The past decade may have seen more changes in job trends than the past 200 years combined. Improvements in connectivity through mediums like the internet, reduction in cultural differences through shared consumption of media (like Netflix) and access to global markets have disrupted what we think of as “jobs”. The United States today, for instance has over 50% of its population engaged in the gig economy. The idea of what we call the “firm” may be evolving from being a collection of individuals that can perform a task with economic efficiency (to form an agency) may be transitioning to being single individuals whose efficiency in certain tasks beats others to such a great extent, that they are able to do a singular task and still be profitable. Confused? Let me explain. Joe Rogan today is able to release a podcast series and have a over a billion views on it. Know Lil Nas? Yep, that guy that made his fame singing about how he’s about to ride his horse to an old town road - He build his audience on TikTok.  My other favourite G Eazy, built his career on YouTube because none of the record labels would sign him.  All of these are the stories we could not imagine in the 1990s. And at the crux of it, is the fact that similar to what Keynes said in the 1930s, the rise in productivity is indeed leading to cases where individuals can have time for their passion and still lead a comfortable life.

The gap between value generation and wealth generation for many individuals today, does not lie in their inability to create value, but rather in their disadvantageous positioning when it comes to capturing that wealth. Let me break that down for you. When Paul Graham wrote that a hacker can make a million dollars in three years, that was a case applicable to large chunks of the global population. In fact, he also suggests that the risk and stress associated with a startup is what compresses wealth most individuals see in a lifetime to a period of two to three years. Here's the bit from his essay titled "How To Make Wealth"

"Here is a brief sketch of the economic proposition. If you're a good hacker in your mid twenties, you can get a job paying about $80,000 per year. So on average such a hacker must be able to do at least $80,000 worth of work per year for the company just to break even. You could probably work twice as many hours as a corporate employee, and if you focus you can probably get three times as much done in an hour. [1] You should get another multiple of two, at least, by eliminating the drag of the pointy-haired middle manager who would be your boss in a big company. Then there is one more multiple: how much smarter are you than your job description expects you to be? Suppose another multiple of three. Combine all these multipliers, and I'm claiming you could be 36 times more productive than you're expected to be in a random corporate job. [2] If a fairly good hacker is worth $80,000 a year at a big company, then a smart hacker working very hard without any corporate bullshit to slow him down should be able to do work worth about $3 million a year"

However when it comes to the gains firms see, or the upticks in valuation they practice - employees are often left with nothing inspite of taking all the risk alongside initial founders. ( I don’t entirely buy the salary argument because founders do take a salary past a point). The epitome of this is embodied in WeWork. Its founder Adam Neumann is set to walk away with $1.7 billion while its employees sit duck, wondering whether their jobs would last the quarter. The misalignment of incentives and rewards are at the crux of what may be broken with capitalism as it stands today.

What is a fix to this? It is likely what I have begun to see as ‘micro-entrepreneurship”. Or what used to be considered beautiful small and medium enterprises. The lifeblood of most developing economies including  India. You see, after 2008, having multiple jobs became the norm. What used to be “consulting” (fancy word) is now “freelancing” (a lifestyle). Instead of aligning with single firms for decade long careers, individuals increasingly “hedge” their bets by creating a portfolio of workplaces. (Please note : The cases I mention here are wilful contracts with multiple firms and not ones where individuals are forced to work multiple jobs due to the meagre income their current jobs provide. I personally believe minimum wages should be enforced at every level. I don’t mean to come off as insensitive about the matter). Whether this is good for mental health, productivity and over all economic well bein of a region remains to be seen, but the break out of the individual into being a firm is becoming the norm. When captured value reaches a point where said firm can hire multiple individuals - it generates jobs and new opportunities. This has served both firms and individuals well. Firms can hire and fire as per their needs without much of the benefits that come with formal employment. Individuals can scale their income as long as their contracts don’t forbid it.

There are ample examples of individual passion projects becoming profitable enterprises. My personal favourites being Linus Tech Tips and Marques Brownlee. Both of them started individual youtube channels in early 2010 as young teenagers. The run full fledged studios that dictate consumer purchase trends due to the influence they hold when it comes to offering product reviews. These are also instances where the individual leverages a platform to build an audience that then provides network effects to the goods (often content), the individual provides.What earlier used to be outsized returns betting on an individual that goes on to be an actor or an athlete, is now becoming more generalised possible return that comes from investing on multiple individuals that leverage internet based platforms. These are not instances that require half a million dollars in funding. They definitely don’t need to hire individuals the way a startup would. However, they do need capital.

Today much of that capital comes in the form of debt. The sheer ease with which it is possible to take student loans in comparison to how difficult it may be to receive a non-collateralised business loan is at the crux of what may be limiting many individuals from actively considering entrepreneurship. A possible fix to this is what is now emerging as “Income Share Agreements”.  They are primarily instruments that allow you to invest in the earnings potential of an individual. This is often without collateral but requires the individual to have a clear path to income and payment is routinely made directly to the outlet where it is needed. For instance an ISA that’s focused on helping an individual do a MOOC will pay the outlet (eg: Coursera) directly after verifying they have been accepted to do a micro-degree. In this case the assumption is that if the individual is willing to commit themselves to upskilling themselves, they will very likely commit to a job post that and return the capital invested with a premium for the risk taken. The advantage for those investing in these instruments is that they often create a return, while generating value and having a meaningful impact on the lives of individuals. For the person agreeing to such a contract, the advantage is that they are not indebted to a bank that could come seize their assets tomorrow but rather towards a number of individuals who can be aligned towards their long term success. There is no foreclosure if a monthly payment is not made. The downside is that they could see large shares of their income being captured by third parties for prolonged periods of time depending on the nature of the agreement.  Some ISAs have a cap on the return the instrument will generate, others have a cap on the duration the ISA will be valid for.  Imagine being able to invest into those at the cusp of a breakout career. I’d love to have been able to invest into Anotonopoulos when he moved to the United States.

Why Blockchains Make Sense For ISAs

Fundamentally, it is the inability of legacy systems to accelerate the pace at which it does verifications (internationally), and approve an ISA based instrument that pushes me to considering blockchains for this usecase. We have the tools needed to plug in identity, transaction and distribution with the help of smart contracts. I lay the key benefits of tokenising ISAs below.

(i) Verification
Fundamentally, the key advantage with tokenising an income share agreement would be in terms of (i) liquidity and (ii) leveraging infrastructure interoperability that traditional platforms don’t provide currently. Lets take the initial bits of on-ramping an individual to a platform where they would like to offer an ISA for themselves. Simple elements such as verifying their educational backgrounds, past work experiences or sharing credible data on past performances can’t be verified because the data is across multiple systems. Blockchain based SSIs provide the simplest alternative to this. (I have written more about what SSIs are here). The ability to verify and validate past credentials of an individual will reduce the time spent on doing so manually, occurrences of fraud and drive transparency into the process. Where earlier a single individual would verify a loan application from a student, tokenised ISAs could have hundreds of individuals verifying claims made by talented individuals. In certain instances, key partners such as a potential customer or a brand looking to partner could validate claims being made by a talented individual. In order to show skin in the game, they could also pay up a portion of the ISA itself.

All of this could be verified on a blockchain (with transactional hashes) validating these payments. So on one side you drastically reduce the time period required for validation and on the other you reduce the time period required to take a payment. Much like ICOs (remember those?) , an ISA that is tokenised can have individuals contributing and receiving rewards in a stable coin like DAI. This reduces the paperwork required to track the inflow and outflow of funds. A central trusted party (like Coinbase?) could be responsible for liquidation of DAI to make payments and providing DAI to return the ISA holder’s share. This radical transparency on where the funds come from, goes to and how its spent could reduce the risks involved in partaking in an ISA.

(ii) Liquidity
In terms of liquidity, a tokenised ISA would behave increasingly like a bond that generates yield after a certain period of time. At the beginning of a bond’s issuance, the buyer of an ISA assumes the highest risk (and therefore pays the lowest price). The argument here being the fact that the instrument will not pay out anything for  a pre-determined period of time. Fair valuation principles may not be relevant to the fraction of the ISA until the individual begins to earn. For standardised jobs (eg: Analysts) ,the ISA’s value can be calculated on the basis of taking the average analyst salary in the region multiplied by period the ISA is valid for. Monthly yields would be a percentage of the net annual income, divided by 12. The risks here in terms of investing vary depending on the nature of the ISA itself. A secure college degree could require high investment but provide stable returns if the industry requires that kind of skill set in the years to come. On the contrary, ISAs issued by those in the arts or entrepreneurial line of work could provide outsized returns over a course of time (or go bust). The idea is that by breaking down an ISA into fractions and making them tradable, you can access the relative “wisdom” of the crowd in valuating an ISA, spread risk (across multiple ISAs ) and receive liquidity in real time for the ISA itself.

(iii) Recollection
The key challenge with all of this would be in terms of re-collecting payments. The solution in that regard would be to come to an agreement with the individual on parting with the income to a distribution account where a percentage share that’s committed to the ISA itself is split (for conversion to DAI and re-distribution to ISA holders). The other alternative is to seek employment in platforms that specifically payout in DAI and have pre-agreed contracts with them. For instance, developers make upto $10k on Gitcoin bounties. By being able to invest in the right developers that need capital (for better hardware, network accessibility or immigration to a better part of the world) - individuals can theoretically agree to splitting bounties with the individual. The underlying risk is what if the individual chooses not to honor the agreement or simply stop working. This is where secondary instruments for insuring ISAs would come to play. Options on default could be traded by stakeholders (although I need to think more about the game theory at play there). In other words, ISAs being tokenised could lead to a world of exotic instruments that bet on the individual’s ability to deliver over a course of time. These should (ideally) then be sold back to the likes of universities that  sit on billions of dollars in endowment funds, exploring new avenues for risk. If they do believe in the quality of their education, filtering process of students and ability to prepare individuals for meaningful employment, they should be holding a nice mix of ISAs that are owned by their students instead of entrapping them with debt before they ever put their graduation gowns on.

(iv) Bundling
Once you have a large enough market with multiple individual’s ISAs tokenised, you can then bundle them to reduce exposure to any one person. They could also be split thematically (eg: STEM, Arts, Finance etc) to reduce exposure to a single industry. And in the case that an individual’s earning potential does boom, you could double down on buying more of their fractional ISAs from others that are looking for liquidity.  In other words.. We may have just created a parallel market where individuals can both take on risk (in investing in others) and off-set risk (in liquidating an ISA). Whether this would lead to a rational market that works in the best interest of everyone involved is something that remains to be explored. However, the value of human labour can be exponentially improved by finding and investing in the right individuals. Essentially, blockchains can remove the hurdles involved in both finding capital and returning it while providing those seeking new avenues to find risk and yield, a new platform.

Parting Notes
The purpose of this post is not to shill blockchains or to explain why you should tokenise your income. The idea was simply to explore if it is possible to create new instruments that allow individuals to take on more risk early on in their careers to generate higher returns for themselves and those vested in them. Simple matters such as immigrating to a region with more opportunity can be a huge hurdle even for the most talented individuals in the world. It takes weird forms sometimes. For instance, India has temples where individuals go to pray to receive their visa. I find it funny oftentimes, but then I realise that both Microsoft and Google’s CEOs likely faced the hurdles involved in clearing the paperwork required for the transition to an economy with more opportunity. Tools to help talented individuals cross the bridge between their environments and those of more opportunities don’t exist as much as they should.  We see this in our own ecosystem when we find talented developers struggle to find the means to sustain themselves while they build on what would very likely be the next big thing  (eg: Austin Griffith). Venture capital is a powerful tool that changed how firms raise, align incentives and distribute profit. Its had a 400 year evolution starting with capital raise for the East India corporation and reinventing itself in the 60s in Silicon Valley. My assumption here is that as the nature of our jobs, economy and networks change - it may be imminent to explore how new instruments in trade and finance can unlock value that could otherwise be lost in some remote corner of the world. This is also likely where cooperatives and DAOs could increasingly come to find value.