passionate about?

• What are some elements of this that Web3 could not solve?

THINK LIKE AN ARTIST, BUT BUILD LIKE AN ENGINEER

Web3 is fundamentally a general purpose technology because it provides a new layer, or delivery mechanism, for assessing, recording, and validating activity in a distributed fashion. And with that general nature comes the opportunity to apply incredible creativity to the product design and user experience. But that creativity needs to be tempered with an engineering-like mentality that also knows how to execute. The combination must be paired on a team explicitly, or balanced by someone who can think like an artist and build like an engineer.

Too often in business and venture capital, the focus is on bringing products to scale. But before scale comes the individual and their experience with the product or service. This is the key: We believe that Web3 talent must focus on building for people, not for profit. That’s why so many attempts at “community building” fall short. Disingenuous efforts eventually show their signs and get called out, and the results aren’t pretty.

So, how do you do that? Artists do not think of their customers as “users,” but rather as their audience and even patrons. Artists perform and produce to service them. And that cannot be made any more clear than in an opera where the audience gives a standing ovation and even more than 10 minutes of standing applause for an exceptional performance. That demand on the artist creates transparency and accountability to perform beautiful and creative art.

But to execute all of these aims at scale enterprises need engineering talent that can take these creative ideas and embed them in code. Indeed, the blockchain relies upon distributed ledger technologies and smart contracts that work seamlessly and attract people from geographically disparate areas to participate as validators on the network. Enterprises cannot forsake top engineering talent, but they need to ensure that engineering is not done robotically or with an overly narrow perspective that it short circuits the creativity of the overall brand.

Possible interview question:

• Imagine a big brand came to you asking for help to launch a Web3 initiative, and Gary Vee was willing to serve as an ambassador. Describe the process you would take.

TAILOR YOUR WEB3 HIRING TO YOUR ORGANIZATIONAL STRATEGY

Every organization is different. Some are bigger than others. Some rely more on external contract work than others. And some function more as creative consultants than others.

Organizations need to know who they are before they make hiring decisions. In Vayner3’s recent trends report, we shared the results from conversations with many large enterprises on the three most common approaches to operating models for Web3 teams:

1. Steering committees

2. Centers of enablements

3. Design studios

A steering committee approach views Web3 projects as complements to a broader set of digital initiatives. This could be an excellent starting point for brands, however requiring a high degree of cross-functional decision-making and alignment.

A center of enablement approach develops the best practices and guiding principles to facilitate cross-enterprise execution of Web3 projects, meaning that Web3 is getting embedded into the fabric of the organization. This drives flexibility for multi-brand execution and allows for greater accountability due to dedicated stakeholders. 

A Web3 design studio approach involves a dedicated, cross-functional team who handles the go-to-market strategy and execution, taking a hands-on approach to seeing the Web3 vision come to reality. This allows a faster go-to market strategy however requires a top-down commitment, vision and funding.

Possible interview questions:

• What do you believe are the core team members needed on a Web3 program team?

• Imagine you’re a business leader at a Fortune500 company. How would you incubate innovation in your marketing or operations department? Would you consider integration within core teams; a “center of excellence” model or a protected “studio” model? Or something different?

Christos A. Makridis is a cofounder and COO/CTO of Living Opera, a Web3 multimedia startup, and holds academic appointments at Stanford University, Columbia University, and the University of Nicosia.

Avery Akkineni is the president of Vayner3, a leading Web3 consultancy. 

How blockchain can help fund artists—and revive the arts

This article was originally published in Philanthropy Daily (with Esther Larson).

Funding for artists tends to go to major institutions, not to artists. But a new decentralized solution offers a way for philanthropists large and small to support artists directly.

Giving to arts, culture, and humanities organizations in the United States increased by roughly 27% from 2020 to 2021 rising to $23.5 billion, according to Giving USA Foundation. And yet, large art institutions attract the majority of arts related funding instead of individual artists. Because of the reputational benefits and seemingly reduced risk in giving to large institutions, this concentration of funding often deters direct support of individual artists.

We encourage philanthropists to consider funding artists directly—to complement the support of art institutions—through decentralized philanthropy.

Decentralized philanthropy—small donations aiming at big impact—has the capacity to propel the arts in significant ways. For opera singer, Soula Parassidis, this approach changed her life. After recovering from cancer and overcoming the odds to graduate from the University of British Columbia, she was approached by a local philanthropist who thought she had promise as an opera singer. Parassidis presented him with a business proposal, and he gave a life-changing gift of a few thousand dollars. That generosity was enough to make it possible for Parassidis to move to Germany to train, and, after a lot of hard work, launch an international career and even a worldwide arts community called Living Opera that is aimed at empowering other artists.

SMALL GIFTS CAN CHANGE LIVES

In short, a single act of philanthropy in a relatively small amount set in motion a chain reaction of creative artistic expression that would eventually build Living Opera, impacting over 14,000 people across the world, in addition to catalyzing Parassidis’s career in opera.

Unfortunately, these stories of direct connection between donor and artist are the exception, not the rule. Despite all the funding that fine arts institutions receive in philanthropy, very little of it is passed through to artists. In fact, our research and surveys by Living Opera show that real wages for artists have declined over time and that most artists are bearing a bigger financial burden than ever before. For example, 53% report having a job outside of the arts to fund their primary calling, and 54% were clinically diagnosed with depression—arguably driven by the financial precarity and challenge of settling down when going from gig-to-gig.

In this sense, the question of how we increase funding for the arts is relevant, but it does not address the deeper issue: that the artists themselves have been experiencing greater hardship. So, how can we scale decentralized grantmaking to encourage greater engagement between philanthropists and the artists that many donors ultimately want to support through their charitable giving?

DECENTRALIZED GIVING

Enter blockchain technology and non-fungible tokens (NFTs), which have the capacity to facilitate philanthropy in the arts. Although NFTs and the broader cryptocurrency market faced some challenges and controversy in 2022—which are unrelated to the technology—when used appropriately, this technology can serve as a democratizing force within philanthropy by providing a transparent, more open forum for artists and philanthropists. This technology has the potential to take Parassidis’ rare experience and make it a more regular occurrence for artists.

But how does it work?

Blockchain technology provides the infrastructure that allows users to access, record, and validate activity digitally. Often through a decentralized process, the technology lends itself well to collaborative involvement, fostering coordination and authentication of activity—like different art forms—among multiple people, especially those who may not already know each other, allowing a community to unite under a common objective. That potential for greater collaboration and decentralization does not mean it always happens, but the possibility is built into the design.

As a complement to the blockchain technology platform, NFTs enable direct support of artists by a community of philanthropists. Given the growing, yet unrealized potential of these philanthropic tools, Living Opera recently launched an NFT collection called Magic Mozart and a nonprofit called Living Arts Foundation, a decentralized grantmaking community with the ability to fund individual artists and their unique creative contributions.

BRINGING THE BLOCKCHAIN TO ARTISTS AND PHILANTHROPISTS

When someone buys a Magic Mozart NFT, they obtain not only a unique piece of digital and musical artwork, but also a “digital key” that grants them access to Living Arts Foundation. For those who want to contribute funds, but do not have the time to participate in the community, they can donate and sponsor recipients of the Mozart NFTs.

The use of these technologies enables a two-step, collaborative, and open grantmaking process to resource individual artists.

First, interested artists undergo the Living Opera arts entrepreneurship curricula, which upon completion, makes them eligible to submit a proposal to Living Arts Foundation. Though structured as a nonprofit, Living Arts Foundation will operate as a decentralized autonomous organization (DAO), which automates otherwise routine tasks such as validating a certificate and disbursing funds.

Second, NFT holders receive governance rights in the DAO, allowing them to vote on the proposals that they most identify with and believe in. This enables individual artists to not only learn presentation skills and accountability, but also philanthropists are able to directly support and follow the artists throughout the creative process.

Another important requirement for grant recipients within the community is that they produce multimedia that they upload on social media and YouTube describing how they benefited from the grant. That has the dual benefit of providing visibility into how the funds were used and showcasing to donors that they are changing the lives of individuals, while also training the recipients on how to build and showcase engaging content—a principle of the arts entrepreneurship training. In this sense, the inclusion of blockchain technology helps the project achieve scale, but the essence of it still relies on people giving and helping other people—something technology can never replace.

DIVERSE AND DEMOCRATIC GIVING

The arts empower the American way of life by allowing us to express ourselves freely, foster beauty and creativity, and encourage a truly vibrant and free society. Stories like Parassidis’ are increasingly rare, and we believe philanthropy has a significant opportunity and role to play in fanning the flames of further artistic expression in our society.

To conserve, propel and deepen the impact of the arts in our society, we encourage donors to consider micro-philanthropic approaches to further cultivate vibrant artistic expression and not hinder it.

Living Opera’s Magic Mozart Collection Powers Philanthropy and Performing Arts Engagement

This article was originally published in BlockTelegraph.

Late last year our team at Living Opera debuted the Magic Mozart NFT collection, a generative art project based on characteristics from Mozart’s Magic Flute. The collection contains digital art and personalized on-chain musical minuets based on a replica of Ein Musikalisches Würfelspiel – a musical dice game attributed to Mozart.

While music lovers agree that the game is an incredible demonstration of Mozart’s musical genius, it also appeals to technologists: with over a quadrillion permutations that create a new musical selection, the algorithmic musical composition has captivated the interest of top computer scientists.

At Living Opera, we aspire to reform the philanthropy space using a decentralized autonomous organization (DAO) to facilitate access to grants on a rapid and transparent basis. When they function at their true state, DAOs use smart contracts – or code – that dictate what will happen if a certain condition is met. Smart contracts promise to expedite the grantmaking process and add greater transparency over the acquisition and use of funds.

In 2021, US arts and humanities organized received $23.5 billion in charitable donations. However, artists’ wages have continued to stagnate. Our whitepaper based on Census Bureau data shows that US artists not only earn less than the average American, but have experienced a relative decline in their total earnings since 2009. Despite substantial funding for arts and cultural institutions, challenges for artists have only grown. Although that might sound immaterial for people in non-arts sectors, it is gravely important: not only does the arts and culture sector constitute 4.2 percent of gross domestic product, notes the Bureau of Economic Analysis, but also the arts have a profound multiplier effect on creativity and innovation that is not easily reducible with available data.

DAOs could facilitate micro-grants to artists and democratize funding applications and experiential arts learning. Living Opera is building the first arts entrepreneurship verifiable credential that will exist on the blockchain. DAOs and smart contracts enable a wave of innovation and mobility into certain states over others. Living Opera relocated to Nashville because of a legislation that Tennessee Representative Jason Powell spearheaded that allows DAOs receive similar treatment to LLCs and non-profits – perfect for the Living Arts DAO.

The performing arts are a challenging profession, and most artists, according to our research, struggle with depression and mental health. But just like anyone else, they feel more motivated when they believe that they are learning and growing. Members in the Living Arts DAO community who submit proposals gain valuable experience in writing and presenting themselves to others—a skill they typically do not get in college—together with an arts-entrepreneurship digital certificate.

In fact, my ongoing research with Jonathan Kuuskoski at the University of Michigan shows that only about 10 percent of colleges even offer an arts entrepreneurship certificate, though college students who major in the fine arts and get some exposure to business curricula end up earning higher hourly wages. In this sense, the DAO is designed not only to meet an immediate need but also to equip members with the credentials and knowhow to market themselves over the long run. This also allows the DAO to become a community of practice that can simultaneously incubate talent and help arts institutions source the right people for performances.

DAOs, like other blockchain technologies, cannot replace good judgment, the right people, and good ideas. But they have the potential to promote better governance, return on investment, and flourishing in the arts profession by increasing transparency and accountability. My hope is that the Living Arts DAO functions as an early pilot for a new approach within the world of arts philanthropy that leads to transformational outcomes for artists, philanthropists, and society at large.

Living Opera, founded by two opera singers and an economist, is a multimedia art-technology company that unites the classical music and blockchain communities to produce transformative content. Living Opera takes a holistic approach to life, work, and education: “living” means “full of life and vigor,” and “opera” means (in Latin) “labor, effort, attention, or work.” Living Opera NFT collections, such as Magic Mozart, are designed to bring the art and tech worlds together by expanding the audience of people who traditionally engage with classical music and fine art.

Christos A. Makridis is a research affiliate at Stanford University and Columbia Business School and an adjunct fellow at the Manhattan Institute. He holds doctorates in economics and management science & engineering from Stanford University.

ESG investors have good intentions, but there’s a better way to measure corporate impact and health

This article was originally published in Fast Company (with Bill Fotsch).

In 2004, the term “ESG” was officially coined with the publication of the UN Global Compact Initiative’s Who Cares Wins report. ESG is simply another way of measuring the centuries-old concept of socially responsible investing. The UN’s report defined the three main pillars of ethical finance as environmental, social, and governance (ESG).

These new metrics tapped into a worthy desire among investors to see not only good financial returns on their investments, but also improvements in societal outcomes.

However, the launch of ESG metrics also led to significant marketing opportunities for fund managers. Labeling funds “ESG” allowed them to charge more fees and acted as a get-out-of-jail-free card if their funds performed poorly financially. After all, they were serving two masters: financial return and ESG.

But ESG has been hard to define and measure over the years, shifting most recently from conversations about corporate social responsibility (CSR) to ESG. Investors can easily see the financial return a fund has provided in the last year, last five years, last 10 years, and in the life of the fund, but the returns to ESG are much tougher to measure, let alone measure. Financial returns are quick, objective, and reliable.

On the other hand, ESG measurements have proved much more nebulous because the interpretation of ESG is so subjective. In short, there are too many indicators and too little quantitative work linking transparent measurement to outcomes.

THE CHALLENGE WITH ESG RATINGS

Many ESG ratings do not have an intrinsic standard. Instead, they vary based on a subjective grading system assigned by different rating organizations. Different raters assign factors different weights, resulting in different grades. For example, KLD Research & Analytics assigns heaviest weight to climate risk management, product safety, and remuneration. Another rater, Moody’s ESG, assigns greatest weight to Diversity, Environmental Policy, and Labor Practices.

But it’s not just the weighting that differs, but also the way they actually create the metrics and scope of metrics that are included in the overall scores. Two rating agencies can produce two entirely different ESG ratings based on their subjective assessments.

Recent research by professors Florian Berg, Julian Kolbel, and Roberto Rigobon in the Review of Finance documents substantial discrepancies across the different rating agencies. They find that differences in measurement and scope contribute to 56% and 38% of the divergencies across scores, respectively, and weights contribute 6%. Florian Berg, together with coauthors, has also found that ratings agencies have gone back into retrospective data and rewritten it to have more favorable correlations with financial performance among firms, thereby manipulating the rankings. Few have been upfront about these substantial concerns with the ratings.

Even if we take the ESG ratings at face value, higher ratings are not predictive of lower corporate governance problems, according to recent research by Ruoke Yang in the Journal of Financial Intermediation. While unfortunate and sad, the low predictive power is not surprising given the incentives that agencies have to invest in detecting greenwashing and the incentives that firms have to superficially signal efforts to improve their public image.

Admittedly, measuring environmental performance is not easy. But the difficulty does not absolve us from the responsibility of actually measuring what we care about. For example, if natural gas companies are effective at producing energy with low emissions—thanks to advances in fracking technology—then they should be environmental stars, particularly in light of the industry that they are in. And yet, they do not appear in ESG funds.

Although investors’ dual desire to get a high return on their investment and improve the world in the process is good, ESG has not evolved to a point where it can adequately address both desires.

A BETTER MEASURE OF CORPORATE HEALTH

The good news is there are plenty of exemplary companies that are both industry leaders and doing a great deal of good in the process—here are a few from our prior research:

• Costco has led the retail industry in customer satisfaction, employee satisfaction and stock performance for 40 years. They track the number of employees who have graduated from college, unlike any other retailer.

• Southwest Airlines has been an industry leader for 50 years, in financial performance, customer satisfaction, and employee loyalty, having never laid off an employee.

• Welty Construction has grown to 100 times its size 20 years ago by delighting customers, employees, and investors. President Donzell Taylor began a program of hiring former addicts to empower meaningful change for them and the community.

Many more examples abound, but we need more than examples of companies that are both profitable and do good in the world—we need a set of organizing principles. Put differently, what are the practices that create good in a company and, in turn, scale to create good in society?

We believe that the answer resides in the concept of economic engagement—a term characterized by companies that treat their employees and customers like partners, focused on serving customers profitably—and can be summarized with five factors:

• Customer service: Serving customers is not only morally sound, it provides a company with a strong, valued, and typically profitable customer relationship.

• Shared economic understanding: Providing all employees with a common cause based on an understanding of value enables them to agilely respond to customers’ needs.

• Transparency: Offering financial transparency enables employees to see the relationship between performance and results, to continually learn from one another, and to avoid bad behaviors that would be exposed.

• Shared compensation: Everyone in the company has a stake in the increased value they are jointly creating, making employees truly partners in the business and raising employee compensation.

• Employee participation: Everyone is involved in improving company performance, in whatever way they can, regardless of position.

Our economic engagement survey tool, anchored in academic research and collaborations out of Harvard Business School, uses three different items, or questions, associated with each of the five pillars, leading to a total of 15 metrics that we use to evaluate companies.

After 10 waves of research with 50 to 150 companies in each, what we discovered was astounding: Companies in the top quartile of economic engagement were enjoying double the profit growth of their peers.

The aims of ESG are good: Companies should seek to be environmentally friendly, sustainable, and practice good governance. No one disputes that. But the devil is in the details, and sadly the measurement of ESG has been fraught with subjectivity over the years. The proof ultimately has to be in the pudding: if a metric does not show up in financial returns, either the market is completely broken or something is wrong with the metric and its measurement.

We propose a different lens to think about ESG by focusing on economic engagement. These objective, repeatable measures of behaviors deliver consistent financial returns and improve the lives of not only the employees of a company but also society at large.

Christos A. Makridis holds academic appointments at Columbia Business School, Stanford University and serves as the CEO/founder of Dainamic, a financial technology startup, and has earned PhDs in economics and management science and engineering from Stanford University.

Bill Fotsch is the founder of Economic Engagement LLC.

The Role of Airdrops for Loyalty, Rewards, Brand Awareness and Scale in Web 3.0

This article was originally published in Hackernoon.

How many times have you heard “thought leaders” and experts talking about how you need to “build community”? Everyone wants to talk about a thriving community, but many fewer are willing to put in the work to make it happen. And that work means genuinely caring about people and demonstrating that care over time – not rushing to get Twitter or Telegram followers.

One of the most common techniques from “web3 experts” is to work with influencers to get the word out. But those partnerships can be heavily hit-or-miss because follower counts do not necessarily translate into engagement and eventually sales, especially if the partnership is not genuine – that is, the influencer and token project are more transactional.

When thinking about building and cultivating community, what you really want to focus on is:

• Is there research that validates the strategy so you can talk about it more credibly?

• Is the community building strategy repeatable and/or scalable?

• Is there a way of determining what techniques for community building are more helpful at different parts of the experience?

The reality is that there is no substitute for becoming an accomplished and proven expert in your field so that you speak from experience when advising and building community. And, that’s also the way you signal that you’re serious about building community versus just passing by out of convenience and for pure profit motives. Putting in the time and energy to become highly trained is a demonstration that your time and money is where your mouth is.

But setting these foundational principles aside, there are also tools that can help build and foster community – and airdrops are one of them.

What are airdrops?

Marketers have long designed methods for attracting new customers and retaining existing ones through the use of discounts, promotions, and more. Such methods can be especially important for projects operating in competitive environments so that they can cut through all the noise. The same holds in the emerging area of web3: token issuers look for ways to set their tokens apart from others. Airdrops provide one mechanism to differentiate companies from their competitors, providing the ability to reward users and incentivize certain behavior.

In particular, airdrops allow companies to communicate and gift items directly to people on their digital wallets. The technological capabilities, coupled with the social phenomenon of tokens, can expand the tools that brands have to engage existing and prospective consumers, namely that they can tailor rewards and incentives to them based on observed behavior on the blockchain.

There are several types of airdrop strategies that depend on project goals, but they can generally be categorized as follows:

• plain vanilla where eligibility criteria are minimized as to include as much community members as possible,

• holder-based where eligibility criteria hinge on holding a token for a specified time period,

• past value-based where eligibility criteria favor past users and loyal supporters,

• future value-based where eligibility criteria are linked to future interaction with the project or favorable behavior.

What does the research say on airdrops?

All organizations battle for the attention and business of their prospective customers, ranging from retail consumers to businesses, and airdrops are only one mechanism to achieve this. Although airdrops within web3 are a new vehicle, as a concept they are no different than loyalty programs or price discounts offered by traditional non-web3 companies: they aim to confer value to those who engage with the product or service while encouraging future involvement.

My recent research published in the Journal of Corporate Finance presents the first empirical and large-scale statistical analysis on the effects of airdrops. After documenting the rapid growth among decentralized exchanges (DEXs) up until the end of 2021, my coauthors and I quantify how the use of airdrops affects the growth rate of market capitalization and transaction volume for an exchange. Crucially, we find that DEXs that implement airdrops exhibit a 13.1 and 8.6 percentage point increase in the month-to-month growth rate of market capitalization and volume even after controlling for broad changes in the market and the trust factor of each exchange.

These results are consistent with research by professors Xiaofeng Liu, Wei Chen, and Kevin Zhu who find that token incentives are successful in attracting users and generating productive value, as well as research by professors William Cong, Ke Tang, Yanxin Wang, and Xi Zhao who investigate the effects of an airdrop on the Ethereum blockchain and find a positive effect on democratization and financial inclusion on the network.

However, there are also reasons why some airdrops may not work. If they are used too many times, they lose their “surprise” and the price of the token can get inflated (Makridis, 2022). Much like announcements from the federal reserve when changing the buying and selling of bonds can fail to have a surprise effect on market sentiment if they are used too often, airdrops can also become less effective over time. The rationale goes back to a classic debate in monetary economics about rules rather than discretion pioneered by Nobel Laureates Edward C. Prescott and Finn Kydland: monetary policy announcements based on discretion can only “work” so long as the public is sufficiently surprised by the information that they change their behavior.

Experiences with airdrops

There are many reasons to consider using airdrops, including go-to-market strategies, but one of their important benefits if implemented properly is building community. Airdrops provide a way for project owners to bring people into a community who otherwise may not have engaged with it, as well as to reward members who may be active participants and demonstrating preferred behavior. For example, last year I interviewed Gary Vaynerchuk in a Cointelegraph Magazine story and discussed his building a community around the VeeFriends NFT collection.

In fact, he announced in 2021 that every customer who bought 12 print copies of his new book, Twelve and a Half: Leveraging the Emotional Ingredients Necessary for Business Success, would also receive one mystery NFT through an airdrop to their digital wallets. While the book was interesting on its own, the novelty of a mystery NFT coupled with the success and appreciation of his even earlier VeeFriends NFTs created a significant splash and demand. In fact, Vaynerchuk received over a million pre-orders of the book within a 24-hour period!

But even closer to home is what we’re building in Living Opera, a web3 multimedia startup that is bridging the web3 and classical music communities. Together with two leading opera singers, we are passionate about producing beautiful art and empowering the artists that make it possible. That’s why we recently launched the Living Arts Foundation – a nonprofit DAO that functions as a micro-grants and educational community of practice for artists, fueled by holders of our Magic Mozart NFT collection (see our whitepaper for a summary).

Despite continued increases in giving each year, the problems are still getting worse, especially funding in the arts. Our research shows that real wages among artists have been declining over time. And that’s not even including the increased costs they incur (e.g., paying for auditions). By providing a way for micro-philanthropists to fund artists, and creating educational curricula around entrepreneurship for artists that they can go through to gain access to the micro-grants community, we are building a two-sided marketplace that generates greater value for both sides – the philanthropists see the return on their donations, and the artists gain access to funding.

Airdrops will play an important role to build community and ensure active participation among the Mozart NFT holders in the Living Arts Foundation DAO. For example, we want to provide Mozart NFT holders a chance to see my two co-founders and world-class opera singers, Soula Parassidis and Norman Reinhardt, in actual performances. We also plan on giveaways of Living Opera merchandise. Airdropping gifts will help keep DAO members excited and engaged with voting and community building events.

About Christos A.Makridis

Christos A. Makridis is the co-founder, chief operations officer, and chief technology officer for Living Opera, a web3 multimedia startup. He also holds academic appointments with Columbia University, Stanford University, University of Nicosia, and others. Christos has dual doctorates in economics and management science & engineering from Stanford University.

About Living Opera

Founded by two opera singers and an economist, Living Opera is a multimedia art-technology company that unites the classical music and blockchain communities to produce transformative content. Living Opera takes a holistic approach to life, work, and education: "living" means "full of life and vigor," and "opera" means (in Latin) "labor, effort, attention, or work." Living Opera NFT collections, such as Magic Mozart, are designed to bring the art and tech worlds together by expanding the audience of people who traditionally engage with classical music and fine art.

What Investors Should Know About Projects With a Philanthropic Component

This article was originally published in Nasdaq (with Soula Parassidis).

Don’t dismiss opportunities out of hand simply because there’s a mission to give back or do good- that’s not synonymous with high risk or failure; in fact, it could still mean explosive returns. However, certain considerations become even more vital when you’re ready to take the leap with a “heartstrings” investment

Philanthropic donations have continued to grow year-to-year, reaching $484 billion in 2021 – a 4% increase, relative to 2020. Charitable donations decline during times of economic distress and expand during booms, according to economics research. But times of distress are often when donations matter the most.

Retail investors are trained to think about return on investment and contract investment during times of economic distress. Recessions are often periods of high uncertainty and ambiguity, so sitting on cash can be a safer bet than taking even an educated bet on an investment.

However, that’s not always the best way to think about philanthropic donations; like any general advice, there are always exceptions. In this piece, we’ll look at why investing and engaging during these times can be potentially rewarding both financially, and in other important ways such as personal, social, and passion fulfillment; and we’ll look at the concerns you should keep top of mind.

First, some of the most impactful discoveries are borne during recessions. Our own recently published research in Research Policy shows that the types of inventions discovered during periods of economic distress are the more impactful and general purpose ones, rather than the marginal discoveries that are more prevalent during booms. Sometimes that is because a crisis can highlight what’s really important and direct time and financial resources to solving it, rather than getting caught up with all the momentum trading during a boom.

If a project has found a unique and creative way to solve a giant problem – whether for the world at large or even a niche industry – then the question is simply how long will it take for the project to scale. In other words, when faced with an opportunity to contribute to a “moonshot” investment, don’t worry if the conditions aren’t perfect – better to take the moonshot than wait for “ideal” conditions and miss the opportunity to make an impact.

And that logic doesn’t just apply to conventional products and services – it is also relevant for philanthropy. In fact, some of the most impactful dual-technologies were created in response to a collective social need, rather than a traditional go-to-market strategy, although unfortunately there has been a move away since the 1980s.

Furthermore, a solution to a giant social challenge will generate a ripple effect of other benefits and ultimately lead to some sort of economic gain down the road through improved community and brand. Consider, for instance, the impact that Goodwill Industries has had on the world, providing education, training, work, and practical needs for millions, while simultaneously generating over $6 billion in revenue.

Second, retail investors need to make sure they are not assuming or expecting a level or pace of commercialization that may have been taken off the table by someone integrally involved in the project for reasons that might be vital to its success. Expecting immediate financial returns in some situations is unrealistic, perhaps given the gravity of the problem or the market. 

Let’s continue with the arts as an example. While the arts and humanities received $23.5 billion of donations in 2021, artists themselves—almost across the board—have been experiencing declines in their real wage and employment opportunities, coupled with absorbing higher costs, according to our own research at Living Opera. But the problem is not a lack of funding – it’s the efficacy of each dollar spent; and though not always, this often ultimately stems from conjecture in the first place about expectations of projects timelines, horizons, and values. Why? Because of the competing two major interest groups that fund the category: Altruistic, passionate lovers of art and art institutions in it “for the love,” and those looking to make money in the Art Business.

This means of course that the sector is going to require major reform and fundamental change in the business model (which is already underway with web3 disruption, digital assets, and the rise of independent creators). But that does not happen overnight – or necessarily even in 5 years. The deterioration has been taking place for decades, so it might take a similar amount of time to truly shift the state and trajectory.

So, if retail investors get involved in an arts project for the wrong reasons, they can make demands that may undermine the efficacy of a project and perhaps the very reason it was started in the first place.

We’ve had that happen to us plenty of times in Living Opera. For example, with our launch of the Living Arts Foundation fueled by our Magic Mozart NFT collection – a nonprofit that decentralizes grantmaking in the performing arts – we’ve been asked at least once or twice by people seeking a fast return on investment to convert it more into an NFT marketplace. 

But from where we sit as technologists, economists, and passionate supporters of the opera and classical music categories- what performing artists need right now is not another NFT marketplace, but rather a community of practice containing curricula on arts entrepreneurship and grants. Another NFT marketplace might sound better to potential investors, but performing artists need access to grant opportunities and entrepreneurial skills that are vital to career flourishing. So, in the case of our project, yes- we expect it to yield an eventual monetary ROI for our investors to be sure; but utility, philanthropy, research and innovation are in the driver’s seat for our projects, while commercialization, profits and revenue are certainly along for the ride--just not at the wheel, looking to pull off at the first easy exit. This is exactly what our investors need to know—and do know as communicated by our content—and the kind of info everyone should have for similar projects.

In it for the long haul

You’re going to want to be prepared for a longer tail of potential transformative outcomes and be more hands-on for part of the ride. While there are a lot of ineffective nonprofits – perhaps too many, and that’s why we see donations rising year after year without improvements in the underlying problems that they’re trying to solve – there are also incredibly effective ones that generate social impact greater than many traditional organizations. Goodwill Industries is one such example of a non-profit that has had a profound impact for decades, achieving both financial profitability and social impact at scale. And there are many more examples, ranging from the Boy Scouts of America to St. Jude’s Children’s Research Hospital.

It’s good to move forward with these types of projects that align with your personal passions, values, interests as a human being–not just an investor. This is what will carry you through if and when the passion project takes longer to pay off, conventionally. 

About the authors

Christos A. Makridis is a research affiliate at Columbia Business School, Stanford University and the University of Nicosia, and CEO and founder of Dainamic, a startup that aims to democratize access to AI for mid and small sized banks. Greek-Canadian operatic soprano Soula Parassidis is an entrepreneur, anti-human trafficking advocate, and producer. She has appeared on stage in the world's major performance venues and is the CEO of Living Opera.

About Living Opera

Founded by two opera singers and an economist, Living Opera is a multimedia art-technology company that unites the classical music and blockchain communities to produce transformative content. Living Opera takes a holistic approach to life, work, and education: “living” means “full of life and vigor,” and “opera” means (in Latin) “labor, effort, attention, or work.” Living Opera NFT collections, such as Magic Mozart, are designed to bring the art and tech worlds together by expanding the audience of people who traditionally engage with classical music and fine art.

Should Bored Ape buyers be legally entitled to refunds?

This article was originally published in Cointelegraph.

Should people who purchase nonfungible tokens (NFT) be entitled to refunds if they decide they don’t like their digital pictures? Some Europeans are beginning to make that case under a 25-year-old law.

Unhappy buyers have claimed that their right to a refund is protected by a 1997 European Union law that requires any person or business engaged in “distance selling” — that is, buying and selling a product that is not done in person — to allow customers a 14-day grace period to return the product for a refund. But since digital goods are different, the law makes provision for the 14-day period to be waived if customers are made aware in advance.

While the interpretation of the law is going to inevitably play out in the courts, there are several important caveats to take into account, particularly given that the law was written before the ubiquity of digital goods and services. Simply put, the law was written before the emergence of the internet, let alone digital assets like NFTs, so it is much less applicable today.

Just as an example that it is not applicable to the current state of the NFT market, consider that “this Directive shall not apply to contracts” that are “concluded with telecommunications operators through the use of public payphones.” What differentiates contracts that are concluded through the use of public telephones versus through the blockchain? Nothing substantive other than the delivery mechanism, underscoring that the intent of the law was to prevent consumers from getting ripped off by sellers who were shipping physical goods that turned out to be different from what the consumer originally desired before seeing it in person.

Fundamentally, applying the directive to NFTs would pose grave consequences for patent and trademark law. Crucially, each NFT is, by definition, inherently unique, and any NFTs that get refunded and discarded inevitably imply the destruction of intangible capital. By contrast with the 1997 EU directive, shipped products are largely homogeneous, so a buyer who seeks a refund and returns it does not damage the product and prevent the seller from reselling it.

Furthermore, allowing for refunds would eliminate the very purpose of rarity in profile picture projects — potentially eliminating their value altogether. Consider the example of Bored Ape Yacht Club NFTs. The highest-value BAYC purchase was for $3.4 million spent on #8817 — which was minted for roughly $1,000 in April 2021. Its rarity is partially a product of its “gold fur,” a trait held by less than 1% of BAYC NFTs on the market.

Of course, if buyers can simply request a refund in the event that they do not like the NFTs they randomly receive during the minting process, it’s safe to say that such “1% NFTs” will become much more common, as buyers will simply keep seeking refunds until they obtain the NFTs they want. If you follow the logical consequences of that thinking, there will no longer be rare NFTs in any corner of the market.

The reality is that the law around digital assets has not kept up with the technology, so there is naturally a temptation to rely on outdated, irrelevant regulatory guidance, for better or worse. But if we keep pressing on and companies innovate and serve consumers in good faith, we can converge to a new equilibrium that generates value on all sides of the equation.

Christos Makridis is the chief operating officer and co-founder of Living Opera, a Web3 multimedia startup anchored in classical music, and a research affiliate at Columbia Business School and Stanford University. He also holds doctorate degrees in economics and management science and engineering from Stanford University.

Four principles for crypto regulation

This article was originally published in The Hill with Jay Jog.

There was a substantial surge in the market capitalization of cryptocurrencies recently, reaching nearly $3 trillion in 2021 but collapsing to under $1 trillion by the end of 2022. We also witnessed fraudulent behavior by many bad actors, from Terra (Luna) to FTX.

Any asset has fluctuations, and the fraudulent behavior was not due to an inherent flaw in distributed ledger technologies (DLTs) but rather bad governance and an absence of a predictable and reasonable regulatory framework. In fact, nearly all the fraudulent behavior took place offshore, at least in part because most cryptocurrency companies have viewed the U.S. regulatory framework as too confusing or ambiguous to set up shop.

Distributed ledger technologies, often referred to as “web3” (or the new generation of the internet for short), use the blockchain to provide ways for users to access, record and validate activity digitally. Although the process is not always fully decentralized, or “permissionless,” blockchain is an enabling technology for collaboration and economic activity often among many, geographically disparate people. Web3 tools include cryptocurrencies.

The expansion of DLT into all areas of the economy is inevitable because it is simply better at doing the job than existing centralized ledger technologies, including in financial services. But the regulatory environment will influence whether the U.S. can take advantage of the technology to its fullest — or whether we sit idly by as other countries, such as the United Arab Emirates and Singapore, lead the charge in attracting investment, entrepreneurs and technologists.

We believe there are four important issues that must be reflected in regulation.

1. Impose licensing requirements on centralized cryptocurrency exchanges and other digital currency services that behave like banks.

Just because a company trades cryptocurrencies does not mean that it should be exempt from financial regulation. If the company serves as a custodian of consumers’ assets, and it lends those deposits to others, it is effectively operating as a bank and should be subject to similar regulations that banks are subject to based on their size and asset class. Sadly, many companies in this space have sought regulatory arbitrage by operating outside of the U.S. because of regulatory ambiguity and the opportunity to arbitrage on it. That’s exactly what happened with FTX, but what’s worse is that then-CEO Sam Bankman-Fried did so in plain sight and conversation directly with regulators that were supposed to be watchdogs.

What does adherence to regulatory requirements look like? For starters, it could involve capital requirements of the form laid out in the recent current and expected credit loss framework that requires that banks use “reasonable and supportable” forecasts to derive the amount of capital reserves they need to hold out in case of adverse economic events. Or it could involve basic cybersecurity and financial security regulatory requirements, like SOC 2 compliance.

Centralized crypto exchanges need to consider the effect that their failure has on the system, and simply arbitraging and evading regulation that already exists and that they should be under can provide the proper guard rails to mitigate future catastrophic outcomes.

2. Provide regulatory clarity about the specifics of legal web3 behavior.

Sadly, there is no single source that specifies the legal requirements for web3 builders. And, in some cases, the regulatory guidance is conflicting. Most notably, the Department of Justice has referred to tokens as commodities in its enforcement actions, whereas the Securities and Exchange Commission (SEC) has called them securities and enforced them as such. Creating guideposts for legal activity will promote not only greater innovation since more companies will build within the U.S. regulatory sandbox, but also more consumer protection since enforcement will have more legal precedent and the bright line for legal activity will be clearer.

Clear and consistent regulations are essential for companies operating in the cryptocurrency space. Regulators should work to create regulations that are easy for companies to understand and follow and that do not create unnecessary barriers to entry. An example of clear and consistent regulations is the New York State Department of Financial Services issuing a “BitLicense” specifically for companies operating in the cryptocurrency space, which sets clear and consistent requirements for companies to meet to operate in the state.

The U.S. has the luxury of experimenting with different approaches because of the varying state-level capabilities. For example, Wyoming passed legislation that recognizes certain types of cryptocurrencies and blockchain tokens as legal property and created a new type of bank specifically for cryptocurrency companies, which allows them to operate in a more permissive regulatory environment. Similarly, Tennessee passed legislation that recognizes decentralized autonomous organizations (DAOs) – a new form of governance that leverages the use of smart contracts and tokens – as limited liability corporations, which provides additional liability coverage for DAO members.

3. Harmonize international standards.

Because of a rigid and stringent regulatory framework, many web3 entrepreneurs and companies locate outside the U.S. for business and residence. Much like developed countries meet to coordinate economic policy through the G20 annual meetings, and the OECD has published international guidelines around the ethical use of artificial intelligence, U.S. regulatory agencies should cooperate with others to identify a common set of principles and standards.

Although many look to the SEC for guidance, they too can learn a lot from international counterparts. For example, they could work with the European Securities and Markets Authority (ESMA) to share information and coordinate regulatory efforts to combat fraud and protect investors in both regions. Similarly, the U.S. could learn from best practices in other countries, including Switzerland’s regulatory sandbox, which not only provides much more clarity on the distinction between security tokens and their counterparts, but also safety in piloting a token as long as the amount raised and transacted upon is below 1 million Swiss francs.

4. Foster dialogue with researchers and industry practitioners.

The cryptocurrency industry is rapidly evolving, and it’s important for regulators to stay informed about the latest developments and trends. Unfortunately, regulation and even the hiring process in the federal government does not yet move fast enough to accommodate these trends, so it is important for regulatory bodies to participate in the web3 community and promote dialogue with researchers and practitioners. For example, the U.S. Commodity Futures Trading Commission (CFTC) could regularly hold public meetings with industry leaders, academics and other experts to discuss the latest developments and trends in the cryptocurrency space.

Fortunately, there are many platforms for facilitating these dialogues. For example, the Center for Digital Finance and Transformation at Columbia University frequently brings industry practitioners and academics together, and sometimes helps convene and participates with federal and state policymakers. Policymakers, especially in the SEC, CFTC and DOJ, should seek opportunities to work with and delve into details with practitioners and researchers.

These recommendations are certainly not exhaustive, but they reflect a general set of governing principles that would improve U.S. economic and social competitiveness, while simultaneously mitigating against the risk of tail outcomes, like those observed over the past year in the crypto community. Most importantly, we encourage regulators not to take a one-size-fits-all approach to web3 regulation, but to understand the context and allow for experimentation and dialogue.

Christos A. Makridis is a research affiliate at Columbia Business School, Stanford University and the University of Nicosia, and CEO and founder of Dainamic, a startup that aims to democratize access to AI for mid and small sized banks. Jay Jog is co-founder of Sei Labs, the first sector specific L1 blockchain specialized for trading. He was previously an engineering lead at Robinhood.

Educational Research Made Accessible

This article was originally published in City Journal with Goldy Brown.

“Equity” has become a major issue in education policy, but it is a politicized, ambiguous word. Does the concept mean that all outcomes must be equal, or do its proponents simply endorse equal opportunity? The policies that have been advanced in equity’s name are generally anchored in the dubious premise that different outcomes stem necessarily from injustice.

Requiring schools to right the wrongs of the past puts an impossible burden on the educational system. Other institutions share that responsibility, from families and philanthropic organizations to civil society and political actors. The world of education, by contrast, needs to focus on helping students learn effectively and find success in life.

Our new book, The Economics of Equity in K-12 Education, recommends specific changes to education policy and programming. We endorse strategies from the scientific literature that could improve the life chances of American students. Social scientists have conducted a vast amount of empirical research in education policy and the economics of education. Our aim is to make this research accessible for interested readers and policymakers, who can use scientifically informed best practices on the job.

Student achievement has continued to deteriorate, even as education funding grows. In fact, reading and math scores recently hit a 30-year low, according to the 2022 National Assessment Education Progress (NAEP) exam results, while federal funding for education grew to nearly $90 billion. These alarming results provide a warning: our emerging workforce is less prepared to handle the increasingly complex demands of the future. Left unchanged, that dynamic will accelerate the inequalities that educational-equity proponents have decried. Any conversation about improving student outcomes should consider how children accumulate skills and cultivate their abilities, also known as “human capital.”

Without implementing evidence-based priorities, recent idealistic proposals may treat a symptom without addressing the cause—making them ineffective and possibly counterproductive. The proposals in our book are for state and local governments, educational leaders, and anyone interested in the American education system’s top priority: to supply students with the necessary skills to participate, flourish, and grow in the American economy.

Christos A. Makridis is a research affiliate at Stanford University and other institutions. Goldy Brown III is an associate professor in Whitworth University’s graduate school of education.

Mozart’s Ghost

This article was originally published in The Return.

I am deeply passionate about promoting human flourishing: people are created with a unique purpose and have so much potential, but so many fundamentally fail to succeed. That wasted potential not only harms the person who failed to live out their calling, but also fails to bless the many people who could have benefited from their gift.

But these are not new ideas – we all grapple with the importance of calling and see people living it out, and (many) others who are not. And perhaps that wasted potential is most evident in the performing arts, where our internal surveys in Living Opera show that over half of performing artists take up a job outside the music sector – often a low-wage job in retail or customer service – to finance their music career. That’s especially damaging, as my research with Jonathan Kuuskoski at the University of Michigan shows, because their hearts are not in these second full-time jobs, and they earn lower wages. Meanwhile, these artists are still burdened with the high college debt that they paid for with their music degree without any practical training.

So, what can we do about it? Three years ago, I got to know two of the world’s leading opera singers, Soula Parassidis and Norman Reinhardt, who have become my best friends. They launched Living Opera in 2019 to provide performing artists with educational content and lessons learned about what it takes to thrive in the business. Nearly two years ago, I joined as a co-founder and led our rebranding as a web3 multimedia startup using blockchain technology to promote and produce transformative experiences through classical music.

On September 30, 2022, we had a soft launch of our first major NFT collection called Magic Mozart, consisting of 1,791 initial pieces each with a portrait of Mozart containing different elements from his final opera, The Magic Flute. It also comes with a personalized musical minuet based on Mozart’s development of the first widespread generative art game. (Our launch date was specific since The Magic Flute premiered on September 30, 1791 in Vienna, Austria!) 

The discovery that Mozart was a pioneer of generative art – which we talk about in detail here – served as the inspiration we needed to get involved in web3 without just jumping on the bandwagon when NFTs and generative art were popular. Indeed, the discovery highlights a throughline between one of the oldest art forms (opera) and one of the most recent social and technological fads (generative art).

But the artistic element of the collection is only the front end: we also just launched the Living Arts Foundation – a nonprofit decentralized autonomous organization (DAO) that will function as a decentralized grantmaking platform for helping and empowering artists. The novelty of the DAO is that it allows us to create stronger incentives on both sides of the “market.” 

Here’s how it works. Artists – whether already part of the Living Opera community or not – can take our free arts entrepreneurship curricula. If they complete it, they earn a digital credential that lives on the blockchain. That digital credential gives them access to our grantmaking platform that allows artists to post short funding proposals detailing their requested amount, how they plan on using it, and why it is important. Then, the Magic Mozart NFT holders, or the micro-philanthropists, have access to the platform and can view and vote on proposals. Once a threshold is hit on a proposal, the artist is funded through a direct transfer to their digital wallet. Artists then record a video documenting their experience resulting from the funds and share it on social media. A line of communication opens up between the micro-philanthropist who voted for the artist, and the artist, with the ability to keep in touch and share.

This approach strengthens incentives on both sides. Furthermore, the micro-grants community provides an organic and experiential way of imparting arts entrepreneurship know-how, including presenting ideas and building accountability around their execution. And we also are helping onboard artists onto web3. While we’re only at the beginning of this journey, we are excited to have Living Arts Foundation formally filed with provisional nonprofit status and are in the process of selling more of the collection and building the technology stack for the platform.

The DAO offers a wide array of advantages, notably more accountability and transparency compared to the norm in the non-profit space. Somehow, funding for non-profits continues to grow, yet the challenges they are trying to solve only worsen. While there are some great non-profits, many are burdened by fraudulent behavior, waste, and ineffectiveness. We believe that decentralizing grantmaking is a tool within the non-profit realm and we have a community of performing artists to pilot it on – and onboard them onto web3!

We have much more to learn and test in the journey ahead of us, but we believe that the best is yet to come and that classical music plays a role in it. Moreover, we see blockchain technology as a complement to human ingenuity – not a substitute.

Putting NFTs in perspective 

We might be tempted to look at NFTs as a speculative boom-and-bust market. Although some collections, such as CryptoPunks and Bored Ape Yacht Club, garnered international attention in 2020 and 2021, these profile picture projects (PFPs) were simply status symbols – not art.

One of the worst parts about this era of trading activity was the fraud and whitewashing of NFTs. For example, a project might launch and plan among a group of friends to buy up the NFTs to give the impression that the collection “sold out,” thereby driving up the perceived value to less savvy or unfamiliar market participants. Perhaps even more deceptive is when a founder would create multiple digital wallets and buy their own collection from a different address to pretend there is interest and sales when the activity was just a show.

But these boom-and-bust dynamics are not unique to NFTs. For example, the run-up of house prices from 2003 to 2006 in the United States, right before the collapse in 2008 to 2009, was another example of what can happen when there is speculative trading on assets. Although the explanations for the financial crisis are still subject to debate, what is clear is that many homeowners who entered the market without a steady income, received a loan based on financial models that simply assumed house prices would continue to appreciate. 

My research on foreclosures during the financial crisis finds that these loans were often adjustable-rate mortgages that had two or three years of fixed interest rates, but would experience a discontinuous change (mostly a jump) in their interest rate subsequently.

The price of any asset is a function of its intrinsic value and the expectation of future cash flow. If expectations don’t align with reality, then the “economic laws of gravity” eventually kick in and the asset price will decline. That is also what happened since the boom in the NFT and crypto market since 2021 – the low-quality projects have plummeted and, while the web3 market has taken a hit (much like the market as a whole), high-quality projects have survived.

The importance of the arts and the role of web3

Few readers would disagree with the statement that the arts matter. Clearly we care about how we dress, what furniture looks like in our residence, the rhythm and lyrics of music, and so on.

Simply put, the arts and culture sectors overwhelmingly influence peoples’ outlook – for better or worse. Much of the viral music does not point to what is good, beautiful, and true, but instead to fairly wicked and shameful behavior that some are trying to normalize. But when people listen to it on repeat – and sometimes not of their own choosing (e.g., if it is the default track in a store), they cannot help but get affected by the messaging.

But sadly, rather than rewarding skilled artists, many people have retreated from the arts all together. Yes, some pretty weird operas get cast, but some pretty weird startups launch. Does that mean we retreat from entrepreneurship? Or do we engage and start contributing to the culture we want to see?

The classical music community – and specifically the community we’ve cultivated in Living Opera – is a highly trained community. These are people who speak multiple languages, can read music, have trained their voice, and can perform and act in front of audiences. These are not the random pop artist who goes viral because of a deal with a record label and a lot of auto tuning that goes on in the background – it’s live music and performance at a high caliber.

So something has to change. Fortunately, web3 provides a catalyst to change the incentives. Now, micro-philanthropists have a more transparent way of contributing, and artists have the tools to build their fan base, rather than rely on institutions that may not have their interests, or those of society, at heart. DAOs – and what we look forward to doing in the Living Arts Foundation – offer new ways to coordinate activity among potentially geographically disparate people connected by a shared objective and community. 

It’s Not Too Late to Prepare for the Next Housing Crisis

This article was originally published in Barron’s with Mark Calabria.

The housing cycle lives. Many economic models predict a housing crisis at some point in 2023 or 2024. The combination of high consumer debt, a slowing labor market, and inflated housing prices has created a ticking time bomb. It will explode – we just don’t know exactly when. But it is never too late to prepare. Luckily, policy makers can look back on past recessions to help refine approaches to mitigating the damage

Yes, some of the worst mortgage products behind the 2008 crisis are history. Unfortunately, they have been replaced with other troubling practices, such as record debt burdens among borrowers, as measured by debt-to-income. Significant numbers of recent borrowers are also already underwater on their mortgage or at risk of becoming so. Appropriately provided loan relief during the pandemic has also inflated borrower credit scores, making it significantly harder for lenders to accurately judge risk.

The federal state governments tried several strategies to mitigate the 2008 crisis, including the Home Affordable Modification Program. Those approaches were complex, convoluted, and often ineffective. New approaches were developed in 2020, in response to Covid, that can better serve both borrowers and the taxpayer. The means-testing of assistance in the 2008 crisis inadvertently resulted in massive disincentives for work. Delinquent borrowers often lost 31 cents of their mortgage assistance for every additional dollar earned. That contributed to one of the slowest job recoveries and biggest declines in homeownership in history.

In contrast, pandemic forbearance was based on time, not income. Borrowers were given a bridge to their expected unemployment insurance benefits, which can take weeks, if not months, to arrive. 

Moving away from means-testing also greatly reduced the paperwork required of both borrowers and lenders. Pandemic mortgage assistance provided through Fannie Mae and Freddie Mac assisted almost 3 million borrowers, twice that assisted under HAMP. Perhaps more importantly, the pandemic programs were set up six times faster. While HAMP helped mitigate the severity of the financial crisis on consumers, it only reached a third of its targeted indebted households because it overlooked important design elements in mortgage finance.

Speed and ease of use in government programs can be, and often is, an invitation to fraud and abuse. This was first addressed by requiring that any missed mortgage payments be repaid. Payments were paused, not forgiven, reducing the incentive to game the system.

Assistance was also paid for within the mortgage market, not by the taxpayer. The HAMP program cost well over $20 billion, not even including a $25 billion settlement with lenders or the $10 billion hardest-hit-fund. In contrast, pandemic assistance provided through Fannie and Freddie was largely paid for with a modest fee on high-income refinancings. The support provided to the mortgage market was paid for in the mortgage market, as it should be. Since the assistance was provided in a budget neutral manner, it also did not add to the inflationary pressures created by other pandemic assistance programs.

Policy matters because it not only directly shapes incentives and economic activity, but also indirectly influences consumer and homeowner expectations. Newly-released research from one of us, using data from the Federal Housing Finance Agency over the past three years, shows that homeowners who are more optimistic about the housing market at the time of their loan origination are roughly 2 percentage points more likely to enter forbearance compared with those who anticipated the housing market will stay the same. That’s significant given that the average rate of forbearance among homeowners was 4% in 2020.

But it’s not necessarily a bad thing – these homeowners who entered forbearance were likely more determined to get back on track with their payments, rather than lose it all and eventually get foreclosed upon. In fact, researchers from the Urban Institute released a report titled “normalizing forbearance,” suggesting that there should be expanded provisions that allow homeowners to share the requisite documentation about extreme events to their servicer and delay payments. In this sense, policy that promotes optimism also indirectly influences the efficacy of loan renegotiation.

There were comparable results among homeowners who anticipate future unemployment and income declines. Crucially, all these results control for a wide array of demographic factors, as well as other individual characteristics, such as credit scores and attitudes about risk.

The tight link between borrower expectations about the housing market at the time of origination and the likelihood of entering forbearance points to an important result: Homeowner attitudes matter and shape the decisions that ultimately might precipitate situations that require federal intervention. That means policy makers should not think about intervention from a static perspective, but rather a dynamic one where the choices they make today have consequences for how consumers and firms behave in the future and, in turn, impact the economy as a whole.

Christos A. Makridis is a research affiliate at Columbia Business School and Stanford University, and the founder/CEO of Dainamic, a financial technology startup. He holds dual doctorates and masters in economics and management science & engineering from Stanford University.

Mark Calabria is the former Director of the Federal Housing Finance Agency, and author of the forthcoming book, Shelter from the Storm: How a COVID Mortgage Meltdown was Averted.

A Biblical Perspective on Web3 – Crypto, NFTs, and the Metaverse

This article was originally published in Faith Driven Investor.

Technology has always had the potential of advancing human flourishing, or promoting wicked agendas. Technology’s effects depend crucially on the heart and capabilities behind the people wielding it. The rapid proliferation of web3 technologies – fungible tokens (“crypto”), non-fungible tokens (NFTs), and the metaverse – is no exception. And now we have a new opportunity to influence the new frontier of the internet and demonstrate the heart of God to a world that is crying out for signs, wonders, and miracles. To do so, we need to acquire knowledge about web3, for it is written in Hosea 4:6 that “My people are destroyed for lack of knowledge.”

People often refer to web1 as the initial revolution of the internet where content became digital and web2 as a comparable transformation where content was sharable and personalized. But now we are at the precipice of a new frontier where we can own digital assets and the ownership structure is decentralized on distributed ledger technologies (DLTs). That means that the consensus mechanism – or the way that people decide what activity is recorded on the blockchain – is decentralized, rather than centralized and decided by a single organization or sub-group within the organization.

While there are certainly applications of web3 technologies that are concerning, that should not stop us from seeking the Lord about His heart about the frontier. We cannot be a church body that flees from innovation. Rather, we must spend the time in prayer, intercession, and communion to figure out how the Lord wants us to use innovation to be salt and light. 

Over the past few years, and especially the past two, I have become an active practitioner and student over web3 technologies, authoring over 25 articles in the press and two peer-reviewed scientific papers. I have also launched a web3 multimedia startup called Living Opera, which produces digital assets (e.g., NFTs) anchored in classical music, especially opera. 

Admittedly, there is so much more to continue learning, but the journey has given me perspective on the types of web3 use-cases that are aligned with God’s heart, and we should embrace.

1. Cryptocurrency for delivering secure payment to the persecuted church

Many Christians, among other religious minorities, face such incredible political persecution in some countries that there is no way for them to maintain a traditional bank account. However, if they could access a phone with an internet connection, they could be gifted a digital wallet that receives airdrops of tokens from support groups and these could be converted into dollars or other fiat currencies if needed through standard marketplaces or even decentralized marketplaces, like Uniswap. Furthermore, a digital wallet would allow the persecuted church to access international capital and digital labor markets even if the area that they live in is hostile.

2. Remunerating content creators

Content creators, including artists, are taken advantage of by large technology and media companies. Many people overlook the reality that we are the product in the web2 environment. Technology companies, such as Google or Meta, own our data and they make billions off it. But web3 tools are fundamentally about authentication and ownership. In Living Opera, we view NFTs as a tool for remunerating artists: when they “mint” an NFT, that becomes a token that their fans can purchase and receive services (e.g., video or audio files). NFTs, therefore, provide a direct line between the content creator and their fans on a decentralized network, meaning that the NFT lives forever, and no centralized entity can decide to censor or remove it. Of course, there are still many quirks that need to get resolved, especially relating to enforcement of property rights, but the reality still stands that NFTs are the key to remunerating creators of all shapes and sizes.

3. Reduction in physical barriers

The metaverse allows for immersive experiences is virtual spaces. Although the applications of the metaverse today are often crude, they point to such a wide array of possibilities. Imagine getting baptized or visiting the Sistine Chapel in the metaverse. God is the origin of all creativity, and He works without limits; Jesus is the word made flesh. That means mountains must obey the sound of His voice (and thoughts), as do the waters and every living creature. Embracing the metaverse as a new frontier to build in opens the floodgates for creative expressions of His character. 

Christos A. Makridis is an entrepreneur, professor, and policy adviser. Among other responsibilities, he serves as the CTO/COO and co-founder of Living Opera, a web3 multimedia startup. He holds doctorates in economics and management science & engineering from Stanford University.

‘Deflation’ is a dumb way to approach tokenomics… and other sacred cows

This article was originally published in Cointelegraph Magazine.

Having taught and studied token economics at the University of Nicosia, I’ve found that students often have some decidedly muddled beliefs about how what tokens are and how business and token economies work.

Unlike microeconomics and macroeconomics — which are based on decades of research, debate and inquiry that have produced some commonly accepted principles — tokenomics is a much newer field of study full of people without economics experience.

There are many self-professed “experts” who provide advice that sounds fine and is often even sensible in theory but that fails in practice.

When designing a token economy, what you really want to focus on is:

• Is the economic strategy repeatable?

• Is there some way of diagnosing when and how to deploy the strategy for your token and the estimated value of doing so?

• Is there research that validates the strategy so you can talk about it more credibly?

Deflationary tokens

Take, for instance, the idea held dear by many that deflationary tokens have an absolute advantage. “Deflationary” means an ever decreasing supply of tokens, which in theory increases the purchasing power and value of each remaining token. “Inflationary” means the opposite: an ever increasing supply which, in theory, reduces the value of each token.

You’ll hear commentary along the lines of “how deflationary tokens empower a crypto project’s value” from blockchain pundits such as Tanvir Zafar celebrating the limited supply of Bitcoin and the deflationary supply of Ether following the Merge.

It’s an idea even propagated by a widely recognized community for tokenomics best practices, the Tokenomics DAO, which has a “Tokenomics 101” page that states: 

People who understand Bitcoin will see great value in the fact that it is so simple, elegant and has a limited total supply. Bitcoin’s tokenomics have created digital scarcity that is enforced (through token incentives) by the network.”

But while many token designs emphasize deflation, “they are not optimally designed,” according to Will Cong, the Rudd family professor of management and faculty director of the FinTech at Cornell initiative at Cornell University.

Taking their cues instead from tweets and community ideologies, “many platforms also can’t even write down a logical objective for their token supply and allocation policy,” Cong continues.

Focusing on whether a token is inflationary or deflationary shifts attention to second-order issues. The price of a token can always adjust to meet supply, and each token can be arbitrarily fractionalized, so a fixed supply is a moot point if the token does not provide value to end-users. 

“In fact, some inflationary coins with robust burn rates may regularly switch between being inflationary or deflationary, like Solana,” explains Eloisa Marchesoni, a tokenomics consultant. “The inflation rate started at 10% and will reach its final rate of 1.5% in about 10 years, but there are also deflationary features, like a percentage of each transaction fee getting burned.”

With enough transactions per second, the transaction fees that are burned could be even higher than 1.5% per year if many transactions occur, which would bring Solana’s inflation rate to 0% and make it deflationary in the long run.”

Token price falls and deflation

Although cryptocurrencies behave very differently than traditional asset classes — according to research by professors Yukun Liu and Aleh Tsyvinski — they are heavily influenced by momentum and market size. In other words, investor sentiment and the number of users on a platform are significant predictors of cryptocurrency returns and volatility.

Fluctuations in the valuation of traditional asset classes may not have a direct effect on crypto, but they can indirectly affect it through spillover effects. For example, changes in interest rates will dampen the risk appetite of investors who are heavily exposed to sectors like real estate.

In this sense, even if a token has deflationary properties, a common macro shock that stifles aggregate demand renders these deflationary properties less useful since the decline in demand lowers the price of the tokens, and as a result, they cannot buy as much.

That said, in general, the cryptocurrencies with the highest market cap are also the most resilient to the current global recession, so we are mainly talking about Bitcoin and Ether.

Novelty tokenomics

Many tokens with novel tokenomics have risen with transient social media momentum but subsequently collapsed as the fads passed.

“SafeMoon relied on heavy selling fees and deflationary mechanics to convince holders that the price would go up endlessly even though the protocol never actually identified the problem it was actually solving,” says Eric Waisanen, chief financial officer of Phi Labs Global.

“Similarly, Olympus DAO inflated their OHM token in accordance with its price, even advertising (3,3), a misrepresentation of simple game theory, which told holders that if none of them sold, they’d all get rich.”

Another big shortcoming of tokenomics strategies is their emphasis on holders staking their tokens to earn a high yield. A large yield that lasts for a day, or even a month, is not helpful for consumers and investors who take the long view. Instead, it attracts the wrong crowd.

“The use of staking options to lure extractive users into the project usually does not end up well, causing volatility or the risk of market prices and token price fluctuations, which will stress the whole tokenomics and may end up breaking it if not adequately tested already with simulations under extreme conditions,” Marchesoni explains.

Take, for instance, Helium, a project that uses open-source technologies to create a decentralized and trustless wireless infrastructure. Its tokenomics strategy offers people the possibility of becoming a validator by staking at least 10,000 of its native HNT token, but those who do risk significant volatility by locking up their tokens for months — perfectly demonstrated by the fact its price went from over $50 to $2 within the space of approximately one year. 

Other projects — such as the business-focused VeChain ecosystem, which specializes in supply chain tracking – have endeavored to address the volatility in token prices by creating two separate tokens. The first, VTHO, is used to pay for network access and deals with the predictable component of supply and demand for the product or service. The other, VET, serves as a value-transfer medium, with VET stakers “generating” VTHO.

What APR is too high?

While proof-of-stake protocols such as Ethereum rightly incentivize staking because it secures the network, the emphasis can get misplaced the further down the line you go. 

“Now we’re seeing inflation rates well over 20%. Evmos, an EVM-compatible chain in the Cosmos ecosystem, currently has a 158% APR for staking. Similarly, layer-2s are giving staking rewards just for holding a token without having a blockchain to secure,” Waisanen says. 

These “APRs” for holders are misleading because the supply of the tokens continues to grow, but the liquidity of the token is constant, so these APRs are not sustainable.

Moreover, when you see high yields, you have to ask yourself how they are sustainable. Ethereum co-founder Vitalik Buterin summed it up best on Twitter during 2020’s DeFi “yield farming” craze, stating:

Honestly I think we emphasize flashy DeFi things that give you fancy high interest rates way too much. Interest rates significantly higher than what you can get in traditional finance are inherently either temporary arbitrage opportunities or come with unstated risks attached.” 

While these incentives have been abused, staking can be important for securing a network and ensuring price stability. 

“Too much emphasis on tokenomics has been placed on generating returns for early adopters and users of tokens rather than driving utility values,” says Gordon Liao, chief economist at Circle.

“In this deep crypto winter, the sentiments around tokens have entirely shifted. Even VCs are starting to place more weight on the equity components rather than the token component when considering new investments. Some protocols have even opted to airdrop USDC instead of their protocol-specific tokens.”

Crypto airdrops

Some projects have turned to airdropping users with tokens for marketing purposes. And while my research suggests that airdrops, on average, have a positive effect on market capitalization and volume growth, how the airdrop is done also matters. 

For example, those that use bounties – or establish requirements that involve boosting and posting on social media to claim the airdrop – tend to perform worse. Airdrops on decentralized exchanges and those that involve governance tokens tend to perform better.

“Uniswap and Ethereum Name Service launched successful airdrops where the greedy users were converted into active members of the community, thanks to the great game-theoretic model that these projects had put in place,” says Marchesoni.

There was great turmoil on Sept. 17, 2020 when Uniswap airdropped its UNI token, but it was also only a matter of time until most users cashed out. But over two years later, there is still a group of dedicated UNI holders, and tokens are still being claimed today. 

Uniswap remains the leading decentralized exchange, and its UNI token provides governance rights to those willing to get involved. The Ethereum Name Service airdrop was also fairly successful, turning many recipients into active members of the community thanks to its game-theoretic approach to the airdrop.

Admittedly, however, there have also been many failed attempts at airdrops, including the most recent APT airdrop by buzzy project Aptos, set up by some of Meta’s former Diem team. It airdropped between $200 million and $260 million in tokens, but when news of FTX hit – with FTX Ventures co-leading its round of funding – the momentum dried up, and people began to sell the token while they had a chance. As in comedy, good timing is essential, and projects need to recognize the broader economic environment that they’re operating under, who they accept capital from, and which blockchain they build on. 

Are crypto tokens like stocks?

A final misconception is that tokens are equivalent to stocks. While governance tokens or even NFTs can appear to inherit similar features as stocks — such as governance rights or dividends — most have not.

“The vast majority of NFT art projects […] convey no actual ownership for the underlying content,” according to Alex Thorn, Galaxy Digital’s head of research. There is nothing stopping nonfungible tokens from conferring greater rights and benefits, but collections have historically not been designed as such. Similarly, DAO governance tokens can provide dividends from project revenue, but many tokens, including Uniswap’s and Optimism’s, do not. 

Professors Cong, Ye Li, and Wang have shown in their research how tokens can solve important principal-agent problems, particularly for startups, but the reality remains that many tokens are receiving valuations commensurate with corporate stocks, which is not sustainable.

Token utility

Many projects should ask whether they need a token in the first place. Even if they do, they often struggle to articulate why. Indeed, a Web3 organization can easily exist without a token. For example, OpenSea and Rarible are both NFT marketplaces, but Rarible has a token and OpenSea does not. The answer really depends on the organizational objectives and strategy.

“Because the incentives for launching a new token are so high, there has been a proliferation of tokens. If they were to take a step back, most founders would quickly realize that they do not actually need a new token and that building on an existing crypto ecosystem would be a much more sustainable choice in the long run,” says Christian Catalini, founder of the MIT Cryptoeconomics Lab. “To date, only a handful of networks like Bitcoin and Ethereum have proven the value and usefulness of their native token.”

Projects that have a native token need to be thoughtful about anchoring its price in real assets. Some stablecoins, for example, hold reserves in fiat currency to hedge against the volatility of other crypto assets. While there is an active debate about the composition of reserves and how to signal proof of reserves, some collateralization is important for token price stability. In the absence of some stable collateral, a shock to the system can lead to the collapse of a token. The collapse of the Terra ecosystem and the role that FTT played in the fall of FTX are instructive.

Catalini commented that: “In the summer of 2021, we wrote a paper outlining the key weaknesses of algorithmic stablecoins, and how they inevitably lead to death spirals. The paper and insights were widely shared with regulators, academics, & industry participants well before the Terra/Luna meltdown. Sadly, the structure of the FTT token and how it was used as collateral suffered from the same fatal flaws.” Here, the “collateral” for both Terra and FTX was tied up in their own native tokens, which collapsed in price too.

Why tokenomics is important

To be sure, tokens provide a handful of advantages that traditional systems do not provide, but it is important to know when and why. First, having a token that is native to a blockchain provides a common system of account that reduces the probability that assets and liabilities will be mismatched in different units of account. And since native tokens can be linked directly to the history of activity on a blockchain, they provide a trustless mechanism for facilitating exchange that is insulated from the fluctuations in other asset prices in the economy.

Such benefits are especially important for creating markets over areas that may not have had a price mechanism rationing supply and demand. For example, there is a lot of optimism that tokens could help create a market for credibly trading energy or emissions credits. Existing implementations of emissions trading have been challenged by compliance costs and liquidity, which tokens could help counteract by providing a common and credible unit of account.

Second, tokens can help secure credible commitments on both sides of a trade. Although the use cases of smart contracts are still limited and complex rules and contingencies have yet to be fully implemented, they reduce the risk of either side reneging, according to Cong, Li and Wang.

Consider an entrepreneur who distributes tokens to investors for an innovative new blockchain. Insofar as the founder succeeds, there is much less chance to cheat or mislead the investors since the tokens are fundamentally tied to the intellectual property and technology stack of the blockchain.

Third, tokens can reduce transaction costs and bring together heterogeneous buyers and sellers on a platform built around a specific economic transaction, according to additional research by Cong, Li and Wang. In other words, they provide a measurement tool for differentiated buyers and sellers to coordinate around shared perceptions of value.

For example, consider the Akash Network in the Cosmos ecosystem – a cloud computing provider with a live service offering a decentralized alternative to Amazon Web Services and Google Cloud. “Even in a declining market, demand for Akash services is growing because of the security and price advantages decentralized compute offers,” says Lex Avellino, founder and chief marketing officer of Passage — a metaverse platform that’s also on Cosmos.

“That’s where the value comes from, regardless of token sentiment […] Web3 builders need to address traditional market concerns of value and demand before speculative tokenomic systems,” he says. Although transactions could be completed with fiat currency, tokens provide a platform-specific tool to conduct economic activity.

Further study

Academic institutions are beginning to offer curricula on the economics of distributed ledger technologies, including crypto, although the curricula are still extremely nascent. The University of Nicosia, for example, was one of the leaders in the launch of a master’s program on blockchain and digital currency. Select classes at other leading institutions exist, including “Decentralized Finance: The Future of Finance” — a set of four courses taught by professor Campbell Harvey at Duke University — and a digital finance seminar series led by Agostino Capponi at the Columbia University Center for Digital Finance and Technologies. 

Much more work remains to be done in educating people about the economics of tokens. Crucially, entrepreneurs and participants in the sector should view tokenomics as a mixture of economics, finance and marketing, drawing on established best practices and theories, rather than trying to invent new ones that have already been shown risky or ineffective.

The Case for Classical Music NFTs

This article was originally published in Right Click Save (with Soula Parassidis).

It may surprise you that roughly $1.2 billion of NFT sales have so far involved music NFTs. But given its importance to the prehistory of generative art, classical music is yet to realize its market potential in the NFT space. Aside from isolated examples, the classical music industry remains behind the curve, partly due to repeated COVID-19 lockdowns that have forced musicians to find novel solutions to the lack of live recitals. Sadly, a number of studies show that classical musicians have suffered disproportionately in their mental health over the course of the pandemic. While recent data reveals that, between 2019 and 2020, the US arts economy shrank at nearly twice the rate of the economy as a whole, with a 40% decline in motion picture and video production, performing arts presenting, and performing arts companies. 

As we pointed out in our recent whitepaper, in the US at least, artists have been earning below the national average income despite higher levels of educational attainment. Of course, the pandemic also catalyzed an NFT explosion that stands to level the playing field by allowing creators across the arts to build their own markets based on their skills and followings. The most recent available data shows that classical music streaming revenue more than doubled between 2016 and 2018 to $140.8 million worldwide. This proves that classical music has a future as a digital product. What needs to change is how musicians are compensated. By cutting out (or at least eroding the hegemony of) traditional publishers, NFTs allow creators to connect directly with their fans. Platforms like OneOf aim to support musicians by leveraging their brands, while Royal is purpose-built to ensure that artists receive income every time a song is streamed. 

Classical music has particular qualities that are tailored to the current market for digital art. First, with practically all classical music now in the public domain, digital artists can save on licensing fees if they want to use music to enhance audience experiences. Second, classical music provides an intellectual foundation for the recent surge of interest in code-based art, whose long history reinforces the cultural importance of NFTs in reviving generative practices. Multiple pioneers of generative art have spoken recently of the overlap between musical and visual systems, with Vera Molnar asserting: 

‍You know, [algorithms] have been around for a long time. I’ve been telling everyone this — did you know Mozart also used dice? He worked with chance. 

A seminal architect of musical systems, Mozart is often regarded as the originator of a dice game called Musikalisches Würfelspiel (musical dice game), whereby the roll of a dice is used to generate random combinations of numbers that correspond to precomposed musical fragments. Between 1757 and 1812, at least twenty musical dice games of this kind were published in Europe, enabling those who had not studied composition themselves to compose different forms of popular dance. 

Publications like Musikalisches Würfelspiel, which followed Johann Kirnberger’s own version of 1757, served as a model for subsequent games that use chance to determine art. It also inspired our own NFT project, Magic Mozart, which offers passages from Mozart’s composition for The Magic Flute (1791) with a governance stake in Living Arts DAO, providing mentoring and micro-grants to musicians around the world. 

Aleatory music experienced a revival in the twentieth century, with chance serving as the basis for visual compositions by Marcel Duchamp and other members of the Europe-wide Dada movement. It also underscored John Cage’s seminal Music of Changes (1951), while Iannis Xenakis developed a stochastic synthesis algorithm to find order within musical chaos. Today, indeterminacy forms the basis of much techno, though dance music continues to rely on an underlying eight-beat structure. How far artists should control the level of randomness in a work was a constant source of debate between Vera Molnar and the composer, Pierre Barbaud.

‍Barbaud claimed that [when you write] a program in which randomness or chance plays a part, that program has value on its own. You shouldn’t intervene — you can’t. That was his opinion. My opinion was that randomness was a tool you could use, a sort of artificial intuition. (Vera Molnar)

The NFT’s ability to commodify ephemeral art forms suggests that music can benefit from tokenization in much the same way as contemporary generative art. One of the challenges is safeguarding NFT projects with watertight licenses in a way that offers both security for creators and clarity for collectors over what they are actually buying. To this end, Andreessen Horowitz recently proposed some basic templates based on the Creative Commons model. The beauty of many works of classical music is that, because they are now in the public domain, they are easily adaptable to digital art collections. 

‍What makes classical music classical is that it has stood the test of time, which is why Apple was so keen to acquire the classical streaming app, Primephonic, back in 2021. 

Two core affordances of NFT technology — authentication and ownership — have also defined the cultural valuation of individual musicians throughout history. Before the modern era, classical musicians used to train under a mentor, who would not only mentor them but also vouch for them as their agent. That mentor would receive some remuneration based on the musician’s future revenues, but ownership of the work resided principally with the musician. In a case from the early nineteenth century, the English composer Isaac Nathan persuaded the well-known tenor John Braham to lend his name to the title page of Nathan’s Hebrew Melodies (1815) in return for fifty percent of any profits.

At a time of widespread skepticism about NFTs and cryptocurrencies, reframing classical music as a prehistory of generative art can bolster the NFT in the public eye. At the same time, NFTs can help to revive the market for classical music and the livelihoods of individual musicians right now. Art and music’s close relationship is nothing new. What is new is technology that allows individual musicians to package and personalize transformative experiences for their own fan communities. As the NFT opens up avenues across the creator economy, it’s time for classical music to realize its place in art history. 

Christos A. Makridis is the co-founder and CTO/COO of Living Opera, a Web3 multimedia startup that combines classical music with blockchain technologies. He is also a professor, writer, and adviser with doctorates in Economics and Management, and Science and Engineering from Stanford University.

‍Soula Parassidis is the lead founder and CEO of Living Opera. She is also an international opera singer, speaker, and passionate advocate against human trafficking with a BA in music from The University of British Columbia.

Never mind FTX — Fine arts institutions should still onboard to blockchain

This article was originally published in Cointelegraph.

The reality is that blockchain technology can still deliver substantial benefits, particularly within the fine arts. And for those who have been paying attention, 2022 has been a year of incredible normalization for nonfungible tokens (NFTs). Simply put, major institutions across various sectors have dipped their toes into Web3.

In November, Instagram announced that creators would soon have the functionality to make and sell NFTs. Apple similarly announced in September that NFTs could be sold in its App Store. Put together, that’s 3.5 billion people (2 billion from Instagram and 1.5 billion from the App Store).

Although each of these major institutions has its own quirks and rules, most notably the fees associated with using their platforms, the reality is that they are still some of the largest platforms in the world and will drive the onboarding of millions into Web3.

It’s not just the technology sector. Starbucks and JPMorgan Chase both recently partnered with Polygon, one of the leading blockchain infrastructure companies, to fuel their services. While both partnered for different reasons — Starbucks to launch a loyalty program and JPMorgan Chase to facilitate financial transactions — the diversity of legacy enterprises onboarding onto the blockchain in serious, multimillion-dollar ways signals that something is up.

It is far too easy to throw the baby out with the bathwater and dismiss crypto just because of the fraudulent activity of bad actors, such as FTX and Terra, in recent days. But they presented problems with governance, not crypto or blockchain. Any technology can be abused and misused: Surely we would not want to hold fiat currency or any other asset classes to the same standards?

The fine arts, particularly the performing arts, have not yet recovered from nearly two years of cancellations and theater closures — nor have its artists. Moreover, the sector was already facing difficulty and decline in the lead-up to 2020. Artists’ wages have been on the decline, not even taking into account the higher costs they incur as a result of changes in the price of education and the additional costs they incur simply to do their job (e.g., voice lessons and auditions).

These are serious challenges the sector must grapple with if it wants to shift its financial and social trajectory. But even beyond the fiscal challenges it faces, a new generation of consumers is emerging with an appetite for different types of experiences, ranging from digital assets that they can buy and display in their social network to the authenticity and increased personal connection they want to have with the brands they buy from. Just consider a recent survey by Roblox of 1,000 Gen Z community members: 73% of the zoomers said they spend money on digital fashion, 66% said they were excited to wear brand-name virtual items on Roblox, and nearly half looked to digital fashion brands and designers for clothes that they can experiment with that they would not have otherwise worn in real life.

That does not mean consumers want purely digital experiences, but rather that digital becomes a complement to in-person goods and services. And that should come as a surprise — that’s the way music already is with the combination of streaming and in-person concerts. The differences here are the expansion of digital asset types and the fact that the asset lives on the blockchain rather than a centralized customer relationship management software.

Second, the labor market for artists has been struggling. While detailed data on artists is hard to gather, my research using data from the United States Census Bureau’s American Community Survey finds that real wages for performing artists have declined over the past decade. International evidence indicates that a similar pattern holds true across countries.

What’s worse, artists have been absorbing more costs over these years too, meaning that their disposable income has suffered. Although many artists may stick with their craft because of a love for what they do, the sector will eventually implode if the business model does not change.

These factors substantially reduce artists’ bargaining power when they negotiate contracts. This is why they are generally forced into giving up their intellectual property when signing with a record label — giving up their creative content in favor of a larger audience. But sadly, these agreements rarely deliver the finances they promise.

Therein is the opportunity for fine arts institutions: using digital assets to simultaneously expand their base of consumers and revamp the way that artists get remunerated so that they are financially empowered.

NFTs are just a means for establishing a line of communication between consumers and institutions with a digital paper trail around the intellectual property that ensures remuneration based on the agreed-upon terms.

While many fine art galleries are already beginning to work with digital artists, other types of fine arts institutions, like theaters, could also use NFTs.

The easiest place to start is with ticketing: An opera house could offer tickets as NFTs, and patrons could perform the transaction in a similar way with an email and password, but now have the NFT live on the blockchain.

That offers a handful of advantages, such as the ability for patrons to showcase their support for the opera on their digital wallet, while reducing fraud and/or piracy.

Furthermore, using NFTs establishes a two-way line of communication between holders and the institution, allowing an opera house to give attendees additional perks (e.g., photos from the event).

Web3 is not a panacea. It’s just another technology, but it offers the potential to fundamentally transform the way we interact and transact with one another.

It is easy to get hung up on all the new language and buzzwords, but an effective implementation of Web3 architecture ultimately should look and feel just as easy as what you’re used to. The only difference is that now the technology lives on the blockchain.

Fine arts institutions have much to gain from the strategic adoption of these technologies. It just requires an open mind and a willingness to put in the hard work with the right partners.

Christos Makridis is the chief operating officer and co-founder of Living Opera, a Web3 multimedia startup anchored in classical music, and a research affiliate at Columbia Business School and Stanford University. He also holds doctorate degrees in economics and management science and engineering from Stanford University.

How to Tell the Difference Between Expertise and Salesmanship

This article was originally published in Inc Magazine (with Bill Fotsch).

The business world is filled with self-proclaimed experts. They write a book or work with a prestigious client and suddenly they're a thought leader. Their following feels good about what the expert is selling because it sounds good. That's because there's usually a kernel of truth in it--it's just not the whole truth. Plenty of companies spend a lot of time and money on just part of the truth. One of us (Bill) even spent over 25 years selling the value of Open-Book Management, driving seminar, workshop, and consulting revenue for just part of the truth.

Our attraction to "experts" isn't anything new. During Copernicus's time, popular experts posited that the earth was the center of the universe. It made people feel good. It seemed to make sense. But Copernicus tested that hypothesis with research, and found it wasn't true. The truth made him unpopular, yet no one could refute his data. What today's business experts lack is just this--real research that proves the validity of their philosophy.

Rank and Yank, the approach widely popularized by management icon Jack Welch, suggested regularly ranking all employees and firing those at the bottom of the list. (Welch disliked the name "Rank and Yank," but probably so did the employees being yanked.) Some of Welch's HR staff set out to sell their trendy expertise and generated a lot of consulting fees. Now most of them deny having anything to do with rank and yank, as it has largely been discredited. In recent years, companies like Microsoft and General Electric have dropped the practice, but not before a fair amount of damage was done, all at the advice of experts.

So how do you tell if the latest management pitch is sound advice or just the latest fad that will end up in a Dilbert cartoon? What you really want to know is:

Is the management approach repeatable?

1. Is there some way of diagnosing your company and estimating the value of the approach?

2. Is there research that validates the management approach?

A good example of an approach that addresses all three is Net Promoter Score, originated by Fred Reichheld and Bain & Company. Lots of folks offer advice on how to drive customer satisfaction, but Reichheld's insight was captured by the repeatable Net Promoter Score (NPS) tool. Several Bain competitors have criticized NPS, but they can't refute that it enables any company to benchmark itself against hundreds or thousands of others. Great as that is, it's lacking--it says nothing about how the company stewards its employees. And how it relates to its employees will ultimately impact how it serves its customers.

William Kahn (coiner of employee engagement) recently expressed that most of today's "expert" work on the subject misses the mark. Despite companies spending billions on it over the past three decades, employee engagement has not meaningfully improved. In Kahn's 1990 qualitative research, he clearly defined three key drivers of employee engagement: meaningfulness, safety, and availability. Given that these three are largely absent from most employee engagement work, Kahn's disappointment is understandable.

These three drivers parallel the three drivers that Dan Pink's MIT research developed: purpose, mastery, and autonomy. It's worth noting how similar his research results are to Kahn's. Pink analyzed four decades of scientific research on human motivation and found a contradiction between what science tells us works and what organizations actually do. Most experts seem to reflect on the latter.  

Whether you prefer Kahn's drivers or Pink's, their likeness emanates from a common source: research. Both suggest that many of today's experts in their field are missing something essential: research. Experts on Agile, Scaling Up, KPI/OKR, Love + Work, Open-Book Management, Total Quality Management, Lean, etc., have either no basis in research or have adopted others' research and modified it to suit their needs.

That's why we've pioneered the concept of Economic Engagement, creating a survey of 15 questions that relate to five pillars: customer service, shared economic understanding, transparency, shared compensation, and employee participation. Our subsequent five years of research with Harvard Business School defined and tested our hypothesis. After 10 waves of 50-150 companies per wave, the results were captured in this article. 

Our research showed time and again that companies in the top quartile of Economic Engagement were enjoying double the profit growth of their peers. In short, companies that adhere to these proven best practices around Economic Engagement also perform much better financially. We will be publishing an update, but the results in the last year were very similar, and our learning continues.

The research fits surprisingly well with Kahn's and Pink's. Maybe that's because we too were just trying to understand how employees relate to their work, and how that work relates to the customer. 

• Meaningfulness - Purpose - Customer Engagement, Economic Understanding

• Safety - Mastery - Transparency

• Availability - Autonomy  - Employee Compensation and Participation

Moreover, our research also shows employees are willing to pay for work environments that utilize the features of high Economic Engagement--that is, workplaces where employees feel appreciated, receive development and training opportunities, and so on.

Too often, "experts" are trapped with a business model that is antithetical to learning the whole truth. So next time you hear a good speaker or read a good article (hopefully ours is included in that set)--ask questions. Is there data-driven substance underlying the claims, or is it just a series of well-spoken words? A true expert will jump at the chance to validate their ideas. If they hesitate, think twice before working with them.

5 tips for riding out a downbeat market this holiday season

This article was originally published in Cointelegraph.

These forecasts are driven by deteriorating structural fundamentals. For example, credit card debt has surged past even 2020 levels, with interest rates charged by banks that are just slightly higher than those observed leading up to the post-2000 dot-com crash. And yet, labor force participation rates — or the proportion of the population that is able to work and is working — have still not recovered to pre-pandemic levels. Furthermore, inflation — as measured by the consumer price index — has surged over the past few years.

Economic forecasts suggest that we are in for greater economic turbulence. The United States has been in a recession and that recession is expected to continue, with the Conference Board forecasting a further decline in gross domestic product (GDP) by 0.5% in Q4 of this year. It also anticipates that the recession will continue into at least Q2 of 2023. That was before the collapse of crypto trading platform FTX, which had profound downstream effects on investment portfolios and non-crypto companies. Other more optimistic forecasts, such as those of the Federal Reserve Bank of Philadelphia and S&P Global, are just barely positive for 2023 at 0.7% and 0.2%, respectively.

These macroeconomic indicators are common outside of the U.S. too. Many – even the International Monetary Fund — have pointed out the increase in inflation as a result of higher energy prices in Europe, which is one factor, among others, that contributes to the European Union’s recent forecast of nearly zero GDP growth for all of 2023. That is on top of its already long-run demographic challenge that there are too many people aging out of the labor force and not enough new entrants, which has dire implications for GDP growth.

While these macroeconomic fundamentals are outside your control, there is still a lot within your control. We need to remember that we have substantial agency over our lives and do not need to get dragged into an economic tailspin just because that’s what might be happening to the aggregate economy — we can still individually thrive during a famine.

Here are five tips for doing just that.

Optimize the wait. Make the best use of your time every day, which might mean picking up a new skill or taking up a freelance job that deploys your broader skill set. Especially with the emergence of artificial intelligence and automation, certain tasks are becoming obsolete and other new creative opportunities are emerging — and you can leverage that trend by acquiring the skills to perform these tasks. There are substantial mismatches in the demand and supply in certain parts of the labor market, such as artificial intelligence and cybersecurity jobs, so consider picking up a new skill that you can put to work.

Reflect and take inventory. It is far too easy to look at the circumstances we personally or as a society are in and get worried, but take stock of what is going right and what you’re thankful for. The holidays are an especially good opportunity to do so. By putting your circumstances in perspective, you avoid a lot of mental rabbit holes that could cause you to become more anxious and disappointed, which unfortunately only further amplifies challenging circumstances. Even when circumstances look bleak, remember what you have and what you have been through — it will inspire you to go on.

Grow your network. Building relationships is part of the adventure we are on. Focus on people as actual human beings, rather than potential doors of opportunity. People are indeed doors, but treating people in transactional ways warps your perspective of life and ends up closing those doors, because people do not like being treated as vending machines. (Would you like it if people only talked to you based on what you could give to them?)

Related: 5 reasons 2023 will be a tough year for global markets

Cherish small wins. We often focus on the big and flashy goals or aspirations, but overlook what is immediately in front of us. We have a lot more agency than we give ourselves credit for! Whether you are taking care of your property or writing an excellent report at work, demonstrating excellence in everything that you do creates a lot more optionality in the long run that yields truly fulfilling and fruitful employment opportunities.

Always carve out some proportion of your earnings for savings. Consider investing it in structurally sound digital assets. There is no substitute for setting aside resources every month, whether crypto or fiat, that you can draw on when you’re most in need. There will always be an element of unpredictability in the world, so view these savings as your insurance policy on market downturns. Even though crypto has been in a winter, all assets have been struggling because the entire market is in a downturn. But the future of the major tokens, such as Bitcoin (BTC) and Ether (ETH), remains hopeful, and it’s just a matter of time before they rebound. Moreover, as governments become more volatile and inflation continues to grow, crypto can be a useful hedge and diversification strategy.

Don’t despair even when the economy is faltering. You and your household can still thrive!

Christos A. Makridis is a research affiliate at Stanford University and Columbia Business School and the chief technology officer and co-founder of Living Opera, a multimedia art-tech Web3 startup. He holds doctoral degrees in economics and management science and engineering from Stanford University.

This is what it will take to be successful in Web3

This article was initially published in Fast Company with Soula Parassidis.

The vast majority of technology is a distribution system. PayPal and Stripe connect merchants and customers; Facebook and Twitter distribute content across societies; Microsoft and Apple build hardware and software that form the infrastructure for the digital economy.

While idea generation for these companies and many others is a creative process, the technology actually serves very basic and fundamental needs. Creators need to build things that are so simple to understand and use that even their grandparents would buy the product or service. That same principle holds in the Web3 era.

But each of us thinks and builds differently. And one of the hardest things for artists is that we are not taught to go past the step of creativity into the operations and business development that is needed to build a profitable and sustainable business. We are fantastic at coming up with creative ideas that captivate an audience, but not necessarily for seeing it through. That’s been a big lesson for me, Soula, to learn throughout the process of launching Living Opera.

The biggest differentiating factor that we artists bring, however, is the focus on people. Our focus is often around people, and we’re often discouraged from thinking about profit. Neither extreme is good. Just focusing on people without operations leads to a cute idea that never takes off, but just focusing on profit produces a transactional and transient technology that at best is here today and gone tomorrow.

We believe that the solution is to focus on creativity, then people, and then profit.

Let’s unpack that. Artists do not think of their customers as “users.” Rather, they are our audience and even our patrons; we perform and produce to serve them. In fact, at the end of an opera, the audience renders a verdict about the performance by applauding (or not).

That accountability and transparency is not available in many businesses, especially the areas of the economy where there are monopolies, and consumers have only one or two choices.

THINK LIKE AN ARTIST

When you finally realize, as an artist, that you have to build something to sustain your livelihood, then you’re faced with a choice. Either to partner with people who can take the kernel of what you’re doing and make it profitable, or, take a nonprofit model where you find really passionate patrons who can support you.

Although most artists take the former path, especially in pop culture, the business operators end up focusing heavily on narrow metrics, especially follower counts, at the expense of connecting with and learning from actual people.

Metrics are great, but not when they get so narrow and disconnected from the lives of producing transformative and uplifting experiences in the lives of individual people. Economists call this phenomenon multitasking. It was a term originally used to describe a class of “principal-agent problems” in organizations where a manager measures the performance of an employee according to a narrow set of metrics that ultimately incentivize employees toward unintended and often perverse behaviors, even if the initial metrics are satisfied.

That’s arguably why the arts and entertainment industry is larger than ever, but society has become more tribal and transactional. Society, in many ways, has become more siloed and our taste for quality has been dulled because of the focus on products and services—especially in music—that are made for the masses, not for improving individual lives.

The tendency to focus on the masses has emerged since artists are often forced into these dual extremes of “partner with a big label and go commercial” or “align with a nonprofit and focus on donations.” Sadly, there is not much middle ground for artists to simultaneously hold onto their intellectual property and earn a meaningful wage. But Web3 is changing that.

The central thesis in the Web3 movement is decentralized ownership: In other words, consumers should own their data, and content creators should own their intellectual property. When the individual has ownership, they are empowered with the freedom to make choices without being held as an economic hostage. For example, artists today routinely sign deals with record labels, but many of them would choose differently in a different competitive landscape.

The scientific literature also has found that more decentralized countries and organizations perform better than their counterparts. We are entering an era where there is collective appetite for real community—not more of the same mass media—and Web3 has the potential to fuel it by endowing creators with the technological tools to generate sustainable income.

BUILD LIKE AN ENGINEER

Engineers are architects who help design the process and ensure that every part of it is working as intended. Whether writing statistical code to analyze data or building a website, an engineer focuses deeply on operational details and processes.

That’s good when you know why you’re building and who you’re building for. But it’s bad when you don’t have answers to those fundamental questions. No amount of venture capital funding is going to enable transformative experiences for your audience of interest if you have not thought of people first and actively built relationships with them.

In fact, one of the challenges today is that we’ve become so data-savvy and focused as a society that we have sometimes elevated engineering skills—or at least the quest for metrics—over other skills and the “why” behind what we’re doing. Engineering skills are undoubtedly important and one manifestation of creativity, but they’re different from the artistic kind.

If we can bridge the gap between thinking like an artist and building like an engineer, we believe that we’ll see an explosion of profitability and value-creation through true creativity that lasts generations. As entrepreneurs, we need to be so in love with the audiences we’re serving and willing to accept feedback that no fancy technological gadgets or prospect of funding can throw us from our “true north.”

Remember, you’re building for people. A great idea cannot scale into a profitable movement unless you are truly passionate about helping people flourish. That means using technology as a tool, rather than an end in itself. NFTs, and the Web3 movement, have the potential to create tremendous value, but they must be centered around specific use-cases that address peoples’ needs. The approaches of both artists and engineers can play a complementary role in unlocking a flurry of creative activity to do just that.

Soula Parassidis is the CEO and lead founder of Living Opera. She is also an international opera singer, speaker, and passionate advocate against human trafficking.

Christos A. Makridis is the CTO/COO and cofounder of Living Opera. He is also a professor, writer, and adviser.

Classical Music and Blockchain Taught Me to Think Like an Artist

This article was originally published in Entrepreneur & Innovation Exchange (EIX).

Most people would never think of putting classical music and blockchain in the same sentence. With my training in engineering and economics, I wouldn’t have either -- if it were not for my getting to know and partner with two of the world’s leading opera singers, Soula Parassidis and Norman Reinhardt. 

Through this partnership and the business we built together, I learned (and am learning) much about classical music and the performing arts – knowledge that has enhanced my ability to think entrepreneurially. I saw and experienced the potential to create transformative experiences, leading us to launch and brand Living Opera as a web3 multimedia startup where blockchain technology was not just a feature, but a driving force behind our multimedia. By marrying blockchain and classical music, we unleashed a wave of value-creating opportunities for artists.

This article passes along the fresh perspectives I gained from working with passionate artists and building our business. These perspectives can provide a new way for other entrepreneurs to think creatively about opportunities and the audiences who can benefit from them. 

ADDRESSING CHALLENGES FOR ARTISTS

While classical music is a world-wide phenomenon, the sector has struggled for at least several decades because of rising costs and institutional rigidity. We’ve seen that artists are earning less and being asked to pay more of their own costs, such as for agents and traveling. The schools and conservatories that train future artists have not helped them prepare for these realities. In fact, as we have presented a white paper that aims to decentralize philanthropy and grantmaking, artists have actually experienced declining real earnings, at least in the U.S., on top of the additional costs they have to incur.

From working with Soula and Norman, we saw an opportunity for distributed ledger technologies to fundamentally improve the economics for artists across the board. These technologies give  artists a way to directly communicate and interact with their fans without the wide array of intermediaries that typically leave artists with little of the total revenue and no intellectual property over their created content. 

Our venture, Living Opera, offers non-fungible token (NFT) collections anchored around classical music. For example, our upcoming collection called Magic Mozart is based on Wolfgang Amadeus Mozart’s composition of The Magic Flute, which premiered on September 30th of 1791. We are producing unique digital art where each layer comes from a feature of The Magic Flute, and we are giving each buyer a personalized minuet based on a replica of Musikalisches Würfelspiel – a dice game that is attributed to Mozart.

WHAT ARTISTS CAN TEACH ENTREPRENEURS

But my training years ago at Stanford with dual doctorates in economics and engineering, coupled with my publication of over 70 peer-reviewed research papers, did not prepare me to think like an artist and come up with creative ways of telling stories. I really learned this skill by working with Soula and Norman.

Here are three main lessons for entrepreneurs.

1. Business is fundamentally about providing a service to an audience.

Funnily enough, one of the hardest things for artists is that they are not taught to go past the step of creativity into the operations and business development that is needed to build a profitable and sustainable business, whereas entrepreneurs are generally trained the opposite.

However, artists are far better at focusing on people, sometimes so heavily that profit does not enter the equation! Neither extreme is good – but the lesson here is that focusing solely on profit produces a transactional and transient technology that at best is here today and gone tomorrow. Living Opera’s approach is to focus on creativity, then people, and then profit. And that extends even into the way we talk about our customers as our “audience,” rather than our “users.” In fact, at the end of an opera, the audience renders a verdict about the performance by applauding (or not!). Similarly, the audience for a product renders a verdict by buying it (or not.)

Entrepreneurs must actively and intentionally think about their audience and build a product or service that is so simple to understand that even their grandmother may want to buy it. This involves creating a story that is captivating to the audience – a story that sings the praises of its qualities as a solution to the problem it solves!

2. Respect excellence in a domain even in the absence of knowledge about how it operates.

Before getting introduced to the fine arts, I assumed that performers were generally just really talented at their jobs if they decided to pursue a career in it. But it actually requires years and years of practice. The talent is only the ticket to the game, but intentional and deliberate practice is what will drive excellence and allow an artist to truly build a working career out of it. Soula, for example, had been playing an instrument since she was five, and cumulatively Soula and Norm have nearly 30 years in the performing arts around the world.

How is that relevant for entrepreneurs? From knowing Soula and Norm I came to understand that performing at the highest levels in classical music is like performing in the NBA or MLB – it’s an extreme sport that requires deep understanding of the body, skills in memorization and acting, and incredible diligence and an investment of time. When you begin to respect excellence in other domains, even ones that you’ll never fully understand, it gives you a sense of humility and curiosity to learn about others.

Entrepreneurs who lack those essential attributes of humility and curiosity will risk becoming transactional and lose their creativity. And they will be blind to the highest-impact ideas -- those at the intersection of seemingly disparate areas. We need to be open to learning new things every day and not shut ourselves off to learning about people and things outside our core area.

3. Good communication requires great listening

Often we are taught that communication – or producing content in social or formal media – is about having clear, persuasive points and sticking to a content calendar. (And there are an analogous set of best practices for verbal communication.) But an equally important part of communication that is often overlooked is listening.

Mozart is attributed to having said that “the music is not in the notes, but in the silence between” – or the “rests.” That is a profound statement since it implies that the rests are what make a piece of music come alive and give signals to the performer. Learning to pay attention to those rests requires hard work, diligence, and concentration, but it means that artists cultivate an incredible amount of concentration. Imagine if we ran business meetings with more listening?

Entrepreneurs can only become effective communicators when they have learned to listen. Active listening builds humility and serves as the bedrock for genuine understanding.

TAKING STOCK

There is no cookie cutter approach in entrepreneurship and life. If you would have asked me a decade ago about my future portfolio of work, a classical music and blockchain startup would not have even been on the list. But this journey has unlocked a new wave of creativity and interests – and hopefully these reflections are helpful for you too!

Christos A. Makridis is the CTO/COO and co-founder of Living Opera, a web3 multimedia startup that combines classical music and blockchain technologies. He is also a professor, writer, and adviser with doctorates in economics and management science & engineering from Stanford University.

Quantifying the Harm of Religious Restrictions

This article was originally published in City Journal.

Covid-era limitations on worship led to more isolation and unhappiness among religious observers.

My newly published research in the European Economic Review finds that the introduction of Covid-related restrictions on houses of worship led to a substantial decline in subjective well-being and an increase in social isolation among religious adherents relative to non-religious people.

Using a sample of 50,000 Americans surveyed between 2020 and 2021, I find that the adoption of these restrictions reduced current life satisfaction and made it more probable that religious people would isolate themselves. These effects remained after controlling for demographics, income, political affiliation, industry, and occupation—and they wiped away nearly half of the life-satisfaction advantage that religious people generally enjoy over the non-religious. Limits on exactly how many people can gather were associated with more harm than were percentage caps on occupancy.

Further, my research finds no public-health benefits to these restrictions—they did not limit the spread of Covid infections or deaths, on average. This finding joins a large body of empirical literature identifying adverse economic effects, no public-health benefits, and dreadful benefit–cost ratios for Covid restrictions. Some evidence showed an association between the restrictions and a reduction in Covid in the early months of the pandemic, but as sample sizes grew, these benefits disappeared.

A common criticism of such results is that confounding factors render it hard for researchers to isolate the effects of specific policies. (Of course, that has not stopped advocates of such measures from claiming that they work.) Fortunately, a large body of state-level data, compiled by Gallup, now lets researchers study individual outcomes before and after policy interventions. My research compares religious and non-religious individuals in the same state before and after the adoption of restrictions on houses of worship.

What explains these reductions in well-being? A major factor is the rise in self-isolation. Another seems to be social capital: the negative effects of restrictions are slightly larger in counties that rank higher in their level of social capital—that is, their degree of norms, trust, and networks. This is consistent with sociologist Rodney Stark’s theory of “moral communities,” which notes that people can help reinforce positive norms among their associates.

A mountain of empirical research demonstrates that religious attendance and participation benefits health and well-being. My research offers evidence that Covid restrictions on religious communities have had adverse effects.