Bankless - 10 Predictions About Crypto in 2022 with Ryan Selkis

Episode Date: December 15, 2021

Ryan Selkis is the Founder and CEO the data analytics platform Messari. In Ryan's past Bankless appearances, we've debated ETH as money and the Triple Point Asset thesis. We've tackled crypto regulation and taking an aggressive stance on policy. Now it's time to add it all together and decide what's next—what's important for the industry and the world as we head into 2022. Ryan wrote a 150+ page beast of a report titled 'Crypto Theses for 2022,' which covers the space from top to bottom. From DAOs and DeFi to Regulation and NFTs, there is no stone left unturned in this report. In this episode, we digest the mountain of information Ryan puts together on an annual basis to answer the question: What's in store for Crypto in 2022? ----- METAMASK | YOUR HARDWARE WALLET'S BEST FRIEND https://bankless.cc/metamask-shows  ------ SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/  ️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/  ------ BANKLESS SPONSOR TOOLS: GEMINI | FIAT & CRYPTO EXCHANGE https://bankless.cc/go-gemini​  LIDO | DECENTRALIZED STAKING https://bankless.cc/Lido  AAVE | LEND & BORROW ASSETS https://bankless.cc/aave  UNISWAP | DECENTRALIZED FUNDING https://bankless.cc/UniGrants  ------ Topics Covered: 0:00 Intro 7:00 Ryan Selkis & Institutional Trust 14:30 Web3 is Inevitable 22:08 Inflation & Use Cases 32:47 WAGMI 37:45 The Fall of China 42:52 The American Battleground 46:55 The Regulator Side 56:28 The Crypto Coalition 1:02:20 NFTs & Metaverse 1:09:48 ETH's Q3 Earnings Report 1:16:47 ETH Killer Valuations 1:20:41 ETH is Money Debate 1:25:33 Closing & Disclaimers ------ Resources: Ryan on Twitter: https://twitter.com/twobitidiot?s=20  The Crypto Theses: https://twitter.com/twobitidiot/status/1466438779196039175?s=20  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures 

Hey, Bankless Nation. Welcome to another State of the Nation episode. This is the episode where we update you on something relevant going on in crypto. We do a deep dive today. We're super excited to talk about the 2022 feces brought to you by Masari. We've got Ryan Selkis on. David, I love this time of year because it's a time of reflection, right? You finally get to like take a deep breath and look at the past 12 months. All of the craziness that happened. We always joke and we say like one year. years like 10 in, one year in crypto is like 10 in the regular world. And so December, late December, in particular, is a time to kind of reflect. And that's what we're doing with Ryan Selkis. He wrote this fantastic thesis. He's written this every year since I've been in crypto. I've read these front to back every single year. This year is no exception. And we're going to dive into it with him. David, what are some of your thoughts coming to this conversation? And it's just a, it's a ceremonious time at this point. The consistency and robustness of Ryan Selkis's thesis is just always something that the industry collectively points its attention towards at the end of the year.

And it's just, it's a nice way to end the year. So I definitely appreciate Ryan taking so much time out of his just daily life. I think he said something like 10% of his yearly labor goes into writing these thesis. And it's just a nice way to like recap the year, especially when crypto moves so fast. Like some of these things, things that are in the the theses for 2022, you'll forget that the context started in like this year, right? Like so many things happening in crypto. It's just a nice way to wrap up the year and kind of understand it holistically to really get that context before we move into what is probably going to be another crazy year in crypto in 2022. So absolutely. So we're going to dive into that with Ryan. We're going to recap the year. Extrapulate on what's coming next year and have a conversation about

how this all plays out. David, we've got some predictions of our own. to Bankless. That is going to be published in the Bankless newsletter next week. So stay tuned. It's definitely not as robust as Ryan Selkis theses, but we've got some ideas, some predictions and kind of a recap that we're doing. So check that out on the Bankless newsletter. That's newsletter.com to subscribe. Also, David, got to talk about Metamask. We had Ledger on the podcast this morning, actually on our YouTube show. We're talking a lot about this MetaPass. Plus ledger partnership. And I know MetaMask wanted us to tell the bankless community that it is doing big things

when it comes to hardware wallet support. You want to talk a little bit about that, David? Yeah, brand new to support with MetaMask is the lattice one, which is what I've been calling like the Fort Knox of crypto wallets. It's a desktop type thing. It's a kind of you would put it next to your Amazon Alexa or your whatever your home smart lady person is. and it just stays physically in your home and it's super, super secure, super tamper resistant,

and that is now supported by Metamask along with other hardware wallets as well. There's the Keystone, which is an air-gapped QR code wallet. A bunch of hardware wallet support coming to Metamask as well as them ironing out the issues with Chromium. So overall, the user experience is getting into new heights, thankfully, and we've all been waiting for that. So taps off to Metamask. If you have not downloaded MetaMask, what are you doing?

Go to metamask.io slash download and get that installed in your browser. Absolutely. And don't forget to use protection with your MetaMask wallet, right? It's hardware protection. You don't want to save those private keys in software. That's for sure. David, let's start with the question I ask you to be in every single state of the nation. That is this.

What is the state of the nation today, sir? The state of the nation today is reflecting. It was such a long year in crypto. I think if we go and zoom all the way back, back to Q1, people will forget how recent some of these things that we are going to talk about actually happened. So much happened in 2021. I think it was the year that crypto people really, really wanted to see. Super high inflation pushed people into the concept of digital scarcity, you know, just poor

performance by banks, pushing people to go more bankless, you know, capture and in my mind corruption of Web2 platforms, pushing people into the world of Web3. It's kind of the year that we all dreamt of as crypto people going into it. And so it's just a nice time to sit back and reflect. And so we shall go ahead and get right into those reflections with Ryan Selkis right after a moment to talk about some of these fantastic sponsors. That makes the show possible. Bankless is proud to be supported by Uniswap.

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nodes, you can access the yield offered by proof-of-sake systems and claim your share of the network transaction rewards. Do you have 32-Eth and want to stake it to Ethereum, but running a node sounds intimidating? Or maybe you have less than 32-Eth, and you need to pool your Eth with others so you can access staking yields. Lido offers a solution for both. Simply go to lydo.fi, choose which assets you want to stake, and deposit them to the Lido validating network. Lido is working to make sure proof of stake stays as decentralized as possible, and it's committed to decentralizing its own validating network to eventually become a completely permissionless protocol. So if you want to stake your ETH, Tara, or Seoul, and get liquidity on your stake, go to Lido.fI to get started. Hey, guys, we are back here with Ryan Selkis, the founder of Misari.

Ryan has been writing a year-end cryptotheses for, as long as I can remember in crypto, at least four years, maybe longer. it's become something of a ceremony at this point, something I read every year. I like that it's objective, right? It's got a lot of the takes that Ryan and the team at Masari have been compiling throughout the year. We pulled out some of those themes. We're going to discuss them today with Brian. You've seen them on the podcast before. I think last had you on in August.

Welcome back, Ryan Selkis. It's always a pleasure. Excited to be back. Hey, you got us a lot. You guys are blessed for punishment. Yeah, well, you know what? You brought us in the talk. really brought us a lot. How many pages is this,

is this theses, Ryan? It's like a hundred and five. It's 165, but that's including all of the table of contents and everything. So yeah, that's cheating. I don't know. I mean, if this was book form, this is, this is PDF form. So there's a lot of words per page. So this is basically a full book.

I didn't do the full word count, but it's, it's hefty. Yeah, it's definitely hefty. And as a content producer in this space, Like color us impressed. This is a lot of work that went into this. And this is a synthesis of, I think, a lot of ideas, a lot of things that went on in 2021. And I think that's maybe where we'll start. A lot of this is going to be kind of a recap of things and extrapolation moving forward.

But let's start with, I guess, the first page of substance in the thesis. And that is this idea of the collapse of institutional trust. that's the title heading. It's got this very compelling graphic. It's like a quadrant-based graphic. And the axes are from ethical to unethical, less competent to competent, and it maps different, I guess, institutions on this score. And you see government. And this is from, you know, I guess the way the people see these sorts of institutions. Government is, to many people, in the bottom left quadrant of being, very incompetent and not, not very ethical as well. You don't want to be in that quadrant. That's the bad quadrant. Yeah, it's the quadrant of pain, quadrant of doom, where you're, like, incompetent and unethical. Media is there too. We see some other institutions, traditional institutions, like NGOs and businesses. Businesses are maybe a little unethical, but the perception-wide perception is that they are also more competent than government. But I think this entire section speaks to the collapse of

institutional trust that we've seen. Can you talk a little bit about that trend? Was like 2021 the year that we lost trust in our institutions? Well, I mean, I think this has been building for a very long time. And I don't think mistrust in government is anything new in the West. If you look at kind of Congress's approval rating for decades now, it's been a slow and steady decline. If you think about kind of trust in media, I'd say the same thing. It's gotten increasingly bifurcated between just extensions of, you know, the Democratic and Republican Party, depending on which sorts you're looking at. So I don't think those are new. I think what is interesting is the fact that NGOs and business are also not included in that upper right quadrant,

which is ethical and competent. And one of the things, by the way, I think Andreessen Horowitz's this entire presentation that they prepared for policymakers called How to Win the Future, and that is linked to right below this graphic, I think it's a terrific plain English explanation for someone that's trying to grapple with the challenges of crypto and think about the potential that it has for good and moving some of these institutions, both into the competent and ethical spectrum. I think it really comes down to incentive alignment between users, employees, owners, and basically all the stakeholders within an organization, regardless of how it's structured. And then ultimately, you know, if you can encode values into those businesses or

protocols, then you can actually have something that's viewed as ethical as well. So both effective, efficient and, you know, kind of incentive aligned, I think is an important thing that crypto brings to the table. And we're starting to see that, you know, in terms of, first with money, you remove money from the government because they're the least competent and least ethical. I think we've seen a lot in decentralized media that's not necessarily crypto-related, maybe crypto-adjacent, where you've seen a progressive decentralization of media, the rise in podcasts, rising substack and medium, and of course Twitter being one of the originals and social media in general, its impact on the mainstream media.

I think with Dow's you're starting to see what we might be able to do with, with NGOs and bringing public goods into a more competent management structure. That's arguable, of course, because of how nascent tools are within crypto. And then obviously, business, I would argue, yes, they're competent. I think that the reason that they're viewed maybe as unethical is less about them being evil and more about incentive misalignment. And that's what I think we get really excited about in terms of how Web3 could fix some of those issues with incentive alignment in terms of the end users and at customers of

these businesses. So, you know, first off, you know, I'd say, you know, hopefully you can read it or at least skim some of the thesis. But I think A16Z, you know, this is kind of required reading for anyone that's going from zero to one unlike why Bitcoin, Y Web3 period, that has no prior knowledge and is, you know, just trying to grapple with the Y, not necessarily like all the specifics of how this wild west is operating. And for the podcast listeners out there, it's really important to know that there's, again, four quadrants,

ethical to unethical, less competent to competent. The competent and ethical quadrant is empty. There's nothing there. And this is, again, a perception of the people that took this survey. And the people are saying that they do not see both an ethical and something that is simultaneously,

both ethical and competent out there. They can't find anything. any institution out there that they view to be both good and actually good at being good. And so, Ryan, go ahead. Yeah, and this was Edelman that ran the survey. This was not an internally 16-Z survey. This is just kind of cited from their presentation. So it is an independent survey that had quite a bit of foolproof kind of stress testing

and kind of established survey methodology, not just something that's, kind of crypto native. And you put this as this is your first big point in a document that you know hundreds of thousands of people are going to read. So you wanted to put this very, very first, as in letting everyone know that no one really thinks of any other institution out there that can be good and also be good at being good. And then you also added in the second thesis, which I think we want to go to now, saying that crypto and Web3 is inevitable. And so, The idea here is that, like, crypto and Web3 is going to hope the idea is hopefully that they fill the missing niche, fill the missing quadrant of both good and ethical institutions out there. And you elaborated it on a little bit, but can you just keep on going as why, what about crypto and what about Web 3 is really doing a good job or hopefully aspiring to fill that ethical and competent niche?

I think it's a little bit too early to say that we're going to fill that quadrant. when it comes to public perception. But the point of number one is to show that crypto doesn't explode in a vacuum. There is a reason that something like crypto can take off and it has oxygen. So all the developments, all of the institutional capital, that's basically, you know, fire and the early kindling, but at the end of the day, it needs oxygen, needs end users. And I think number one is really about how do you fan the flames once the fire is started, which we've seen, you know, kind of over the last 10 years that infrastructure has been built, the zero to one innovations in Bitcoin and Ethereum and Defi in non-fungible token ownership and digital

assets ownership. And now, you know, some other kind of emerging areas like decentralized social media, you have the MVP, but the only way that those MVP actually catch fire. and become something that can really eat large swaths of the economy or society in general is if something else is broken out of the incumbent system. I do think it's a good pairing. And I think the reason I'd say that crypto is inevitable at this point, it really comes down to the fact that there's many different avenues that people can take

if they want to participate in crypto. And in some cases, we're getting closer to that state of the world where they might not necessarily know or care that they're actually using crypto as rails, right? The important thing is that we've, you know, aligned end user incentives. And, you know, for many of these networks, the end users are also the owners and governors. So that comes with, you know, financial incentives. There are, you know, governance rights and basically a say in how things are managed. And I think that's a pretty transformative zero to one understanding that people are going to, like at some point, you know, everybody talks in crypto about going down the rabbit hole and having the red pill moment, right? When did you get red pill or when did you fall down the rabbit hole?

And it really is like something that clicks. Sometimes it takes a little while. Sometimes, you know, I don't really understand Bitcoin or I don't understand ETH because it's kind of turtles all the way down or, you know, DFI. There's no real economic activity there. But then someone will look at an NFT and say, okay, digital art and provenance, I believe that we're spending more of our time online. So I believe that like some provable digital scarcity for a painting or an avatar, that's going to be relatively easy to enforce.

And I can see that being important. Wall Street type might have gone from zero to one on defy, right? Because now there's all the stable coin infrastructure. And I understand, you know, I understand yield farming because there's some. you know, favorable economics in terms of lending or in terms of decentralized exchange, you know, kind of market maker earnings, but also because you're early, you're basically getting, you know, effectively equity in some of these emerging protocols. I think for everybody it's a little bit different.

And the fact that there's so many discrete sectors now that have all crossed the chasm and there's so much institutional capital that's been raised to deploy into the next round infrastructure and also to potentially backstop some catastrophic kind of market breakdown that we might see in the next six or 12 months, I think it's a good one-two combination that might prevents the industry from taking, you know, basically years off or years where we're sucking wind. That's not to say the prices won't correct. I think that's, you know, that's overblown. Hey, we're never going to see a bare market again. But there's a difference. between a bare market and token prices and a bare market where teams fire 50% of their workforce,

right, or 80% of their workforce just because the token prices went down. And when you take that into consideration, you take the five-year play into consideration, and then you just see the talent that's entering the market day and day out. It's hard to bet against that. And I think it's unwise to bet against that. Is this the first time you would say something, you would use that phrase? Ryan, this is the first year. Inevitable, right?

Because, you know, look, some believers would have used this phrase in, you know, 2012 and just said, look, Bitcoin is inevitable, right? But I'm wondering if this year was unique from your perspective in crypto's ability to hit escape velocity. I would say so. So everybody should panic because maybe that's a sign of the market top and things are going to completely unravel all throughout next year. I would say inevitable with the one important caveat that crypto's success and medium term viability depends on some measured proportionate response from Western regulators. And I do go into it later in the port. I know we'll probably talk about it.

But I think as the U.S. goes, so goes crypto in the medium term. I think Bitcoin is kind of in its own completely different universe right now. I think Ethereum is the highest potential asset out there, but it's also still not without risk. And I think that where I disagree with you guys on kind of the ethos money stuff as we've gone over in prior podcasts, I don't view its success as inevitable from a regulatory perspective just because so much of the activity that rides Ethereum's rails is in the crosshairs throughout the West right now. So in the worst case scenarios, which I think fortunately we're starting to dial back from, but in the worst case scenarios, the layer one networks and all of the applications, I think, are for those that are most at risk.

So the question remains is, you know, have we gotten too big as a community to basically force into non-existence? And I think we're close. I think 2022 will be interesting to see if there is a large sell-off, and we have a bare market on par with the 2018, do we lose all of our user momentum? And then does that kind of turn the tide of public opinion? So people start clamoring for regulation or basically don't really care to fight for crypto. Basically the polar opposite of what we saw this summer, right?

So how much of the outcry this summer will persist in a 80% down market? I think that's the one thing that I'm still keeping an eye on. Last thing, before we move from this idea of institutional distrust and crypto, kind of occupying this upper right quadrant of ethical and incompetent, because I think that's a really core thesis. But you also said this, and this is maybe one of your first predictions in the report, is, and you're talking about inflation, inflation, the money system, the dollar being an institution in and of itself, right? You said this, things will get worse before they get better in the real world.

Inflation will remain above 5% throughout 2022, above 5%. We're at 6.8% now. While late-year interest rate hikes stall the stock market's momentum and hurt growth stocks, it's an interesting prediction. This is good for crypto in the short term, but risky in the medium term, as more crypto companies than users get deplatformed. And censorship from Western tech and banking platforms accelerates admits the Biden administration's crypto crackdown. So a few predictions you're starting to make here is that we're going to have persistent inflation,

not transitory inflation, persistent inflation next year. That will lead to the Fed raising interest rates, which will lead to some decrease in the stock market momentum. All of this might be good short-term. for crypto, but then you also see sort of a crypto unfriendly Biden administration executive branch kind of cracking down. Anything you want to say about these predictions before we move on? I think the only thing that I would note is that we're recording this on December 14th and keep in mind that this was written pencils down about a month ago and it was published

a couple of weeks ago now. So this happened, I think it was written that Bitcoin at 65, thousand or so, and then, you know, finally polished and edited when we were at 58. So we've already kind of seen a 20% correction. And we've seen a correction in the S&P and we've seen, you know, a bit more fear in the market along with, you know, some of these CPI prints that were way ahead of forecast. So I think, you know, some of this is already starting to hold up well. And, you know, the question is always, you know, from what height do you fall or, you know, from what Florida you rally? So I think I don't really have a directional sense of where the stock market or where crypto is going. But there are, you know, a few different scenarios. And at this point, I would say

most of crypto's momentum is going to be tied to the stock market, unless we start to see some really nasty inflation and there's, you know, kind of a breakdown in the narrative of, you know, Bitcoin in particular and to lesser extent, ETH, as a risk on asset. And instead, you know, the inflation hedge narrative really does take hold. And people start to, you know, flood to Bitcoin and ETH is kind of safe assets. The last narrative that we want to touch on in this section of the narratives to watch is, um, on page 11, Ryan, where Ryan, you said, Ryan Selkis, Ron Sean Adams. Ryan Selkis, you said that this is the cycle where crypto use cases unrelated to Bitcoin

were finally validated and achieved meaningful adoption. And for those that came into crypto in 2020 or 2021, this narrative, this take might not land with as much as some of the old timers. Can you just unpack the significance for people that may have come just recently into the industry? Why is use cases unrelated to Bitcoin finally being validated? and adopted. Why is that a big deal? It happened to a lesser extent in 2017 as well with the ICO boom. ETH became the reserve currency for all the new tokens that were raising capital, right?

All the RC20s. I think this year, it's a little bit different because last year was all about the macro trade. Paul Tudor Jones getting in, Michael Saylor getting in, you know, and kind of corporates and nation states alike. thinking about Bitcoin as a store of value and something that would be a hedge on the fact that that 40% of the dollars that have ever been put into existence or printed in the last year and a half. And if you look at the kind of throughput on the Ethereum blockchain and all the demand last summer for defy and then this year for NFTs and what we're I think starting to see and gaming, it's now not imperative that anyone comes through Bitcoin in order

to get their first crypto exposure, right? You know, you could go on OpenC and not really even understand that you're using ETH. You might just want to buy, you know, digital art, but you're going to create an Ethereum wallet in order to, you know, cost to do that. And I think that's a pretty big change. Now, the question becomes, and I'm particularly interested to see how Coinbase handles it when they roll out their NFT marketplace. Will the same thing happen with NFTs that happened previously with ERC 20 tokens and with TFI where ultimately everything gets dollarized, right?

Everything ties back to stable coins and the volatile cryptos are basically abstracted from the process. I think that's probably likely because most normal people are not going to denominate JPEGs in ETH. But we'll see. The important thing is that the use cases that I think have really gotten people excited are not tied to Bitcoin the asset. Now, you can argue that Bitcoin is going to be bridged to other other blockchains and you'll have like a settlement there that is the Bitcoin blockchain, but ultimately you'll have Bitcoin equivalence trading on all other sorts of layer one and layer twos. I think that's kind of a coin flip for me, whether that actually

takes hold or whether we see a proliferation of a number of other like layer one assets that kind of almost represent the GDP as I've referred to from some folks of those native chains. And I think that's, you know, that there's pros and cons to that happening for Ethereum, right? Because in Ethereum's case, it's got to ward off all these other layer ones. And then you have a question of how much value for Ethereum-based settlement goes to the primary chain versus all the other layer twos that are securing all these set of transactions. So there's, I think this is probably the greatest environment that you could imagine for an activist specialist crypto investor, particularly on the kind of liquid side of things, because things are so full of it. And there is such incredible information asymmetry. I would imagine, you know, next year is going to be a good time for folks like that.

This year was already a great year for that. But I'd say for like the smart fundamental oriented speculator, next year is probably going to be even better. And it's because of this theme where cryptos are decoupling. So everything isn't just moving completely in lockstep. Yeah. Would you go as far as to say, Ryan, that 2021 kind of marked the death of Bitcoin maximalism. And what I mean by that is there was this idea that was kind of popularized after the

2017 sort of crash, right? Hype crash, ICO mania craziness, everything sort of died off that, okay, we're back to Bitcoin. Bitcoin is the only use case of this whole blockchain thing. See, we told you so. And that was very popular sentiment in 2018 and 2019. The purpose of blockchain is Bitcoin. That's kind of it. Now we've seen sort of a resurgence of of lots of different use cases. Defi took on life and NFTs and all of these things. So that that old notion of Bitcoin maximumism, Bitcoin as the only use case, is that dead now? Do you think that's dead gone and buried? Or do you think it's going to come back at some point? I think any type of maximalism, any type of coin maximalism, those are your in-cells, right?

anyone that is just a like complete mercenary, you know, that's probably your more promiscuous types. And then you've got folks in between that are just really passionate about like the community that they're in for different reasons. They could, you know, have terrific, you know, fundamentals driven reasons. You know, those are the nice boys that you want to marry. So like as long as you know, as long as you don't go like too far down, you know, either side there, I think you want to split the up rates. And look, at the end of the day, these are investments. So I think it would be crazy to think that you're going to have people that are excited about crypto that are not also going to have intrinsic biases based on what they're holding, right?

Because what they're holding usually matches where they're spending time, where they're spending time tends to match the network they're building. So I think that only becomes a problem if you are over levered or kind of over indexed to one particular community. And you're doing so blindly and essentially, you know, writing off everything else. I think that's true for, you know, Ethereum folks that just, you know, think that Bitcoin is going to die. I think that's true for, you know, Bitcoin maximalists that, you know, it's getting so tired just hearing that everything else is a scam when all the data is just, it just flies right in your face. And you can argue, I think, semantics about what constitutes crypto and decentralization,

but it doesn't change the fact that there's a spectrum of networks and protocols and their underlying assets that are interesting to people for different reasons. And it's not always about decentralization. It's not always about money. It's not always about, you know, speed. Everybody's making different tradeoffs. And I think that's true for the all the ones. That's true for, you know, the various layer twos that are going to connect into Ethereum

or interoperate between other chains. And it's, you know, it's arguably even true for like the meme coin. like Doge and and Sheba. That's just people going for GameStop into another fun community and kind of playing a lottery-like game where they don't really care about what money is going in or what's happening on the way out. So they're just in it for the lulls. I think I am anti-maximalist in all forms.

So guys, that has been three of Ryan's top 10 narratives to watch in 2021 and 2020. there are, I believe, seven more in this section and also like six other sections. We're going to leave this section behind and go into a new section, which is the top people to watch. And interestingly, top ten, top ten people to watch. There's a bunch of familiar names in here. Devin Finser from OpenC. Kyle Simani, CMS, and Suzu. Jeho from Axi, Paradigm.

Lots of familiar names. Also the beloved Hester Purse. But I wanted to touch on number one, which interestingly, you have a lot of. have named the person to watch in 2022 is, we all going to make it, the slogan. And you say in the past, I've avoided the urge to give everyone a spot on the list. And so I think you're using the we all going to make it slogan as like a placeholder for just everyone to watch in 2022. And because you said it feels like a cop out to just say everyone. It's a sign of a market top. But then you also say that this we all going to make it slogan is different than some of the slogans that the

crypto community has chanted before. Why is we all going to make it something to watch in 2022. What about that slogan do you really, really like? Well, I like it because it's kind of a nice spin on something that Bologi, Shrneufasan says that I like and I've kind of co-opted, which is the whole concept of win and help win. And it kind of speaks to the fact that crypto is not zero sum. And most of these applications, I think, will be successful in some form. Whether the specific smart contract platform or the specific cross-chain bridge or the specific decks, you know, is ultimately the winner is kind of beside the point. I think, you know, as a market as a sector,

there's basically just unlimited upside, right? And the last 18 months kind of felt like that scene in Vegas vacation where like the sun comes out. It's like the very end of the movies. like, you know, I put a quarter and I want a car. I put a quarter and I want a car. I put a quarter and I want, you know, like every single sector is kind of exploded at the same time. And the sequence, I think, matter too, because a lot of them are building blocks for the rest.

But the thing that I think makes this important to watch as a trend for next year is what happens when things start to go a little sideways, right? Does everyone catch their collective breath? Do we start to see actual, you know, pretty intense wars break out or, you know, vampire attacks at scale or, you know, different, you know, kind of aggressive competitive tactics? We'll see. But I, you know, we talked about like eF killers for a long time. And we haven't really seen things get that aggressive. Instead, what you've seen is now Solana is a $60 billion network and now Pocodot is a $50 billion.

network and Terra is a $20 billion network and Avalanche is a $20 billion network. So, and at the same time, you know, eth is half a trillion. So do you think that there's going to be a shuffling in market share? Probably. But does that mean that it's all going to be at the expense of Ethereum, right? Or that Ethereum's growth is going to be at the expensive Bitcoin. I don't know that that's the right way to look at it. If anything, I'd say that's probably more true at the application layer level. But even then, it's, it's difficult to imagine that decentralized lending platforms are not going to look like decentralized banks. And I think that's true, if for no other reason, then there's going to be a new user group that feels left out of the

early rewards that the incumbents were able to generate from using a specific decentralized Lending Protocol. So you'll basically have upstarts that get built out over time, maybe, you know, sequentially or, you know, one per year or something like that until you have some equilibrium over time where there's 10 big decentralized banks, just like there are, you know, 10 big, global banks. And of course, one will be the largest and you'll have a pecking order. But I don't think that those are, I don't think it's necessarily fixed. And watching everybody compete next year, look more like the real business world and less like the knives are out 2018, you're going to die or I'm going to die, so I'm going to stab you type of mentality that I think

we kind of live through in the last barramarket. My version of this trope is if you want to go fast, go alone, but if you want to go far, go together. Basically just saying, hey, we're all better together. And that I think is a great segue into our next conversation, which, is how China is not coming along with us. China as D-Bitcoinizing. It kicked out all of its Bitcoin hash power. And overall is also following through with kicking out the rest of all crypto financial services. And you're saying that this is one of the big themes of 2021 was what

you are calling the great fall of China's Bitcoin industry. Can you just talk about why you think that this is this is so significant? And what do you think this is going to mean for 2022 and beyond. I think this is huge on a few different axes. First and foremost, China was never going to embrace crypto. It's become a meme to insiders. China bans Bitcoin for the 300th time. It still gets picked up by the media, but I think most people that understand crypto and have followed the market know that there was never any chance that China was actually going to embrace decentralized protocols and decentralized finance. That includes Bitcoin, Ethereum, everything kind of straight on down.

They're building their own in-house digital currency system and blockchain-based system in an attempt to replace the dollar as the world's reserve currency. And I think, honestly, if we keep shooting ourselves in a foot, they're probably going to win because they're the dominant trading partner with most countries in the world at this point. if they beat the U.S. to issuing a blockchain-based money at scale, and if they're basically able to gate privacy at the border, right? So like everything is surveilled within mainland China, but the yuan is somehow exportable and private internationally. So people get over the concern of the CCP basically surveilling every single transaction that happens outside of their own

Chinese borders. I think, you know, it's by far the kind of theme to watch, I think, from a macro perspective in 2022. But when it comes to crypto and decentralized currencies and assets, it was one of the greatest de-risking events of the year as well, because it finally kind of put this narrative to bed that, you know, what happens if China bans mining, right? What happens if China seizes all the Bitcoin, you know, within its borders or, you know, shuts down all the speculation domestically? And we saw exactly what happened. You know, that was a 50% sell-off in, you know, a couple months from May to June. And, of course, things got overheated.

So this is only, you know, one reason, I think that the market's correct so much over the summer. But it did kind of clean the market out of any remaining speculation. that China was going to be a meaningful part or kind of meaningful source of demand for crypto. And at the same time, it at once crippled two of the critics' greatest concerns about Bitcoin in particular. And that was, number one, do we really want to be promoting an asset that is dominated by China and ultimately is highly evolved and is going to be at the whims of the CCP if they ever do decide to shut it down.

Well, they did shut it down. So we kind of saw what the aftermath looked like. And then two was, you know, is the fact that miners in proof of work systems predominantly sit behind the great firewall a systemic threat to Bitcoin and Ethereum because, you know, until the merge, Ethereum is still proof of work currency, right? So I think, again, that security risk was put to bed. And then the 2A there is, or 2B, I guess, all of the critics that kind of came out of the woodwork in like a two-week span in the spring that were concerned about, you know, Bitcoin's ESG narrative and Ethereum's kind of temporary ESG narrative and an impact on climate. That was basically completely put to bed because you know that.

the mix of energy that's being used in the West versus mainland China is predominantly clean. And so the mix is not only got cleaner overnight, but it's going to progressively get cleaner for the longer that mining shifts to the Western countries and different jurisdictions that are actually prioritizing clean energy. So I think, I mean, I don't really understand the policy choice in general. particularly on the wide band mining. But it's, you know, we'll see if they double back on it. I think it was one of the most important, you know, kind of macro events of the year

that's positive for crypto in the U.S. and Europe. Brian, can we maybe talk about how that relates to America's opportunity and the U.S. opportunity here, right? So there's got this section, I'll flip to it at a minute, called the American Battleground. And you said this. So just talked about China, but what is the U.S.'s opportunity. And it's almost like an opportunity for the U.S. to lose if it does nothing. And you said this, the U.S. is either going to embrace crypto and win or ban crypto and disintegrate.

Those are the two options. Embrace crypto and win or ban crypto and disintegrate. Let's talk about that. What did you mean by that? Well, I think we've got some real structural problems in the U.S., particularly down in D.C. And we'll talk about federal leadership. But at the end of the day, I think if China doesn't ban Bitcoin mining and we don't see the exodus of that whole kind of subsector to the West, I doubt Ted Cruz, for instance, or any of the American politicians really, really kind of picked this up as quickly as they did for two reasons. One, there's a real

state level impact that the shift of mining resources from Sichuan and mainland China to Texas, for instance, will have on that state's economy. And two, it's kind of a unifying narrative that whatever China does, we should do the opposite almost. That is maybe the gut reaction from politicians in D.C. And I think that was a powerful one-two punch. And it also, it doesn't take a lot to get momentum behind different issues, particularly once a politician sees it as popular. Right. So you combine the timing of the Chinese mining ban with the infrastructure bill over the summer. And all of a sudden, this becomes a bipartisan movement that one side of the aisle, the Republicans, picked up on pretty quickly.

And it was because they saw how much moderate and left-leaning support they'd be able to get pretty much overnight by being on the right side of the issue. It's kind of a truism. Every single time a politician or some policymaker tweets or speaks favorably about crypto, good things happen in terms of their social media and their kind of public persona. And the reverse is true, right? those that are on the wrong side are basically completely decimated, their replies are ruined, they're memed out of existence, or they're basically penalized in the harshest way possible.

They're attacked by the cyber coordinates. They're in terms of social security. Yeah. So I think, you know, the steps and the kind of path to being taken seriously and having this become a really important issue, not only for Republicans, but I think for Democrats now in the last couple of months, I think that puts us in a good position because we can kind of paint this as something that is completely opposite encounter to China's approach, not only to tech, but specifically to financial services and reserve currencies.

And I think we'll be in a good place. if we just have slightly lighter touch and we don't try to out China, China, when it comes to surveillance and the centralization of tech and tech development, which would be, I think, an unmitigated disaster for anyone that's even anecdotally familiar with how DC operates and how up to speed they are on the tech learning curve. Well, and so here's the thing, Ryan, is you mentioned in your thesis that we do have some monsters in the closet here, right? And, you know, two of them are the FSOC to the Financial Services Oversight Council with its 10 members, the Fed, CFTC, basic FDIC, OCC, all of our regulators, and then also

the SEC dominance here. And so you contrast that FSOC and SEC kind of are the primary, I guess, regulators that are taking a harsh stance on crypto versus the crypto coalition, right, where we have our own coalition that has started to form. I mean, Masari is doing great work here, but also Coin Center, the Blockchain Association, the Crypto Council for Innovation, the A16Z policy team, the Chamber of Digital Commerce, even public goods like Gitcoin are giving to the cause. I would say the bankless nation has played a role in propagating messages and getting that sort of out there. So we've got some of these regulators who want a bit more control over

crypto and are pushing back against the agenda that you just laid out versus the crypto coalition. And David has talked about this as like, it's like we got chess pieces on the board, right? We've got the, you know, the black versus the white here. And now the two sides are playing this epic game of crypto chess. Can you talk about those contrast points? And who's well positioned going into 2022. Who's well positioned from a sector or from a, which side of the team? I know who you're betting on and I know whose team you're on, but like, is the crypto side, are we still the underdogs or are we actually, you know, able to marshal some strength against

this opposing coalition that's formed against us? Yeah, so I won't take for granted that all your listeners are going to read the report and then listen to this as kind of a follow-up. So I'll try to quickly go through who the players are. I think you did a good job as a starting point. But the only thing I would add is like who's actually taking the ball here, right? So historically, out of FSOC, which is very important structurally, that basically they're responsible for maintaining the stability of the financial system

and averting another 2008 financial crisis, right? FSOC was created as, you know, kind of a supra regulatory agency that was going to align all those members that you just mentioned and try to identify systemically important institutions with the passage of Dodd-Frank. So this is, you know, what they do is not trivial. And if they identify something is systemically important and, you know, basically, worthy of cross-agency coordination, then it gets addressed and they have, you know, kind of sweeping mandate to take on those challenges. Now, we had a, I'd say, an across-the-board downgrade in leadership across F-Sach in the transition of the Biden administration. Brian Brooks, who is the former head of the OCCC. He was chief legal officer at

Coinbase, and then he went to Binich-U-S. Now he's at Bitfury and just was, I think, a rock star in his testimony last week even when some of the crypto executives took the Hill and it was probably the friendliest hearing that I think we've seen to date in the House. But he's obviously no longer there. We almost had a replacement that was an avowed communist. And fortunately, crypto and Wall Street were able to agree that Amarova, who is the woman who was up for nomination, was just completely unpalatable and kind of unworkable as a regulatory head for the economy that commands the largest financial system in the world. So crisis narrowly averted. Crisis narrowly averted with Jerome Powell getting reappointed instead of someone like

Brainerd at the Fed, who's much more critical and I think cynical about Bitcoin and crypto and its position in the financial system. And then, you know, you've got other agencies like the FDIC who's, you know, traditionally been, you know, favorable. And then CFTC has been traditionally favorable with crypto. So it kind of leaves two that are most important. And there's a handful of others, like, you know, insurance agencies and like federal housing and stuff.

They're not really as relevant to crypto. But the other two that are relevant are Treasury and SEC. And, you know, in the Treasury, it's important for people to remember that during the infrastructure bill, it was Janet Yellen who explicitly pushed back on the amendments that were proposed by the crypto industry, right? So there was this bipartisan coalition of senators that got together and said, you know, we need to clarify this broker language. And, you know, we know what the intention is or we think we know what the intention is. This is supposed to apply to groups like Coinbase, for instance. And I don't think there's any debate there. You know, they've even applied for

broker-dealer licenses, they look and feel and act like that. So, of course, this makes sense. And trade should push back on the exclusion of defy and individuals and kind of modifications to the language. And of course, that's now law of land. So you understand that they do want a broad brush and sweeping authority and flexibility on their end to regulate things like defy and stable coins and everything that isn't necessarily just trading on Coinbase or Crackett. So that's number one. Now, the issue is that the person that Treasury is also delegating to the most is the SEC and Cherat Gensler's, of course, openly hostile to the entire crypto industry.

And I've obviously had many different things to say about Chera Gensler, but it's strategic and I think there's a reason for it. I think he's an enemy to the industry. I think he's on the wrong side of the issue. And I think he's been dishonest and he's acted in bad faith pretty much at every step along the way. And what's most concerning is he knows better

because he does understand how crypto works. He did teach about it at MIT. He knows that Washington works because this is not his first rodeo as a regulator. And if you think about him as a political animal that's essentially doing whatever he can to continue to advance his career, it gets even worse because you know that Janet Yellen was on the side of keeping the broker

language as written in the broker debate over the summer and the infrastructure bill debate over the summer. And you know that Elizabeth Warren, who's arguably the most powerful Democrat, that's anti-crypto right now, is basically coordinating with him. And they're giving each other alley-ups during different hearings in terms of how crypto should be regulated and what authority the SEC should have over the token economy. So that's where the attention is now. Now, that sounds really negative, but there is kind of one silver lining here.

And, you know, this is not really a red or blue thing. But I think Biden's approval rating being where it is has been maybe one of the primary reasons that things are starting to get a little bit better. and the rhetoric is starting to get dialed back. If you look just kind of month over month or quarter of a quarter, the difference in rhetoric on the left versus like what we saw last week in the House financial services hearing, which was probably the best hearing that I think the industry has ever had and the most thoughtful and kind of engaging with, you know,

Brad Sherman aside, who's always been a clown. But I don't think that happens if the Democrats, don't watch what just happened with a couple of governor races, and they are petrified of what I think is going to be a catastrophic series of losses in midterms. Why would you continue to go on the offensive to an entire community of young, and I think majority progressive builders that constitute crypto? We always talk about crypto being pre-political or bipartisan or whatever. And one way to turn that against you is to attack, attack, attack a bunch of progressive leaning voters and builders and call them things like tax evaders and, you know, sympathizers and shadowy supercorders and, you know, all that.

That's, you know, politically red-pilling people at scale is a pretty dangerous game. And so I think the politicians between the kickback over the summer and then kind of the declining poll ratings and kind of what they've seen in terms of push back to some of the more liberal potential appointees, all of that seems like the worst might be over in general. Now it's just about this kind of targeted issue that we have with the chair counselor at the SEC. That was long-winded, but I think it's, you know, there's a lot to unpack there and a lot to understand. So that's like that side of things, right? But are you seeing as well the crypto side getting stronger in the face of this as well? Like are crypto's political forces, lobbying, organizational forces strengthening? How would you evaluate that so far? Yeah, I think they're definitely strengthening. I mean, there's a heck of a lot more money going into it. I know for a while, you know, CCI, the Crypto Council, which is one of the newer trade associations, it was basically just the corporates and the entities that were backing it. It didn't actually have a staff, right? I believe that's changed only very recently in terms of having some leadership in place. The blockchain association was a handful. of people the beginning of the year, right? They're adding headcount and obviously they've added a number of new numbers. Coin Center is, I have to imagine, is out a record year in terms of donations.

And every single major crypto company is starting to think seriously about policy and how they're engaging and what role they're playing either with the trade associations or, you know, kind of direct engagement. And I also think you are going to start to see more super PACs and PACs for, that get more active in electoral politics, right? So there's a lot of lobbying money that's coming in off the sidelines because people are finally awake to it. So almost the best case scenario that it could happen is like the summer scared everybody, a ton of money is now going into this,

but tensions are getting dialed back at least a little bit. So we've got this narrow window where I think we can make some real progress over the course the next couple of years. But remember, D.C. does not move at crypto speed, right? So this is going to play out from now through, you know, 2030, really, but certainly through the end of Biden's first term. And it doesn't really matter what happens in the midterms. I think, you know, even if Republicans take to control of the House and Senate, you still have the leadership in the place that you have at the SEC and Treasury potentially. So there's there's a lot that's going to be. It's going to have to play out on, you know, kind of legal side in terms of court challenges, on the, you know, electoral side in terms of getting pro-crypto candidates through primaries and actually into Congress so that you have more knowledgeable people that can even think about crafting sane policy. And then, of course, you know, court of public opinion, which is really

the only way that you're going to see any type of movement on the regulatory side because they're unelected positions, they're appointed and the person that appoints them. is still got three years in his term. I think we are going to see a lot of progress on this front in 2022. I think the battle in Capitol Hill is only getting started. Ryan, there's a number of other topics that we want to get into, such as NFTs. NFTs had a blow-up year in 2021. Also, Ethereum's Q3 earnings report.

And also, Layer 1, alternative layer 1 relative valuations as well as the Salana summer. And then, Ryan, you have said that the. bankless boys were right for the wrong reasons when it came to Ether. So we definitely want to unpack that as well. But first, before we get to all those conversations, we want to take a moment to talk about some of these fantastic sponsors that make the show possible. Gemini is the world's most trusted cryptocurrency exchange. I've been a customer of Gemini since I first got into crypto in 2017, and it's been my main exchange of choice to make my crypto buys and sells. Gemini is available in all 50 states and in over 50 countries worldwide. And on Gemini, there are

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I feel like it was almost maybe the year of NFTs and I'm wondering if you would go so far as to say this, but this is your entire section on NFTs and Web 3 plumbing. It's got things like a $69 million mona Lisa JPEG, which sold, I remember that as the people thing. NFTs as a, you know, defining them, PFPs, that whole thing, punks versus apes, those went, mainstream. We have fan tokens. We have this loot phenomenon, a bottom-up game. Axi Infinity

had this crazy amazing year where they went from like 30 million market cap to $8 billion market cap. That doesn't happen anywhere else except crypto. We saw the financialization of NFTs, OpenC, absolutely crushing it in real numbers, like revenue. This is like an incredible year for OpenC. The Cryptoverse, Metaverse became a frown. that jumped into popular vernacular. Facebook even changed their whole name to meta, partially as a result of this. Non-fungible credentials, you talk about namespaces.

The dot-eath and ENS went, did sort of a token drop as well. There's so much more we can talk about with respect to NFTs and your thesis do that. So can I ask you this question? Is it fair to call 2021 the year of NFTs, were they the big, breakout use case for crypto in your mind? Certainly one of two. Yeah, I think I would argue that it was the year of NFTs. It's tough to overlook layer ones outside of Ethereum and kind of how much demand there was for block space period. But NFTs were one of the largest drivers of that for sure.

So I think that's right. And for me, it was always difficult. thinking about how NFTs would cross the chasm, I was definitely surprised by how fast and furious that the rally was and how fast they came into vote this year. Because if you think about it, people, I think in the mainstream, associate NFTs with images now. But NFTs, the original NFTs are some of the ones that we thought might be most interesting, were things like tokenized securities. If you think about Harbor, if some of your listeners might remember like David Sacks like company Harbor that was tokenizing securities and ultimately putting real estate on public blockchain trade. And they've kind of created a standard around that. It was based on the

whole idea, Ryan, like where you'd basically tokenize all of these houses and all of this real estate. And then you could go long, certain neighborhoods in San Francisco and short other neighborhoods. This was a very popular concept in 2017. And it's it's an amazing. idea, and I think we will get there, but I think we'll get there last, right? So I think I was under the impression, and I think I definitely appreciated and thought that things like, you know, images and digital art would probably be the toys that got adoption first, but the rip-your-face-off rally and how fast that happened, I think it definitely took me by surprise. It, you know, basically paved the way for a number of other innovative projects.

The mental model that I have going forward with NFTs and why I think this is somewhat sustainable. And importantly, why that sustainability will lead to the build out of the infrastructure layer is because I have the benefit of going back to 2013, which when I first got into Bitcoin and experiencing that first kind of vertical run up, at its height, Bitcoin got to about $10 billion in market cap. So about one one thousandth of digital gold, or sorry, of physical gold. Digital gold got to, you know, one-tenth of one percent.

And in this NFT run-up, I'd say it's equally crazy and equally unsustainable. And most of these things are going to correct viciously, probably down to zero because there's not going to be a bid for digital images that aren't seen as scarce or anyway valuable. what's interesting is the height that they hit was about one-tenth of one-percent of the art market, right? So it kind of parallels Bitcoin in that way, right? Bitcoin was gold versus digital gold. Now we're talking about art versus digital art is the first NFT use case.

Even if things correct, you could have 100x increase in market cap just for that sliver of the NFT market. And so knowing that, I think it pays. the way for all types of interesting developments and all types of experiments that are actually going to stick. And one of the easiest ways you can imagine some of these things sticking is by using NFTs as a digital avatar, basically a digital proof of reputation, right? So digital art and visual interpretations of NFTs, I think were the toy that we needed to get into something that's much more interesting, which I say is like community-oriented NFTs. This could be things like punks and apes that represent your full self, or more likely,

they could be virtual badges that you start earning and become modular parts of your digital identity over time. So, you know, an NFT would be one, you know, packet or one credential that you have or, you know, one set of your data IP. And your wallet would be like your kind of universal identifier. So where NFTs go from here, I think the sky is the limit. But importantly, you have the wallowed infrastructure. You have now conditioned people to think about, you know, the visual nature of NFTs and process rarity just by looking at things.

Right. So you can basically take a resume or take a set of experiences in the completely the pseudonymous world, and you can visualize that using something like an avatar with a gold chain or, you know, if my South Park avatar with the chalice starts shimmering because I've been around for a while and I'm considered a hashtag influencer, right? That's real and you're going to be able to actually visually process that even in the digital realm. So I think, yeah, the amount of innovation that's going to unlock is tremendous. And because it will unlock so much value, you'll have more infrastructure that's built.

You'll have all the services that help the things like the illiquidity of NFTs or how do you price them or how do they actually become composable across different services or different blockchains. I think all that gets solved because of the potential market size. And then 10 years in the future, you will see NFTs that represent real estate. But you're probably going to see NFTs for digital real estate first and all the services that go around this. The metaphors always comes first, doesn't it?

And part of Ethereum's big story is the rise of NFTs. So much of Ethereum's just activity was NFT denominated. And that brings us to what we want to talk to next, which is Ethereum's Q3 earnings report, which is... This looks familiar? This does look familiar. Yeah. So you started off of this section saying, I loved Bankless's Q3 update on Ethereum. Shout out to Ben, the author who wrote it.

And you say it's so freaking cool that we can produce. earning reports for any crypto community without the need for any central corporate investor relations team, and we can do it over any arbitrary time here to update it in real time. We're talking about a 1000x improvement in investor information symmetry here. And then you also end with this rhetorical question. How would you value a company with this growth profile? And we've got the growth profile for Q3 Ethereum on screen. Just network revenue up 511% value settled up 400% Ether issuance down 30% since EIP-1559. Active addresses up 24%. Defi-TvL up 1,200%. Dex volume up 300%. Stablecoin issued up 400%. And then I could go on. OpenC sales just absolutely

broke the metric clocking in at 141,000% basically going from zero to where it is. And so, Ryan, I'm going I ask you two things. Can you just elaborate on just the, what you said about the 100,000x improvement in investor information asymmetry here? And then I'm going to ask you, can you answer your own rhetorical question, which is how do you value a company with this growth profile? So I'll, well, I'll answer me in the order you asked. You know, I think what's interesting is this is not just about Ethereum. We actually produced a report like this for compound as well and are starting to work with more communities on basically completely decentralized quarterly reporting and financial reporting.

And what's important about this is we don't need permission to do it, but we are prioritizing which communities we work with based on which communities are going to value this type of information symmetry, right? So you're basically a competitive bidder in like an open economy where we're essentially serving as Masari is like one of the big floor. accounting firms almost. You don't need any cooperation from the community. Now, if you have key influencers or key developers that are going to sanity check your work and answer questions like, that's great, we want to be able to coordinate that. But the fact that we can do this all

ourselves and be the primary author, not just the auditor of the primary author's claims, is something that's fundamentally different about crypto. And I think something that we need to highlight much more of in the new year. Us is a company because it's a valuable service for Massari, but I think also just in general when we're talking to policymakers and trying to educate the masses. Yeah, by the way, you can't do this in private markets. You can't. This is the definition of investor protection, right? It's like crypto provides investor protection. How transparency, anyone can audit this shit. Anyone can find out like the financial statements of any protocol out there, right? It's not siphoned off in silos, like wrapped in closed doors, only executive

know, this is investor protection. Gary Gensler, if you're listening, this is how we do it around here, okay? And then, Ryan, let's go with the rhetorical question. How do you value a company with this kind of growth profile? Highly. And that's why Ethereum is a half trillion dollar asset. But here's a thing. This is not happening in a vacuum, right? And so this is, I think, the big question of this year, of next year, you know, where is value ultimately going to get captured? in smart contract or virtual machine platforms. Is it going to be at the layer one? Is it going to be a combination of the layer one and layer two?

Ultimately, is everything going to tie back to like the bare minimum that you're willing to spend on security and then you're going to settle on one or two, what would be considered like the most secured chains? I think it's too early to tell exactly how much value is going to get siphoned off or like what the real long-term multiple should be, right? So you look at some of the metrics for Ethereum and the value that's settled might continue to skyrocket. But if those are happening in, like,

if you have massive settlements that are like layer two to layer one and they're happening in single blocks, I'm not convinced that the transaction fee there needs to be more than, you know, a basis point or a couple of basis points. and that's great if you're comparing into the legacy. So you capture, you know, what's the equilibrium going to be, right? Where the miners and the stakers are properly incentivized and the security, you know, spend as high enough that the system works, whether it's Ethereum or, you know, some subchain.

And I think the growth in transactions might skyrocket. the fees might continue to compress, both due to competition and more available resources, I haven't really seen anyone do a good job of thinking about what the scalable lower bound is on fees because everybody is, I think, getting a little fat and happy right now on inflated fees that we know are not going to persist forever, right, because their life will find a way and people will find a way to route to lower cost alternatives. So I think, look, I'm a buyer and a holder of, you know, Ethereum at these levels and continue to be bullish on ether and some of the other layer ones. The question for me is, it's really always one of dominance, right?

So Bitcoin dominance versus layer ones and then ether dominance versus other layer ones. And, you know, I certainly have not written off any of the other. competitive chains because I think different users are going to make different tradeoffs. And I can tell you as an entrepreneur and someone that's like signing off on expensive Ethereum transactions, something like Solana, you can actually test a product on. We can't even really economically test new products on Ethereum right now, given where things are. That will change.

I know that some of those who put constraints are temporary, but I think any discussion about valuation, it's a multi-dimensional matrix that you're dealing with on a relative valuation and a kind of fundamental valuation standpoint. So let's talk about that because you have a section in your report around relative valuations of other layer ones, right? And so if there were, as you said earlier, maybe two big breakouts for 2021. The first is NFTs, as you said, the second is block space. People buy in block space. We had Chris Dixon on. the podcast not too long ago. He said, I'm in the market for block space. I'm a net buyer, bullish on block space. Okay. And so we saw, you've got this section about Salana Summer,

and then you get into Pocodot. You talk about that a little bit in Cosmos and Terra with, with Luna and all of these alternative layer ones. And there's really, I think, this question that we're almost ending 2021 with, that's kind of a question mark. It's like a TBD, right? So bullish block space, but what does the future world look like? Does it look like a multi-chain layer one world where you have all of these different layer ones? And I think you call this a little bit maybe the technology platform argument, right? So in the same way we have like a Microsoft, we have, you know, Linux. We have a bunch of big, not Linux, but we have like Googles.

We have a bunch of big fang tech companies, right? That's one way of looking at it versus maybe a sound, money argument, which basically says, hey, there's some network effect power law rules, and sound money is the basic asset valuation of these things. And the asset valuation forms the economic security. And there's going to be big power law winners. And so you might have some big dominant layer ones and then a smaller tail of smaller alternative layer ones, if you will. What's your take on this? Because this is very much the big question of 2022. And And, you know, I think bankless listeners will kind of know the bankless take already.

But what's your take that you provide in the thesis, Ryan? I think about it in terms of operating systems. And Ryan Watkins and our team, I think laid this out pretty nicely, that there aren't very frequently three or four or five, you know, half dozen winning operating systems. It's usually a couple, right? and there are economies of scale just in terms of like developing new ecosystems and new kind of full tech stacks that I think it's tough to fragment across like three or four five different

standards. Now you don't want one because everything is very fragile. So maybe it's two or three. And the question becomes I think not whether Ethereum is going to win, but whether like basically who else is going to be important out of the other layer ones. And then will those ultimately become the iOS or Android to the others, you know, whichever, right? So I don't know if, I don't know if Ethereum is iOS right now or Solana's Android or something like that. But I think over time there will be a couple of those standards.

It's probably premature to call the race just yet. and Ethereum is not without its risks right now. I think it has a massive head start. But as other ecosystems, you know, begin to catch up because they're making different tradeoffs, that's when we'll kind of start to understand where things will set a long-term and which ecosystems have the strongest stink power. I tend to think that the EVM is going to be one of the operating systems because so much has just already been built there.

it would take something massively negative to displace Ethereum and the EVM in particular is one of the standards. So, Ryan, we want to close out this conversation with our age-old spat of Ether. And you gave us a shout-out in your top 10 people to watch as an honorable mention saying, special shout-out is in order to the bankless duo, Ryan and David. So thank you for that. Who have been right about ETH, but we do not make the cut because you think that we have been right for the wrong reasons. What are those reasons, Ryan?

What reasons are we wrong about? At this point, I think it's kind of a semantic argument. And the, you know, the eth is money meme and the ultrasound money meme. You know, I think, look, you guys have been on the mark. And I'm glad that in December of last year, I reversed some of my Zcash thesis and kind of redeployed it into Ethereum. I still am long as eCash and I think it's just a massively important project. But it was pretty clear, you know, towards the end of last year that this was going to be a big year for Ethereum.

And I underestimated how big it was going to be for some of the other Lerat ones. I, you know, should have indiscriminately bought all of them. But, you know, right now, at the end of last year, it was bullish on Luna, Terra and Ethereum. And so that certainly is played out. But, you know, I think, I think the Ethereum community, in general, could learn something from, from, from, from, uh, Suzu's rant about, you know, I've abandoned Ethereum. And I know this was like the, the big story like a couple weeks ago and everyone was, you know, going back and forth. It still feels like the big story. I don't know, you guys hold a grudge.

But I think, I mean, he's right, right? I think it's important that people don't get satisfied when they're in build mode and recognize that when something is structurally broken, speed to fix is not something that should be taken lightly or not treated seriously. And that's not to say that the Ethereum developers and all the folks that are spending so much time on the merge and layer two scaling and interoperability of these different charts, like that they're not like working fast enough or trying hard enough. But I do think it is something that should keep people humble and questioning assumptions because he is right in the sense that new people do not give a fuck about decentralization by and large, right? Like the religious zealots, the libertarian crowd, the anarchist, like the world is going to end crowd. Like, we've been in for 10 years locked into this because it makes a lot of sense and it kind of fits our worldview and thesis.

The people that are coming in for NFTs, the people that are going to play in the Metaverse, and the people that are going to want this as an alternative to financial services for whatever reason or underbanked or think they can get a better deal, they do not care about the back end. So if they see the headline fees and they're too high, they're going to go elsewhere. And I think that's a problem. I think you want sustainability in both directions and you want a secure system that is going to operate in that upper right quadrant. Ryan, at risk of being considered a religious zealot, do you know what I have to say to people that don't care about decentralization? There we go.

Wait, did that just come through on the Zoom? Good. Okay, cool. I actually think so this is a whole other podcast we could have, and we probably should have in the future, Ryan, about sort of Ethereum's path forward. But one thing, I think, to look for it, to see if, to validate the bankless thesis in 2022 is this whole idea around modular blockchains and what we call ultra-scalable Ethereum. So this year is maybe the year people figured out that ETH is. ultra sound money, okay, as a meme again, right? So like not unpacking all that that means. I don't think we've seen the last word from Ethereum on scalability. In fact, I think Ethereum is taking the patient approach, but also the right approach with its modular design and layer two is coming on board.

So we'll see. I feel like we're kind of sum up between like Empire Strikes Back and Return of the Jedi, all right? So like we'll see. And maybe we'll talk and evaluate this in another year. and then maybe we make your top 10 list next year of people to watch, if we're right about ultra-scalable Ethereum and our thesis around layer twos, or maybe not. This industry always surprises, and there's definitely a lot to learn. What I will say, Ryan, is we definitely appreciate you guys being in the space. I think Masari is just a voice of reason, a voice of truth in the industry with so much bag

bias. I think you guys do a great job staying neutral and just, you know, reporting things and analyzing things with a lot of integrity. So we definitely appreciate it. And thank you for putting this thesis together once again. It's great to have you on bankless, Ryan. Thank you guys for having me. And I guess if I'm going to see you before a year, it's probably going to be for the flippinging episode where I imagine I'm going to have to rent a dunk tank for right behind me. Just on the off chance, the 20% chance that you guys are right. I'm not banking on it.

I will personally fly out to throw the balls at the dunk tank. Yeah, make sure Udi's there too and a few others, I think. Anyway, guys, crypto is always fun, of course. And Ryan, thank you for joining us. We hope you learned a bit about the thesis today. Action item for you today is download Ryan's Crypto Thesis for 2020. We'll include a link in the show notes. You can find that at Misari.io slash crypto-hefin thesis,

hyphen 4-2-22. If that sounds too complicated, just click the link in the show notes. Risk and disclaimers, guys, of course, crypto is risky. Bitcoin is risky. Eth is risky. We legitimately don't know what's going to happen in 2022. This is our best guess, but we don't know. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot. Hey, we hope you enjoyed the video. If you did, head over to Bankless HQ right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence. We recommend joining our daily newsletter, podcasts, and community as a bankless premium subscriber to get

the most out of your bankless experience. You'll get access to our market analysis, our alpha leaks, and exclusive content, and even the bankless token for airdrops, raffles, and unlocks. If you're interested in crypto, the bankless community is where you want to be. Click the link in the description to become a bankless premium subscriber. today. Also, don't forget to subscribe to the channel for in-depth interviews with industry leaders, Ask Me Anythings, and weekly roll-ups, where we summarize the Week in Crypto and other fantastic content. Thanks everyone for watching and being on the journey as we build out the