Clayton Christensen writes in his now classic book "How to Measure your Life", of "Good capital" and "Bad capital". Good capital understands the inherent uncertainty accompanied with business ventures and patiently waits while management figures out a profitable strategy. Bad capital is by nature impatient. In the quest for a quick buck, bad capital forces companies to grow before profitability, leading their recipients to eventual demise. The takeaway is that capital is neither neutral nor fungible; choosing the right capital is as key to a company's success as choosing the right people to hire. 

What can the nature of capital teach us about the "Web 3" movement?

In simple terms, Web3 projects attempt to "democratize" the raising of capital via cryptographic tokens. These tokens are analogical in many ways to stock, because earlier buyers/investors are endowed with greater control and return in the case of the project/company's success. These tokens also may have utility in the eventual product or "ecosystem" ( eg. "metaverse"), such as allowing holders to purchase certain services or trade tokens as a store of value. As an antithesis to the highly specialized, privatized and monopolized world of venture capital and accredited investing, tokenization provides lay people exposure to high risk high return assets and the opportunity to support projects of their choosing. Not unlike traditional stock-based companies IPO, Web3 projects aim for offerings on token exchanges such as Coinbase to provide liquidity to token holders and raise additional capital.
Given the success of stock-based tech companies, Web 3 presents an enticing opportunity for the masses to tap into the next Google or Facebook. 

But is Web3 good capital? On paper, Web3 "token holders" (ie. investors) are simultaneously two or three things at once; an investor in the project, a potential user of the eventual product, and sometimes even the builder of the product itself. In other words, Web3 is the blurring of capitalist, laborer, and consumer. Web3 is people who invest in, and sometimes even build, the product that they wish to become a future consumer of. This blending of roles hypothetically aligns the incentives of token holders because they are invested in many facets towards the success of the project. For products with niche or professional use cases, such as developer products, a Web 3 approach is powerful. Capital raised directly from people with "skin in the game", people who understand the market, that simultaneously motivates them to use and build the product is "good" capital, which may be vastly preferable to traditional venture capital. 

On the other hand, Web3 can also be "bad" capital. This is more true for consumer facing projects with broader appeal such as music and financial applications. In the case of mass-use consumer products, potential users have very small incentive to stay loyal to a product that hasn't even been built, and every incentive to switch to a superior competitor. Furthermore, the promise of large upside with these projects tends to attract the worst kind of investor; speculators . This means the average token holder of a consumer Web3 project does not necessarily care about the eventual success of the project, rather only worries whether or not he would make a return on his investment. Adding to this already volatile situation is the lax state of token exchanges that provide unprofitable, and unrealized projects access to liquidity. Because in the current state of Web3, projects do not need to demonstrate any profitability, the incentive of token holders is to push projects towards the minimal success necessary to achieve token offering on an exchange. The tendency of Web3 projects to have a  management team, much like normal companies, that also hold a large portion of the tokens only further exacerbates this situation because management is also incentivized in this direction. In short, the combination of bad capital + quick liquidity creates a pyramid scheme.

So is Web3 good or bad capital? It depends on several factors. Web3 projects in niche or professional areas, where the people involved have real skin in the game to create a working product, are potentially far superior to traditional stock-based companies. If you happen to come about a project that you truly care about, best of luck. However, in the case of well known projects with sky-high expectations, one must seriously scrutinize whether the project will ever achieve profitability to avoid falling prey to what can only be described as a pyramid scheme. One way to "fix" the current state of Web3 is for token exchanges to deny liquidity to unprofitable projects, however this seems unlikely as exchanges themselves are fueled by the constant influx of new projects attracting new capital.

Pending an imminent recession, we will probably see a large devaluation in this space as well. Volatility will be markedly worse with highly liquid crypto assets. Perhaps after this event, we start to learn the true application of this powerful technology.