I always have one thought in my mind: If we look back at the development history of the Internet, there’s three stages:
hardware
software(operation systems, dev tools)
and content, where the mass adoption at.
If we make an analogy, in crypto, 2015-2018 is the cycle for building layer 1s ,which are the hardwares. DeFi protocols are the softwares.
Contents? Might be gamings and NFTs (I admit that NFT is only one tech form of asset presentations, representing other forms like arts, social identities, etc.)
And as the tech growing, the users are also growing out of the cycle.
As I positioning at this cycle, my focus gonna be:
Contents: Digital arts&web3 identity
Finance: DeFi(Solving current issues, like low capital efficiency, and problems of information privileges)
Infrastructures, not layer1/2s, but more user-oriented.
NFT is just a tech term, the value behind it is about consensus. To form the consensus, it needs:
1. ownership
2. real scarcity
Digital arts can only thrive with NFT and blockchain. In anonymous digital world the basic needs for participators is identity, that’s why crypto guys always carry a PFP for his/her twitter. The avatars have some kind of symbolic meaning, just like luxury goods in real world.
Digital arts(those bluechip NFTs) are following the path of luxuries, while adding more value via metaverse and creator economies. Sometimes when we talk about cryptopunk we gonna say it’s like Hermes’s Birkin in NFT world.
Arts/collections are also a form of store-of-value, and can be easily understand by traditional collectors. Digital arts/NFTs are better form of arts(if they are considered as store-of-value), because:
Better price discovery
Accessible to financial services
Easy to store and carry
True ownership
Financial innovation has facilitated the production revolution, and behind every round of technological revolution there is the participation and support of capital.
Still trading, lending and asset issuance are three main topics.
In terms of trading, the most serious problem is about information inequality, and at the bottom this problem originates from the design of blockchain consensus(due to block confirmation and latency). MEV affects billions of dollars every week, because they know about some transactions in the mempool, several seconds before all the other traders. That’s a serious problem, leading to unfairness of the market, and institutions won’t join the game if the game is designed with unfairness.
For makers/liquidity providers, same issue. JIT seems to be good for traders, but those liquidity providers take profits without suffering from impermanent loss, just because they have information privileges. This causes squeeze out effect for other LPs.
Lending is capital inefficient because there’s no credit creation in crypto, all the lending and borrowing activities shall be over collateralized, leaving some assets unused. Moreover the interest rate changes all the time(due to the lending pool’s design, in order to make the pool open, the interest rate curve charges high rate when pool usage is too high) , and this makes it hard to grow a stable money market.
Better user-experience first, then applications. Application gonna pull more adoption for infrastructures. That’s a spiral, and that’s will be some kind of flywheel.
Looking back to 2021, the rise of Axie Infinity was after:
The launch of Ronin blockchain, Axie Infinity’s layer 2
Axie’s own Wallet
On/off ramp services integration
Most signs I observed are in wallet side, like MPC wallet, and most importantly, smart-contract wallet.
Some investors think that wallets are just tools, and can not hold users. For example, if I don’t want to use Metamask, I can just export my private key and use Trustwallet instead. But for smart contract wallets, they need to integrate with other contracts, even design some function specifically for some Dapps. Thus they will form a strong ecosystem. It’s hard for users to leave when you have a whole ecosystem, Apple is the best example.
This is an age of war between eastern and western. The world will be more separate. Decentralized digital assets gonna be a/the financial bridge.
Chinese teams are too hard to build a geek-feeling developer community. It’s hard even during the 2018 bear market when I was still at Nervos Network, one of the best team focused on Layer 1 protocols in China. We lose once during the battle of layer 1s.
But China has the largest, and also the most competitive market in web2. Their customer-end products have the strongest growth capacity. Next wave, with huge volume of normal users, products will speak.
Looking forward for this year, 2023, my second time in bear market.