Ideas compound and compose just like interest and software
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Hi friends 👋,
It’s a short week so I’m going to keep this one short. Hopefully it helps you explain the magic of everything going on out there to your family just a little bit better.
Let’s get to it.
Ideas can build on each other like legos, just like software. Ideas are composable.
Composability is one of the key features of web3. Chris Dixon defined it as the “ability to mix and match software components like lego bricks” in a thread he kicked off with this analogy:
“Composability is to software as compounding interest is to finance.”
Compounding interest is just money building on itself. It’s math that, on a long enough time horizon, looks like magic.
Every time you earn interest, that new interest starts earning interest, too. Take $100k, buy a bond at 6% interest (ah, the good ol’ days), sit back, and end up with $1 million in forty years. Compounding is an easily quantifiable concept that’s hard to internalize. We underestimate its power often.
Composability is just software building on other software. Each new protocol or NFT is like a lego to snap into others.
Each new combination becomes its own new lego block, until, a few interactions in, you end up with something exponentially more powerful than the original building blocks. That’s why Chris said composability is like compounding.
Because software isn’t as cleanly quantifiable as money, it’s even harder to intuit the impact of composability than of compound interest.
We’ve discussed composability in Not Boring, too, both as it directly relates to web3 and as it relates to tech more broadly.
Last Monday, I told you about the launch of Composer, whose elegance is derived from users ability to “compose” building blocks into automated trading strategies called Symphonies. The product is composability.
And on Thursday, I quoted Stytch’s Reed McGinley-Stempel on the power of APIs:
Serendipity is one of the most powerful building blocks for developer platforms. You’re exposing helpful primitives to developers so that they can build better products.
This isn’t a new phenomenon. Composability is the engine that drives open source software.
Whether web3 protocols, APIs, or open source software, composability means building in such a way that the next builder can pick up where you left off, add their own twist, and leave the combined work for the next builder.
That has implications beyond software. In August’s Compounding Crazy, I wrote that composability is the reason that human progress accelerates:
That’s what powers the increasing pace of innovation. Discoveries become inventions become building blocks become inventions become building blocks, ad infinitum.
That idea was a riff on an idea from Tim Urban’s 2017 Wait But Why essay on Neuralink:
The forces of macroeconomics make the Human Colossus’s core motivation to create value, which means it tends to want to invent newer and better technology. Every time it does that, it becomes an even better inventor, which means it can invent new stuff even faster.
Urban’s is the most expansive view of composability I’ve come across, even though that’s not what he calls it, because he’s not talking web3 or software specifically, but about knowledge.
Language made ideas composable. “Knowledge, when shared, becomes like a grand, collective, inter-generational collaboration.” Then technology -- from the printing press to the telegram to the phone to the internet to Twitter -- made it easier to connect to people and share knowledge. Ideas got bigger and better faster and faster. Ideas composed and compounded more quickly.
If compound interest is easy to quantify but difficult to feel in your bones, and software composability is harder to quantify and even harder to intuit, idea composability is the hardest to measure and feel of all.
When an engineer plugs in an API or web3 protocol, they’re making a conscious choice. When someone picks up and riffs on an idea, though, they might not even know that they’re doing it. If you want to pull this thread, you should read Questlove’s Creative Quest. My main takeaway is that creativity is remixing.
Idea composability is underappreciated because it’s hard to measure and trace. But idea composability is one of the main contributors to all of the progress and speed we’re experiencing. Ideas are building on each other more quickly than ever before, too.
We’ve only had access to the world’s knowledge at our fingertips for like twenty years. That’s practical knowledge -- like mathematical equations or SAFEs or lectures -- but it’s also inspirational knowledge -- whenever a person or group of people does something, the rest of humanity knows that thing is possible within minutes. It wouldn’t make any sense for that access to knowledge and inspiration not to result in progressively more spectacular results.
On the inspirational side, the famous example is the four-minute mile. The mile world record dropped from 4:06.2 to 4:01.4 between 1942 and 1945, and then it stood unbroken for nine years. After Sir Roger Bannister broke the four-minute mile, the next person did it 46 days later. A year after that, three runners broke the four-minute mile in the same race.
Bannister proved that humans could run a mile in under four minutes; other runners took that knowledge off the shelf and used to break it four minutes themselves.
I remember reading a book a few years ago, I think it was The Rise of Superman, in which the author described a similar phenomenon in extreme sports like skateboarding. A particular trick would be impossible until it wasn’t, and then the next batch of skaters would build on top of that trick. That guy did a 720? Cool, the next guy will try to rip a 900.
Importantly, unlike software, skateboarders can’t just plug in the other person’s 720 and snap another 180 on top. Skateboarding tricks aren’t technically composable. Each skater has to do the full thing themselves. But the proof that something is possible unlocks something that helps the next person go bigger. From there, 1080, then a 1260.
Things that seemed utterly impossible a decade ago are table stakes now.
The same is true in the slice of the world that we cover here: startups and web3.
The gap between idea and execution is shrinking. Composable software and composable ideas compound in parallel and feed off of each other.
A new idea, built on a long chain of older ideas, can quickly combine with software that’s been composed of other software and go live within weeks or even days. That project gets to market quickly, teams up with memes and money, spreads, and its technical and conceptual components become new building blocks themselves, waiting to contribute to the next idea.
If software composability alone is like the traditional example of compounding interest, that bond that clips 6% every year, then the composability happening at the intersection of these parallelized compounding streams looks more like DeFi 2.0, in which people are staking their tokens to earn up to 0.9% every eight hours.
Smaller, faster advancements compound on themselves quickly. That kind of rapid compounding produces very big results very quickly.
Let’s get meta. DeFi 2.0 itself is a prime example of this phenomenon.
Decentralized Finance (“DeFi”) exploded in popularity in 2020 during “DeFi Summer.” Total Value Locked grew from ~$1 billion on Memorial Day to ~$8 billion by Labor Day. DeFi 1.0 created a new opportunities for on-chain lending and borrowing, but also faced challenges, namely protocols’ ability to retain liquidity. In the beginning, they offer eye-poppingly high yields to convince people to stake and create liquidity, but once yields drop, the money goes away. It’s not loyal.
So OlympusDAO launched in March this year, less than a year after DeFi Summer, with proposed solutions to common issues with DeFi, kicking off DeFi 2.0. The TL;DR is that DeFi 2.0 protocols own their liquidity instead of renting it. Olympus isn’t composed of DeFi 1.0 software as much as it’s composed of DeFi 1.0 ideas, game theory, and market understanding of DeFi. Offering 7,000% APY seems less scammy once people are used to very high DeFi yields.
Since March, Olympus itself has become a building block, spawning a new generation of offshoots like Klima that compose Olympus’ DeFi lego, using Olympus Pro, but also its idea lego, namely: what happens when you create a black hole for certain types of assets using bonding and staking. (We’ll have to do a piece on these soon to explain, but for now, focus less on the details and more on the process.)
Instead of sucking in crypto assets, like Olympus does, Klima sucks in carbon offsets. It’s a financial instrument that also might help save the planet. Klima, in turn, is inspiring a new wave of builders to dig into how we might protect the oceans or improve healthcare with a similar mechanism. Using DeFi for good is a new idea lego, a primitive on top of which serendipity will happen.
Without the idea of DeFi, no one would have thought of Olympus. Without Olympus, no Klima. Without Klima, no next thing that sucks real-world assets on-chain to help people or the planet. The software composability is important here -- it will be much easier for the next entrepreneur to get the product off the ground -- but the idea composability is just as big a factor.
And then, of course, there’s ConstitutionDAO (📜,📜).
Last Thursday, a couple of people saw that a copy of the Constitution was going up for auction. Sunday, a DAO was set up and contributors were contributing. By Thursday, we bid up to $40 million for the document at Sotheby’s before losing to Ken Griffin.
ConstitutionDAO itself was a beneficiary of both software composability and idea composability. The core team was able to snap together existing pieces like ETH, Juicebox, Discord, Twitter, meme formats (📜,📜), DAO legal structures, people’s understanding of crowdfunding, and their vague understanding of DAOs to create something out of nothing in a matter of days and pull in $47 million from 17,482 people in less than a week.
But no good idea goes unpunished.
Throughout the week, I saw a bunch of tweets that basically said the same thing: “Instead of buying a piece of paper, why don’t you use that money on something important, like [curing cancer/ending homelessness/saving the planet/etc]?” All of which are valid asks, and all of which miss the point entirely.
Those critiques view the option set as binary and static instead of composable and exponential. There will be DAOs that tackle those challenges sooner because ConstitutionDAO existed.
After we lost the bid, many people involved, myself included, pointed out that the process demonstrated the power of DAOs. The perma-cynics pushed back on that optimistic take (this video is the funniest manifestation):
But perma-cynics have been proven wrong over and over and over again. They miss the forest for the trees.
ConstitutionDAO created another idea lego. In the past few days on Twitter, I’ve seen proposals of varying seriousness to launch DAOs to buy NFL teams, soccer (football?) clubs, the Empire State Building, fossil fuel companies, to buy and decentralize businesses, and to raise money for worthy causes. These ideas will get bigger and more impactful. The design space has opened up.
The next DAOs to launch will have a built-in advantage. The fact that DAOs operate more openly and publicly than a traditional company means that its lessons, positive and negative, are more easily composable. Even the (necessary, given time constraints) shortcomings -- like telegraphing our max bid in a public wallet, not being able to fractionalize ownership for regulatory reasons, and dealing with high gas fees -- gave builders new things to work on and provided the next DAO a clearer roadmap. ConstitutionDAO itself is using the learnings to adjust as it heads into its second chapter.
Although DAOs have been around for over half a decade, publicly pushing the boundaries of what a DAO can do in just a few days and spreading the message on the wings of memes has incepted millions of people with new idea legos, which they’ll be able to compose with other idea and software legos to run the next experiment.
ConstitutionDAO happened in a week. These ideas will spin up and compound quickly. In aggregate, the progress we make will get very big, very fast. By this time next year, chances are, the bid to buy the Constitution will be a quaint but important memory, one big lego near the base of a much larger composition.
The fun part is that anyone can add ideas to the composition. You don’t need to know how to code. All it takes is an awareness of the building blocks available and a willingness to play around, remix, and add your own unique twist, even if your twist is just an idea. This essay was just a remix of other people’s ideas, and hopefully it inspires new ideas and new projects.
The future will be a composition of the legos we create today.
Happy Thanksgiving to everyone, except the perma-cynics.
How did you like this week’s Not Boring? Your feedback helps me make this great.
Thanks for reading and see you on Thursday,