Jurisdictional Competition

The economist Paul Romer introduced me to the idea of jurisdictional competition about ten years ago and I’ve been fascinated with it since. His TED Talk about charter cities from 2009 is a good primer on the concept.

The basic idea of jurisdictional competition is countries, cities, and regions can compete economically with each other by adopting more favorable laws and social norms.

We are actually seeing this play out right now in the crypto sector with the Swiss Canton of Zug becoming the preferred location to domicile a crypto-currency business.

Zug has even taken to calling itself Crypto Valley.

We have watched the blockchain companies in our portfolio struggle to adapt their business models, financing approaches, and more to US laws. We have been working with them to come up with creative ways that they can continue to operate in the US while executing the crypto playbook. It has been quite challenging. Many have advocated just moving the businesses to Zug, like so many others have done. And that may happen. We are for whatever is best for the founder and the business they create and have no preference for US domiciled companies. We have invested in Canadian companies, Estonian companies, French companies, Dutch companies, German companies, and likely a lot more. Investing in a Swiss domiciled company or foundation would not be a big deal for us.

The crypto playbook is a disruptive one. It is not a new way to raise money. It is a new way to architect a business. The profit motive is flipped upside down. You extract profits with your currency, not your business model. They are so many institutions, laws, even governments that look at that playbook and freak out. There has been pressure for years to rein the crypto sector in. And many rules and laws have been passed. And yet the crypto sector continues to flourish. Some of that is because it is, like the Internet, a global technology that knows no borders. Some of that is because lawmakers and regulators have been wise to tread carefully. And some of that is because nobody wants to drive this sector out of their city or country.

And yet that might happen anyway. It is already happening. And the US, and Silicon Valley in particular, have the most to lose if it does.