The Breakdown - The Most Important Trends and People Shaping Crypto 2020, With Ryan Selkis

Episode Date: December 10, 2020

What were the most important trends? Who were the most important people? Was it the year of Bitcoin Macro, the year of DeFi or both? Ryan Selkis is the founder and CEO of Messari. Each year he puts together a massive “Crypto Theses” report that looks at the year that was and the year to come. On this episode, he and NLW discuss the highlights of Selkis’ 2020 report, including: The top 10 people in crypto 2020 The bifurcation of bitcoin and ethereum How DeFi was and wasn’t like ICOs in 2017 Why regulatory battles loom

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by crypto.com, nexo.io, and leveled. And produced and distributed by CoinDesk. What's going on, guys? It is Wednesday, December 9th, and today is a fun one. I'm joined by Ryan Selkis. Ryan is the founder and CEO of Masari, which is building a Bloomberg-style data portal for the crypto industry.

Now, Ryan has always had a strong bias towards content. He actually ran CoinDesk for a while back in the day. He was also the first person to break the Mountcock story. More recently, as part of Masari, he has put out a massive annual crypto thesis piece for the last three years at least, and these pieces are one of the best ways to get a full sense of the industry's past year and where it might be headed in the year to come. Well, 2020 is no different, and we have Ryan here to go through some of the highlights of his just-released Crypto-theis for 2020.

There's way more in here than we can possibly get into, but the parts that we do get into, I know you're going to enjoy. So let's dive in. All right, Ryan, welcome back to the breakdown. How are you doing, sir? Been too long, my friend. Surviving. Surviving.

We've made it through 2020. So, Merry Christmas early because you just dropped a 100. What is the final total? 134 pages when it was all nicely designed. Yeah, but that includes like the table of content and the covers. Well, I like at least 120 pages. I go by it. I go on the Google doc.

Yeah. My master doc. It's about 120. But yeah. Exactly. The way to think about it, you know, it's basically 121 DECs because it's do that 2021 to 121 kind of subsections. And you think about it as like almost like 12, 10 page reports stapled together with hopefully

a little bit of segue in between. Yep, totally. And so I think that like what would be really fun to do is basically go through a bunch of the different sections. I mean, this is really like if you want to get a picture of what transpired this last year and some things to watch for next year, that's really what this report is all about. And it's going to be more comprehensive than anything anyone puts. out. You know, there's going to be a lot of great end of year content. I'm very confident saying

this is as or more comprehensive than anything else that will come out. And so you organize it into a bunch of different sections. You organize it into top 10 trends you're following. And really kind of it feels like those trends follow throughout, obviously. But then you also have a section on top 10 people to watch. And I thought actually, contrary to my first thought, at first I was going to go, let's go through the trends first. But I think actually we should go through the people to watch first. because it feels to me like a good way to kind of, you know, get a glimpse of a lot of the other pieces that we'll talk about. So let's talk through the top 10 people to watch that you put, why you put them on there. And then we can go kind of through some of the other themes.

So let's dive in. I guess should we go honorable mentions on up or should we go one down to the bottom? What do you think? Whatever you think is more dramatic. We can go honorable mentions. Let's do, actually, let's save honorable mentions. because it'll give too much away if we do that. But let's start with number 10, Danny Ryan.

Go up the list and then we'll go from there. Sure. I mean, you know, Vitalik just crossed, I think, a million followers. And he's short of Satoshi, probably the second most prominent developer and pioneer in the industry. But it's been Danny Ryan from the Ethereum Foundation, who's really taken this Ethereum 2.0 roadmap and executed against it. And obviously, with the launch of the Beacon,

chain and this phase zero milestone that the Ethereum community hit last week, he's kind of an obvious, and I don't think it's fair to call him under the radar pick, but certainly someone that had a huge year this year. More importantly, as Ethereum 2.0 progresses, we're just getting started in terms of seeing this roadmap released and that migration come to fruition. So everybody will be keeping a close eye on him as kind of a proxy for how the project is going and what speed it's moving and whether they'll be able to hit some of these milestones. As Danny goes, and as the Ethereum developers go, so go potentially some of the Ethereum competitors in terms of their viability and attempt to siphon off some of the Van from Ethereum. Yeah, I think I'm excited to talk a little bit more about your sensibility around the Ethereum. two timeline. That's something I know you spent a lot of time on later, but let's move to number

nine, anonymous. Well, Satoshi is the original, and I've loved for my anonymous folks, because I tried to start anonymously, and then obviously failed miserably at that with my pseudonym, because I became a public figure of sorts. But this summer, particularly with Defi, the anonymous developers that forked many of the top DeFi projects and created some of these new emerging protocols made ungodly amounts of money in some cases, in some cases legitimately. And they were also responsible for some of the highest profile of tax on a number of of defy protocols.

So my sense is, given the regulatory picture that's evolving worldwide, not only was this a year where he had a lot of high profile anonymous. figures like Chef Nomi and the alpha numeric developers that were funded by the likes of, you know, Square from, from, and, you know, anonymous lightning and Bitcoin core developers. But I think going forward is going to be important to figure out how anonymous contributors can actually make their mark in the industry, have folks rely on their code or, you know, take their code to seriously, because you might have to, you might have to, fade into the shadows to a certain extent, depending on what your jurisdiction looks like and what the

rules are for developing crypto applications in Europe versus the U.S. versus China and everywhere in between. Yeah, I think this one is a super interesting pick. You know, one of the things that I'm sure we'll talk about when we talk a little bit more about defy is a sensibility that it seems like from reading your section that you share that I've talked about a lot, which is defy as this pure play capitalist battleground. I mean, really one of the purest sort of open markets with every type of attack available, you know, possible, but happening at a speed that kind of dwarfs traditional markets. And when you look in that context, the sort of anonymous actors are a key part of that in a lot of different ways. So I thought those are really, uh, interesting insight.

Um, your next two, uh, picks are kind of, or I guess it's three, but across two categories or two numbers are also kind of defy. So you have Hayden Adams and Rob Leshner in number eight and and Andre Cronier at number seven. I mean, this was the year of defy. And I think next year we'll determine whether that momentum was sustainable or whether defy runs into the buzzsaw that is the regulatory regime and folks start to get a little bit skittish or we start to come down from the cycle's highs. I thought that it might have been over in September. And we could have been in for a longer winter. But what's happened in the last couple of months with the so-called blue chip, defy assets,

that's yearn, uniswap, Ave, compound, some of the others, has really been insane in terms of the resurgence in price, the resurgence in volume and liquidity of these rallies and resurgence. So I think 2021 we're going to see if there's an actual bubble. that materializes across these assets, or if we're going to kind of very quickly get into the methodical builder phase of these different protocols, too early to tell one way or the other. But with compound and uniswap, that being Hayden and Rob, I think the primary innovation and the thing that really set the market on fire this summer was the popularization of defy, yield farming. And essentially, you know, the granting of governance tokens, which could ultimately

accrue fees and capture value from these protocols, was something that, you know, sparked, I'd say a 10x, you know, in some cases more than that, provisioning of liquidity that actually makes these markets work in scale. And I expect that's going to be almost a default funding mechanism and community incentivization mechanism going forward. And that innovation in and of itself, I think was important this year. Andre, you know, maybe through fuel on that fire even further by releasing the Wi-Fi token, you know, completely without a pre-mine or, you know, any real concern for how he was going to be able to extract economics out of it. So it had this kind of immaculate conception, if you will, where it has one of the most passionate organic communities that's

emerged outside of Bitcoin and Ethereum right now. And I think when I look at long-term value creation and the ability to, you know, kind of build and establish modes, it's usually around teams and protocols that have charismatic founders and some type of immaculate launch where it's not just someone dumping on the other side like a venture capitalist. André has also been building in hyperdrive. So I think he gets the nod for maybe the most prolific, productive developer of the year. He's also on top of all that, he's introduced something that we've been talking about. I mean, you and I have probably had multiple conversations about it since like 2017, 2018,

which is protocol M&A. I mean, we're on five different defy mergers, I think, with urine at this point. In like two weeks, yeah. Yeah. Like, this is now a category of thing that happens, right? And yes, maybe we'll talk more about that too and we get a little deeper. Okay, number six, Caitlin Long, great choice, but talk me through your logic. Well, Caitlin, you know, I think she might have even been on coin desks list last year.

And, you know, I've known Caitlin for a long time. She's fantastic. I actually said at the end of last year's thesis in my like second to last section. I think I said something like now that I'm getting to the section, I kind of wish that Caitlin was included in this year. So this is almost in some respects like a do-over from last year. But then more importantly, we've started to see the fruit of the Wyoming blockchain initiatives that Caitlin really seated and spearheaded,

get born. And we, I think, have a golden opportunity in the U.S. to have states copycat Wyoming and play kind of intra-US regulatory arbitrage when it comes to crypto's jurisdictions as a counterbalance to what we've seen in the state of New York, which is completely, you know, over the line in terms of how cumbersome it is to abide by New York. Department of Financial Services regulations and the bill license and all that. So I think, you know, between the work in Wyoming and then the introduction of two, I think maybe more than that now, but at least two licensed, kind of approved bank charters in the state between Caitlin Zavante and then Crack and Financial, we've actually got

not only this policy win and this blueprint for other states and hopefully other nations to follow, but also a significant derisking of the crypto banking marketplace, which as late as late last year, early this year, was still predominantly centered around Sylvegate, like a single institution that was banking, you know, 80% of the Western market, really. So seeing more of that and seeing that get a little bit safer is important. And I think that probably dovetails nicely into number five, which is Brian Brooks. Yeah, segue made for yourself. Brian Brooks, let's do it.

The reason this is a good segue, not only was he the chief legal officer for Coinbase. So he's obviously an industry insider and knows what he's doing. But I'd say the OCC was the most friendly regulator and the most clear regulator in terms of giving guidance for how crypto should be treated from the banking sector.

and eliminating or at least significantly alleviating the risks associated with crypto enterprises, ability to get banked has to be one of the most important milestones of the year. And some of this was due to the letters that he sent out interpretive letters that in some respects got him into trouble. You know, first of all, he made it the OCC delivered guidance that stable coin issuers could be banked without issue. And second of all, he went further than that, and the commission went further than that, in allowing banks to actually do custody of digital assets and cryptocurrencies as a business. So it kind of opens the door for this potential wave of M&A in 2021 for crypto custodians. Now, whether that sticks is anybody's guess.

So I'm hoping that he's a prescient pick for 2021. but he was a Trump appointee, and he did get an astigram from some of the folks in Congress that thought that he was overstepping with his interpretive letters, and that, you know, he had to basically wait for permission and their approval before he could say anything on the subject. So TBD, if a Democratic administration is ultimately going to choose to replace him at the helm of the OCCC, but I hope he stays where he is. Yeah, that's going to be a really interesting one. I think maybe we'll talk about this a little bit more in the context of your last second.

sort of the end boss. It has been fascinating to see two things that I've noticed doing this show, you know, every day kind of day in and day out since the summer. The first is that, you know, we all noticed when the OCC gave that guidance, but the OCC is a pretty under the radar kind of institution, right? Office of the Comptroller, the currency is not like one of the three-letter agencies that we, you know, talk about and think about. I have heard conversation after conversation, time after time, anyone who touches the institutional side of crypto, discuss how big a deal it was that that guidance came out saying that banks could custody and then later work with stable coin issuers, but just kind of that was

like the icing on the cake. So I thought that was really notable. The second is I do think that like there is clear battle lines being drawn, you know, with the Stable Act and Brooks on the other side, you know. It was the same people who published or who have introduced the Stable Act that sent him that nasty gram, as he put it, which is great. So it'll be fascinating to see if those stay the actual battle lines or not. I mean, I think, you know, one thing that's entirely possible to me is that we're a little bit overblowing this group of relatively uninfluential senators or sorry, Congresspeople at this point as it relates to the Stable Act. But there's certainly going to be more conversation about this. So I think that's very well deserving of a top five slot.

Number four, biology. Obviously, one of the most high profile, not just crypto, but kind of public intellectuals of the year, but why did he make the list in crypto for you? Yeah, I mean, I think the only reason he's not top is because he's more or less not really been in the industry this year, right? Like, he's still investing and, you know, he's still, you know, working on some very exciting projects. But he stepped back as CTO of Coinbase. He started the year. It looked like he was going to really go all in on this education and and crypto community platform Nakamoto. And the coronavirus got away.

He became one of those vocal analysts maybe, citizen journalists, I guess, kind of sound in the alarm early on in the coronavirus life cycle and more importantly, all of us potential ramifications and second and third order effects, many of which came to fruition. In addition to that,

I think he has been one of the most, vocally critical and basically just death on mainstream media outlets in terms of their coverage of the coronavirus, but also the political bent and generalist nature of mainstream media. So I think he touches on a few different areas where crypto will either directly benefit, like decentralized media or indirectly benefit, like with the coronavirus. coronavirus and the mere fact that COVID has pulled arguably all of tech forward by years, given the lockdowns. And then with the kind of unprecedented monetary stimulus, it certainly pulled forward Bitcoin

as a macro narrative. So you can't talk about 2020 without talking about coronavirus. And if you're going to talk about anyone within crypto that was influential there, he's just such an obvious pick that's there's no one else that's even. kind of in consideration. Yeah, it's interesting. I think that Bologi will go down, I believe, as one of the least ignorable critics of some of these institutions.

There's a lot of folks who are critiquing mainstream media who have like MSM tattooed across their network, right? Because it's a meme for them and it has been forever. I think Bologi is a little bit different and has kind of proven that this year. I also think to your point, he's, to the extent that crypto has. has a person who's just trying to explain what a Bitcoin and crypto-powered future society looks like, what the implications are. If you look second and third order effects, that's kind of where he's living, you know? And you see it. I mean, it's just every other thread,

you know, every other day, it seems like every other week at least, is about a vision of the world that seems kind of remarkably far off now, but we may find is pretty prescient. So I thought that was a great one. All right, now we're in top three. The real big game. game. Number three, Barry, Barry Silbert. You going to do the disclosure? We're on CoinDesk, right? I mean, what are you going to do? DCG owns CoinDesk and half of the rest of the crypto industry, certainly half of the supply of Bitcoin at this point. I will use this note to make clear, as I don't often do, but the breakdown is a partnership with CoinDesk. It is completely editorial independent. I can say anything I want about Barry and they can't do anything about it.

But I think like you, I've been watching with a lot of interest on the moves of Barry and Grayscale this year. So tell me about your thinking on the number three. Well, you know, I don't want to take anything away from Grayscale. I think they've had a monster of a year. I think Genesis has largely been the same. And in fact, that their affiliates that can feed off of each other has been a virtuous cycle. And of course, there's a couple of new entities as well. But really it's really all about the interplay between Genesis and its new lending business and its OTC relationships and kind of status is one of the leading prime brokers in the space. And then grayscale. And a lot of gray scale success really ties back to, you know, seven years ago, the design decision of the trust itself and how it's ultimately going to come to market, knowing that it would be an uphill battle to get a Bitcoin. ETF approved, they have essentially benefited from this natural monopoly on the publicly quoted

quasi-ETF market and with the gray scale trade, been able to rev up assets under management that really shows no signs of slowing down because of this crazy arbitrage or lack of ability to arbitrage the premium between gray scales publicly unrestricted shares and the private shares that credit investors are able to create in this trust. And I go into the dynamics of the gray scale trade, of course, in the, in the the thesis, but it's the industry's worst kept secret, and yet it persists because gray scale has a natural monopoly on this market until a Bitcoin ETF and other crypto ETFs are approved. And essentially the way that works is an accredited investor can go creates new shares through gray scale. And then ultimately, through,

Through a six-month or 12-month holding period, those shares become unrestricted and then eligible for trading on OTC markets through something called Google 144. And it's a side-door way to very slowly seed the market with shares of a quasi-bitcoin ETF. But because you're very slowly introducing new supply in the market, there's been this persistent premium across the family of assets. And the surprising thing is that this has persisted for as long as it has. and the surprising thing is how large the premium is.

It's currently, I think, 30 plus percent for Bitcoin. It has been over 100 percent for Ethereum. Now maybe it's in the 50, 60 percent range. I haven't checked it today. But it's very, very high. And if you're an institutional investor, you are going to make your first trade through grayscale. In many cases, you might make it through Genesis,

apply leverage to that trade. and essentially just clip coupons on the premium in return for your six or 12-month holding period. So gray scale gets paid, Genesis gets paid, and essentially the creators of these new shares get paid because of this SEC blessing from on high that you can either argue as a stroke of brilliance or an accident of history. Either way, it is going to go down in history, for sure, this moment. But I love that you have at number two, the latest contender and competition for grayscale's quasi-ETF dominance in Michael Saylor and MicroStrategy. Obviously, the Michael Saylor, Micro Strategy story is much bigger than that.

But on a day we're recording when we've been talking nonstop about whether Master is just the new ETF. So let's talk Saylor. You know, Sailor's on here just because of the flare with which he entered the industry. I think Squares purchase of 1% of its balance sheet in Bitcoin is ultimately going to be much more impactful than micro strategies, you know, half a billion dollar bet. But Sailor gets credit because, you know, A, he went all in. B, it's a roundabout way of leveraging his positions of public company almost to create a similar business to DCG in some respects. Yes, it's got a ton of Bitcoin on the balance sheet. So it functions as a quasi-ETF.

He's mentioned maybe wanting to spend resources on infrastructure businesses that further cater to the Bitcoin economy. But really, I think just his boosterism and kind of his embracive memes has been why he gets the nod on the list, because I think it's more symbolic of what's to come in terms of big bets and whether that's a small allocation, doesn't really matter. Small allocation, big allocation, big bets, period from some of the largest companies in the world and then some of the largest central banks in the world. It's a sign of things to come. And he's simply the most colorful character to have really thrown down a sizable position on this bet. Yep, I love it.

I think he gets at a lot of the epicenter of the narrative of Bitcoin as a macro acid in 2020 as well. All right. Number one, take us home. SBF, Sam Bankman Freed from FTX is basically a hard fork of finance CZ from last year, I guess. The exchanges make all the money. They either acquire all the products, fund them. or spend them up themselves. So whether you're talking about data, custody, derivatives,

prediction markets, synthetic stocks, in FTX's case, they've got the affiliate market meter in Alameda, so they're also doing quite a bit of investing and helping bootstrap some defy applications like serum, the Dex that was built on Solana. They've been a supporter of cream, they've been a supporter of sushi swap, some of the forks of compound and uniswap,

respectively. So I called Sam every, you know, the kid in every page of the yearbook this year. And to put a bow on top, he was also the second largest private donor to the Biden campaign behind Michael Bloomberg. So that seems like a high ROI investment to have made to at least have an audience somewhere in the White House, maybe not with the president himself, but someone on the staff for sure. And hopefully we can, you know, use that to our advantage.

and he's able to make sure that the worst impulses of some members of Congress and governments don't come pouring down on the industry. Love it. So like I said, I thought that this would be the top 10 people would be a really good way to get at some of the themes. But there's obviously, that's only the first 10 pages of 120, right? Maybe even less. And so what I want to do now is go through a few of the other sections and pull out just kind of a couple nuggets from not even all 10 themes, but a few of the different themes that I'd love to get kind of more of your take on.

So let's start. Actually, I want to almost start with a narrative or a trend that you're following. Kind of this blue chips, real versus relative value. But I almost want to bring it together with Bitcoin and Ethereum. I mean, one of the things that was really notable to me in this presentation is it feels impossible to me to read your section about Bitcoin and your section about Ethereum and view them as. somehow this competing set of assets the way that the narrative was in 2017, 2018, right?

It feels like part of what you're recognizing, putting them right up front. I mean, I guess let me ask it as a question. Do you think the conversation has finally bifurcated between these two, you know, sections of the industry? I mean, obviously they're related to one another and they're interconnected in many ways, but have we finally reached kind of a maturity where they're just playing different functions for the people who are engaged with them? I think the entire market is going to grow so big that it doesn't matter. And the folks that tend to argue over the, you know, the definitions or maybe the least interesting people in the entire industry. You know, like Bitcoin is going to be successful regardless of how Ethereum does. And maybe vice versa. I'd say, you know, Bitcoin, that's definitely true. Ethereum, the protocol, it's definitely true. Ethereum, the asset, you know, would probably suck some serious wind if Bitcoin. the asset, you know, underperform for whatever reason. But, you know, Bitcoin is asset first. Ethereum is platform first. So, you know, I've always thought of Bitcoin as an asset-centric

network that uses novel technology to move the asset around and actually secure the asset. With Ethereum, it's a novel set of protocols where the asset is used to secure the protocols. It's, you know, completely the inverse. And I think people would do better to, to bucket the industry by sector and actual function versus just thinking of like the straight like market cap rankings. Bitcoin and Ethereum are kind of the clearest encapsulation is this. But you could look at Bitcoin versus other cryptocurrencies. It's got a 95% arguably market share. The next closest being, you know, probably like coin and then Bitcoin Cash and then all the other also runs underneath. With Ethereum, you're going to have things like Pocodots and Cosmos and

Algarand and other platforms that are ultimately serving similar utility as Ethereum up top. But at the end of the day, you're talking about crypto protocols that are essentially power in the back end of decentralized finance, much more complexity, much more surface area and kind of room for innovation and new applications in the crypto protocols versus the asset-centric protocol of Bitcoin. So they both do well. They might do well on different timelines. I think people will conflate them for a while, mostly because I think the price of Ethereum drafts off of Bitcoin to a large extent. Maybe more extreme moves, but it still drafts off from Bitcoin. And, you know, everything else you can kind of further segment down, you know, below that. Defi is only a $7 billion asset class, if you will, right now, insanely small. Stable coins went from about $5 billion. in total supply to about 26, 27 now since the beginning of the year. So if you start to go kind of sector by sector and think about these things, apples to apples, I think discerning

investors and anyone that knows any better in the industry, not really talking about Bitcoin and Ethereum in the same sentence, unless it's to say if you want exposure to crypto, you should probably own both. This episode is brought to you by crypto.com, the crypto super app that lets you buy, earn, and spend crypto all in one place and earn up to 8.5% per year on your Bitcoin. Download the crypto.com app now to see the interest rates you could be earning on BTC and more than 20 other coins. Once in the app, you can apply for the crypto.com metal card, which pays you up to 8% cashback instantly on all purchases. Reserve yours in the crypto.com app today. Many investors want to be a part of the next bull run.

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deeper into some of your individual analyses with that setup. So on the Bitcoin front, again, I want to really stress for anyone who's listening to this, there's 10 pages on each of these things. I'm pulling out a couple tiny nuggets each that I think are particularly interesting or, you know, something that I wanted to talk more with you about. Um, Let's talk about the observation around demand being greater than supply for crypto, for Bitcoin specifically, just with a troika of actors, right? Square, gray scale, PayPal. What's your observation?

What's notable about it? I think if you look since the halving earlier this year, the amount of Bitcoin has been purchased and kind of hoovered up into the grayscale trust by PayPal, by Square, just those actors alone exceeds the mine rewards that have actually hit the market, which means we essentially don't have any unspoken for Bitcoin left in terms of net new demand that's hitting the market. And in a recessionary environment, maybe that would change and the flows would slow and other folks would be acquiring those Bitcoin from the miners. But it's, I think an important mental framing just to understand that essentially Bitcoin's fixed supply has already come into place.

And now we're just talking about transfers from existing holders to new holders. And that's a really powerful framing versus the early days. Let's think about the first cycle of Bitcoin. In 2012 at the first halfing, 50% of the outstanding Bitcoin supply still had to be mined. So in the first Bitcoin bubble in 2013, you still had annual inflation in the double digits, right? In the last cycle, it was still in the 4, 5% range. Now, it's for the first time ever, it's below 2%, which is lower than the target rate of inflation. And it's closing in on the annual issuance increase in gold.

That hardens the kind of narrative appeal for macro investors. and also it ensures that you essentially only have Bitcoin holders selling to non-holders today versus New Seniorage. I ultimately don't think that the having really mattered, but when you look at those numbers and the dynamic of the inflows and the fact that basically there's no more Bitcoin to go around, but from what you can pry from my cold dead hands, right? I think that is incredibly powerful framing. And ultimately, you know, you're going to see a lot of people that have been in the industry for five, 10 years.

They might have a certain portion of Bitcoin that they are just never going to sell. So the question is how much is actually available and how much of a magnitude of a rally could a dollar of inflow from an institutional investor actually drive at scale if it's going to take quite a bit to actually. get some of the early holders to part with their Bitcoin. And their asks in the order book might be at the $50, $7,000 range for Bitcoin. Yeah, it's interesting because you kind of expand this into obviously the whole micro strategy corporate treasury creates another potential category in this demand. But then you also have a really interesting prediction, which is something I've thought about a lot. You said basically you think that there will be a micro strategy-esque move into Bitcoin by at least one small central bank in 2021. Why not? You know, I mean, we've

We've got unprecedented monetary expansion worldwide. Purchasing power is going down by definition. You've seen insane global stock market rallies and basically every hard asset or financial asset that you can think of is appreciated in value in one of the most challenging years on record. And if you are the U.S. and you have the dollar or if you're somewhere in Europe and you have the euro, you're going to be able to maybe sustain that level of quantitative easing and debt monetization. If you are a smaller country, you are going to have a much harder time actually sustaining that. So why not take a flyer and purchase a hard asset that you might be able to print your worthless money and still end up net ahead if you're using it to acquire hard reserves?

Whether that's, I think historically, that would have been gold. And at the end of last year, we were already seeing record inflows in gold. Now you're talking about an inflow into digital gold, potentially, where it's much, much higher beta. So not only can you protect yourself from inflationary environments, but now you've also kind of got this warrant attached to it, this lottery ticket attached to it, where, because Bitcoin is very high beta, if it does turn out to be a leading performer in terms of, appreciation in 2021 and beyond, now you're net ahead of where you were even before this setback if you were a central bank experience and some challenges. You also have, I think, you know, just shifting and potential potentially new levels of desperation around certain fiat regimes. I mean, one notable one that I've been watching throughout the

year is Lebanon. Lebanon's fall from grace as the banker of the entire region in the Middle East to a country that is experiencing just chaos in terms of the value of the Lebanese pound, which broke its peg last year and has continued to flounder this year. I mean, they're now talking about central bank digital currencies. They're headed that direction in terms of trying to restore some sort of confidence as opposed to Bitcoin. But it's not hard to see how a government dealing with this sort of issue comes to a different conclusion or just quietly starts to do this.

So I think it's a, I'm interested to see. I think that when the floodgate of that opens, you could see a lot of different smaller players start to look to that as an option. A couple, two more kind of battlegrounds from Bitcoin, and then we'll move on. One that I think is notable, and maybe gets it sort of the last part of your piece as well, the end boss, is this, the battle for the preservation of the ability to self-custody and private transactions. It seems like that's something that you see clearly kind of increasing over the course of the next year. But then the second is one that I want to ask about as well, and we can talk about them together, which is kind of a geopolitical intrigue around

Bitcoin mining. It's been interesting to me to see there's a new narrative strand or a narrative strand that I'm seeing around a recognition that China's Bitcoin mining is not something that should make us right off Bitcoin. It's something that should make us reinvest or focus more on our Bitcoin mining strategy. Is that how you see, how do you see that playing out too? So you're kind of these two new battlegrounds or I guess more important battlegrounds in the year to come? Honestly, I don't know how it plays out and I haven't fully wrapped my head around where the focus is going to be from a policymaking standpoint. I'd imagine that from everything that we've seen from a rhetoric standpoint out of the

Democrats in Congress and potentially the Biden administration, The concern is probably going to be more around self-custody, private transactions, and the general circumvention of the U.S. dollar, if anything, right? I think it's going to be, yes, you'll have like the Green New Deal folks harping on about the energy and efficiency of Bitcoin mining in particular. But I think the catch-all critiques of Bitcoin, of Ethereum, and for every other asset, including the ones that are not proof of work-based, I think the challenges that are going to be ahead of the industry, mining probably maybe breaks the top five, barely, but it might even be outside of the top five. Now, the mining narrative that does matter and that is worrisome is the rise. of mining capacity in Iran, not necessarily China, but Iran in particular, where that is a factor

not because it's mining per se, but again, it goes back to circumvention of, you know, sanctions and money laundering provisions, et cetera, because now the Iranians are going to be using Bitcoin to, you know, basically evade U.S. sanctions and basically get around the teeth of what we've applied to them. So I think it probably all ties back, as it always does, the Patriot Act and the Bank Secrecy Act and all that. But it doesn't help that the majority of mining capacity is also behind the great wall, great firewall, because it is unclear whether China and the CCP, you know, by extension, is going to, allow those mines to operate or if they will continue to contone to condone

crypto activity within the mainland and potentially Hong Kong and Taiwan and some of the other affiliated territories as well. So I think it's a net positive that Bitcoin mining is getting less opaque, but that's really only to get institutional investors comfortable with it. I don't really think it matters from a policy standpoint quite so much as it might from maybe demystifying the asset for some of the other big newcomers. Super interesting. Yeah, I had this conversation with Max and Stacey earlier where I was doing a kind of end-a-year show that'll come probably in a couple weeks, but we were talking about that exact thing with Iran. All right, I have one question each for three additional sections.

ETH, Defy, and Stable Coins. So, ETH question, I guess actually two, sorry, two on ETH. So the last time we did a show together, actually, one of the things that we talked about was the ETH is Money meme, which was just starting to circulate. You go into depth about 10 reasons ETH is not money. So give me your updated take on the ETH is money meme. ETH is not money now, but it could be, I guess, is, you know, that was the same thing as last year when we had that conversation. I think it's a great meme and it's gotten people excited about, you know, holding Eath. And obviously there's a lot of developer activity and useful applications built on Ethereum. But predominantly that has become a bit of a meme because Ethereum was just first, right? It was the first form of collateral that could be used in

defy applications. It was the first form of collateral that could be used to borrow against in or to create die, which is the first kind of on-chain stable coin that was fully decentralized or more decentralized, I guess, than something like Tether. But what we've seen this year is we've seen ERC 20s, particularly the ERC 20 stable coins like USDC and Tether, eclipse ether in terms of their utility in different transactions. So a trillion dollars worth of process transactions, the majority is not ether at this point. It's actually stable coins. And that's fine.

But it goes to show, as you would expect, people do not want to borrow against volatile assets. They don't want to lend volatile assets out either. And they don't want to necessarily lock it in collateral for making markets either. They want to do that in some kind of stable currency and then take the risk on their personal or corporate balance sheet for the assets that have upside. that doesn't necessarily mean that ETH should be treated as money per se, and I think it is light years behind Bitcoin in terms of that narrative. What I argue instead is that it's perfectly acceptable for Ethereum to be the collateral asset that's required to secure this multi-trillion dollar decentralized finance application ecosystem. And there will have to be some minimum amount of security spend in order to ensure that that, network maintains its robustness and ultimately transactions are processed securely over time.

So my sense is that's a perfectly fine position to be in. And Ethereum will struggle to maintain the narrative that ETH is mine because there are going to be so many other layer one platforms that are vying for the same markets that Ethereum is typically dominated in because they've come live this year. So we've seen Avalanche, Solana, NIR, Pokedod being maybe the biggest one. I was yelled out earlier because it's a layer zero blockchain that connects parochains, blah, blah, blah, right? Basically, if you're not Ethereum and you're processing complex transactions using the logic that's been created by these different developer communities, it's a Ler1 protocol, right? Like you're trying to power decentralized applications, you know, and I think that's

competitive set is much, much more diverse, and it's less clear that Ethereum runs away with that market than it is for Bitcoin, where Bitcoin is, what is Lightcoin now? I don't even know because I don't look at it. It is now 70 times larger than Lightcoin, which is the next closest proof of work currency. Night and day, right, between what you'd see there versus what you see between Ethereum and polka dots in Cardano and some of the other other ones. So I think that's important. And again, ultimately it doesn't, I don't think it matters, but it's something that I'll probably get yelled at for. Okay. So let's talk D5 for a second. So one of the big things that happened, obviously, with

this summer when there was a huge race up in the total value locked in the space and the interest is the comparisons to the ICO boom, right? And of course, you know, we have Bitcoin parallelism in terms of 2017 to now in terms of price and yada, yada, yada. But you know, you kind of alluded to this a little bit before in our conversation about some of the protocol developers. But how do you see the summer moment and the rise of defy as compared to the ICO boom? Was it an ICO boom moment? Or were they just kind of fundamentally different phenomena? I think there was a lot of similarities. but, you know, we, we tend to forget that in the early stages of the ICO boom, you had projects like Cosmos get launched and like in the very, very kind of earliest stages.

So the teams that stuck around and builds, you know, by and large, have done very well and kind of second, you know, resurgence here. The ICO euphoria, that was crazy, it was when, you know, Dentacoin was getting bit up into the billion dollar range and some of the other, you know, cryptocurrency for, you know, insert, whatever your field is, was, was, you know, really getting hot and people were investing in white papers. The DFI boom was a little bit different because you had to be much more technical to actually participate in it. And it was, so in some respects a layer of protection against, you know, the excess of 2017. And it was arguably somewhat obvious which protocols were going to merge as

blue chips. So it's almost like the industry learned its lesson. I remember 2017, everything was so new and novel. And there was all these crazy ideas about kind of the future of tokens and kind of the explosion and proliferation of this new type of economic model that for a layperson is very tough to figure out, like, which, what was up, what was down. With defy tokens, you, first of all, had to be more specialized to access the first run. And second of all, you could probably use common sense and say, this project was launched by an anonymous developer two days ago, and it's a carbon copy and fork of a more established project. Maybe this is interesting, but 99% probably not unless there are other kind of like, you know, early, you know, technical enthusiasts that are

kind of calling out strengths and weaknesses. But you, you had the concept of defy blue chips emerged and that became especially pronounced in this resurgence with Wi-Fi Ave compound uniswap and I call them the uneasies, which, you know, others in the industry have called the DeFi blue chips. everything else, you know, who cares? But I don't think we saw any similar resurgence of ICO assets in 2017. That's a big difference. So, you know, the tool of bubble happened once, so to speak. This looks like it might have a little bit more staying power. Got it. Yeah, I think a lot of your sense of this relates or resonates with me. I think I've felt throughout the year that as much as that community was hungry for a bigger stage to play around, the natural

barriers to entry have been really, really valuable for allowing these experiments to take place, even kind of crazy, vicious capitalist experiments to place with very little collateral damage other than, I mean, it was all enfranchised users who knew what they were getting into, right? All right, one more section, and then I have a kind of a wrap-up question, I guess. Stable coins. is basically unignorable this year grew from 4.8 billion in total circulation to over 20 billion in total circulation. One of the things that it feels like from your stable coin section is that it's almost like you are watching the relative balance of power of different types of stable coins and different stable coin issuers relative to one another. Is that a big theme, you know, or is there something else about stable coins that you're paying more attention to?

As long as something is in a bank account as the collateral asset, it's a little bit concerning because bank accounts have a way of getting seized. And the stable coin economy right now is more or less completely reliant on tether and the team's ability to play this regulatory and banking shell game internationally at at very, very high stakes. And they've not always been successful, right? You know, the thing that has gotten them in hot water and Biffinx and hot water with the New York State Attorney General has been this concept of kind of co-mingling funds in order to make up for the shortfall that they had due to an account seizure a couple of years ago of dollar deposits that were backing tether.

So, like, that's not even unprecedented. Like it's already happened before and arguably as the assets under management and dollar deposits have gotten bigger, that risk only gets more pronounced. So, Tether is, I think, 70, 75 percent of, 76 percent of, if you go to Masari.com. The next, you know, kind of runner-up is USDC, and that is a, I guess, much more trustworthy business, you know, run by, you know, Coinbase and Circle, circle primarily kind of leading the charge on that front in recent years. But you solve the same issue where the dollar deposits are sitting in regulated U.S. financial institutions and ultimately, you know, getting tokenized and trade around. So could you create like a blacklist, white list system with something like USC? Absolutely. And then there's die, which has its flaws

in terms of how it's actually created and how easy it is to preserve the die peg. So none of these assets are perfect, but until there is something that's battle tested and looks like it can scale and is not necessarily subject to seizure, you'd at least want to see balance here. because if the industry is too reliant on Tether, too reliant on USTC or die, and there is some unwinding or catastrophic failure, then it potentially jeopardizes many of the applications upon which, you know, those currencies are necessary inputs. At least if the group of them grow together and you have kind of an even split between the different type of stable coins available and used, then it becomes much easier in the case of a shutdown or some adverse action to just migrate liquidity from one asset to the other. You might have temporary issues with applications that are relying too heavily on one particular

type of stable coin, but at least the risk is spread out and it's not systemic. To talk about stable coins for far longer than we have time for, but I want to do kind of a wrap-up question. You know, I was going to ask about NFTs and exchange unbundling and so many of the great stuff in here, but I thought maybe just to kind of round us out, you've now done these formally for at least three years and informally for a lot longer, right? These big comprehensive sets of theseses where you take the time to review. What surprised you that made it to this list this year, something that if you had zoomed back a year, you never would have expected to be such an important theme for 2020. And what's something that its absence surprised you, something that would have

seemed like such an important thing or such a high potential thing moving into this year that ended up being much less relevant or too early? I think lightning and some of kind of the Bitcoin development, I just don't see anything getting developed on Bitcoin. I, you know, again, that's a comment that'll get me in a lot of trouble, I'm sure. But like, You have almost a trillion dollars in value getting moved on Ethereum and a good chunk of that taking the form of ERC20 stable coins. Lightning, you know, it's got like something like $20 million of channel capacity still. And we're kind of a few years into this experiment with lightning payments on the Bitcoin network. Side chain, same thing.

So the extensions of Bitcoin have been underwhelming to say the least, and I was more optimistic about them in the past. I am, you know, I'm not even pessimistic about them. I'm just completely apathetic because I think they don't matter at this point. And so, of course, my sense is that thinking will mean that they're going to absolutely explode this year and I'll be proven wrong again. But I just, I don't think that they really matter now because of what's been happening on Ethereum. So that's one thing that I think is surprising versus my priors. The other thing that was a really, really, it was a shocker for me was the staying power of some of these venture-backed smart contract platforms. And the fact that they did not end up becoming markdowns for these funds.

You saw an explosion of layer one token networks this year. and it remains to be seen whether they'll ultimately separate next year and have their comeuppance or whether a number of them will ultimately succeed. But I would never have guessed that something is heavily funded as Pocodot, Avalanche, all these other, quote-unquote, professor coins in some cases that raise gobs of money would have launched at a price that would have made those initial investments. is justified. And it seems that, you know, by and large, most of them are not only above water, but arguably doing well and making significant strides. So I'd say that goes to much like Ethereum

drafts off of Bitcoin, that's probably to a certain extent those other letter ones drafting off of Ethereum. And in particular, this very tricky migration that the Ethereum community is going to have from ETH1 to ETH. So that presents an opening. And if you believe the headline number is $65 billion market cap for Ethereum and, you know, ether is 75% of that market right now. Well, there's a reason the other 25% has kind of latched on to these other potential compliments or substitutes for Ethereum depending on how 2020 want to be on Shakeout. Ryan, as always, this is super work. Really, really, fun to talk to you about it. You just dropped 130 pages. I think you have earned your right to Shill Masari for a couple minutes to close us out. Love the update, but tell us what's been happening.

What was the 2020 for the Bloomberg of Crypto and what's to come next year? Masari is the greatest company in the history of the industry. And this is the most fun I've had at work in a long time. And we were early on the coronavirus stuff too. So, so we've been working remotely for 10 months, and the culture has still really kept clicking. I'm looking forward to being able to get everybody back, to quote-unquote normal. I don't think we're going to return to work as we were,

but we're just going to redeploy that office budget into maybe semi-annual vacations or get everybody together, so it'll be really nice. We are recruiting, like Mad, on both the analyst and the developer front, but one of the reasons we're recruiting so much is because we have built an interface, for professionals to access any type of qualitative, quantitative information in the industry.

We cover hundreds of assets by sector, by metric, and we also have an Intel product that is essentially a corporate actions calendar for the top 100 assets by market cap. We work with some of the top exchanges, custodians, venture funds, and otherwise infrastructure companies, not just in the U.S., but across the globe on that product, plus 100 different projects that have worked with us on our disclosures registry. So we've built this really robust information marketplace, and now the new and improved missouri.io front page has very much got a power user look and feel to it as if it is a Bloomberg terminal. But we've got another decade ago before we catch up to Toml Mike at Bloomberg. We'll get there, though.

Love it. All right. Well, Ryan, thank you so much for hanging out tonight. I encourage everyone to go read the full report or at least skim it and you won't be disappointed. Thanks as always for hanging out, Ryan, and I can't wait to have you back. Bye, Bitcoin. As I mentioned at the top of the show and throughout the conversation with Ryan, there is way more in this 130 plus page document that we could fit into a podcast. I wanted to call out, however, the one thing that I think I would have added if I were in Ryan's shoes, which is a one. is more analysis of the role of central bank digital currencies in what the policy response to cryptocurrencies might be. There is a section around the stablecoin part of this report where Ryan explicitly explains why they don't track CBDCs. And effectively what it comes down to is the fact that they are simply not cryptocurrencies and they are absolutely correct in that fact. However, I think that in the context of the policy environment and what we're likely to see in the year to come. You can't not talk about CBDCs because they are going to dictate the response of

policymakers to many of these forces. By way of example, I have seen numerous tweets in which Rohan Gray, the academic architect of the Stable Act, which was just introduced in Congress, discussing why the need for this act came in part because the Fed hasn't done its own digital currency. When you see something like the response of China to the Libra stable coin introduction a year ago, it's just hard for me to fully separate those things, even though it is important to distinguish between these private, non-sovereign cryptocurrencies and digital currencies, which are really just a digital surveillance fiat in many ways. Still, this is tiny quibbles, and I was just really looking for one thing that I thought we could potentially add to the conversation

of this really comprehensive and large document. Go check it out. I'll make sure there's a link to download this in the show notes. But for now, I appreciate you listening. I hope you enjoyed the conversation. Until tomorrow, guys, be safe and take care of each other. Peace.