The Future of Palantir and Web 3
Exploring Palantir as a vehicle to go long Web 3.
Going Long Web 3 via PLTR 0.00
Blockchain technologies will generate vast amounts of wealth and Palantir is a very reasonable vehicle to capture a good share of it.
Crypto is a revolutionary technology, but the prices of crypto assets today depend on someone else coming along after you and enthusiastically paying more for the asset in question than you did. There is no way to determine the fair value of a crypto asset and so going long crypto implies a leap of faith by default. I am not necessarily saying that assets like Bitcoin and others will do badly going forward, but rather than the underlying mechanisms propelling the price upwards seem to be based on factors that somewhat overlook the productivity of these assets.
On the other hand, I am specially fond of crypto´s potential to act as speed check for the state, which is getting too big and powerful as we have had the privilege of seeing recently. Also, any technology that fundamentally enables the economy to function better is bound to create wealth and abundance. Crypto is very likely to do this by enabling value to be moved around more easily, like the Internet has so far done with information. The question is, therefore, is there at this time a sensible way to go long crypto that does not imply a leap of faith? Palantir may be a reasonable vehicle to do so.
Palantir´s core offering is a digital twin, which enables organizations to create a 1:1 digital “copy” of its operations. This is inherently useful because, as I have written about previously, companies that process information best tend to do better through time. Digital twins enable companies to capture and process vast amounts of information, representing a quantum leap in terms of to what degree a company is able to optimize its operations, versus the traditional analogue way of running an organization. In other words, digital twins turn companies into much better information processing machines:
“At its lowest level, a company is an optimization function, in which we wish to minimize the inputs and maximize the outputs. To do so, we process large amounts of information to pull the right levers. It thus follows that the better a company is able to process information, the more succesful it will be.” - Tesla deep dive
In a certain way, blockchain´s first succesful application has been creating a global 24/7 casino, but fundamentally the technology is making strides in terms of how humanity is able to move around value. Tokens and coins, the atomic units of value in crypto exchanges, now fly around the world by the billions as do emails - at a very low marginal cost. At this stage, many of these tokens have contentious intrinsic value, but once they get connected to the economy in some meaningful way, we will see blockchain drive GDP forward. How can they get connected to the economy, you may be wondering? By tapping into our fundamental value generation and exchange vehicles: companies.
Companies are just not optimization functions, but nodes in a worldwide value exchange network. Companies process information and then take decisions to either send value or request value to be sent to them, in a network of companies and individuals (consumers) doing just the same. A lot of these decisions are manually made by employees of companies, when certain conditions are met. For instance, when supplies go below a certain level, employees of company X will have instructions to buy new inventory and so send out a request. This requires people, which have to get paid and so forth.
A large part of these decisions to send / request value will be written in code, via smart contracts, effectively reducing the minimum viable operational headcount of a company, forcing people to up-skill into the creative domain. Smart contracts are immutable due to their cryptographic properties, so whatever code you write on one of them you know for sure will be executed accordingly. At scale, this turns companies into semi-autonomous value exchange mechanisms, which simply translates into much lower OPEX as % of revenue across the board, with relatively more FCF flowing to the bottom line and in the cases of well managed companies, more wealth accruing to investors.
We have seen this happen over the last twenty years in terms of information exchange and now we will see it happen in terms of value exchange. Companies will get slimmer and much more productive. For instance, when Whatsapp sold to Facebook $META for $16b, it had just 55 employees. Information technologies made it possible to facilitate large volumes of information exchanges (messages) with a relatively small amount of employees. This has in turn unleashed the creation of new and better jobs, in which the key skill is creativity.
Value is not only transacted into and out of companies, but internally too. A lot of the jobs today consist in “when X happens, perform Y action”. Y can be anything from sending an email, to standing up and go have a conversation with someone across the office. The degree of intelligence required to perform Y is sometimes way above AI´s threshold and specially if it requires broad and creative reasoning, yet a lot of it seems to be within reach. The point is that through time, as companies leverage smart contracts and AI continues to get better, a lot of the processes leading and including the actual value transactions will happen on the blockchain - a lot like today computing is moving into the public cloud.
Today, we look out into the economy and the fact that semi-conductors are a basic and foundational operational building block for a growing number of sectors and companies is an evident reality. By fundamentally understanding what a company is (both an information processing machine and a value exchange node), we can draw a line into the future in terms of how blockchain is going to drive the GDP needle. Blockchain will make companies much more efficient. In turn, organizations will need digital twins to deploy blockchain (and AI) technologies at all and so it follows that digital twins will be in the future as foundational as semiconductors.
For this reason, much of the value that blockchain solutions deliver will accrue to providers of advanced digital twins solutions. Companies will not even think about disposing of their digital twins - they will be the core asset of competitive companies for decades to come. Whether Palantir is the best way to go long Web 3 without a leap of faith remains to be seen, but thus far the company is looking very good. Palantir has a unique organizational culture and there are some strong signs of its relative superiority in the marketplace. If you would like to know more about the company, check out my deep dive on it (if you haven´t already):
Until next time!
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