I read through Messari Crypto Theses for 2022. It’s 160 pages of key trends, people, companies, and projects to watch across crypto as well as 2022 predictions. I understand that not everyone has the time or energy to read the report.
So I’ve decided to create a highlight reel of the most interesting stats and quotes that jumped out at me as well as my thoughts surrounding them.
“There’s been a lot of “flippening” talk from ETH mega-bulls recently. Could ETH overtake BTC this cycle? Unlikely.”
I’m a big Ethereum fanboy and I too love to engage Bitcoin maxis with flippening talk. It's just too fun and easy to troll them regularly.
Is it possible? It definitely is as there are no clear use cases for Bitcoin anymore while Ethereum continues to add more.
However, as the market kept ramping up, fees increased, and the network became congested and slowed down. That gave the opportunity to Ethereum killers to start catching up. Make no mistake, Ethereum still has a massive head start but the killers gained a lot of ground during this most recent bull run.
“Solana et al: The new “it girl” of crypto is gunning for the #3 spot in crypto market cap ($60 billion). But then again, so is Polkadot ($40 billion), and Avalanche ($30 billion). If the thesis for these alternative Layer 1 protocols is that they are higher beta plays than ETH that will eat into Ethereum’s market share dominance, then you’re forced to ask, “what about Terra ($16 billion), Polygon ($12 billion), Algorand ($11 billion), or Cosmos ($7 billion)? The relative value trades all come down to business development wins (app distribution) and recruiting wins (can you attract developers to build on non-Ethereum blockchains). The “Ethereum killers” all have the money to compete aggressively, but as an investor, your choices are to either pick winners or buy the basket (short Ethereum Layer 1 dominance). Either way, these assets tether to ETH.”
Speaking of the Ethereum killers, there are a lot of them vying for the top spot and all of them tout the same thing – Speed and cheaper fees. Most do this by sacrificing core Ethereum values such as decentralization, trustworthiness, permissionlessness, and censorship resistance. Solana especially has taken a lot of heat as being called a centralized VC coin where you can contact the CEO.
This disgusts Web3 maxis who believe blockchain should decentralize power away from corporations, not give more to them. With all that being said, there’s a market for centralized VC coins and Ethereum still scares the shit out of old money or institutions. They want to be able to call the CEO of Ethereum and can’t get past the fact that there is no CEO.
The Karens of the world also hate it because now they have no one to complain to or blame for their own mistakes.
“Bitcoin dominance slid from 71% to 42% this year. Bad. But ETH’s smart contract platform dominance also slid from 80% to 60%, and might bleed additional value to its new Layer 2 rollup “allies” that come to market in early 2022.”
What about the other chains like Polkadot, Avalanche, Polygon, Algorand, or Cosmos? Polygon is more of an ally to Ethereum than a competitor. The others do have different strengths and weaknesses in their own right but they won’t all win.
The most likely scenario is that they cannibalize each other’s user base as well as some of Ethereums as well. One of them could bust through and beat Ethereum one day but that isn’t likely before Ethereum solves the scaling and congestion issue.
Remember, Ethereum has the most developers of any other chain out there and great Web3 developers don’t just grow on trees. Most cut their teeth on Ethereum and while Silicon Valley talent is flocking to Web3, it will take them some time before they’re proficient enough to code great dApps.
“Vitalik and the other Ethereum core developers have already rallied around a “roll-up centric future” which prioritizes the security and decentralization of the base Ethereum blockchain intentionally over its scalability, which will be pushed to other adjacent chains.”
The killers still have catching up to do but they sure have closed the gap. Now it’s up to Ethereum to widen it again. One of the reasons Ethereum is slower than other chains is that they scale core Web3 values and with it. Chains like Solana sacrifice decentralization and security for speed and cheap fees.
Newer Web3 users may not care as much about decentralization or censorship resistance dApps. It's the same thing with surveillance today. A lot of people have just accepted the fact that they're being spied on for the sake of convenience.
“How about more generally speaking? Could ETH overtake Microsoft, Apple, or Google? That would be a 3-5x from here. Could it eclipse all five combined? That would be a 15-20x, which feels like a tall order even if ETH at 5% of FAMGA market cap feels cheap.”
It seems crazy to think that Ethereum could one day overtake Microsoft, Apple, or Google but it’s possible. Microsoft and Apple or operating systems for businesses and creators. Ethereum is an operating system for the rapidly growing Web3 and the world is being rebuilt digitally.
Google is now the gateway to how we interact with the world around us. When we want to interact with the world we Google how to which makes it a long shot for Ethereum to overtake unless there’s some sort of decentralized version created.
Ethereum is a world computer and a centerpiece of Web3. Users will continue to spend more time learning about it, interacting with it, and building on top of it. As people demand more decentralization away from corporations, Ethereum will continue to onboard new users.
But so will other smart contract chains.
“Long DeFi, short the bankers, amirite!? Despite DeFi’s monstrous 2020 run, DeFi trades at less than 1% of the global banks’ market cap, which shows how much upside remains long term. Prices have stalled for some of the top DeFi protocols, but if you have the conviction that crypto capital markets will displace centralized institutions at an accelerating clip, it may offer better risk-reward opportunities than elsewhere in the market today.”
What an insane stat – DeFi is infinitely more efficient than global banks but only trades at less than 1% of their market cap. Yes, DeFi is in a bear market but the upside is there. The big concern right now is regulation and that is coming in some form or another.
How severe it remains to be seen but the institutions who have interacted with it are licking their chops with the upside potential. Speaking of institutions, they haven't fully aped yet because it scares the shit out of them!
“Institutions are still practicing before apeing into defi”
It’s no secret that the slimy Gary Gensler and Elizabeth Warren hate DeFi and want to regulate it to hell. The Biden administration has already pushed through a weird law in the infrastructure bill that would cripple DeFi if it were enforced.
However, DeFi isn’t going anywhere. If the US cracks down on it the builders will go elsewhere and continue to build. The momentum is too great and now users are aware of the upside.
“Given the fact that they’re...non-fungible and illiquid, it can be difficult to ascribe any sort of reliable “market cap” to the NFT sector. DappRadar estimated NFT market cap of $14 billion in early September, a number that has risen since. Given the design space that NFTs have opened up for the entire crypto user economy, the long-term size and scope of this segment is scary big. Meltem points to LVMH ($375B?), while Su Zhu thinks we’ll see 10% of crypto ($225B today) in NFT market cap”
NFTs are just getting started. They’re fun, highly illiquid, and highly volatile. At only a $14 billion market cap there is an insane upside to grow into. If NFTs hit $375 billion that’s 27x from here. The NFT infrastructure needs a lot of work still which is a good thing.
Think early Bitcoin where the only legit exchange was Mt. Gox. Yes, there will be some user experience issues such as opensea going down but that only signals how insanely early we are with NFTs.
“Over the past 18 months, OpenSea* has enjoyed one of the fastest revenue ramps of any business in history. They’ve gone from a seed-stage startup to a potential decacorn, and I think they could eventually be a $100 billion company (or network) if they continue to execute. This chart highlights their massive run-rate P&L.”
Speaking of OpenSea, it's one of the fastest-growing businesses of all time! If you were around during the crypto bull run of 2017, you're aware of how easily the infrastructure failed back then. Yes, it sucks but it's also a signal that there is a lot of room to grow. The more room to grow the more upside on your investments.
“Despite the froth of today’s NFT market, this early flight from physical art to digital art could end up looking like 2013’s bitcoin “bubble”, which crashed 80%+ in 2014 but also marked the beginning of bitcoin’s decade-long ass-whooping of physical gold. Bitcoin’s market cap crossed 0.1% of gold’s in November 2013. Wouldn’t you know it? The “non-collectible” digital art market is now 0.1% of the physical art market. I predict that the digital art / NFT market crash will eventually be even more nauseating than the 2015 bitcoin bear market (because these are highly illiquid assets by definition), but the 10-year trajectory of the overall market will be the same: 100x+.”
The earlier you are the more money and opportunities. The people who take the time to learn how to trade and build with NFTs will be rewarded every time the greater market pumps. The quote above sums up the upside perfectly and is something to keep in mind during NFT bear markets. When the market dips the best thing you can do is prepare yourself for the next leg up.
"Think about it this way: The internet we have allows for the easy transfer of information. We costlessly swap copies of news articles, music files, video games, pornography, GIFs, tweets, and much more. The internet is, famously, good at making information nearly free. But for precisely that reason, it is terrible at making information expensive, which it sometimes needs to be. What the internet is missing, in particular, are ways to verify identity, ownership, and authenticity — the exact things that make it possible for creators to get paid for their work.”
That’s a great quote for the right-click save crowd. NFTs are creating order in an otherwise chaotic internet. There was no formal way to organize information and creators were getting ripped off by big tech.
However, I wouldn’t waste any time trying to convince right-click savers. It's better to just let them die off and focus on building on Web3.
“Attention is finite, the internet is vast, we’re tribal creatures driven by mimetic desire, and we’re building an insane parallel financial system that may have found a bridge to celebrities and mass retail adoption via crypto-enabled art and collectibles. When you add all of that up, NFTs allow you to “own a piece of the internet.”
We are tribal creatures. The internet made the world somewhat more isolating especially during covid over the last several years. NFTs brought us together in tribes like in the early days. Most of my friends are spread around across the world in Australia, New Zealand, Italy, New York, and everywhere in-between. These illiquid JPEGS have found a way to keep us connected in an otherwise isolating last 2 years.
“That’s good news for a creator economy that recently passed $10 billion in aggregate earnings and is growing 48% year-over-year before NFTs. This chart is about to go vertical with NFTs.”
It's a great time to be a creator because you're about to be rewarded for helping to rebuild the world digitally.
“Nearly half a million ENS names were registered before the protocol’s billion-dollar airdrop to its early users last month, and it’s conceivable that the network could rival or surpass centralized DNS maintainers like Verisign ($27 billion market cap) one day. Verisign manages nearly 85% of the world’s 200 million websites today, but the domain space for identities in Web3 could be 2-3 orders of magnitude larger, as there are 40x as many people as websites, 5x as many internet-connected devices as people, and a lot of global citizens who won’t necessarily trust Verisign given decentralized alternatives.”
Not everyone needs a website but everyone needs a digital presence as the world gets rebuilt digitally. Your metaverse presence is your new website. What you do on the internet today will help you earn tomorrow.
“The 2020 DeFi boom supplied the “throughput infrastructure” of self-custodied, permissionless trading (like routing and bandwidth in Web1), which allowed NFTs to take off. The explosion of demand for NFTs (plus DeFi) pulled forward the demand for more scalable Layer 1 and Layer 2 blockchains earlier this year. All of that will spur growth in DAO infrastructure in the new year: NFTs provide on-chain identity and reputation for DAO contributors; DeFi gives DAO members massive liquid pools of capital to govern, and scaling solutions will make on-chain governance economically feasible.”
“In Web3, cryptocurrencies and NFTs are the digital goods of the new economy, DeFi is the native financial system, Layer 1 networks are the rails that power everything, and DAOs are how the frontier gets governed. It’s all coming together, and it’s going to be absolutely beautiful.”
It’s hard for people to understand Web3 because we’re still building it. I don't even think people building on it fully understand it. It's too vast and the upside is too great to get a clear vision of what it will be. Do you have any clue how DNS or hosting works? Probably not. I've spent countless hours in the backend of a WordPress website. I've set up hosting for hundreds of different businesses and I still don't fully understand DNS.
We’re just a bunch of kids with legos and no directions trying to see what does and doesn’t fit together. The above quotes do a great job of helping you visualize how it all works and fits together.
"More specifically, DAOs are fluid online communities whose assets are managed by the community’s contributors. The organizing primitive of a DAO is code committed to a public ledger vs. articles filed in Delaware, and the blockchain guarantees user accessibility, transparency, and exit-rights (via forks). A DAO’s token determines voting power, allocates funds according to group priorities, incentivizes participation, and punishes anti-social actions."
"The internet built Wikipedia, with no economic incentive. Don’t underestimate what the internet can build as DAOs.”
DAOs are digitally native organizations and how Web3 organizes capital and directs the attention and creator economy. Corporations are too slow and clunky while DAOs are fluid and dynamic.
“AML Surveillance Risks: Illicit activity accounts for just 0.34% of crypto transactions (lower than TradFi), but the borderless and pseudonymous nature of crypto makes embargoes and blacklists difficult or impossible to enforce. This is bad narratively in a political realm driven by zeroism: look at the costs we have incurred fighting the War on Terror, the War on Drugs, and the War on COVID.”
Every time someone says crypto is a scam or for illicit activities, tell them to STFU. Fiat has more illicit activities than crypto. It’s even worse because bankers can legally scam you out of money with the current system. They know how everything works and they have friends that will bail them out.
“What makes Gensler so dangerous and grimy is his competence and his ambition. He’s an elite performer who amassed a $120mm fortune from a successful career at Goldman Sachs. As a former CFTC Chairman, he knows how DC’s political machine works, and how to burnish his resume, play hardball, and keep his name in the news. As a former MIT professor on crypto, he’s more familiar with the tech than most others in DC policy circles. He’s cunning and calculating.”
If you follow me you know how much I dislike Gary Gensler. He sits on a $120mm fortune while telling you to make coffee at home and save money to earn 033% yield. The above quote eloquently paints the picture of the type of character Gary is. He’s not your friend and he’s not trying to protect you – He’s trying to protect his fortune and his banker friends. Don’t let the frail appearance fool you. He’s very dangerous for crypto and has an advanced understanding of how it works. He plays hardball and knows how to leverage PR. He’s the current banking systems champion and mouthpiece.
Don’t trust anything Gary says.
That ended up being longer than I thought it would be but not quite 160 pages of alpha long. After reading the report I'm more amped up about Web3 than ever before and am extremely excited to see what 2022 brings to the table.
Please like, share, and subscribe if you enjoyed this newsletter and want to learn more about Web3.