Bankless - 98 - 5 Things We Got Right

Starting point is 00:00:07 Welcome to bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front-run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, this is our five things we got right episode. It's really more of like lessons from 2021. It's been a crazy year. It's kind of our wrap-up of the year, what we're taking with us into 2022. So we're going to go through a few things for you guys. The first is, which of our predictions last year came true and which ones were a flop, which ones we failed on. We're going to talk about five things we got right. We're going about five things that surprised us,

Starting point is 00:00:46 five mental models we unlocked and five bets going into 2022. And then we end this podcast with some reflections on the market, whether we think there's a blow off the top coming, whether we think next year is going to be a good year, bullish or bearish. So stay tuned to catch all of those details. David, been a fun year, man. Maybe we should just get to the So do you have any thoughts before we do that? Yeah, 2021 has been a crazy year. And I feel like almost every single quarter deserves its own reflection. But crypto moves so fast that we didn't have the time to do that at the end of every single quarter.

Starting point is 00:01:18 So we were trying to summarize and reflect upon an entire year in crypto, which has also been crypto's craziest year. So it deserves a ton of reflection and a ton of attention. So we are going to unpack something that we have all experienced already and try and discover what it means, where it's pointing, where it's going, and why this. things unfolded in the way that they did. So we'll go ahead and get right into those conversations. But first, a moment to talk about some of these fantastic sponsors that make the show possible. When you shop for plane tickets, you probably use kayak, Expedia, or Google to compare ticket prices. So why would you limit yourself to just one exchange when you trade crypto? When you make your trades, you want to make sure that you are getting the best possible price

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Starting point is 00:04:10 This is a David and Ryan episode. We haven't done one of these in a while, but when we do, it's always a treat. David, how you doing, man? Just fine, Ryan. Back in Seattle, it's extremely cold. And that's been at the top of my mind this morning, how goddamn cold it is. Yeah, how much you want to be back in San Diego, Southern California, right? Very much so.

Starting point is 00:04:29 Yeah, my flight back to San Diego. goes the day after Christmas. As soon as possible. Let's make this flight as soon as possible. Well, David, I think this is going to be a really fun episode because it's our chance to really reflect back on 2021, everything we learned. And bankless listeners, we're going to split this episode into two parts. So part one is everything we learned this year, the year of 2021.

Starting point is 00:04:52 And also how that informs the bets that we're making going into 2022. Our thesis, the bets, the framework, the mental models, all of that. it's going to be in part one. In part two, we're going to talk about this thing that we kind of helped start, which is the bankless movement thing that we're building now that we've kind of dedicated our working lives to. Maybe not just our working lives. Like, I think about bankless a lot, David. I don't know about you. The whole thing, yeah. And that's what we're going to be talking about in part two. So this is a special holiday episode for you. It's going to be our last episode of the year. Hope you're enjoying the holidays. Hope you've had some time to get away from

Starting point is 00:05:27 screens, spend with your loved ones, spend with your friends and family. Also, some time to reflect on the craziness that was 2021 in crypto, because it was crazy. And I would just say, rest up because it's not slowing down next year. Like, crypto just accelerates. It only moves forward in velocity. It only goes in one direction. That is the direction of acceleration. So we're going to get into that, David. But why don't we start with kind of part one, our reflections on the year that was 2021, these last 12 months, really felt like, I don't know, I mean, January feels like five years ago, like six or seven years ago at this point in time. All that's gone on, all that's happened. What did you think high level about the year, David? I've said it before, but 2021 is the

Starting point is 00:06:12 year that the whole entire crypto industry, starting from probably when Bitcoin first got any sort of like meaningful attention on it from its first few adopters. 2021 was the year that like crypto predicted. Obviously, it's going to throw us a bunch of curveballs left and right and we totally got those curveballs in 2021. But some of the underlying themes definitely were predicted by crypto well before even you and I got into crypto, like the inflation in the dollar mainly and all other fiat currencies, starting to see some fiat currencies pop off one by one with hyperinflation events.

Starting point is 00:06:46 You can definitely see the writings on the wall. some of them have already happened and then like the Turkish lira happened this year and then inflation in the dollar picking up so that's been a crypto prediction from the from the beginning that definitely happened the year we finally started to see public companies putting Bitcoin on the balance sheet celebrities and big companies moving into crypto in meaningful and sustainable ways it really just in so many different ways was what crypto people always thought would happen and hoped for a really long time and so when it's time to reflect on the end of the year, like, that's kind of where my head's at. No, this wasn't just another year. This was

Starting point is 00:07:22 the year for crypto. This is when so many things happened that are good for crypto. And like I said, in one of my recent articles, like the 2021 was a big W for everything new and everything crypto and a big fat L for everything incumbent. And I kind of think that's, that's kind of the theme of the year, like W for the new things and L for the old things. Yeah, it's kind of surprising how much crypto got right this year, right? How much was kind of proven this year? I mean, it had been a dark bear market. And I wouldn't say 2020 was a bear market, right? We definitely got some tailwinds that year, right? Defy Summer. Lots of great things happened the previous year. But 2021, it felt like the first year, it felt undeniable. It felt like we had mainstream's attention. I think Ryan Selkis used the word

Starting point is 00:08:11 inevitable. We've said this all along about crypto, hey, crypto's inevitable. But that's been kind of more hopium. Now I think mainstream sees the inevitability of this asset class, and that's been cool to see. So maybe just surprising the amount of things that crypto got right in a very concentrated year. But that's not to say there weren't some curveballs, like some things that were total surprises, some things that we didn't expect. David, let's see this, man, because at the end of every year, we put together a list of predictions. We did that at the end of 2020. We created a piece called Bankless Predictions 2021. And I want to review some of these because it's interesting the mindset that we were in at the time. And I feel like the end of 2020,

Starting point is 00:08:55 the beginning of 2021, if I'm thinking about it correctly, I think ETH was around 700 or so. Do you recall the Bitcoin price at that time? Yeah, Bitcoin had just crossed its all-time high. And December 14th, I don't know what day we released this, but December 14th, Bitcoin had crossed $20,000 again for the first time. And it was crushing it, right? Like relative to ether as well, it was just having a really good year. And there was this sentiment in the year. Everyone was very bullish defy at the time, if you recall, because we just come out of an incredible defy summer, all of these token launches and discovered yield farming. And that was a big focus. And it was in that backdrop where we're trying to figure out, okay, what's going to happen in 2021? And so here's some

Starting point is 00:09:40 the predictions we made. We call these our layup predictions. One, we said, ETH will cross all-time highs. Remember, to that point, like, Eth had never been above, what, 1,300 or so? Yeah, 1400 was the previous high. And at the time of writing, it was something like $700 to $900. Yeah, and that was like, we were feeling pretty good at $700. So we said ETH would cross all-time highs and hit $2,500, called that a lay-up prediction. We said crypto would become a multi-trillion dollar asset class. Okay. It had just barely, touched one trillion in market cap. We said that was like obviously going to double, triple, something like this. We made predictions about Ethereum settlement value. We also talked about D5 protocols reaching the top 10 in market cap. So I recall one of the things I think we really

Starting point is 00:10:29 expected at that point in time was coin market cap would be full of Ethereum, Bitcoin, maybe a couple of others. But then the defy tokens would launch. into the... They'd populate like 10 through 5, yeah. Yeah, they'd kick out the ripples and the neotrons of the world and the stupid coins that were in the, you know, in the top 10. We got that one wrong, by the way. That was wrong.

Starting point is 00:10:54 So far all of them have been right, but that one was wrong. That one was wrong, very wrong, and I think we want to talk about that today. We also said defy total market cap would cross 100 billion. We were at 28 billion in total Locked Valley at the time. We said, so we got that right, although we did say 100 billion is our bearish estimate. And now here we are in 2021. We had just barely crossed 100 billion. I think the high we peaked at 120. And this is measured by, you know, D5Pulse. So if you look at other Alt-Layer ones and such, you know, those aren't included those numbers, but we just barely did it. We beat

Starting point is 00:11:27 our bearish estimate. But I'll checkmark that as we got that right. We're also pretty bullish on Bitcoin on Ethereum, like tokenized Bitcoin on Ethereum. And I don't even know. We said 2.5% of the total Bitcoin supply would be on Ethereum sometime in 2021. I don't even know the status of that, David. How do we do on that prediction? I'm pretty sure we are above 2.5 percent, and I'm pulling that up right now. Well, you pull that up. Another prediction we call the layup was Coinbase's IPO. They would IPO, which that in itself is a checkmark prediction, but we said it will have a valuation greater than $100 billion. And last time I checked, I mean, it probably depends on the day, but like Coinbase, about $60 billion or so.

Starting point is 00:12:10 I'm not sure what the highs were if it ever got above $100 billion, but close-ish, but maybe no cigar in that prediction. I think we got the main thing, right? It was just the Coinbase IPO, and we were just off by a couple dozen billion in terms of the valuation of Coinbase. Yeah, currently clocking at $62 billion in market cap.

Starting point is 00:12:28 I think it got up to like $80 billion, $85 billion at the very, very peak at the very start, but it did not sustain that at all and fell quite a lot, actually. How much Bitcoin is on Ethereum? According to DefiPulse, 228,000 Bitcoin are on Ethereum. So that is about a little bit more than 1%. Like, it started to slow down, right? It was really crushing it last year in 2020.

Starting point is 00:12:49 And we kind of extrapolated that and said it would get 2.5%. Didn't quite hit that. We also said banks would start adopting Ethereum as infrastructure to settle dollar payments. I think we saw a lot of that with not quite formal banks, but like the visas of the world and the PayPal's with the world getting to stable coins. So overall, predictions are hard, but I feel really good about some of these predictions we made at the end of last year.

Starting point is 00:13:14 I feel like where it was wrong, we were probably overly bullish on defy relative to other things. But everything else was pretty darn close. Any thoughts? Yeah, you can definitely tell when in the year some of these predictions were made. This was also the moment of under collateralized stable coins. So there's a lot of predictions about stable coins in here.

Starting point is 00:13:33 Yeah. I make the prediction that no significant new layer one will launch in 2021. And granted, technically that's true because both Avalanche and Salon had launched in 2020, not 2021. But meaningfully, I did not get that one right. Directionally wrong. And there's a few other ones as here. Like we talked about Libra will launch and no one will care.

Starting point is 00:13:54 I don't think that definitely happened. That was your prediction, yeah? Yeah. It's kind of like Libra didn't launch and also no one cared. So that was kind of half right. Yeah. Either way. Lucas made some fantastic predictions. Uniswap will reach $1 trillion in annualized volume. I think that did happen.

Starting point is 00:14:10 And value of crypto art will cross $1 billion in art sales. Definitely predicted like NFT is leading the way. Yeah, absolutely. These are always just fun to look back on. He also said DPI crosses $1 billion in market cap, which it didn't get there. Nope. This is interesting. Again, overly bullish on defy going into the year. You said that Tron would go the way of XRP, one way or another. And I feel like that kind of happens. David, right? Like there's been almost no conversation about Tron. The end of last year, remember that was the Heath Killer Dejure. And now, like recently was it last week, Justin's son, just done with the project. I'm done with Tron. Yeah. Yeah, I'm moving on. Right. I'm going to do something else with my life. Yeah, it feels like that project is kind of stalled, not doing very much. We also, obviously, predicted EIP 1559, gets shipped, starts burning some ETH. That was actually a harder

Starting point is 00:15:02 prediction to make at the time. Yeah, this is true. Right now, it's deployed and everyone forgets, everyone forgets that that was not a layup prediction at the time. Yes. Because there had been a ton of delays for EIP 1559. It was like two, three years in the making. And we got that one right. The internet bond gets memed into existence. I feel like that kind of happened. That definitely happened. Yeah, ether and eat staking was discussed as like shoulder to shoulder with the risk-free rate in a number of financial reports from banks and funds and stuff like this. And so that absolutely happened. Look at this one. I'm actually proud of this one. A central bank will acquire Bitcoin, all right? It's kind of happened in El Salvador,

Starting point is 00:15:42 didn't it? Yeah, 100%. Yeah. Definitely. That was also something that, you know, seems obvious now that's happened, but was definitely not obvious at the time. I don't know if this happened to you, but I predicted that we'd start getting text messages, like bull market text messages. I have so many of those. Yeah. So many. I said, we'll enter a 20, 17 like retail FOMO and the friends and families that you know that know you're in crypto will be asking you for advice 100%. That definitely happened. Now they were asking about NFTs though. Yeah, this is true, but NFTs are crypto. I also said the digital one will launch. It kind of has launched as well. Yep. And I said if it was successful, the US will be forced to consider a digital

Starting point is 00:16:24 currency strategy. Look. That second part did not happen. Yeah. I mean, I feel like they're in this constant state of denial kind of considering it but like not being serious about it. Yeah. And so that's just

Starting point is 00:16:36 never be bullish on government timelines, especially US government timelines I think there's a lesson there. Overall, man, pretty good predictions actually going to the year. So let's talk about this now,

Starting point is 00:16:47 David. Some of the big things that I feel like we got right in the bankless thesis. So more than predictions, there were at least five things I think we nailed. We hammered on

Starting point is 00:16:59 for, quarters for almost a whole entire year, definitely big themes that we've had a very strong conviction on that did end up playing out in 2021. So let's talk about these. We got five of them. The first is the crypto became a multi-trillion dollar asset class. We said that would happen. Again, bullish crypto, right? Bankless has always been bullish generally crypto. Now we're in the multi-trillions of dollars. We said that was a layup. And I feel like crypto has really reached escape velocity. with this. Like when you're in the multiple trillions, I mean, you can dip, you can enter bear markets, that sort of thing, but it ain't going anywhere now. Like it's no longer just a fad. What are your

Starting point is 00:17:42 thoughts on that? I think this is the zone of like total market cap where there's a decoupling between the naysayers of crypto and the capitulators of crypto. People just looking at crypto now and choosing to not ignore it and say, oh, it's in the multi-trillions now, I guess I'll take this seriously. Paul Tudor Jones comes to mind. Raoul Paul comes to mind. You know, banks issuing reports comes to mind. This is when crypto like triples in size and the number of crypto antagonists or crypto naysayers did not track the growth of crypto. Crypto outgrew its naysayers with this in this metric. And I think that's a great summary. for it. So like crypto becoming a multi-trillion dollar asset class, it has more tailwinds of support

Starting point is 00:18:30 than it does antagonism, which is actually, I think, one of the new things about the world of crypto in 2021 and 2022 moving forward. I totally agree. I think it makes the naysairs look foolish. Yes. It look kind of silly when they were saying things like, hey, it'll never recover. Crypto's dead. It'll never come back. It's just a fad. It makes them, it looks like bitter people that missed out. It does. And it becomes increasingly so as the market cap goes up. I wonder about that point, whether you agree with that point about escape velocity, do you think that this is now like cats out of the bag, genie's out of the bottle, it's over, the crypto is now here to stay, can't be shut down, can't be regulated out of existence, can't be squashed as maybe early

Starting point is 00:19:08 bitcoinsers felt in the earliest days of Bitcoin when it was just an infant in the crib. Yeah, even if we had like the worst possible 2022 when it comes to prices of crypto assets, even if you had like the doomsday scenario where like we get hit with a 2018, 2019 bear market scenario. God forbid that that happens. But the amount of funding into teams, projects, startups, client teams that we have that is in dollar terms, not crypto terms, is orders of magnitude larger than we've ever had ever before. And so if you ask me like, is crypto escape velocity? I would say yes, because now the prices of these assets mean a lot less because so many like startups and everything, all the infrastructure has so much funding behind it, that the whole

Starting point is 00:19:54 entire industry can withstand a bear market way better than it ever could ever before. So it's almost like the prices of these things almost don't matter because we are now in escape velocity. We are now building our way out of bare markets with ease. So yes, we are absolutely in escape velocity territory. I feel like this was the first year that the conversation, you know, we didn't even have the conversation in crypto around will the government shut this whole thing down. In all my previous years in crypto, that was in the background. That was looming. That was actually coming from the Well, if Bitcoin gets strong enough, then the government's just going to, like, deactivate it, shut it down. We're no longer having that conversation. The conversation around interacting with the

Starting point is 00:20:33 government is, well, how much regulation is going to be applied to various subsectors of the space, say stable coins or defy or AML KYC in crypto and these sorts of areas? No one is talking about the governments of the world banning together and actually trying to shut the whole thing off because I think there's the recognition that it's impossible. Escape philosophy has been reached. One of the things that I'm really, really appreciative of that did not make its way into this recent bull market from the 2017-2018 era is this common line that you would hear all the time throughout 2017 and 2018 that it could all go to zero. No one says that anymore. If it could have gone to zero, it would have done it in 2018. And so no one ever says like, hey, people say don't invest

Starting point is 00:21:16 more than you can lose, but no one says it can go to zero when that used to be like a common line throughout the previous bear market. So I'm so happy that that trope has now completely moved away from people's like headspace. It is now dead. That is great. It's definitely new this year. Let's talk about number two. So the first was crypto became a multi-trillion dollar asset class. It's something we got right. The second thing we got right is Eith. Heath showed remarkable strength relative to Bitcoin. Anyone who's been familiar with bankless knows we're bullish on Bitcoin, knows we love Bitcoin. We think it's fantastic. But also knows that we are disproportionately overweight ETH relative to Bitcoin.

Starting point is 00:21:55 Like we do believe that flippinging is inevitable. And ETH was super strong relative to Bitcoin this year. So ETH hit a high of 4,600. And then more importantly, the metric we're tracking if you're tracking this, is the ratio strength. So ETH Bitcoin ratio strength highs. Highs since I think 2018 was the last time we saw them this high. So something else we got right.

Starting point is 00:22:20 ETH was up 490% on the year versus Bitcoin, which was up 101%. What are your thoughts on this, David? Yeah, I'm pulling up the ETH-BTC ratio chart so I can look at the exact start of the year because Ether started 2021 at, let's see, 0.043. So for one ether, you would get 0.043 Bitcoins. and we are currently clocking in, it almost doubled that at 0.082. And so since the start of 2021,

Starting point is 00:22:52 ether has doubled in Bitcoin terms. Back at the start of 2021, there was still a lot of ground left to cover to reclaim some of the highest set in the previous bear market or bull market in 2017. And Ether just did exactly that. And not only that, again, currently looks like it's primed to recover even more ground.

Starting point is 00:23:11 So the amount of time that Ether has been higher than it is now, it's like 95 to 5, as in like 5% of the time it's been higher in Bitcoin terms than it is right now. 95% of the time has been lower than what it is now. This is one of the big stories of 2021 is that Bitcoin got beat out by basically everything down below it in market cap. And for the second largest thing to double versus it is a significant deal because Ether can actually only double versus Bitcoin one more time before it flips it. Actually less, less than that, right?

Starting point is 00:23:43 So one more doubling and it's a flip. So that's a huge story out of 2021. And that's a question of are we primed for the flippinging going to the next year. But here's one of the mistakes. I don't want to make the mistakes that maybe Bitcoin Maxblos made at the end of 2020, which is just assuming the next year would be an extrapolation of the previous year. And if you look at this, this is the ETH Bitcoin ratio, David. Look at us all in 2020.

Starting point is 00:24:06 Even as DFI was like crushing it, defy was breaking out, proving the use case, proving product market fit for Ethereum block space, ETH was pretty flat relative to Bitcoin anyway. It was going up, but not relative to Bitcoin. Heath was depressed, yeah. And so there was this idea of defy, not Ethereum. Do you remember that? It was a common trip at the end of 2020.

Starting point is 00:24:30 And so I think people didn't see this going to the next year. They just thought Bitcoin would continue to dominate. And that's not what we saw. We saw a recovery on the ratio and a ton of strength, which makes me wonder what's going to have. happen next year, which is also the reason, though, David, I feel like you have to track fundamentals because, I mean, EIP 1559, look, when did that happen? August, right? You know, that accounts for some of the anticipation working up to EIP 1559. It's another fundamental. Next year, we're going to

Starting point is 00:24:58 see fundamentals like the merge coming on board. And so how does the ratio fare in the face of that? It's something we're going to be tracking. But let's get to number three. Another, I think, contrarian idea that we've held for a very long time since the very beginnings of the bankless newsletter in the podcast, is this idea that ETH is money. And that had a breakout year as well. This narrative hit the mainstream. EIP 1559 was just an idea when we first wrote about it. In fact, you first wrote about it in 2019. Do you remember this article? The final puzzle piece to ETH's monetary policy, August 10th, 2019, talking about EIP 1559. It took two years for that thing to come to fruition. But from so much that I've read this year, not just on the bank,

Starting point is 00:25:42 side, but industry reports, investors talking about ETH as an asset class, even like bankers talking about ETH, they refer to it as a monetary asset. Some even refer to it as an internet bond, which we've talked about for a long time, and all of them refer to ETH as a store of value. So that is now the commonly accepted narrative for ether as an asset. That is not just gas, it's a store of value asset. So this year, I feel like the narrative flipped, and ETH actually became money. What are your thoughts on that? I think, dare I say that the narrative flipped and ETH became money and displaced Bitcoin as money. Because Bitcoin is now just digital gold. Like, that's what it is when you read the big reports. You know, Bitcoin is sound money is like a

Starting point is 00:26:28 common trope from Bitcoiners. But like you don't really hear that in mainstream. That's not a meme that broke out. Yeah, you don't really hear that Eith is money chanted by like mainstream either. But what you do hear is, ether as a currency of the Ethereum network, which has what it's always been, but people are also wrapping their heads around the Ethereum network being able to do basically anything. And if ether is the currency for that network, then, you know, therefore, eth is money. And so just a growing acceptance. And this definitely, it's coming on the backs of the point we were just talking about, which is ether appreciating versus Bitcoin. That's definitely a tailwinds into this narrative, that ether is just the currency that you need to use to do the things in the crypto world.

Starting point is 00:27:10 that's just becoming more and more just embedded into many, many people's heads. And also, I would also credit having so many metrics to look at when it comes to ether, the currency, especially when blockchains are open, permissionless, transparent ledgers, we have so many numbers. We have ether issuance, ether burn rate, total fees, network security, volume, liquidity, so many things that we can directly look at in terms of what ether is as an asset. And these metrics that we are able to view just backstop, put up foundations on the narrative, on the meme that eth is money. Yeah, even the burn rate is a constant reminder that, hey, like, this is a scarce digital asset that is becoming more disinflationary as a function of

Starting point is 00:27:53 the economy that it resides within, which is exactly what you need to have a money. And monies are tied to economies. So that brings me to a question because I think this is an interesting lesson. What's more important or which comes first? The meme or the fundamentals is sort of a question, right? And in some ways, the meme came first for this. You know, like Ethys Money, we started saying it before it was fully true. But yet, there were hints of it being true in the very early stages. We just, you know, saw the vision a little bit earlier. But what do you think? Which comes first? The meme or the fundamentals? In this particular scenario, fundamentals absolutely came first. Other currencies, memes come first. Like Doche, for example, the fundamentals

Starting point is 00:28:34 are the meme. But with Ethereum, the memes came out of a fundamental truth about what Ether is in relationship to Ethereum. Well, I feel like what happens is the meme always gets tested by the fundamentals. Yes. And like memes and fundamentals are related. But the only way the narrative can last through a cycle is if it's like reinforced and backstopped and proven out, gone through the forgery of fundamentals. And that's what's happened with this meme. So number four, it rained air drops. All right, we said this would happen. There would be a ton of air drops for 2021. And indeed, there were, what were some of your favorite air drops of the year, David? The tornado cash air drop was lovely. The one inch air drop was also fantastic. But of course,

Starting point is 00:29:15 the big winner of the year has got to be ENS, the ENS air drop. It was fair. It was distributed. It was a different kind of air drop. ENS, the token, isn't really like the other tokens that are out there because of just how close to public goods the Ethereum name service system is. And it's a different breed in my mind, similar to Uniswap, similar to Gitcoin, but also meaningfully separated in the fact that it wasn't supposed to reward early users. It was supposed to decentralize power over the ENS naming system. I feel like the ENSROP, that definitely takes the cake as the AirDrop of 2021, Uniswap being the AirDrop of 2020.

Starting point is 00:29:55 Getting AirDroped Responsibilities, nothing like it. We've got a ton of other potential airdrops as well. We published The Ultimate Guide to AirDrops, one of our biggest, most popular content pieces of the year. So make sure you check that out as well as for bankless premium members. David, let's talk about the fifth one and last one in this section of things that we got right. And we got right that defy usage would continue to go up.

Starting point is 00:30:18 But like... With an asterisk. Yeah, this is like barely. We just like barely made it above the bar. We squeaked by on this one. Total locked value got above $100 billion. Why didn't it go further is kind of a question? Why didn't Defi have another explosive year?

Starting point is 00:30:33 I guess we'll get into that in a little bit. But what are your thoughts? Yeah, I think the answer to the question is like so much about crypto's based on attention. And if your thing doesn't have attention on it, then like you are suffering. Attention and market cap go hand in the crypto world, especially in the short term. NFTs are the most attention grabbing thing that exists out there. Yeah. People forgot about Defi.

Starting point is 00:30:54 And Defi is just kind of like now like the boomer side of crypto. Like, oh, boring old defy. Like, there aren't any JPEGs related to that. I think that's what happened. I think NFTs stole all of DFI's attention. That's so funny. Yield farms are out. NFTs are in.

Starting point is 00:31:07 That's what happened. So those are the five things we got right. Let's talk about the five things that surprised us. Because there were a lot of those. There's always a lot of curve balls. And I feel like for as many things as we got right, there were some surprises. And a lot of the surprises were surprises of timing. So let's talk about these five things.

Starting point is 00:31:22 The first one is NFTs. They just blew up this year faster than, I think. any of us thought maybe even faster than the biggest nfti bulls we know thought they would like it all happened at once that's what they said we've been bullish nfts for a while right but it was always like oh yeah someday these would be cool like someday these will be meaningful and we'll be able to you know bring our sword out of a world of warcraft into something else and then like it just happened all at once in 2021 NFTs went mainstream we did people we got cryptopunks we got board apes we got open sea they went mainstream in a way that defy never has, right?

Starting point is 00:31:59 As we said before, NFTs got us on Jimmy Fallon and S&L and Snoop. Not Defy, not talking about Bitcoin monetary policy, it was NFTs. I want to hear about your learning lessons from that. Why do you think we missed that? Why do you think that surprised us?

Starting point is 00:32:15 You know, always in the back of my head, I was like, man, this defy thing is so fantastic. I can trade assets on uniswap. Like, I can do it all myself. I can self-custy this stuff. Like, this is great. But in the back of my head, I was like,

Starting point is 00:32:26 everyone else think that this is great. And like in the back of my mind, I was like, you guys got to try out this defy thing. It's so revolutionary. It's going to change the world, which has and will continue to do. But when it, again, when it comes to popular culture, people just don't care about finance. No one's going on like late shows and talk about their savings account ever. Like, it's never happened. No, no. I think the thing that we didn't put the dots together is how simple it is to ask someone to trade JPEGs. It's like, hey, if I slap on this financial asset onto this JPEG, would you trade it? And like, society gave a resounding, oh, yeah. Oh, we'll totally trade those things. Didn't that surprise you, though? Yes, 100%. But in hindsight, it's so easy to just look at it.

Starting point is 00:33:07 It's like, oh, put a token behind pictures. Like, again, it's one of those things where like, I middle bell curved it so hard. And if I should have been on the far left being like, oh, yeah, picture tokens. Like, duh. It's hilarious to you because I feel like we heard the bull case super early. Do you remember when Andrew Steinwald and Jake came on? We did a bullcase for NFTs. I think this was in September of last year, right after Defi summer. And they were like, oh yeah, guys. Like NFTs are going to be way bigger than Defi. Just you wait. You'll see. And we're like, okay, cool. But like, explain what an NFT is. And why is that more valuable? I remember you talking about a picture of art that you had on the wall. And you were like, hey, this is a one of one. But like, how does that translate into

Starting point is 00:33:49 the digital world? What about the kind of the right click save as? And like not one year later, but not just you and I are fully bought into NFTs in the value proposition, but like the whole rest of society is. I never anticipated it would happen so quickly. Yeah. And again, it just boils down to the simplicity of NFTs. Like you get to own a picture. Like don't think about it too hard. And society didn't. And that's why they got accepted. You know the other thing I was thinking is defy, money, these types of conversations, not only is it easier to understand, but NFTs are far less threatening than those things to incumbents, right? So mainstream brands, they didn't have to worry about regulatory issues with NFTs.

Starting point is 00:34:31 They could just use their digital brand equity and IP and issue them as NFTs. Social media, like the Twitters of the world, for example, just add NFTs as features. No disruption. Reddit, fully embrace it. It's great. It's another competitive advantage. Christy's and Sotheby's made hundreds of millions in sales, but by sales. telling NFTs. So like, oh, yeah, sure. NFTs, like, yeah. Easy. What a gift. NFTs are a gift from the crypto world to the rest of the world. And everyone else was like, oh, yeah, I love it. Everything else is like, okay, we're going to come and eat your lunch about crypto. Even like the regulators, right? Crypto is scary. Bitcoin is for drug dealers and terrorists

Starting point is 00:35:06 or whatever. But NFTs, man, they're just like cute. NFTs are for everyone. Like, you can't be angry about them. So I totally underestimate the surface area of NFTs. But let's get to the second one. And this is Axi Infinity. And it deserves its own category in and of itself because crypto gaming took off in a way, but only because Axi Infinity just like plowed the door wide open for all of these other crypto games. It melted faces, a few things. Biggest Discord server in the world, bigger than Fortnite, okay? Revenue in the billions this year. Millions of players from all over the world. AXS, that's their native token, went from 30 million to $8 billion last year. Okay? 30 million to $8 billion. What's going on here?

Starting point is 00:35:49 And why were we so surprised by this? Yeah, it's this very rudimentary, like, game. It looks like a flash game, looks like a browser game. It has crypto elements into it. So, like, looking at it, it's like, how is this ever going to catch on? Like, who's actually going to play this? Like, gamers want more than just this very simple, like, you know, flash game. Turns out that gamers are not the right target audience.

Starting point is 00:36:11 And it turns out there's a number of other people, a larger, much larger population in the world that doesn't have super souped up GPUs in their gaming computers. and they just casually game on their laptops or whatever, you know, hardware that they have in their country. And because of the economic game behind it, that is the real story. It's not the visual gameplay game side of things. It's the economic game that underlie to Axi Infinity. It's the open economy. It's the GDP of the economy. It's providing employment opportunities for people. That's the discovery. It wasn't had anything to do with the actual game itself. It has to do with the economics of the system. That's what got.

Starting point is 00:36:49 adoption in my mind. When you talk about crypto gaming, you still kind of think about your old mental models of games, which are like call of duty, super high graphics, intuitive gameplay. Like, no, crypto gaming studios don't optimize for that sort of thing, at least right now. They are optimizing for the economics. And that is a brand new paradigm shift that I think surprised everyone. The other thing that made this take off, I think, was a catalyst because we were talking about Axi Infinity at the beginning of 2020, right? We thought it was, it's cool. We just had no idea it would take off in the way that it did. Proof of concept. Yeah.

Starting point is 00:37:19 Proof of concept. Like there'll be other crypto games that this is one of them. We were really bullish on it at the time. But like not like this. We didn't expect all of this. But when we had Gio on earlier, who's one of the co-founders of Axi, he talked about layer two, basically, not quite layer two, but the Rowan side chain as being a massive growth catalyst for this, right?

Starting point is 00:37:37 So at some level, what we discovered in 2021 is that high block space fees were the thing holding Axi back and holding crypto gaming back. and once you unleash all of this and provide cheap block space, then it absolutely explodes. I think that's something that happened to. Let's talk about the third one. Web 3 became a narrative. I was not a fan of Web 3 back in 2017, 2018, because it felt like it was associated with all of these unrealistic ideas, these naive ideas, like, oh, we're going to create

Starting point is 00:38:10 a white paper for decentralized Uber or, like, decentralized Twitter, and we're going to raise an ICO. But today I see something completely different in Web3. Like it feels much more real. We've got the creator economy. We've got the ownership economy. We've got this self-sovereign identity concept. We have NFTs and crypto as like a digital property layer for the Metaverse. What happened with Web3 becoming a narrative in 2021?

Starting point is 00:38:37 And why wasn't that on our radar? I think Web3 is really riding on the back of the fundamentals of the crypto industry. So we had Web 3 in 2017, as you said, And it meant many, many different things, like decentralized Uber, decentralized ticket master. And then there's also components of like the broader Ethereum ecosystem where it's literally trying to be a decentralized internet, like decentralized file sharing, decentralized file storage. The Web3 meme wasn't solidified. And I think slowly over the years, and especially as the industry built itself in the

Starting point is 00:39:07 bear market and actually established meaningful fundamentals, like the fundamentals of defy that are meaningfully strong and real and start contracts. to the fundamentals of the ICO movement, which are non-existent. So the Web3 meme, the Web3 narrative, was able to stand on the shoulders of actual true fundamentals of the crypto industry. And I actually kind of think that Web3 and crypto are almost completely synonymous. But Web3 is just like crypto throws a lot of people for a tizzy. Like it's the crypto world.

Starting point is 00:39:34 It's got some negative connotations, kind of like, you know, the dark, shadowy supercoder connotation. Web3 illustrates a lot more things. Like we already have the web. We already know what the web is. Web 3 implies some continuation of that. Ryan and I have been talking with a bunch of funds like A16 and just regulators, people on Capitol Hill, who are actually doing real research into the term Web 3

Starting point is 00:39:59 and how it lands with just people all over the world, demographics and politicians. And it's overwhelmingly positive. Everyone loves the term Web 3. It is the correct and great branding for the crypto world moving forward that doesn't have the negative connotation of the word crypto. And I think it's kind of a populist term. Web3 is a populist term. It's a pushback against Facebook. It's a pushback against any top-down monolithic Silicon Valley company. And I think more and more, Web3 is going to become a household name. It's going to hopefully resemble a brighter future of the internet that people wish that we had in the last decade or so. Yeah, I agree with you. And I do think Web3 and crypto are synonymous, but not everyone agrees with that, right? It's particularly strong Bitcoiners, Bitcoin Maximus, I would say, Jack Dorsey, a number of tweets earlier this week. saying, hey, Web 3 is something different. There's Bitcoin and Web 3 is this thing owned by a bunch

Starting point is 00:40:50 of venture capitalists and he's like distancing himself from that, which is interesting that the Bitcoin community, at least the strong maximalist community, is not not on board adopting this term Web 3. We'll see how that plays out. Let's come back to this concept because we got to emphasize it was something that we were super bullish on going into 2021 and didn't quite pan out in the way that we hoped or thought it would. That is defy. Defy wasn't the golden child this year. That's number four. We talked about the first reason for that, which is like everyone was distracted by NFTs, of course. But just to give you some sense, the DPI, which is the index of, you know, the Aves and YFIs, makers of the world, the blue chip defy assets was only up 115% on the year. Okay?

Starting point is 00:41:32 That's barely above Bitcoin's rise. And, you know, you think an asset class would be far higher beta than something like Bitcoin, like Defi overperformed in 2021. I jotted down a couple of other reasons for this besides everyone who's distracted by NFTs. Another reason I think, David, is because this industry is just a bunch of fractals on fractals and fractals, right? There's a familiar pattern in crypto that goes like this. Builders build for years. No one will pay attention to them. There's like no market reaction. Then suddenly, in this violent upward burst, the market's like, oh, shit, this is a big deal. We've got to reprice this asset class. And they, they fomo in, they pile in, price shoots up, and then price overshoots

Starting point is 00:42:14 fundamentals. And it tends to either drop or flatten out, stop growing at the exponential pace, attention moves to other sectors. And then we go back to step one where builders keep building with years, with no market reaction. I feel like that's what was happening in 2021. Like, defy builders were building. They were hustling.

Starting point is 00:42:34 And that's when I start to get bullish in the asset class. when the builders stay and they keep building, but the attention has drifted elsewhere because that's where I think the biggest opportunities are for purchasing. And I feel like Defi is in that zone right now. The other thing I feel like this holding Defi back is we still don't have cheap block space, right? And we have alternative layer ones and side chains and things like this, but we haven't reached the golden age of layer twos yet. And I think that is coming, but that's been holding Defi back and hindering it for a while. What are your thoughts on that? To elaborate on that last point. Number four, defy wasn't the golden child. I think we also have to add in the label that

Starting point is 00:43:11 Ethereum Defi wasn't the golden child because defy did take off elsewhere. A lot of things quickly moved on to Binance SmartChame and then Solana activity on Solana picked up and then also Avalanche. We thought there was this going to be this world of DeFi layer two summer where tokens and yield farming on layer two's would happen. Turns out that if you go look at when Avalanche started doing token incentives as in come do yield farming stuff on the Avalanche L1. as soon as they started doing token incentives, which is what kicked off DeFi summer, by the way. That's when Avalanche started to really get into its heyday. And so I think Ethereum Defy wasn't the golden child.

Starting point is 00:43:46 Defy did take off, but it took off more horizontally across L1s. Again, exactly what you said, looking for cheaper block space than it did vertically on already existing defy ecosystems on the Ethereum L1. So I think you're totally right. Defy wasn't the golden child because Ethereum didn't have the cheap block space needed to really allow for experimentation. and innovation. The other bright spot for Defi was this like DeFi 2.0 projects, like projects that were playing around with their token economics and doing some tweaks on standard Defi, like making the protocols more permissionless, like Olympus, Tokomac, Rari, come to mind for that.

Starting point is 00:44:22 That was another bright spot. But yeah, overall, DeFi was not the golden child. But that gets us number five, which is kind of the point that you were making. I don't think we anticipated going to 2020, at least the degree to which this happened, we didn't anticipate. pay, and that is this. All layer one tokens pumped, okay? They went absolutely crazy. I'm talking things like Solana, Luna from the Terra Network, Ava from Avalanche. We saw some adoption in terms of NFT and financial projects, some of them kind of copies from Ethereum, some of them sort of net new.

Starting point is 00:44:54 Yeah, these tokens just absolutely destroyed all other, everything else in their path, right? It's like far outperformed Bitcoin, of course, and also outperformed Ethereum. And Ethereum Etherium had a fantastic year. And so we started hearing narratives like this. It's now a multi-chain world. Remember the Su-Zoo thing. Ethereum abandoned its users, right? Ethereum is getting leapfrogged by better technology.

Starting point is 00:45:16 These are some of the narratives that partially follow the token pumps, but also maybe partially cause them. Depends. For me, this is like a point of reflection, right? For us, right? So like, what is happening here? Because the bankless thesis is very much, we have these three asset categories. We've got, you know, monies and capital asset and commodities.

Starting point is 00:45:34 and I'm looking at these token valuations and I'm asking myself like, why are they pumping so hard? What is the value based on? Are these assets actually becoming money? Okay, that's one thing. Is there a monetary premium? Are we pricing in some future transaction fee growth? Because when you look at the fees, block space fees generated, it's like nothing on these all the other alternative layer ones relative to ether. So is that why? Are these chains just like assuming that they're going to you flip in Ethereum and be long-term competitors to Ethereum? Or do you take the Su-Zoo Three Euras Capital approach and it's like, none of that matters. Okay? It's just memes all the way down and like don't have such hubris bankless guys. We don't really know what fundamentals are

Starting point is 00:46:18 in this crypto industry at all. And the market's just showing you why it's foolish to assume you actually think there's a thing that exists called fundamentals. All right, that's what they would say. These are some of the biggest questions. I think facing investors going to 2021 and facing sort of the bankless thesis and us on the journey. I have a few thoughts on this, but what are some of your thoughts, David? Again, taking a hindsight perspective at 2021, if we all thought 2021 was going to be the year that we thought that it would be at the start of 2021, then block space would have been the thing to invest in. If crypto is ever going to go mainstream and everyone's going to come on to the blockchain and do their crypto things, what is going to be the most scarce thing?

Starting point is 00:46:58 and that is block space. So I think it was kind of naive to think that like the block space on Bitcoin and Ethereum would have been like sufficient to supply all of the adopters of crypto in 2021 with sufficient block space to do so. And I think people like you and me is like, oh, well, if we were presented with that critique, it's like, hey, Ethereum doesn't have enough block space to support a whole entire bull market. Like what's going to happen? We'd be like, oh, there's going to be layer twos where there's like almost infinite block space.

Starting point is 00:47:23 We can just go there. I think we just mistimed it. L2s are certainly here. their block space is certainly adding more to Ethereum. If you go to ETH-TPS.Info, we can actually see how much actual block space was added to the Ethereum blockchain with just roll-ups. And it's actually not that much. It's a decent percentage, but it's still in its infancy.

Starting point is 00:47:42 And the Alt-Layer 1s were able to go to market with more block space faster than Ethereum layer 2s were. That race against time, I think, was won by the alternative layer 1s before Ethereum layer 2s could really add their supply of block space to the global total supply of block space that a bull market totally demands. And so I think that's what happened. I do think had that the pendulum has shifted far too in the favor of alternative layer ones. And with the advent of optimism removing its white list, arbitrage from nitro coming out, optimism also releasing the brakes, stark wear and stark net happening, the pendulum is going to shift in the opposite direction

Starting point is 00:48:22 because it's super overweight L-1s right now. Like you said, the top. token pumping is just pricing a ton of growth into these Alt Layer 1s when they've definitely supplied the world with enough block space, but they have not at all addressed the monetary economics of their L1 asset, which is a battle that Ethereum definitely won in 2021 and the Altlayer 1 still have to fight that fight. That's why I feel like calling the market maybe a little wrong. Okay? And I know that's dangerous to do.

Starting point is 00:48:48 And Suu would be like, who the hell are you to call the market wrong? But I feel like your point is very well made that like being bullish on block space. is definitely something you should have been in 2021, right? Totally get that point. But there's a difference between block space and actually purchasing the underlying asset of that blockchain. Because like those two things are different. If the blockchain is not generating sufficient fees to make, to turn the asset of that chain into a capital asset, productive asset that is harvesting those fees or turning it into a money somehow, then why should, the asset be worth tens of billions of dollars? I feel like maybe what's also happened is people in the

Starting point is 00:49:32 market are just saying, oh, okay, Ethereum's worth $500 billion. And what is the TLV of Solana or Avalanche? Okay, it's, you know, five, ten percent of that. Okay, then we should, yeah, we're about five, ten percent of the value of the theorem. They're calling it a day. That's like the depth of the analysis, right? And I feel like that is a flawed assumption. Now, maybe I'm wrong. maybe this is the wrong fundamental to be thinking about. That's something I'm thinking a lot about going to 2022, and we'll talk a bit about that later. All right, guys, that was five things that we got right in 2021,

Starting point is 00:50:06 as well as five things about 2021. That also surprised us. Coming up in the second half of the show, we are going to get into five mental models that we learned from 2021 and how they project into the future and also five bets going into 2022, what we think 2022 will look like. And then overall we'll have a discussion about The market will the market also continue into 2022 and some other conversations of this nature?

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Starting point is 00:53:14 The first Justin Drake episode, which already blew people's mind, which wasn't even the episode that is known to blow people's mind by Justin Drake. It was a great episode, and it was a key episode for me in My Learning's for 2020, and this is the bullcase for cryptography. It was an episode not about price, not about economics, just about raw cryptography and the magic that cryptography brings. And here's the thing I learned from that episode. Basically, these are all trust machines, these blockchain that we're building,

Starting point is 00:53:41 they're all trust machines. And the things that actually scale them, it's cryptography. That's the magic. That's the solution. Always has been. Cryptographic, always has been. cryptographic cryptography breakthroughs are the only things that actually scale blockchains. Everything else is kind of a hack.

Starting point is 00:53:58 So that's what that episode taught me. There's a lot to it. We just refer you to the episode. Go back and listen to that one. But what that mental model made me is more bearish on high transaction throughput chains that just don't use cryptography to scale. They use high node requirements to scale, right? Because that's kind of a hack.

Starting point is 00:54:15 It's kind of a shortcut. And it makes me very bullish cryptographic breakthroughs. So things like ZK roll-up chains seem to be the future and are much more exciting to me. Any reflections on that mental model, cryptography, being the only real breakthrough for performance? Yeah, the line that Justin Drake left that is stuck in my head is that if you can't solve it with cryptography, then you can do it with crypto-economics. But that's prioritizing cryptography, as in like you've got to really, really try to solve your thing using cryptography alone. And only when you know that you can't, can you then.

Starting point is 00:54:48 then rely on crypto economics. Adding in crypto economics in order to solve the problem is, again, a compromise on a complete solution to that problem, which is solving through cryptography. And remember, cryptography is compression technology. Using cryptography, you can compress gigabytes of data down to a very small hash. It's just a matter of how you do that inside of the context of the system that you're trying to create. If you can't do it, then you use crypto-economics. But the idea is that it's always cryptography first. And that's why Ethereum has always been a cryptography first, a cryptographer-first ecosystem. The world of cryptocurrency is always going to be won out by the system that has the best cryptography that powers it.

Starting point is 00:55:31 So that's why cryptography is really important. Yeah, I feel like I developed a holy reverence for cryptography this year. And partially through that episode, go back and listen to this. The second mental model, I feel like we unlocked, is this mental model of legitimacy, in particular, legitimacy as the only scarce resource. That is the thing these social systems we call blockchains are actually producing and actually optimizing for. Legitimacy is like a social technology. It's like governments use it, you know, religions use it. Social consensus. It's a social consensus technology and it's one of the... Layer zero. It's layer zero. We'll get to that soon. But like it's one of the most overlooked and most powerful coordination mechanisms

Starting point is 00:56:11 systems that we have as a species. It's the reason why Bitcoin is a store of value and Bitcoin Diamond isn't, right? It's the reason why Ethereum has a larger market cap than Ethereum Classic. It's the reason why Doge pumps, finance chain, rises based on performance. It's the reason why Cryptopunks are more valuable than pudgy penguins. This is a Nyan cat. This is a famous internet meme. It's like 10 years old. But if I just right-click save this and issued this as an NFT, it would be practically worthless, okay? But the creator of Nyancat, the person who actually has the legitimacy

Starting point is 00:56:45 to issue this as an NFT, can issue it, it's worth 300 ETH, and it's sold for 300 Eth this year. And it's not like a little po-app that you get, like, oh, you have the legitimacy. It's not an actual asset. There is no, like, known, tangible form of legitimacy. Exactly. It's just raw legitimacy.

Starting point is 00:57:00 It's just what's in people's brains. Yep, absolutely. And so I found myself, this was an episode, by the way, that we did with Vitalik, who wrote a blog post that we kind of parsed apart and, you know, understood what legitimacy actually means. And he talked about brute force as one path to legitimacy, continuity, fairness. There's lots of other things that you need to get your mind wrapped around. But I found myself,

Starting point is 00:57:22 once I unlocked that mental model, David, I'm no longer asking the question of, okay, what's the path to the most secure blockchain, the technical side of things? Like, how does the blockchain get there? I've now started asking, what's the path to building the most legitimate blockchain? That is a mind shift that I didn't have. It's a different question. It's a different question and I think a more fundamental and important question. And I'm bringing that with me into 2022. I don't think this theory of legitimacy could have come from any other sector in the world other

Starting point is 00:57:51 than crypto. Crypto is like the proving grounds and like the test bed for finding legitimate things versus illegitimate things. We've seen illegitimate things like left and right. like, for example, in my mind, funks, which are crypto punks, but mirror images of each other. And now they're trying to, like, gain some sort of adoption by just being the mirror image of a crypto punk. Not legitimate in my mind.

Starting point is 00:58:12 There's a bunch of things like that. Tron, for example, has its white paper just copied and pasted from the Ethereum IPFS white paper. Like, not legitimate. And that's why, among other reasons, why Tron didn't really work out over the long term. I think one of the greatest things that crypto has to export is our values and our culture and comes with that a concrete definition and appreciation for the concept of legitimacy. It's also a concept that you can export to the real world, right? You think about the institutions, the existing legacy institutions, their legitimacy is eroding

Starting point is 00:58:45 relative to some of these new crypto systems. And that's interesting to watch as well as they try to grapple to reestablish their legitimacy. What will they do? Will they use brute force, for example, in some cases? And it maybe it depends on the jurisdiction of the government. Let's talk about the third mental model we unlocked. This is a big one, man.

Starting point is 00:59:02 We haven't talked about it in a while. ETH is Ultrasound Money, a series of three podcasts, actually two podcasts we did with Justin Drake on this. The largest, most famous being that you could start with the podcast just simply called Ultrasound Money with Justin Drake. And the simple case that was made on that podcast and the articles that you wrote about that podcast was ETH is on track to become the best monetary asset the world has ever seen. Okay. Bitcoin started with this fixed 21 million supply cap. It was not the optimal system to maximize value and network security. Ethereum's approach is better. That's kind of the contrarian thesis that we put forward with ultrasound money. And I think if you own ETH, if you're looking at ETH as an asset, this is a required listing, a vitally important podcast and mental model to download

Starting point is 00:59:54 and see if you agree with. And I feel like this one's held up pretty well, David. Yeah, I'm going to try and give a very short summary and then a prediction for 2022 about this is Ether is a groundbreaking new relationship between an economy and its own money, where currently we have the dollar and the United States economy, where the United States GDP, it trends up over time. Meanwhile, the value of the dollar in real terms goes down over time. So we have a discrepancy there. Like economy goes up, but value of the dollar goes down. Then we have Bitcoin. And if the Bitcoin economy goes up, the Bitcoin supply. stays completely the same. Therefore, the value of Bitcoin

Starting point is 01:00:31 goes up. Bitcoin economy goes up. Bitcoin value goes up. Bitcoin supply stays the same. Ethereum, if the Ethereum GDP, the Ethereum economy goes up in value, the rate at which ether is burned also increases. And also the value of ether goes up even more so. Value of the Ethereum GDP goes up. The scarcity of ether, the asset, also goes up. And that is something that's brand new as a function of Ethereum's monetary policy, monetary system that we've never seen before. Ryan, I think in 2022, we will not see too much of this talk happening because that is going to be coming around after what I think will be coming in 2022, which is, you know, general institutional and market adoption of layer two's and having

Starting point is 01:01:15 the economy of Ethereum spread outwards more horizontally across these layer twos, and then having these layer twos have their own internally native, interesting economies. And then once we have this very vibrant multi-layer-2, multi-chain like economy flowing around Ethereum with, yeah, stable coin flows and ether payment flows and layer two is buying L1 block space with ether. Then we will get to see deeper and more interesting analysis into ether's role in the Ethereum economy. And then I think in 2023-ish, people will start to like really refocus in on the relationship between Ethereum, the economy, and ether the asset. Because there's going to be so much data to look at and people like data. Yeah, I totally agree. And this is, I can't

Starting point is 01:01:55 underscore your point enough, this is brand new. We've never seen an economy act like this, right? So, you know, this is as if a government is taxing you and it takes all the tax revenue based on usage, based on GDP of the economy, and then burns all of that money it collects, removes it from circulation. Effectively giving it back. Giving it back to basically any of the holders of, you know, its underlying bonds, right? So super exciting. And I totally agree with you. We're going to have so much more data on this. It's going to become self-evident. We don't have to keep saying it anymore, okay that'll be that'll be the day let's talk about this fourth mental model that i feel like was i don't want to say it's our biggest mental model of the year but it was for me personally i will say

Starting point is 01:02:34 that and that's the idea of modular chains modular blockchains and the idea contrasting modular blockchains with monolithic chains the writings of polynaya were key for me to sort of understand this and i think for both of us and to come to the conclusion that modular blockchains are the best scaling solution for crypto we put out a podcast podcast about this called ultra-scalable Ethereum and an episode called Modular versus Monolithic blockchains. There's an article and there's also a podcast about this. But the idea that Paulinea put forward was refreshingly, I guess, pragmatic and utilitarian to me. Because so often when crypto people talk about the value of decentralization, and you and I are guilty of this

Starting point is 01:03:17 too, right, they'll talk about it almost in like religious terms or in social value terms, right? and it's like, why should you care about decentralization? Well, think about the greater good. Okay? Don't sacrifice these temporal things for the long term. Don't be seduced by the dark, like black power of centralization, wealth creation opportunities, think about future generations. It almost sounds like religious.

Starting point is 01:03:38 But Pauli Naya's argument for decentralization is very different. It's just like a- Very technical. Yeah, it's a technical and economic argument. It's like decentralization is just the best strategy for survival. And it's going to out-compete all the more centralized chains. And why does he say this? Because of this modular blockchain thesis. Because modular chains will easily outscalable monolithic chains and modular chains invert the scalability Trilemma. So it effectively

Starting point is 01:04:07 rewards decentralized chains. With more scale. With more scale. More decentralization equals more scale. It's just a super pragmatic, non-religious. It's like, oh, you want to be the most scalable chain. you have to be the most decentralized chain then and like mic drop. And so that was such a cool unlock for me. And we're not going to have time to talk about what we mean by modular chains versus monolithic chains. If you haven't heard that episode and read that article, it's homework for you to do. I think this is an important mental model that you need to bring with you in 2022 because

Starting point is 01:04:42 if it's right, it will reshape everything in crypto. What are your thoughts on this, David? Yeah. One quick thought is that going into Ethereum after sharding and proof of stake, the final fully fledged version of Ethereum that we see on the horizon, that's actually not one thing. The proof of stake validators are different from the data shards, are different from the layer twos. They're all different modular components that only when you stitch them all together is that Ethereum. So unlike a monolithic blockchain where you can point to like one computer saying like, well, that computer is doing the execution. It's also doing the data storage, is also doing the validation, it's also doing all the consensus, all that stuff.

Starting point is 01:05:22 That's a monolithic chain. With a modular blockchain, there's so many different modules that there isn't actually one thing about Ethereum. It's very, like itself is even decentralized. The actual construction of the blockchain. In the construction of the blockchain is decentralized of a decentralized blockchain network. It gets really weird. It's very emergent. Very emergent.

Starting point is 01:05:40 Yeah. And so overall, this is going to be, I think, a theme of 2022 is that, you know, is it going to be the monolithic L1s that brute force themselves into relevancy, or is it going to be the modular systems that pragmatically and practically scale themselves out? And, you know, for us, what this makes us, I think from a thesis perspective, is bullish roll-ups, bullish Ethereum roadmap, bullish modular chains, whether it's Ethereum or some other chain, bullish decentralization, and bearish monolithic chains, at least until they embrace their role as maybe an execution layer or something to that effect. Go listen to that episode. If you had no idea what we were just talking about,

Starting point is 01:06:15 go listen to that modular versus monolithic blockchains episode. It is incredibly important to bring with you into the next year. The fifth and final mental model of our top five mental models is this one. We're living in a crypto renaissance. The episode with Josh Rosenthal, David, could you like give a synopsis of that episode? It was probably my favorite episode that we've ever recorded of any year. I know you feel similarly about it. Why do you like it? What's in that episode? Yeah, I think the reason why everyone loved that episode is because it's a story. Humans love stories. And kind of in the same vein as you were talking about with decentralization and polynion modular blockchains. It's a story, but it's also a very technical and well-backed-up story with actual evidence, with actual real fundamentals behind it. So like all things, it's a great meme, but there's actual fundamentals behind it. So yeah, we're living in a crypto-renaissance. It's a great meme to tell your family. It's like, oh, yeah, crypto is going to bring in usher in a new Renaissance, something of equal magnitude to the old renaissance. Yeah, like the one you studied in high school, you're muted. That will also make your family think you're crazy, which is, again,

Starting point is 01:07:21 another fun talking point. Right. But at least you can show them this story. And also one thing I learned in 2021, Ryan, is that stories do way better for onboarding than like technical arguments. Yeah. What is crypto? What is the blockchain? How's a blockchain work? Those pieces of information and content have their place. It's really stories that embed meaning and significance into people's brains. And so the TLDR of the crypto renaissance, podcast, even though you absolutely need to listen to the whole thing, is that there are two technologies that triggered the creation of the Renaissance. One was double entry bookkeeping, which is basically democratizing and decentralizing the concept of finance into the average

Starting point is 01:07:58 everyday individuals' brains, and also the printing press, democratizing the freedom of information, and the availability of information, and also the low cost of reproducing information. So that's what triggered this great wealth creation and wealth distribution event. in the Renaissance, allowing anyone to any and everyone to be their own bank. Double entry bookkeeping allows you to be your own bank. That's what it does. Slowly over the year, over 500, 600 years that became centralized into the current baking system that we have today.

Starting point is 01:08:27 And now we have another set of decentralized technologies that allows a Renaissance 2.0 or the crypto renaissance. And that is the internet, the new age printing press, and also blockchain technology, which is the new age double entry bookkeeping. And these same two technologies, which are ones about information, one's about finance, allows individual rights, individual sovereignty, individual power to create and spread wealth as the individual sees fit. And so without any hyperbole, we are living in the crypto renaissance. I absolutely agree. And the renaissance is an exciting time. It's a time of turmoil as well.

Starting point is 01:09:01 People look at the Renaissance's rose-colored glasses, but there were some institutions that had a hard time. But on the other hand, we had new governance systems that arose like fledgling democracies and nation-states. culture really bloomed during the Renaissance, a new class of Medici, creating a world of economic opportunity. And I think that's the takeaway from that episode with Josh Rosenthal and this mental model of the crypto Renaissance. Like, we're here now. So like, what are you doing to be part of the new crypto Medici, right? Like, that's a great place to be if you're an individual on the journey. And so bullish crypto, bullish crypto, this is an episode that's bullish humanity and bullish optimism, which is something we've talked a lot about on bankless lately.

Starting point is 01:09:43 The only thing it's bearish, David, is pessimism. If you are short humanity, like, GTFO, man. It's like, get out of here because that's not what we're doing in the crypto renaissance. So it's a very optimistic lens through which to view all of crypto. You know what? Also came out of the Renaissance, the actual OG Renaissance in the 1600s, the Dutch East India Company. That's true. And you know what?

Starting point is 01:10:07 I think the new Dutch East India. company today? Dows. Dows, yeah. The new capital formation structures, right? These Dows. Totally. There are two other mental models. We did this fantastic episode with Chris Dixon on Web 3. Check that out as kind of a bonus mental model for you. Also, David, you and I did this episode on the Metaverse. I feel like it's still one of the best episodes I've heard on the Metaverse just because it actually defines it. Concretely, yeah. So many people still think like Zuckerberg's version of the Metaverse where it's just like virtual worlds, that's the Metaverse. It's not okay. Or the VR.

Starting point is 01:10:39 Yeah, VR. It's not about virtual world. It's about property rights. That's what the metaverse is about. Zoom is not the metaverse. Zoom is not the metaverse. It's just like an overlay of the metaverse. Property rights are the metaverse and crypto is a key aspect of that.

Starting point is 01:10:53 In fact, the foundational aspect of it. So listen to that podcast where we define the metaverse and talk about that in depth. We got to get to five bets going into 2022. All right. So if you've been hanging with us so far, what does all of this mean? How does number go up as a result? of these theses, David. How are you positioning your time and resources and capital going into 2022? Here are five of our bets going into 2022. Not all of them, but I think some of the more

Starting point is 01:11:20 interesting concentrated bets. The first is this. Okay. Bullish block space, but that comes in the form, at least for myself, of ETH, layer two's, and also some of the bridges from layer two to layer too. So Chris Dixon in our episode earlier this year called block space like the most valuable commodity asset of, you know, 2021. And I agree. But as we talked about earlier, I feel like some of the block space out there is overvalued and some of it's undervalued. And I don't think Not all block space is the same. It's not all the same. Some has a stronger settlement guarantees, which is a mental model from 2021, bankless mental model, settlement guarantees. Go look that one up too. That might have been 2020. Yeah, 2020. Excuse me. I said 2021, but 2020. The module,

Starting point is 01:12:04 blockchain thesis that we're talking about earlier makes me really bullish on Ethereum, of course, but also layer twos, you know, polygon, immutable, starkware, arbitram, as tech, optimism, a slew of others that are about to enter. And I think Ethereum's roll up scalability strategy, which is essentially the modular blockchain thesis, is massively undervalued. I expect layer to absolutely explode next year. I expect all layer twos to issue tokens at some point in the They're not going to tell you they're doing that, but that's what I expect. I also expect bridges like hop connects and across to be a big deal. And for me personally, that's kind of the block space for my portfolio that I want.

Starting point is 01:12:47 I'm more neutral on Alt Layer 1s. Like, I don't hate them. I don't understand what the valuations are based on. And I don't like to invest in things I don't understand. So I'm not a great meme investor personally. And I think some of these monolithic chains, they'll have some success in areas in maybe the medium term even. Some of them will pivot and become successful execution layers. Some of them will become more centralized and become a bit more like central banks. And finance chain is an example of that.

Starting point is 01:13:12 I think others will fast follow Ethereum and go in the modular blockchain strategy direction. And I'm more bullish on those. But for me personally, I don't feel like I have a need to be exposed to those relative to ether and layer twos. What are your thoughts on that, David? I think this prediction for 2022 hinges on whether or not these projects, teams, layer two's, bridges, issue tokens. Yes. I need them to issue tokens. If they issue tokens, it's layer two summer.

Starting point is 01:13:42 Bridges getting farmed with tokens, layer two is getting farmed with tokens, liquidity, all that stuff. Think of the layer twos that have issued tokens. Immutable. Incredible adoption. Incredible usage. Incredible BD. D-Y-D-X. Incredible volumes.

Starting point is 01:13:57 They have a token. The other ones that haven't had tokens are... Polygon. A polygon. Again, token, adoption. Like, this is how this goes. Like, arbitrum, optimism, stark net. I mean, it's still very, very early on Starknet.

Starting point is 01:14:10 Like, no token, not so much adoption. Like, people need the incentives. I think as soon as these tokens come out, people are going to start to view these layer twos as the things that you and I, Ryan, think that they are, which are like multi-decade long time horizons, investment thesis as for Blockspace. And so owning these tokens now are,

Starting point is 01:14:27 going to be very, very valuable. And that's going to be just how a lot of momentum moves into the layer two world. Don't you think David tokens are inevitable, though, because of that economic fact? Yes. Yes. Some of them have been very, very patient to issue tokens. And I know, I know, like, long-term thinking, long-term thinking, like, I'll be patient. Hold your horses. We can wait a year. But God damn, do I want the L-2 token somewhere to happen. I think it's coming. And I think we're building towards that. And I think we'll start to see some of that in 2022. And I think people are way under exposed on layer two relative to alternative layer ones. But we'll see. Let's talk about the second bet category, which is next generation defy. So defy has been sleepy from a price perspective,

Starting point is 01:15:09 but the builders have been continuing to build. And now we have layer twos that are coming out. I think that will bring a whole new cohort of breakout defy applications, applications that are born on layer twos rather than main net. We're not even possible on may net. I'm watching for these. I also think a lot of the blue chip defy assets, like the stuff that's inside of DPI, they're an absolute steel when you look at it from a price to sales or price to earnings ratio. Some of these from a price to earnings ratio are like lower PEs than Apple or General Electric. It's like silly how much cash these things are creating. Now, maybe you could argue the token valuations aren't tuned to capture them, but they will be.

Starting point is 01:15:48 Governance will adjust that and make it so. And so I feel like if you think about the growth story of blue chip defy assets on layer two, and you think about them as also value assets from a price earnings price to sales perspective, they're both value assets and growth assets. So I'm actually bullish on the category. I think the blue chips are pretty cool too. I'm also, too, keeping an eye on alternative layer one projects. So there are new projects spinning up on a defy projects spinning up on alternative layer ones and side chains,

Starting point is 01:16:19 Polygon, for instance. And I think some of these could start to give some of the traditional Ethereum-only D-Fi projects to run from their money if they start to expand into layer two and Ethereum, right? Ultimately, this is a battle for liquidity. It's the great battle for liquidity and the best money robots will win. And I think that's a great thing for consumers. So I'm keeping an eye, at least one eye open on what's happening in the alternative layer one in DFI space as well. So those are some thoughts on DFI assets. What do you think? Yeah, I think the only thought I'll add is that there seems to be, hopefully, an aligning of the stars behind a lot of great under the radar DFI projects that are coming onto may net be that layer one or layer two's, just production ready. Simultaneously as layer two start to remove whitelist and also remove the brakes and allow for more unconstrained or lesser constrained supply of block space that has really kind of been the thing holding optimism and arbitrament back going from like having it like uniswap fees going from $5.

Starting point is 01:17:19 where they currently are down to like 50 cents or even less than that. So brand new defy use cases simultaneously aligned with a lot more supply of block space to experiment and innovate and allow these new use cases that are coming online to also be surface area for additional use cases on top of them. And in order to incentivize and create that sort of innovation, Cambrian explosion, you need cheap block space. So hopefully those stars are actually aligning in the way that I see them. Yeah, yeah, yeah, totally agree.

Starting point is 01:17:45 The third bet going into 2022 that I'm making is douse. as a category of all types. And it's kind of weird to bet on DOWs, David, because like, what are DOWs? It's kind of weird to think of them as a category. It's kind of like, I'm betting on LLCs as my investment strategy, right? It was like, okay, but what LLCs? But it also meant to bet on LLCs. But it kind of makes sense going into 2022 because DOWs are so early stage, right?

Starting point is 01:18:10 There are thousands of these experiments. There's the creator economy DOWs, fan token DOWs, media DOWs, social DOWs, dowss that are doing weird things that we can't even predict. like trying to outbid a billionaire for a copy of the Constitution. All right? Like weird stuff. And I'm monitoring as many of these experiments as possible because some of them, I think, will be breakout successes.

Starting point is 01:18:29 I think we're looking at, you know, potentially the future Fortune 500. And these assets will dwarf their traditional competitors. So what is getting exposure to a Dow look like? I think at this early stage, it just means tapping into as many experiments as possible. Getting into these Dow's, actually becoming a member of them, participating in them, investing in infrastructure that they need to. That's a whole other category under DALS when it makes sense, potentially looking and evaluating their token. And I think DOS is a category is not so much like you're not betting on specific areas of crypto as much as

Starting point is 01:19:05 you're like betting on the blockchain's ability to coordinate. It's like DOWs are a bet on blockchain coordination. And that's why it makes sense to me. And I think coming out of 2022, I hope we have some like categories, subsectors. of DAOs that make more sense. But right now, I'm just like, I'm bullish DAOs. Are you bullish DAWS? What do you think about that? Oh, yeah. Just the amount of flexibility that a DAO has. Because like you said, saying I'm going to bet on LLC is kind of weird. That's because like an LLC can be anything, right? And a DAO can also be anything. Not only do I expect to see more DAWs in 2022, but I also expect to see DAWs be formed in attempt to do weird new things that like I don't think we can predict right now.

Starting point is 01:19:47 for like buying the Constitution would have been a great example hadn't that already happened. Yeah, that's weird, man. That's weird. And it's going to get weirder. Bullish on weird downs. Yeah, exactly. That's it. Weird downs is a category. Let's talk about this. Crypto Gaming. So that's the fourth category of bet. I know you're super interested in this. We had to podcast recently, one with Ariana Simpson on the Crypto Gaming Revolution, another with Amy Wu, Crypto Gaming 101. If you want to get up to speed, a primer on Crypto Gaming, I recommend you listen to those two podcasts. what are your thoughts on crypto gaming? And maybe as the key to the Metaverse, because I think both

Starting point is 01:20:22 you and I see Crypto Gaming as basically a portal of first instance, a manifestation, early manifestation of the Metaverse. What do you think about this category of bet? Yeah, I think in 2022, the story is going to be a lot of gaming studios wanting to do crypto gaming and then getting a lot of pushback from their fans who don't want NFTs in their games at all. And then that friction, leaving a lot of energy, a lot of room for newer, more indie upstart gaming studios to innovate and tinker with crypto asset-powered games. I think there's going to be a big story of like gamers and game studios having a lot of friction because game studios knowing that it's the right direction to go, but also to answer to their very committed and loyal fan base and not trying to undermine

Starting point is 01:21:06 them because, you know, in gaming communities, everything. But ultimately, crypto gaming will definitely become a thing, meaningfully different and distinct from non-crypto gaming. It's just going to be a matter of who's actually going to build them. Crypto gaming is one of those things where there's a lot, a lot of development under the radar. Those games are not yet released, but they are being built by startups and crypto-native people building games for crypto-native people. They're not going to come from theme people like EA or Activision or anything like that. It's going to be smaller studios that can make more basic indie-level games,

Starting point is 01:21:40 but they are specifically built for crypto people. I think that's going to be 2022. too. Yeah, I agree. Bullish crypto native games, right? Not games coming necessarily from the big studios, but what does this mean for an investor? It's like play games. Play as many games as you can. If you like a game, look at the tokens, evaluate the items of that game. You can also get involved in gamer guilds is another opportunity for you. So lots of opportunities to plug in, get exposure to that. Decentralized identity. That's the fifth one. This is a bet that I think is interesting in 2022. And not a lot of people are talking about it right now because I guess there's not a lot

Starting point is 01:22:12 projects tackling this space. But I feel like we're kind of here, right? At the, the tech tree that is crypto, we have some of the core primitives in place to bring about decentralized identity. And that's, we have sign in with Ethereum. You have your private key. You can sign in. Better than Facebook. You just like plug in via Metamask or via your Ethereum address. We have self-sovereign E&S names. It's kind of a form of identity. We have an ecosystem of NFTs, right? These are like blue check marks potentially on Twitter. I feel like we need to complete the decentralized identity story is like attestations, some sort of proof of reputation.

Starting point is 01:22:49 There are a few projects that I'm tracking that are related to this, but nothing has really broken out. But I think it's not far-fetched to start to see this emerging in the space of like on-chain resumes, right? Like the work, the things that I'm doing on-chain, I can associate with my reputation and I can get kind of a real-life level up with that. I also think we might start to see interesting experiments with crypto-native social networks in the space too. So decentralized identity is a category. I guess I don't have a lot of

Starting point is 01:23:17 specific projects in mind, but like my eyes are peeled wide open. I think something cool could happen in 2022. But that's just a hunch. What's your take on this? Yeah, I think the whole sign in with Ethereum thing. Imagine like, you know, sign in with Facebook, sign in with Google, sign in with Ethereum. That button existing at the same time the Web 3 narrative is taking off and becoming mainstream. Hang on. I can sign in with Google like per normal or I can sign. in with this Ethereum thing that, like, from what I'm told, it gives me self-sovereignty and power, and I get to stick my middle finger up to Google and not give them any of my data. Like, maybe that sounds like kind of compelling.

Starting point is 01:23:52 I like to stick it to the man. Maybe that's how this goes. Maybe sign in with Ethereum, like, arises at the same time that what the Web 3 meme starts to become, you know, a household name. Absolutely. Guys, there are a few other spillover categories we can't get into. We touched five, but let me just list them off really quick. Still kind of bullish on crypto banks, okay?

Starting point is 01:24:09 because these are going to out maneuver the incumbents, and by that I mean like the Coinbase is Geminize, BlockFi's FTX of the world. There's space for that, probably in a good investor portfolio, not financial advice. Also infrastructure, like Block Explores, analytics tools, decentralized storage, all these indexing protocols like the graph. These are really the picks and shovels of crypto. And I think that's an interesting category to keep inside of a portfolio. I'm also bullish on super wallets, right? We saw Metamastar adding defy features. I'm really excited about things like Zirion and Zapper and what they do in the future. These are really the front ends to the decentralized financial system. I think these are the banks of the future in a way.

Starting point is 01:24:48 It's bankless banks of the future. Really excited about what Argent's doing with its smart contract wallets now that it has layer two. I think we'll see that experiment play out, bullish on that. NFTs and DFI, I know that was a major theme in the recent NFT conference you went to, right? So kind of this hybrid investment category, we're fractionalizing NFTs. We're getting indexes of NFT exposure. There's hedging projects on NFTs. Like D5 meets NFTs is a really interesting space. And of course, NFT apps. Okay. OpenC was not the last answer to like NFT apps. All right guys. Like open C is awesome, but it's eBay. Okay. And it's 1998. And we still have like Google and Facebook and Instagram and all of these other application categories to unlock. So I think

Starting point is 01:25:34 there's going to be several generations of opportunity of apps that are built on top of this NFT primitive. And they'll look a lot different than OpenC and do different things versus OpenC. So that's it from a bet's perspective. Man, we went through a lot. We just went through the five things that we got right, the five things that surprised us, five mental models and five bets going into 2022. So, David, we've talked about so much all of these predictions. We don't have time to get into the legacy of bankless. And I know you wrote a post on that. I think we'll do it. another podcast in the subject. But how do you want to end this for the holidays? What are we thinking about going into 2022 that you want to leave folks with? Yeah, the discussion I want to have just to wrap this

Starting point is 01:26:13 whole 20, 21 year up in 2022 predictions year. Ryan, 2022, bigger, equal to, or not as big as a deal as 2021 is with regards to crypto. We're going to get crazier. It's going to be about the same amount of crazy. Definitely bigger. Oh, definitely bigger. Why do you think definitely bigger? Well, first of all, it could be wrong, right? It's like probabilistic. I could. be wrong. But I've learned that when you're wrong, it's best to be wrong bullish in crypto. And we have a ton of momentum going to the next year. I think there's a ton of growth catalysts ahead for crypto. Yeah, I think layer two is going to be huge. I think, yeah, Ethereum merge. I think in general, crypto as a category is going to absolutely fly next year. And it's going to be a very bullish year.

Starting point is 01:26:54 Could be wrong. Other things can happen. But like, I'd rather be wrong bullish than wrong bearish, because on average, you'll be right. And you'll be more right over the long run. What's your take on that? What do you think? Yeah. So in order for that take to be right, as in like, it's going to continue to be bullish, maybe even be a little crazier than 2021, even though that's really hard. Being bullish and being crazier than 2021 are different things. I'm also bullish. I'm not necessarily ready to commit that 2022 will actually be crazier than 2021 because 2021 was pretty damn crazy. But I could definitely get on board with it being another bullish year. And so granted, let's say 2022 is a bullish year. And what that means is that three out of the four quarters of the year are, green and Q4 is higher in market cap values than the end of Q2, for example. Does that mean that it was a super cycle? I'm still kind of longer fourth cycle. I'm still not fully bought into the idea that this is a super cycle and the bull run never ends, reach this place of mainstream adoption. I do think that we'll have a very bullish next year. I think this is just a longer cycle than previous cycles. I do think this cycle kind of breaks the mold of previous cycles, except that it's just a repeating pattern and

Starting point is 01:28:06 every cycle gets a little bit longer. I mean, we did this episode with Ben Cowen. It talked a little bit about that. But I do think we'll get exuberance and there will need to be a pullback. And that pullback will feel very drastic to a lot of newer entrance in the space. I think some of people have seen cycles before will just sort of shrug it off and stay zen. But, you know, people will call it a bare market rather than this idea of a super cycle. What do you think? I'm just trying to wrap my head around if we have a blow off top or not. Yeah. Say we can get some sort of just like vision of the future and the future tells us that like crypto prices are going to go up 20% quarter after quarter for the next four to six

Starting point is 01:28:46 quarters. Well, you know what happens next? A blow off top because everyone buys it because then and then just gets too exuberant, right? And so like in my mind, I'm kind of worried like it doesn't matter how long and slow and steady and sustainable crypto price rises are, because the more that that's true, the more likelihood you accidentally manifest a blow off top. Oh, I think there's going to be a blow off top to be clear. What do you think? Blow off top in 2022? Maybe not in 2022. Maybe not, but if not 2022, then into 2023, you know, like it's going to happen. Like, we're not done with blows off the top. And it's not binary either, right? Like, you could have two blow off tops that are smaller blowoff tops. maybe that's just part of the larger bull market. Maybe it's a mini blow off top. Like, who knows?

Starting point is 01:29:31 The 2017 blow off top was one single gargantuan blowoff top eruption. And then we suffered our hangover for the next two years. Yeah. I don't know. Maybe we're more mature as an industry. Maybe we just have a bunch of mini blow off tops for the rest of time. Who knows? Do you know why I'm feeling, you know, I'm feeling Zen though, David? It's because like I don't feel pressure to trade those things. Way too difficult. I don't feel like I have to time it, right? Like I'm, you know, holding space next decade, settler, not a trader, that restores some Zen. So just let it play out slowly and let the traders worry about these things at some level. But it is always nice to be bullish, I guess.

Starting point is 01:30:07 I think the case for a crazier 2022 resides in inflation. If inflation stays hot, 2022 will get crazy. I wonder if there's some diminishing. I'd be interested in having Jim Bianco on or somebody like talk about in Flenolven or somebody. It's like, is there a point of diminishing returns? where it's like inflation gets so hot and, you know, maybe double-digit or something that, like, crypto gets crushed as a result. We get into this like- People just get scared.

Starting point is 01:30:35 Yeah, people get scared. Like, crypto is still a risk-on asset, is it not? And so in high-inflationary circumstances, how many people are going to want to hold risk-on assets versus other? Well, it's a risk on asset, but also it is strong property rights in a world where inflation tends to bring on governments that try to take a lot of property. It's weird, right? It's in this weird place. That's why this industry is notoriously hard to predict from that perspective.

Starting point is 01:31:03 But you'll be fine if you're bullish long run, I think. Yep. I think that's always true. It's always worked before. Guys, thanks for hanging with us throughout the year. We definitely appreciate the community. We appreciate you listening to this podcast, giving us your time. We hope you enjoy some time with the family.

Starting point is 01:31:18 This Christmas, I hope you come back in 2022, refreshed and ready for a new year. We'll be right there with you. You've got some awesome podcasts and articles planned for next quarter that we're super excited about. And I think crypto's about to have another tremendous years. Anyway, thanks for hanging with us. Our best to you, you and your family and friends and stay safe this holiday season. Some action items for you as well before we get to risk and disclaimers. We'll include some of the readings that we mentioned.

Starting point is 01:31:46 The five things we got right article are predictions, as well as some of our thoughts on the legacy of bankless, It's another podcast. We'll get to at some point in time, too. Also, David and I, we've already put together a year in review for the roll-ups. So these are the top 25, I think, news events of the year. David and I are covering them. They are on a previous podcast.

Starting point is 01:32:07 So tune into that if you want to get caught up on the year's news as well. As always, guys, risk and disclaimers, ETH is risky. Crypto is risky. So is D-Fi. You could lose what you put in. But we are headed west. This is the frontier. It's not for everyone.

Starting point is 01:32:21 But we're glad you're with us on the bankless journey. Thanks a lot.

Bankless - 98 - 5 Things We Got Right

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