This is my first long form piece of writing since my tradingview charts. I’m going to go over how the industry has evolved these last couple years, evaluate what happened compared to my expectations, and explore what I’m interested in as a trader moving forward.

I’ve split the article into four sections: Past, NFTs, Fungible Tokens, and Future.

Past

To start, let’s rewind pre-pandemic. @22loops tweeted about what the big things next cycle would be, and I replied:

For context, this comment is coming off of a year long twitter break, in which I had traded significantly in the CS:GO skin market, and had also begun investing in physical collectibles like the Pokemon TCG. Even before COVID I was certain the future contained increasingly online and at-home life, and that this would mean an increase in demand for hobbies such as collecting, with an emphasis on what younger people enjoyed as they came into wealth. I was accumulating a large Ethereum position as per a tradingview chart I had made in 2019, and had poked around on chain to experiment with different projects such as Urbit. All this had really opened my eyes to the potential of ERC-721s - now widely referred to as NFTs.

At the time I imagined they would largely be used in games such as Gods Unchained, wherein they have power (utility) and are sought for collecting. Items in games typically have value because it is either pay to win, or the item is a flex. The latter is what the NFT market largely evolved into, its social space being some intangible metaverse which no one really knows the meaning of; the audience is scattered and diluted in attention, saturating any meaning or desirability a veblen good can have.

My tweet mentions DeFi before the summer, but it is something I mostly ignored investing in. My idea has always been that governance tokens border on worthlessness as protocols will simply fork and undercut each other’s fees to capture a larger share of the market; the growth in use of defi was what I was looking at, which has happened, a great boon to ETH. Defi tokens have mostly fallen flat, so while I did miss some early gains I also avoided all of the blow ups.

I mention on-exchange staking but didn’t foresee the rise of liquid staking solutions like Lido. I am still surprised this is not native to eth in some way. I expected the on exchange staking to attract retail to decent yield bearing cryptoassets, native and defi, but sadly it seems LUNA captured a lot of this attention.

NFTs

A large part of my collecting in the NFT space has been 1/1s directly from artists. This space is a dream come true for both collectors and creators. Digital creators are now able to sell their work just as traditional physical pieces are sold, allowing a viable model of support outside of the gofundme or patreon structure. It allows collectors access to a perfect form of authenticity, an immutable record of all movements of an art piece, the identity of the minter only needing to be confirmed by an external social consensus. This concept isn’t really any different to trusting oracles, which is good enough to run DeFi. The emergence of this medium has helped many understand that magic internet money really does not have to be tangible to have value - it seems art was a great way to communicate this.

Artists and collectors have been able to connect with unprecedented efficiency. no longer do you need to subscribe to galleries and auction houses, but instead a piece can propagate through social media. This increases liquidity, money velocity, and ultimately speculation, which can cause an inflation in prices in the short term and a false expectation of profits for everyone - the relationship between artist and collector is often strained, at odds with each other, and can create a toxic environment towards artists.

Art has been one of the best performing parts of my portfolio in this downturn, and can largely be decorrelated from ETH. NFT art that attracts traditional collectors taps into fiat based demand, and so hot artists can still pull in the same dollar numbers seen when eth was $4,000. Moreover, the type of people who collect this art are very dedicated and are not looking for a financial return; they rarely let pieces go, unlike PFP traders who will sell for a loss within minutes. This combines to make one of the most enjoyable and calm assets in the space. The only pitfall is terminal illiquidity, but if you avoid the hype and only buy things you really like, it will be money well spent regardless.

I have been an avid collector of NFTs of memes, pieces of internet culture that have until now never awarded any value to their creators or supporters. The cultural value of a piece of art or a collectible tends to reflect in its price, so it is in my opinion a no brainer to bet on these pieces. It is one of the most asymmetric bets available in the investing world. If I am wrong, then I have loved pieces of art with a unique story behind them. I doubt NFTs lose their legitimacy. I acquired each of these for about $40k:

How many times have you seen the gigachad meme? How many times has it been reused, manipulated, made you laugh? Did you know he was a real person? Did you know he actually isn’t a real person? Is his face burned into your memory? The artist’s social media depicts a kayfabe life, but they did mint this.

The other is Kabosu-chan, a Japanese Shiba inu who was the subject of the original doge meme, inspiration for dogecoin and everything after. This picture is from that same photo shoot, auctioned as a series of eight. If Elon is willing to spend billions buying dogecoin, there is no reason someone would not pay a huge sum for something with actual provenance, the magical property of storytelling that makes art so valuable. This tale is as old as time, the golden bough driving men to murder over something worthless outside of its context. But then again, maybe valuing provenance is a vampiric attack on the community who have grown the meme, or an insult to the artist who intended her proceeds for charity.

The difference in value between dog coins and the closing auction price of the doge NFTs was magnitudes. One has provenance and the others have communities from nothing. SHIBE is especially egregious in this regard as it does not have its own chain and is relatively new, only having an ingenious LP-lock gimmick. This disparity is what gave me the idea for NFD, but I will leave my own projects out of this piece.

Hashmasks & the 10k Meta

Hashmasks went the way of Tenebrix, an extremely early altcoin that completely failed to capitalize in any cycle. As Tenebrix invented Litecoin’s scrypt, hashmasks set off the limited collection reveal hype. This 10k meta wooed the trading community and directly inspired the creation of BAYC. Cobie and I had a part to play in this, roping in the traders; and so a new type of ponzi cult began.

Hashmask’s popularity began in the punk and axie circles, eventually filtering through to CT. It sold out a day or so after this message, making around ten thousand eth. This notified the local grifters that they too could print the quickly appreciating ETH with a smorgasbord of fiverr assets and a poke of a gambling “influencer” such as myself. The reveal of hashmasks was very fun; the first experience of finding rare traits, cataloging things, the information asymmetry that relies entirely on your own research - this is the dream for a trader’s brain, one where a real time exploration of data and quick sniping can concoct instant magnitudes of profit. Of course, the reveals would get more boring, the art less inspired, and the opportunities automated.

The experience was much like 2014 altcoins, where a dedicated trader with a small amount of capital could compound gains by riding one pump then flipping to another. This endless momentum trading creates an easy environment for new participants, one where they can blindly ape in and make money. Bad habits are created, along with trading strategies that prey on those bad habits. This creates a culture of people hunting for the next Darkcoin/BAYC, and just as many developers arriving to absorb that demand. This leads to our current environment, a severely saturated space that can no longer sustain capital flows, a vicious cycle of collapsing momentum. Retail holds heavy bags of jarring jpegs they could have commissioned for one percent of the price they paid.

Having just come from a world of collectibles, I learned that one of the safest and best performing bets were higher tier items. What they lacked in liquidity was made up for in prestige, an asset that prevailed in poor markets and asked its price in strong ones. One of the few hashmasks I kept was a mystical, one of the rarest in the series. After I minted BAYC, I sold on the way up, my last ape leaving in the August peak - but I kept my honorary ape, thinking the rare promotional one would be so much more special. This failed completely. It was not part of the main collection and thus had none of the perks, and moreover the community could not care less about meaning. I will spare them any insults. I was astonishingly wrong about this. I did not see the airdrop mechanic working so well for so long, expecting a diluted ecosystem to split demand and strain incentives between collections and shareholders and so on. This did finally happen, but far later. Honoraries no longer have any demand (not that they had a lot to begin with), a floor twice that of a standard bored ape.

Urbit

Urbit was my first large NFT investment. Urbit is a fully decentralized stack, an OS where you own all of your data. The network is made up of Galaxies, stars, and planets, in a limited space like IP addresses, an hierarchical feudalist trait adopted from the ideology of its ejected founder. Each address has a unique name and accompanying sigil, with rare ones going for a premium, though this seems to have mostly evaded the eye of snobbish generative appraisers and ENS hunters.

It is very similar to the web5 idea recently pitched by Jack Dorsey.

Urbit is home to a rapidly growing ecosystem of apps and communities. It has underperformed Ethereum since I invested, but has been fairly stable for the last eighteen months or so, creating a liquid market for trading addresses in a less clunky fashion and incubating projects such as Uqbar.

I have admittedly not used Urbit since 2020. Hoon/Nock are finicky, and the setup experience was painful at best, but it did eventually work. I have no doubt it has improved by then. The most fun I had was running a script to dig up the vanity names my stars owned; my favorite has been made my main, ~parsed-sorted.

Urbit is well positioned to be the platform for the digitally sovereign, the home of modern cypherpunks who care about online freedom; what information they share and what is shown to them, something that will be increasingly important in time. Despite the lag on this investment, I think it has a much longer journey ahead than any other I own.

Fungible Tokens

Zcash was a relic of a trade idea from the 2014 era of anon coins. The project itself is years older, having been funded by several government agencies, Amazon, and a certain family famous for tax evasion.

Having Zooko onboard - someone cited by Satoshi - it made sense as a long term conviction for me. Zk-snarks are revolutionary technology and being the first chain to natively use these for actual real anonymity is incredible. It appears they will be used to scale everything, to defeat MEV, even to create games that were previously impossible - but it may be that value never accrues to the original chain.

Tezos and Zcash were my L1 trades. They both performed anemically as newcomers like LUNA blazed their way into the industry. I almost entirely skipped the solunavax trade this cycle, and have only recently started a serious SOL position. I think FTX’s current position in the industry combined with retained users on solana is very a strong sign for the chain sticking around, so this is going to be a long hold. It was not attractive during the cycle for me because a chain that consistently has to be rebooted or frozen or whatever should not be worth eleven figures. I never had any fomo on this trade. Tech must be proven consistently before it is investable at large valuations; lindy is better, which is why bitcoin maximalism is so pervasive. This attitude (and taking the time to think about its mechanism) allowed me to avoid the catastrophe that was LUNA.

Cults of Personality

This collapse created contagion. It seems that 3AC kept their collateral in the doomed UST, such that when LUNA’s mechanism combusted they had no automatic risk management and were suddenly severely overleveraged. Rather than take the L, Su Zhu and friends resorted to lying and praying the worst wouldn’t happen. It did of course, slamming the industry into a trench where it now struggles to attract new credit.

I didn’t know who Do Kwon was until LUNA collapsed, but it’s clear he had a horde of people cheering on his ego. Supporting bravado like this and drowning out any criticism of a protocol leads to a failure in social consensus; most people don’t understand the code or even the concepts behind a protocol and rely on other people they trust to guide them in those aspects. This apparently extends all the way to the top of the food chain, with misplaced confidence swaying multi-billion AUM funds into a false sense of security.

I never once tweeted about three arrows or Su, which is a shame because it means I’m not included in the legal documents of related shitposts. I first heard about him before he was well known, through a 2019 discord chat where he was in denial and aggressive to an employee about an oversized UNUS SED LEO position.

There are many other cults of personality in this space, surrounding traders and influencers alike. It always results in some sort of tribal toxicity that drives engagement, spurred on by the weight of bags held by supporters. This has happened as early as Zetacoin on CT, a 2014 scam in which Konen Saarin - a fictitious pseudonym of Joe Henderson - pretended to have been in talk with Kenya’s safaricom in using the cryptocurrency as part of their M-Pesa mobile payments network. Nowadays, this brainwashed sunk-cost defense puts walls around clear cut cult leaders from 888 to named VCs.

Revenue Generation & DAOs

Axie genesis land was an investment I made relatively early on in the NFT cycle. It is a plot of land at the center of the Axie world, planned to reward the owner a portion of the resources farmed on it by other players. I once again expected a higher tier item to outperform similar assets. It underperformed AXS significantly and did not generate any revenue, until recently Sky Mavis created a set emission for each plot to fill in up to launch of the full game. The Ronin bridge hack took a chunk out of the ecosystem’s treasury and has severely impacted prospects. Despite this car crash of a ride, it holds a floor several times what I paid for it and generates $500 a day - which actually gives it one of the best P/E ratios in the world.

Looksrare is another example of decentralized revenue generation, an NFT marketplace where the fees are rewarded to token holders. Appropriately set up, these things can evade all legal responsibility and sanctions, and will be some of the first anchors in the foundation of a new economy should the world choose to pursue it. Useful protocols have an invulnerable staying power, melding a social contract from financial incentives and demanded service. Binance has achieved this, escaping even China’s arm while still complying with global KYC to maintain banking relationships. I think it’s going to be very interesting to watch these entities and how their power evolves over the years; whether they will be antagonized, or joined.

General market outlook

ETH has actual real demand; It has an exciting ecosystem of apps and art. This drives use, innovation and money velocity. Bitcoin has a culture of holding, having moved away from the currency focus. Its hostile attitude to almost all protocol changes created an antifragility that while useful in preventing consensus attacks, has led to a retardation in adoption of new uses. These have been in development for years, such as smart contract platform Rootstock. Counterparty even predates Ethereum, and its wealth of NFTs draws the most attention of any Bitcoin related d-app. Bitcoin is incapabale of generating competitve fees from these uses, has users who refuse to use it, and has no active mechanism for rewarding them; they are slaves to miners who will profit no matter the price. The idea that Bitcoin is sacred because it was the first is hilarious. This does give it a good distribution (maximalists are very insecure about Ethereum’s “premine”) but this does not give it the right to being the ultimate asset of wealth preservation. Bitcoin’s demand depends on its brand of safety compared to shitcoins - but Ethereum is just as lindy now, and has eaten Bitcoin’s lunch regarding uses beyond just sending money.

Ethereum has no reason not to capture the majority of incoming users and developers. Its scaling endgame is finally in sight and Bitcoin has failed completely to capture this, stumbling for years. The benefits of Ethereum’s future demand and supply belong entirely to its holders - but miners own Bitcoin’s. Ethereum’s adaptability allows it to be the nexus of the industry for all time to come, and its continuous success will draw people from boring systems. You are a fool to not jump ship if you have not already.

Future

I think Ethereum is positioned to be the answer cryptocurrency has been looking for. I have spent almost ten years in this industry, and it seems to be reaching the end of its arc in what it set out to achieve (functionally - I think it has a ways to go in use), so we must look for more exciting things.

AR

In 5-10 years, AR will be as mainstream as phones; big tech will produce glasses that interact with every aspect of your daily life. This begins through productivity increases of workers - dynamic visual pointers - but it will soon evolve into real time guides for daily life, face filters, “real” avatars that people identify as, and probably digital metaverse belongings that have fashionably grifted their way in besides it. The world will become marginally more efficient but our mental health will deteriorate - some 10 year olds already suffer from body dysmorphia as they do not look like their favorite filter, and this technology will be flaunted as a cure rather than seen for the horror it is.

From a profiteering standpoint, I think the average NFT “entrepreneur” would be better off getting ahead in the AR field (NFT or not) and exploring what apps could be peddled well in advance of the rush. Moreover, you could create something that already exists with the help of the demons in the next few paragraphs.

AI

AI’s pandora’s box is open and evolving rapidly. Specific applications are quickly reaching levels indistinguishable from human capabilities. You can use these tools freely; Lc0 can beat anyone at chess; GPT-3 can write convincing articles; impressive visual manipulation like image upscaling has been upstaged recently by DALL-E 2. These applications will be fused with existing methods of automated psychological manipulation already deployed on social media. Information and attention terrorism will accelerate exponentially - here’s a few examples of what will soon be trivial and commonplace:

• Heaven banning, a method of confining a user in a fake environment of AI users and content, is a way of maintaining engagement & therefore ad revenue of the user while separating their toxic behaviour from real ones.
• Personalised social engineering, wherein you are targeted by human-aided AI with sudden disruptive information (voice simulation is incredibly close to convincing) that can make you panic or slip up with your security.
• Automated communities will be popped up to simulate real active discord chats and twitter spaces - this can easily fool people into buying into projects and ideas, especially when the price is wash traded up.

I do not think these tools have significantly profilerated throughout media yet (though some believe they have). They will be used to frequently fake events, their reactions, and bend reality to the whim of the user. It will be used to dilute and misdirect information around real events. This already happens, but the volume and personalization that comes with automating these processes will be insurmountable for most people. Outside of abandoning mainstream platforms, I cannot see a way forward without verification of all human users, which is a death knell for anonymity on classic web2 infrastructure. I am somewhat jealous of authoritarian identity systems like China’s - I think they will be far more robust in defending against these evolutions.

This brings us to the question of history and authenticity. Blockchains are a great tool for recording verifiable time-stamps - but ultimately even this is underpinned by human incentives. Our current incentive systems revolve around capital and the human drive to preserve it - bots are only ever given capital to trade within extremely rigid parameters. Could you pop up an entire network of people to legitimize an artist that has stolen all of their work from a real person? There are myriad attack vectors to our qualia through information alone, and automating this as a sufficient rate might make reality indiscernible. It will be an incredible real time experiment to see how reputations and context-as-value hold up while under the attack of spun up people, stories and events. Eating into our social connections to extract profit will be the first venture of truly creative technocapital. This is as much theory fiction as it is speculation and moral panic.

CT?

There are only a handful of original participants still here. They have displayed survivability, trading acumen and cutting edge social surfing. I may be a bit biased. These are the people you should trust with projects, DAO votes, “grail” pieces and so on. They are indebted to the space because it has made them rich and they are addicted.

There is a culture in this space of drama, and of chan style humor. This compliments our casino world to make a hellhole of mental health. We should strive to improve this as a community, and avoid supporting bloviating NXIVM wannabes masquerading abuse as art. Two factions of a far right group managed to make the most mainstream and the edgiest project in the space, one existing as pure chaos with a history of bullying people to suicide. I was the first honorary created by both of these projects. My own attention and profit seeking, a will to be cutting edge of some sort has landed me in the position of useful idiot. The post-ironic tone of so many in this space, my own up only tweets included, can be funny to regulars and cruel to those unfamiliar or unwell. This doesn’t mean it should be unacceptable, but there are so many nuances.

There is an optimal way of presenting yourself in open social media, a malleable identity both victim and champion. This behaviour can and will be intuited by ML systems, turning unverified platforms into forests of attention maximizing sociopath mimics. We are seeding the parameters of these brains with every action we take. Do not make it easy for our future tools to emit pain; do not forget what actually matters to you.