The Breakdown - What a DeFi Developer Departure Means for the Crypto Market Cycle

Starting point is 00:00:04 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 nexus.io, Arculus, and FTX, and produced and distributed by CoinDesk. What's going on, guys? It is Tuesday, March 8th, and today we are moving a little bit away from our recent focus on the macro and pointing our attention more firmly on the crypto industry itself. The surprise departure of one of Defi's leading developers has a lot of people asking questions about just where we are in the crypto market cycle. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it, I don't know, five stars maybe, wherever you can rate it, give it a review. Or if you want to get deeper into the conversation, come join us on the Breakers Discord. It's a place where we discuss the news, the things that are happening in the world, the things that are happening in Bitcoin, and so on and so forth.

Starting point is 00:01:04 You can find a link of the show notes or go to bit.com slash breakdown pod. Finally, a disclosure as always. In addition to them being a sponsor of the show, I also work with FTX. All right, so today we are talking about a surprise announcement in Defi and what it might mean for the industry as a whole. And I think a pretty good way of teasing what people are thinking about this comes from the coin desk headline. Dozens of tokens tumble as prolific developer Andre Cronier calls it quits.

Starting point is 00:01:34 Investors are running for the exits as a mercurial developer leaves Defi development behind. Here was the relevant tweet from Antonell, a longtime collaborator with Andre Cronier. Andre and I have decided that we are closing the chapter of contributing to the defy in crypto space. There are around 25 apps and services that we are terminating on April 3, 2022. Unlike previous building in Defi sucks rage quits, this is not a knee-jerk reaction to the hate-received from releasing a project, but a decision that has been coming for a while now. Thank you to everyone who has supported us over the past few years. So this is a developer who has been behind a huge number of incredibly important projects in the DFI space,

Starting point is 00:02:18 yearn finance being perhaps the best known of them. And while he is seen as a pillar of the DFI space, he has a complicated relationship with it. Again from CoinDesk, throughout his career, Cronier has had a strained relationship with DFI. He often takes to his blog to decry speculators and riff on the psychological perils of building. His protocols have driven billion in value and also been hacked for millions of dollars. He has taken months-long sabbaticals from the space in the past. One example of those blog posts comes from October 2020, unpacking my involvement in Defi. A couple quick excerpts that I think give you the flavor for it.

Starting point is 00:02:53 I don't build for speculators. I wanted to start with a concise statement and the above is it. I've been in this space for a while now and I've been wrong more times than I've been right. more times than I've succeeded. I've had conceptual ideas that failed in practice. I do not build to make a number go up. Tokens are not stocks. People treat them like stocks. In Defi, tokens are a coordination mechanism. If you have tokens, it is because you want to be a contributor, not a bystander. There is this concept of community, and I think that concept is causing friction. It should not be team and community, but instead contributors. There is no separation they are one and the same.

Starting point is 00:03:27 Tokens, when designed for this specific system, don't care about their price. It doesn't matter. they care about is that 1 equals 1. It doesn't matter if the token is being traded externally to the system at one cents or $1. I am not yearn. I'm grateful to have been part of something amazing that had occurred, but in no way did I create yearn. Consider how big the ecosystem had become. Consider all the websites, tooling, newsletters, forum, discord, telegram, and active development on GitHub. None of these are done by myself. I am a rapid prototyper and I will continue to be one. The urine team is far more skilled and capable than I am, and anyone that thinks that urine is dictated, led, or in any way dependent on me, is doing urine a disservice. I'm happy to be a contributor to something much

Starting point is 00:04:06 bigger. Now, this last excerpt that I just read is particularly relevant in the context of what happened in the wake of this announcement that he and his collaborator are leaving the space, which is that basically every token he had involvement with was following. Wu blockchain wrote, affected by Andre Cronier's announcement to leave the cryptocurrency completely, YFI, FTM, and KP3R all fell by more than 10% within one hour. Solidly, solid, fell 50% in one hour. Now, of course, the teams and people who are focused on these ecosystems were quick to point out what Andre's actual role is is probably a little bit different than the perception. Bantagga Yerendev wrote, people burying Wi-fi, you do realize Andre hasn't worked on it for over a year. And even if he did,

Starting point is 00:04:46 there are 50 full-time people and 140 part-time contributors to back things up. The Phantom Foundation rights were extremely grateful to Andre for all he did for crypto as a whole. However, Phantom isn't and never was a one-man team. There are 40-plus people working at Phantom. The team effort is what allowed Phantom to become one of the most utilized and loved decentralized networks in the world. Hundreds of developers build on Phantom daily and 100,000-plus unique addresses use Phantom every day. Contrary to some popular belief, Andre wasn't a core dev at Phantom. So what was actually going on with Andre?

Starting point is 00:05:19 I'm going to read a long thread from the Defi Edge because this was picked up by a ton of people. people. Andre Cronier is the godfather of Defi. He and his partner are leaving the defy space and will be shutting down several of their projects. Rugpole? WTF happened. Here are my thoughts. Andre is an introvert. He's one of those gigabrains that wants to be behind the scenes and build. A turning point happened when he announced the VE33 project. Andre would build and Daniel Cesta would handle the marketing and build hype, a match made in heaven. In late January, Seifugate came out. Danny's reputation took a huge hit. Danny had to step down, and he said, from VE33 and other projects to focus on Wonderland.

Starting point is 00:05:58 Well, this left Andre all alone to handle the solid project. Keep in mind that Andre likes being behind the scenes. Now he was the face of the project. That meant handling the PR, decisions, and drama surrounding the project. He didn't sign up for any of that. Everyone was fighting for the top 20 positions on Solidly Exchange. People were pissed off and confused. Why?

Starting point is 00:06:18 Original FTM protocols like Liquid Driver were losing their spots to newly formed Dow's like Weave, and when Solidly Exchange finally launched it was rough, some bugs, lots of confusion, people weren't happy with the UI. The whales were playing their games as usual. You could see Andre starting to get fed up. He declared on Twitter that he'd only shit posts from now on. Instead of posting valuable insights, he'd just share memes 10 times a day. A few days ago, he deactivated his Twitter. And then a few hours ago, his partner, Anton, dropped this bomb. They would be leaving the defy space and shutting down all projects. Ftm's price has dropped by 15.25% in the past 24 hours. Was this a rug? Nah. I see a developer.

Starting point is 00:06:54 who signed up to build but didn't sign up for all the bullshit and drama that comes with it. He reached a tipping point where it wasn't worth it for him anymore, especially when he has made enough to set himself up for several lifetimes financially. It's tough being a developer, and now that we're in a bearish market, everyone's way more toxic. Was it worth his mental health to keep going? No. Nexo is the go-to platform for all things crypto. Invest in the hottest coins out there and start earning risk-free interest of up to 20% APR, paid out daily. Need cash ASAP but don't want to sell? Use your crypto as collateral and receive a credit line at premium rates.

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Starting point is 00:09:25 popular DeFi project was formerly involved with Kodrika CX, the much maligned and mysterious Canadian exchange that rugged and then ended up with their CEO dead in India. In the wake of all of those revelations, Andre wrote a blog post called Not So Smart Contracts, and I think in some ways you can read this as validating of the Defy Edge's point about simple burnout. Here's another excerpt from Andre. I wrote it once before, I'll repeat it here. In crypto, you vote with your money. If you keep voting for low energy scams, quick get rich schemes, or low effort forks, you will only get more of those. Building is incredibly hard. It takes so much longer than anyone thinks. Building platforms that require

Starting point is 00:10:05 zero human interface even more so. Yet we as a culture have arrived at a point where humans are managing these protocols directly. They're sending around funds from EOAs. I myself have been at fault of this. I myself have strayed from the vision. I often speak about protocol to protocol or robot to robot. I used to believe what we were building wasn't for humans. It was for machines. A new machine currency, a way for our future machine overlords to transact. A mechanism that can exist long after we are extinct. I still believe this, but I have strayed. In longing for acceptance, I start looking towards community. I started looking for camaraderie. I want it to belong. It's easy to feel alone. It's easy to feel isolated. The amount of people I can have deep technical conversations

Starting point is 00:10:43 with about the nuances of smart contracts and their intersection with digital finance, I can count on one hand, of which most have retired or become so unmotivated that they simply don't care. So again, I find the burnout explanation as fairly convincing. And then of course there is the context of how much money Andre likely made. Estimates based on known wallets range from a conservative 300 million to close to 2 billion, and while I have no idea what the truth of those is, as the Defy Edge points out, it is very likely to be enough for several lifetimes. If you're sick of the industry, that's a pretty good place to pack it up. But some people are not buying this. That opinion was represented in this thread from Blacksmith BL, who writes, people all over Twitter are writing

Starting point is 00:11:27 essays and saying how Andre quit because of Danny or seafood and it was just too much to handle. Bullshit. Imagine Elon Musk quits tomorrow because it's just too much. You can't because it would never happen. You have hundreds of thousands of people supporting your project, investing their money into your project because they believe in you and that's not enough motivation for you? That's the definition of not going to make it because this space is doomed while quitters are leading projects. Of course, it's going to get hard. Of course, challenges are around every corner if you're trying to make it big, so it's about damn time we stop glorifying these quitters and wake up. We need to find a way to prevent these rug pulls. We need to protect the little guy. Now that last line, I think,

Starting point is 00:12:02 is actually more reflective even perhaps than Blacksmith B.L. meant it. There is another dimension, another part of the conversation right now, which is speculation that regulators are going to start coming down hard on defy. If you are in that position, does that motivate you to get out of the line of fire? Or does leaving in this way actually make someone look worse when it comes to those regulators who are trying to clean up the space. I don't have an answer to that, but I think it's going to be a part of the discussion in the months to come.

Starting point is 00:12:31 Now, for investor Adam Cochran, his sort of in-between take is that this is less about Andre and more about what the industry prioritizes and celebrates, and why it needs to focus, not on these lone hero stories, but on the people who are willing

Starting point is 00:12:46 to do hard work in the trenches. He writes, this industry has celebrated innovators and hustlers in the good times, has been mad at the fact that they are innovating or hustling in the bad times, VC investors who push for 100x fast growth because it's best for their fund reports also overreward innovators and hustlers. And perhaps worst of all, our token and team incentive models overly reward

Starting point is 00:13:05 the early innovators and hustlers and leave little reward alignment for either late stage hires or external teams to contribute to polish an operation. When teams try to have governance votes to adjust the reward structure, short-sighted investors often vote against any allocation of funding to teams. This can lead to a lot of mid-stage retention issues such as what we saw with Sushi Swap. Bring this back to crypto and Andre. Andre is an innovator who has pushed this industry forward. But you can't get mad at him for being an innovator. That's his role.

Starting point is 00:13:32 It's what he's good at and what he delivers on. What you can do is also celebrate operators and polishers, like the some 50 people who contribute to your in full-time or the 140 part-time contributors. This industry is so worried about Flash in the Pan overnight success that it doesn't want to do the work of building long-term sustainable, profitable products. That's why the PVP nature of this industry has grown tenfold, each launch with less value to gain. The crypto industry is currently fighting over launch scraps, whereas a polished product that can meet the needs of the mainstream could literally

Starting point is 00:13:59 be 50x bigger than this entire current market. Know the types of leaders and founders you are investing in, but realize they also can't do it alone. Help celebrate, support, and engage the types of talent that can supplement those founders to build long-lasting products. And above all else, this industry should learn is don't worship any single figure. We're all flawed in different ways. We have limited skill sets and can only do so much. If you put a person on a person, pedestal, you will always be disappointed, whether it's fair to be or not. Now we're starting to get into the territory that's actually more interesting to me than the specifics, which is what this says about the larger context of the industry, in terms of both market cycle, in terms of

Starting point is 00:14:39 talent, in terms of where DeFi really sits in its journey to be something that's relevant beyond just being financially valuable for speculators. There is a strong sense, a theme that I get from looking at lots of the tweets around this, that this question of designing incentives to retain core teams is a big problem. Derek Sue writes, Sushi Swap's struggle to retain a core team is foreshadowing for many defy teams in two to three years. Team allocations will run out, core teams will fully vest, employees will leave to work on new things with greater upside. Without community contributors to take the reins from the core team, many projects will slowly fade. I will be very transparent that I do not spend enough time in Defi to know how big an issue

Starting point is 00:15:23 this is. However, I do think that the incentive design that creates such phenomenal wealth so fast could be a double-edged sword in terms of the constant need to have a new thing to make money from and not enough time on task to actually work a protocol through its challenging teenage years, let's call it. However, there's also a larger market vibe issue that I think is worth pointing out. The question of how bearish or bullish this market is and whether we've actually been in a bear market for a lot longer than it seems is getting more and more pertinent. You have to remember that last year the narrative was super cycle. It was the end of the four-year having base cycle. And yet, and yet, here we are, and it feels like we're in the middle of the beginning

Starting point is 00:16:09 of a crypto winter. Sise Chad tweeted the devs left. Three R.O's Capital is tweeting about metals, Ty Lopez sold NFTs. It's over. Time to log off for a while. Ryan Watkins tweets, I honestly think the only thing that could save crypto from winter over the coming months is another Bitcoin inflation trade. Placeholder VC partner Chris Berniske writes, it seems too good to be true, but odds are crypto gets another opportunity similar to 2018-2019, where the money-hungry newcomers will lose conviction, quality will get oversold, and the builders will be beasts in the quiet. I've been bearish for months. The comments have turned from ridicule to we get it or silence. From here on out, I'll go back to being the permable I am, because although I expect more pain,

Starting point is 00:16:55 it's no longer the time to de-risk, but rather time to add risk through patient accumulation. He also tweeted a couple weeks later and just a couple days ago, people always find ways to convince themselves this time will be different, thinking they are special. Individuals believe they will be the brilliant one to correctly predict a new pattern. Happen in the bearer of 2014 and 2015, 2018 and 2018 and 2019. 19, and again, now. But we as a collective are the pattern. We don't change that much and our patterns have inertia. This time is rarely different and to claim it will be, you need really, really good reasons. The odds are generally with you saying it will be roughly the same,

Starting point is 00:17:29 rhyming with the past. So are we in the midst of a crypto winter? Are developers leaving the space, an indicator of that? Is it something that you can extrapolate or is this really the isolated situation of a particular person in a particular context. And if it is a crypto winter, how long will it be? What will change it this time? Now, I think one of the biggest counterpoints to the winter narrative, or perhaps not to the winter narrative, but one of the biggest ways that we get out of it is the sheer amount of dry powder in the form of venture capital that is ready to be invested in protocols and projects. Today, yet another example with Bain Capital, the 155 billion investment giant, launching a $560 million fund focused on defy and Web 3.

Starting point is 00:18:19 This fund will be everything from traditional early-stage equity investing through investing in liquid tokens they intend to participate in governance. They said, quote, we're at the very early innings of a multi-decade technology shift by which the internet is going to be re-architected on open, community-owned public standards. This fund, the $500 to $600 million fund announced last month by Sequoia, plus all the other funds that you've seen announced over the last weeks and months, are going to continue deploying into projects, into protocols. Part of the reasons that winters get so long in this space is when the money dries out to fund innovation. Because ultimately it is those things that people build when it's quiet that get people back and

Starting point is 00:18:59 excited in the space. So whether this Andre's situation is reflective of something larger or is just about him, I don't know. But I do think it's getting clearer to people that this is not the up-only super cycle that they had in mind. So what do you think? Do we have to wait for the having to come back again? Will the geopolitical narrative drag this space out of the dull drums on the back of Bitcoin? Is there simply enough dry powder out there to not really care in the short term because it just sees discount prices? Quick plug, if you have good answers to those questions, come on over to the breakers discord. I'm sure a lot of people are interested. For now, though, I'm just going to say thank you again to my sponsors, nexo.com.

Starting point is 00:19:39 Arculus and FTX for supporting the show, and thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - What a DeFi Developer Departure Means for the Crypto Market Cycle

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