The Breakdown - Will Anything Useful Be Built This Crypto Cycle?

Episode Date: February 7, 2024

On this episode, NLW looks at a recent thread by Travis Kling on financial nihilism and what people expect out of crypto this cycle. https://twitter.com/Travis_Kling/status/1753455596462878815 That sets a frame for a conversation about Farcaster's recent 1000% growth. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

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. What's going on, guys? It is Tuesday, February 6th, and today we are talking about whether crypto can actually build useful things. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the Show notes are go to bit.li slash breakdown pod. Hello, friends, like I said, today's frame of reference is whether crypto can be actually useful and whether the industry can build useful products.

Now, this is, of course, outside of Bitcoin and store value. You know how I feel about that. And what prompts it is both the story of Farcaster, which we're going to get into in a little bit, but also a thread from Travis Kling of Aikigai asset management that went viral and clearly hit a nerve. Now, he framed his thoughts around a thesis for the upcoming crypto cycle, which he called a lack of pretense that any of this shit does anything or will ever do anything. Travis started with an extract from his monthly update letter writing, which brings me to my final thought about how 2024 might unfold. It appears to me that this cycle is starting off with less pretense than prior cycles. I actually think there is less expectation this time

around that any of this shit does anything or ever will do anything. That's not to say there's not an expectation of much higher prices. That's not true at all. The general expectation is for Bitcoin to hit all-time highs in the next year or so, and a bunch of alts to massively outperform. The market is mostly taking that as a given at this point. But it's making that assumption while also assuming it will happen without actual mass adoption. People want to gamble on vaporware, and next year looks like a good year to be in the casino. This mindset is a sort of offshoot of financial nihilism. There seems to be a much larger collective embrace of a lack of pretense within crypto going into this cycle. differently, the ratio of expectations to market cap feels like the lowest it's been in six years.

The root cause of this will take time to unpack, which I will do next month. But suffice it to say, if I'm right, this cycle will get truly wacky. Now, Travis goes on to unpack the idea of financial nihilism and its impact on the stories we tell ourselves in the crypto industry. He begins by noting that both Bitcoin and Ethereum look set up with a clear shot to all-time highs between EATF access and Fed easing, claiming, we've never had a setup like that before. Travis continues, Crypto has never had the cover fire of its two biggest, most lindy, most headline assets having a free walk to all-time highs. You combine that with the view of many crypto market participants that Bitcoin and Eth don't have enough meat left on the bone. Up 55% and up 100%, what is this a pump for ants?

And you're left with many participants immediately looking down market cap for stuff that can move more than just a double or two. There is a palpable component of financial nihilism here. The idea that cost of living is strangling most Americans, that upward mobility opportunity is out of reach for increasingly more people, that median home prices divided by medium income is at a completely untenable level. All of that is true, so you really need to swing for the fences. Why not put $500 into a meme coin that could 50x, knowing that you could likely lose most or all of it? It's not like the $500 is enough to make any difference anyways. Neither is 1K or 5K. That mindset, which is becoming pervasive in America, is financial nihilism. This is the zeitgeist for young Americans and you're naive

to think otherwise. And it's a huge driver of shi-coining. Now, Travis points out that the revenues for the gambling industry, particularly the online sports betting segment, have doubled since 2019. Think about anywhere else on Earth, he writes that you can find that kind of compound annual growth rate on that size numbers. You'd be really hard-pressed. Semiconductors, yeah. Financial nihilism is growing like microchips. Sheesh. Now, the main point of Travis's piece is that a big reason this cycle might be different to others is the lack of a need of even a narrative justification for any of the thousands of meme coins that are being churned out. In previous cycles, a new token needed a good story to gain traction, a super genius coder creating

the new internet, a decentralized global data storage service. This time around, it's enough to put a hat on a dog. Travis continues, one last point about financial nihilism in crypto. Americans don't trust crypto. Three quarters that are familiar with crypto are not confident in the safety of trading crypto. 40% of crypto investors are not confident in crypto. And yet, if you pulled those same investors and asked them about higher prices, I would give you heavy odds the majority would be expecting higher prices. Don't trust it, but prices are heading higher. Lack of pretense. Let's go shi-coining. Now, turning to infrastructure, Travis writes, Another noteworthy trend that supports my thesis is how much infrastructure plays are leading

us so far this cycle. L2s, modular versus monolithic, data availability layer, parallelized EVMs, restaking. This stuff is so far down in the weeds, there aren't a thousand people on planet Earth that can really explain to you what it all actually means. Lord knows I'm not one of them. But no one cares. The market simply isn't asking the question. Okay, but what about the end-use cases that will actually drive the blockchain activity? People don't care. But that certainly doesn't mean that people aren't expecting higher prices. People definitely are. It's just not with pretense that any of this shit does anything or ever will do anything. The biggest pushback against my assessment of the silliness of leading with

infrastructure, with such a dearth of end-user use cases that will drive adoption is the adage from Field of Dreams. If you build it, they will come. So maybe that's what's going on here. Maybe we just need to get parallelized DVMs hooked up to a data availability layer enabled by restaking. And the use cases are just going to magically appear like Shulis Joe Jackson in a cornfield in Iowa. I wouldn't bet on it, though, not this cycle. Now, while Travis is coming from a fairly cynical point of view, he does note that there are some areas that seem like they are trying to poke through and find genuine innovation in areas that could be important for end users. He touches on AI, decentralized physical infrastructure, decentralized social media,

NFTs and gaming. Now, each of these areas are clearly going to attempt to carve out niche during this cycle, and there are earnest teams building genuine projects that are seeking real use cases un-cynically. The big question that we're left with after this thread is whether anyone can build a product that engages with ordinary users, or whether it all amounts to an infrastructure buildout going towards making minor improvements in a decentralized casino. So this sets the frame of reference for our next couple of stories. And to get into the Farcaster story, let's look at a post from Jason Yanowitz, one of the founders of Blockworks, about their new feature frames. Yenna writes, frames will change how blockwork sells events. Today, one, post event page on Twitter.

Two, Twitter deprioritizes link because it takes users off platform. Three, user clicks event page link. Four, clicks buy tickets on event page. Five, embed opens from our event platform. Six, user puts in credit card and buys ticket. Seven, fees are crazy high because of Stripe and other intermediaries. Soon, one, post event on Farcaster. Two, user buys ticket inside frame. So what is Farcaster? Well, Farcaster is an optimism. based social media protocol that has experienced some pretty significant growth so far this year. Daily active users are up 1,000% since the launch of this new feature two weeks ago.

Overall, Farcaster is a decentralized social media ecosystem, which allows a range of apps to be built on top of its infrastructure. Warpcast, a Twitter clone, is by far the most popular front-end launch so far. The recently introduced frames feature that Yanowitz was talking about has driven massive engagement over recent weeks. Frames allow users to post interactive elements or mini-apps on their timeline. One inventive user, for example, created a one-click widget for ordering Girl Scout cookies. Others are using the feature to offer simple games, interactive links to web pages, or even NFTMints. Now, the use of Farcaster frames for NFTMints could be a game changer for security in that segment of the industry. According to co-founder Dan Romero, frames carry no

risk of wallet draining. Mints can happen directly from the social media feed rather than linking away. Cryptographically signed accounts also means that spoofing should be impossible. Now, Farcaster has similar set of trade-offs to other decentralized social media platforms. Accounts are designed to be interoperable across all apps on the network. That means that users can easily migrate their content from app to another without the lock-in associated with Web2 social media. Censorship resistance is baked into the protocol, with users controlling their own data and competition between front-ends to ensure reasonable moderation policy.

Account creation requires a small payment, and users can only post a certain amount of content annually. Both measures are designed to prevent the creation of spam accounts, with the limitations being generous for any human use case. And this new frames feature seems to be genuinely unique and experimental, attracting a wave of new users to try it out. Still, it's worth noting that although Farcaster users have increased by 10x, the numbers are still tiny compared to established social media networks. Farcaster now boasts 50,000 daily active users, as compared to, for example, the 250 million daily active users of Twitter. That said, Farcasters' user metrics are slightly better than the current

metrics for Bitcoin-based social platform, Noster. Today's episode is brought to you by Cracken. For far too long, the whole financial system has been standing still, too slow, only on for certain hours, overly designed for some types of people, but not for others. Crypto, at its best, represents progress. It asks the question, what if? It invites people in instead of leaving them out. It's on 24-7, 365, and moves at the speed of real life.

Not everyone believes it. We've got our fair share of detractors. but that's the way it always is when you're building something new. Cracken is a crypto company that has been through the highs and lows of the industry, facing forwards towards progress throughout. And now they're inviting us to see what crypto can be. Learn more at crackin.com slash the breakdown. Disclaimer, not investment advice.

Crypto trading involves risk of loss. Cryptocurrency services are provided to U.S. and U.S. territory customers by Payward Ventures Inc. PVI, DBA, CRACN. However, this being crypto, as you might imagine, people are fairly mixed on this. Sam McPherson sums up the bull case saying, Decentralized social media will open all aspects to the free market to deliver user preference over the same dataset. But to get there first, we need a killer app to get people to move. I believe we will see this in 2024. On January 29th, DC investor wrote,

Don't sleep on Farcaster. The key to recent success has been new features not possible on Web2 social media powered by permissionless builders. Channels, custom clients, frames are the start. This is how Web3 social media will win by doing things Web2 won't let you do. do. On February 5th, he continued, seeing a few people talking like Farcaster is the latest fad, who are totally missing what's happening and why it's likely very different than they think it is. Farcaster is a permissionless social platform which multiple teams are building upon, effectively extending the protocol in their own ways for their own unique purposes. And that is the signal. It's a crypto-center community for now, but it's a diverse and perhaps

even eclectic set of sub-communities, even transcending various token community divides, and that's exactly why you should pay attention to it. It already appears to have a path to a rare kind of escape velocity many crypto people don't understand because they are mentally trapped in a rotating smorgasbord of zero-sum speculation games. They think it's like one of the many other apps they may have used before which fizzled out after sufficient value was extracted. So you were wrong about those and that's going to make you reverse wrong about this one because you're misapplying flawed heuristics. I don't know for sure where it goes, but my spiky senses are tingling on this one. And you should probably pay attention in case it's the

first non-speculative crypto app to really go mainstream. Now the flipside argument is also summed up all over Twitter. Bruce Bates writes, I remember this one time when people taught it that decentralized social media was going to be the future. Two billion decentralized social networks later, we are still on Twitter. Allcoin Psycho reiterates that saying, if Farcaster is so great, why do you guys come back to Twitter to talk about it? Doobie sums up the financial nihilist take on this saying, I don't have the mental capacity for another social media app and I'm not even sure they should be decentralized. So if Farcaster doesn't make me rich, I don't want it.

Now, of course, one of the precedents that DC investor was warning against taking the wrong lessons from is Frentec. Haseeb Qureshi from Dragonfly Capital tweeted recently, Wow, friend.combe really went from crypto-darling to desertion in about four months. What did people learn from it? Any recommended reading or examples? Ethereum founder Vitalik Buterin tweeted back, Bad GameFi is using financial speculation as a substitute for fun. Blockchain games need to be as fun as games.

I believe a similar thing for crypto-social. Registering a prediction. Farcaster and Lens will not be deserted in four months or one year. Now, whatever the case, it is certainly getting a lot of conversation. Ryan Selkis from Asari writes, Farcaster discussions have overtaken Solana in terms of crypto-mineshare in the past 24 hours. So what do I think about all of this? I have spent a lot of time observing all of these decentralized social media attempts for six years plus now.

I've written extensively about it. I even coined a term at one point called the extraction imperative, which refers to the point at which Web2 platform owners no longer have the same incentives as their users because they can't expand to new people sufficiently anymore, and so have to get more out of the existing users they have. And it seems, yes, of course, like all of these things could be solved by Web3. We've seen narratives around censorship resistance and not being deplatformed and all of these things. But ultimately, what is very clear to me, if you look at how new social networks become popular, how new Web 2 services become popular, it is always because

there is a new form of content that people didn't know they wanted, that then becomes totally normalized and important to them. Instagram made it clear that on a phone, sharing images from daily life, was an extremely important use case. Snapchat showed the value of disappearing content. TikTok showed the power of short form video and video memes. In other words, none of these had exactly the same content profile of the network that came before it. They had something new and different, and that became the basis for their growth, even if over the long run all of them sort of start to look like each other. So when I'm observing a new decentralized social network, the only thing that I'm focused on is whether there is actually something different enough that it has a chance to be compelling.

And so the question that I would pose is, are frames that for Farcaster? It's certainly a better attempt than a lot of the previous social networks that we've seen, if I'm right that it is about new content, not just gimmicks. A concern I might have is that it feels like a lot of the value is for brands or companies or projects or issuers rather than for normal consumers or users of the app, but it's still really early days. The feature's only been out for two weeks. So I think it's interesting, I think it's promising. And in general, I like things being created, not torn down, so I wish it nothing but the best of luck. And when it comes to the broader question of will this cycle be defined by things like Farcaster that are value accretive outside of just an increase in

price? I'm not sure. I think Travis's assessment of financial nihilism is pretty dead on. And I think Like it or not, it's going to drive a lot of what we're about to see. But perhaps I'm just getting cynical in my old age. I guess we'll find out soon. Big thank you to my sponsor for today's show, Cracken. Go to crackin.com and see what crypto can be. And until next time, be safe and take care of each other. Peace.