The Wolf Of All Streets - Crypto Outlook For 2023: Main Areas Of Focus | Live Panel With David Duong, David Nage & Genevieve Roch-Decter

Episode Date: January 5, 2023

My special guests are: David Duong (Head of Institutional Research at Coinbase), David Nage (Portfolio Manager at Arca), and Genevieve Roch-Decter (CEO at Grit Capital). ►► JOIN THE FREE WOLF DEN NEWSLETTER https://www.getrevue.co/profile/TheWolfDen Follow Scott Melker: Twitter: https://twitter.com/scottmelker Facebook: https://www.facebook.com/wolfofallstreets Web: https://www.thewolfofallstreets.io Spotify: https://spoti.fi/30N5FDe Apple podcast: https://apple.co/3FASB2c #Bitcoin #Crypto #Trading The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. This video was created for entertainment. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this video constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.

It's only January 5th and already we're seeing massive news and events in the cycle. We, of course, have the Fed Minutes job claims today. SBF apparently going to go play League of Legends on his parents' couch for the next 10 months. And a whole lot more going on. As usual, Thursdays we do the Roundtable. I've got three incredible guests today. David Young from Coinbase, Jean-B. Evrak, Dector, and David Neige from ARCA. Can't wait to discuss everything that's going on

and give you our outlook for what's likely to happen in the crypto space in 2023. You guys don't want to miss this. Let's go. Let's go. Let's go. three come in like a lamb. We're getting major, major events in the news cycle already here as we start the year and start to look forward on what is likely to happen in 2023. I think that probably the guests will agree that macro is still going to largely drive the crypto market, and there's a lot going on on that front. I'm going to go ahead and bring on all three of our

amazing guests right now, Dave, Jean-Pierre, and well, we've got two Davids. I don't know if I should do one of you as Dave or one of you as David. And honestly, to be transparent, I think for all of our panels in history, you three have the most butcherable names collectively of anyone out there. We got Neg, Nagy, Nej, Najee, Duong, Duong, Young,

and of course, Jean-Pierre, we can butcher your first and last name. Pretty good job, though. GRD, you can call me GRD for short, if that helps. GRD works as well, but I think you probably usually get Genevieve. I think we've talked about this. I try hard. And then people correct me when I say your name correctly. It's very hard.

So listen, we're obviously here to talk about what's going to happen likely in 2023 in the crypto market, but can't do that with, I think, first giving an honest appraisal of where we're at right now entering the year. I mean, 2022 was arguably the worst year in the history of the crypto space. There's people here who were here in 2014 in Mt. Gox who say that potentially that was worse or different but it was it was pretty bad so i guess is there anything specific that we should start being excited about or looking forward to in 2023 that could be a catalyst to sort of get us out of this funk i'm gonna go to you uh arkadave call you arkadave at first because obviously i think you are very heavily boots on the ground at the moment. Yeah. I always like to set perspective, first and foremost. If you think about what we've seen over the last few years,

all of a sudden within the last two to three years, you had crypto winter in 2018, respectively speaking, where it followed a steady Bitcoin price accretion to about 21,000 at the end of 2017. Then it fell through all the way down to about 3,000. Everyone didn't know what was happening. And everyone proclaimed crypto dead. And obviously, as we saw, you saw some of the largest companies in the world be able to raise their early rounds there, like Open you know, Fireblocks and others out there.

And all of a sudden, you start a resurgence of interest in the space. I think what's feeling different about this time is that for the last two years after crypto winter, we've had a fairly significant build out. We've had, you know, OpenSea obviously do massive amounts of volumes in terms of NFTs. We've seen, you know, lots of companies in the space, you know, dozens of companies in the space reach multi-billion dollar valuations on the private side. It started to look and feel like more of a mature space, you know, coming out of that kind of adolescence into that kind of preteen tween type of, you know, phase right now. And so I

think what a lot of people are feeling right now is that because of some of the actions that have happened over the last few months that have shown some of the ugliness of centralized finance, that we've seen this kind of doubling down of kind of this negative effect where we were rising, we were feeling strong, everyone was loving the space. You had big tier one banks coming into the space, you had, you know, tier one banks also writing research reports on the space. And then all of a sudden, you had these few actions that have happened here. I think what my takeaway from this, especially from the venture perspective, is what we saw over the last few

months is that we saw the failure predominantly of centralized finance of CeFi. Some of the larger companies out there that have gone through Chapter 11, that have filed for bankruptcy, that have been trying to find a way through have been, majorly speaking, on the CeFi side of things. But what we saw from that, and kind of one of the things that we're thinking about for 2023, is that from that kind of rubble, if you will, from that negativity, you saw that, you know, players like Celsius pay their DeFi loans first and foremost. Back in July, you saw 3AC pay their DeFi loans right away. And this is why DeFi we think has potentially a future is because it is

based on smart contracts. It's based on code. It's programmatic. And so if you can actually kind of extrapolate away some of the failures that we've seen over the last few months, most of them, as I said, again, have been focused on DeFi. We think DeFi has a way forward. But as we also see, DeFi has its own misgivings. DeFi is very weak on security. And so what we've seen over the course of the last few months is that we've seen a lot of projects lately that have come from more of the legacy cybersecurity space that are using AI and ML to start to really try to harden DeFi to make it much more secure so the everyday user can go on there confidently. And if there is a exploit or a hack, that their total capital put into those DeFi platforms is not eviscerated. So we think that a way forward is that DeFi actually needs to have hardened security, which we're starting to see.

And we think that this is one of a few different themes that we think will be prevalent in 2023 and 2024. Obviously, happy to talk more about, you know, the different ones we think, too. But we think that's one of the first takeaways. Javier, what do you think? So I come from more of the mainstream world. And so Scott, I love coming on your show because I'm always like, oh my God, like are people paying attention

to what's going on on like the mainstream scene? Cause I understand DeFi and I understand the power of that longer term, but we've taken a giant step back here with mistrust. And even for people such as myself, who've been in the space, not as long as everyone here, but, you know, I'm just learning tomorrow how to self-custody my own crypto, right? And I've been investing through centralized exchanges. I've invested through ETFs. I thought that that was all safe. And now we're finding out that not only is it not safe, but there's probably some other huge things to fall here. I've been paying attention to the Binance situation, and I'm very, very, very concerned that there's something going on there. I also found out this morning that Binance's market share of trading volume, so Binance obviously being the biggest trading exchange out there, their trading volume rose to 92% at the end of 2022, at the end of last year.

They're now like the dominant trading platform for spot Bitcoin. And if there's something amiss there, you know, they're under investigation by the Department of Justice. What does that do for the industry over the next year? So I think that long term, these crypto winters are obviously a really great opportunity to accumulate. But when I looked back at like the 2019 period, the other crypto winter that we went through recently, you know, what was the catalyst to get people excited to get back in was simply the fact that there was cheap money. And we went through this massive injection of capital in the in the American system and cheap money was was around and people were willing to invest and take bets on risky assets. I don't see that happening anytime soon. So I'm just wondering, like, what is going to be that catalyst for crypto?

Yeah, I actually agree with what you're saying as far as the easy money. But we did at least have a spark, which was at that time, Michael Saylor and MicroStrategy. That's really, in my mind, what sort of sparked the interest in that last bull run and sent people running. Even if you have the free money, you still actually have to point people in that direction as the thing to buy. Right, but what's going on now with MicroStrategy? Right. What's going on with Genesis? What's going on with Gemini?

Like, there's so many unanswered questions right now. It was before Saylor. It was Paul Tudor Jones writing his thesis about why Bitcoin matters in a diversified portfolio. That got institutions all kind of ginned up and bullied up on it. And as Genevieve rightly said, we've had a decade plus of free money, of quantitative easing. And so none of us have a playbook for what a world looks like for Bitcoin and other digital assets and quantitative tightening, which is what we're enduring right now. We're having a period of quantitative tightening. And so no one has a playbook for

that right now. And so that is something that we're all trying to do on the cuff right now. Right. And we'll get to macro in a second, but I want David's thoughts. Also, I was not aware of the 92% finance number. Maybe you can give that some color since obviously you're the head of research at Coinbase. Man, there's a lot of negativity to the question of what do we find optimistic for this year. I'm going to say that the sentiment kind of put out by Genevieve is pretty emblematic of what the major obstacles are to performance at the moment. I would say that we're looking at an asset class that historically is able to 6x from where we are, probably six or seven times greater. If there are no further consolidation events, if we're not worried about DCG, if we're not worried about Binance, we're not worried about any of these other things, I would say that relative to what we're seeing in traditional finance, probably there will be, you know, let's say a recession in 2023, a global

recession, it's going to be broken up by regions, whatever. But that's what another 20% down on the stock market. Like if crypto parallel that and we saw another 20 percent down relative to the gains that you can actually make, like that is something that I think most market players could tolerate. What they can't tolerate is another consolidation event. They can't tolerate a 50 percent drawdown from here. I think that I think is what is preventing people from really kind of getting back into this market. But I would say I'm fairly optimistic, maybe cautiously optimistic, that probably what we're getting right now is maybe like the last wave lower. You know, I think that, yes, we are still trapped inside this consolidation pattern.

But, you know, just like the majors, for example, Bitcoin, ETH, a lot of those major cryptocurrencies that represent the market cap of this asset class, you know, they have a lot of room to play catch up here because of all the leveraging we've gotten in 2022. So I think there's a lot of upside. We're just kind of waiting to see this kind of, you know, last phase correct itself before we can kind of jump back in here. And I think a lot of traditional institutional players also see that because they recognize that these markets are cyclical and that we're going through this down period. It happens to the best of us.

If you look at it from a sharp ratio perspective, actually crypto pretty much traded in line with many other asset classes. We actually outperformed bonds, but that's no surprise in a year where you were hiking rates. But I think this is just par for the course in a lot of ways. Yeah. I think, okay, to your point on institutions, I think you deal with a specific

subset of institutions, right? These are institutions that are willing to buy risky assets. The types of institutions that I talk to, the types of conversations they're having right now are like, yeah, what's my equity to bond rating? I'm in large caps. I don't even want to own mid caps. I don't even want to own small caps. I don't even want to own micro caps. I don't even want to own privates. Crypto, no way, right? So I think until you see, to your point, we've seen we're going to have all of these layoffs with these tech companies. That hasn't siphoned through the system yet. That hasn't hit earnings yet. We haven't had an earnings recession on the S&P 500 yet. That's all going to happen probably sometime over the next six to 12 months.

Data is going to get a lot worse. Sentiment is going to get worse. At that point, my opinion personally is that the stock market will probably bottom because it tends to bottom when things are, you know, kind of look the worst and then starts to rebound because we're always forward looking in terms of investing. But like crypto is definitely not at the top of the list for most of the people that I talk to in terms of interest level. We're just it's just not there yet. And I would love to talk about, you know, this whole Genesis Gemini thing that's going on, because I think it brings up a really important question. And David, because you're in the corporate world at Coinbase, like how why is it that something like this is being aired on Twitter? Why is there a corporate fight going on in front of the entire world? Like, shouldn't the

crypto community be coming together to help each other behind the scenes? Like it just it just speaks to sort of it feels very traditional finance, like to some degree, I thought we were supposed to all be helping each other. And that's not what's happening. So I'd love to hear your thoughts on that. David from Coinbase. Thanks for identifying us. Well, first of all, I agree. Like in traditional finance world, this wouldn't really play out like this, right? It wouldn't be playing out publicly on a public forum like Twitter. I think that this, to be fair, is kind of what happens in the crypto space. This oftentimes kind of gets hit. But it's hard to kind of speak to the individual interests at play here.

I think the Winklevoss twins, for example, have a duty that people are asking them that themselves pressured to kind of say, like, well, we need to find where the where the points are breaking points are here. And that for us is Genesis. Now, I'm not saying that this lets Genesis off the hook. I'm just saying that there are specific interests at play here and they are trying to combat this on the best way they can. Maybe this is how they're thinking about doing it. I can't really justify those actions one way or another. But I do think that we are still going to need more time to see

Genesis play out. And ultimately, I don't believe that this is going to be a major domino that's going to fall, that's going to take out like the rest of the crypto asset class. Like I don't think that Genesis is going to impact ECG and therefore Grayscale, for example, lead to a redemption event on Bitcoin. Like I genuinely believe that we are likely to avoid that. And if that's going to be the case, I actually find that reassuring for the

asset class. mean to your point i think like it's actually it's actually quite impressive how resilient in a sense crypto has been given there's like nowhere really that people feel they can trust apart from maybe coin base because it's federally regulated public company audited you know by the big four but like i don't know i don't like I don't feel safe with Binance. Like Binance really freaks me out. It's like they have a gun to their head and that any day the Department of Justice just come out and be like, you know what, we want to take some heat off this FTX situation because this is exposing not only, you know, us, the SEC, you know, the Biden

administration, all the Democrats that got, you know, free money handed SEC, you know, the Biden administration, all the Democrats that got, you know, free money handed to them who aren't giving it back. And it's like, that could happen at any moment. Then what? Then what happens? Because for people to get into DeFi, they have to learn how to self-custody. So how are you going to teach, you know, 300 million people how to do that? Like, how's that going to happen? It's the same way that we've taught millions and millions and billions of people about 2FA. It's really, it's not that difficult. You know, I'm getting, and Genevieve, it's not you, I'm getting tired of this conversation because this is something that I've talked to our investors about.

We ran away from the innovation, the technology for the last two years. We said, oh, Goldman Sachs. Oh, Mr. Multibillion Dollar Endowment Pension Fund. Oh, you like crypto. OK, we'll use the centralized exchange, obviously void of Coinbase because you're a regulated entity and you're obviously publicly traded and you have fiduciary duties. But others out there, oh, use that. And instead, you know, focusing on, oh, you actually have the ability to protect your

assets, unlike we did back in Lehman and MF Global. You know, we came, many of us came from that world back in 2008 and 2009, where we saw the malfeasance, where we saw what happened when you were able to hide massive amounts of leverage. And so we came from that world and we said, no, there is technology to actually make that better. There's technology to make it immutable and to make it fully transparent. What are you exactly upset about the fact that it does take people? It's a learning curve and it takes a while for people to learn how to do that. We've made excuses for it. Who's making excuses? As an industry, we've said, oh, it's weird. Oh, you know, getting a Trezor or a Ledger is kind of weird. It is though, it's difficult. I can tell you like the average person doesn't want to do that, right?

I will tell you that there are millions and billions of people out there that use dongles. If they're working for a corporation, they're working, especially siloed outside of the corporation. If they're working from home, they're using a dongle basically to get them an encrypted code. Okay. So then a better question is then how to ease that process for them, how to make them comfortable with it. Exactly. And this is something that we have missed as an industry for the last year. But you can't argue that it is happening, that people aren't willing

to do it and aren't wanting to do it. And that's a big impediment to having, you know, this other decentralized finance ecosystem really flourish, right? Like that's a big hurdle that needs to overcome. And maybe the leaders in the industry need to be the ones to step up and like put on some massive seminars, bring out 5000 people and give them free treasure wallets. I agree. Teach them in real time how the Apple store does it and teaches grandparents how to like turn their iPhone on and look at, you know. Absolutely right. And I think what Elijah did with getting Tony Fidel also to design their new stacks that's coming out uh this year in the next month or so it's beautifully designed it looks like an ipod um this is exactly the types of things that we need as an industry to actually reinforce that right so that's what we need instead of instead of you know the winklevite you know twins fighting on twitter over where

their customers money is like that's where we're at right now. It's like, where's the customer funds? It's embarrassing. I've kind of always laughed that we need guys in suits and adults in the room, which is a very unpopular opinion in crypto, but I thought that maybe they were it. But we've seen over and over again now, you know, youngish billionaires airing their dirty laundry on Twitter.

I mean, SBF, the three arrows capital guys, I mean, they can't shut up for five seconds, even at their own peril and their own, you know, legal risk. They literally can't. I mean, every single time something happens, Suzu comes out and blames that person for everything that happened to three arrows capital. So all this stuff that SBF has been tweeting about the last, you know, whatever, six weeks since the collapse. And everyone's like, how know, whatever, six weeks since the collapse. And everyone's like, how shocked, like, how is this guy still tweeting? Like, he's incriminating himself.

Like, you know what I mean? My prediction is he's probably going to get something like 10 years. He's probably going to negotiate a plea deal, get like 10 years, sort of like two or three years. And then everyone's going to go, what about all these incriminating tweets he did? so i guess you can just tweak things out and like there's no consequences to it like i think that that's how crazy this has gotten um because i just like i don't i was still surprised i was still surprised that the guy even got arrested so i i guess i'll take that right i i really thought that he was going to be surfing with those other dudes or painting or whatever they're all they're all doing like a face transplant in venezuela right but this does all speak and I think Jambi have you been hammering

this point to the optics of the industry right now right because listen we've had massive bull runs huge rips in the market before to the upside without mainstream adoption, without mainstream adoption of custody, without institutions and these huge businesses joining. It's not like price can't go up unless we convince all of these people to join. Right. But let me ask you a question. When that happened, wasn't the hope always, oh, one day institutions will come in. So that wave of capital, get in front of it. But now it's come and some of it's gone and now we have to rebuild trust and i think it's going to happen don't get me wrong i am a blockchain bull i believe in this technology long term i don't know where the utility lands exactly like

where that's going to be you know what's going to be the shining armor that's going to come in it's going to be kind of a real use case beyond just the you know value exchange uh that's happening um nfts i like that not the art part but i think for authenticating you know real assets i think it has a real value um but yeah i'm just wondering about that because you know institutions have come many have gone um traditional institutions if i can speak about that from a venture perspective too, and I think I have to give credit to Nick Grossman from USV. He wrote something a few years ago that was quite brilliant that stayed with me. And it's a chart that he's done where he shows early technology from the internet and it shows applications and it shows infrastructure.

So it shows applications that got people really excited, that got hundreds of millions of people really excited. And we've seen that. We've seen that with GameFi. We've seen that with Axie, for instance, where they went from a few hundred thousand daily active users to three million daily active users at the end of 21. We have seen explosive daily active user growth in certain areas of digital assets. And so what we've seen is that when you have that massive explosion of interest in an app or a game, for instance, then you start to say, well, wait a second, the infrastructure is actually not meeting the needs or the demands of a new user group. And so you go through a period of contraction because, again, you need, a few year cycle that happens within technology over the last 40 some odd years, especially with the advent of the Internet, that there are periods of time where you see this massive growth of an interest in an app. And then all of a sudden you really see that you need to have better infrastructure to support that. And so I think that's where we're at right now.

So we've seen significant interest. We've seen DeFi reach hundreds of billions of dollars of total value locked. We've seen GameFi actually get thousands and thousands of people within there playing those games. But we've seen that the infrastructure is not there to support some of the growth and some of the issues that are present there. How do we feel about custodial infrastructure? Because there's now an argument being made that custodians and exchanges should be completely separate entities, shouldn't have the same management, shouldn't have the same owners, shouldn't have the same executives. Like that's just basic crypto infrastructure. How do we feel about that promise? David might be also good to chime in there as much as he can. Might either be the best or the worst person to actually talk about that. Well, let's say this.

I mean, crypto, the way it was designed, kind of forced exchanges to take on custody in a lot of ways, right? I think that, yes, in traditional finance, we've had enough years where we've been able to separate a lot of these elements. So custody, settlement, like, you know, the trade execution, all these things have been compartmentalized in a lot of ways, separated among different entities. And we've recognized that, you know, that was necessary

in order to actually have no commingling of interest, let's say. But I think that the challenge on the crypto side is that, you know, there was a lack of ability, a lack of, you know, probably, you know, actual execution in terms of being able to separate those two things. And so custody became a large element of actually exchanges. You know, I can't say for sure how that's going to materialize in the future,

but I think for the time being, that's not something that we can actually separate for this asset class. Well, we are seeing now that Bank of New York, Mellon and State Street, I mean, we're talking about custody. There's definitely been movement for major custodians, but I guess this becomes one of those things

where it's a battle between the ethos of the asset class in the very first place, self-custody and things like that, and going to literally the biggest custodians in the world. Javi, I know you have to leave in like two minutes, so maybe your final thoughts there. Yeah, I think it needs to happen. I think it just makes the most sense. I think it would inject a lot of trust in the system. I think that, again, traditional finance has been doing it for, you know, decades, if not, you know, over 100 years. So I just think that to your point, David from Coinbase, it just wasn't there wasn't like a motivation for somebody to just launch a new custody for crypto.

And I don't think the insurance was properly in place at those times when these sort of companies were first formed. So it only made sense to sort of hold it all together. But it'll be interesting to see what type of regulation comes out of, you know, this whole FTX case and the SEC. I mean, one piece of information that I picked up on from the bankruptcy proceedings, John Ray said that FTX us which uh was supposed to be solvent this is what sam bankman freed had been saying this whole time is in fact not completely solvent this is what he's come out and now said and so that's a responsibility under the sec to have known this and so potentially the custody issue is going to be one of the learnings hey we need to separate these things

out so um yeah, those are my thoughts. Gentlemen, it's been a pleasure speaking with you all today. And I'm sure we'll see you again. Thank you. I'm sorry I have to leave. You're welcome back anytime. And everybody, go follow her and definitely check out her newsletter, Grit. I was literally just reading it as we got on here today. It's really incredible. Still a bowl. I've got my $100,000 Bitcoin cup here that I'll be holding until this happens. There you go. Let's get there. Thank you so much. All right. Bye.

So now that Jen is not here, I do want to just say one more thing on the Coinbase thing as well. I mean, there is a reason why we, for example, launched a Web3 wallet that allows people to do self-custody if they need to. But also just keep in mind that unlike, well, I'm just going to say what we do, like when we definitely have a hot wallet and a cold storage wallet, a cold storage wallet that has never touched the internet, for example, so that, you know, anyone who actually, you know, buys securities, when we custody that, that's untouched, that hot wallet is also insured. So that, you know, really distinguishes us as an exchange. Yeah. And I think that options are important, right? And I think that you made an important point that I really hadn't thought about, which is that if you wanted to get dollars in and out

of crypto in the early days, how could an exchange like Coinbase not be your custodian? There was really no other option. People are saying, well, why didn't I see it in the comments? Well, people could have self-custodied. Well, then they couldn't go from self-custody to dollars in the early days of crypto. So I think it just evolved in that manner. She made a very interesting point, I think. She made a lot of very interesting points. And I think I should say that at our own sort of risk, we should not listen to people who are one foot in TradeFi and one foot in this industry who maybe are seeing it from outside the echo chamber.

So I value her position there. FTX.us obviously was a problem. And now Binance.us, the SEC now is actually coming out and saying they have a problem potentially with the Voyager deal. So is this now the SEC saying, oh, crap, we totally missed the mark on FTX and therefore this is them overcorrecting to some extent. But I think the SEC has had a history of regulation by enforcement. And, you know, this continues to be what they're doing rather than actually taking a step back

and coming up with thoughtful regulation for this space. I do think it's coming. I do think that we're a place where we're going to start seeing foundational reforms for the asset class. And probably 2023, we'll start seeing that, you know, maybe we'll make progress. I think it's probably going to happen more with stable coins, probably in the first instance,

before we start migrating to, you know, what we do with centralized entities, for example. Can we salvage DCCPA, for example? Can we salvage DCCPA, for example? I'm not sure how it's all going to look at the end of all things, but I certainly think that we're now much further along. It's unfortunate because I had to take an event like FTX to kind of get us there, but I think that we recognize that if we don't do something, we're unfortunately just pushing people towards other jurisdictions that aren't as well regulated. If I can just say one thing, you don't create a symposium of, you know, supposed professionals that are trying to cure cancer and invite a bunch of people that fix cars for a living. And so I think it's time where if there's actual real interest in creating

sustainable, good regulation that fosters the innovation, which we've seen McHenry and others say time and time again, I hope that is true because we, we do want good sustainable regulation in space, that they really start to invite people that are in this space actively as founders, as investors, not necessarily just as academics. I think that's really important.

People that actually understand the technology, understand the influence of the technology, understand traditional markets as well, and the influence that the technology can have on those markets. I think it's time that we actually have a symposium with those that are creating policy involving those that actually are in day and day activities in this world. Do you think that there, I know that our industry is interested in doing that, but do you think that Gary Gensler really cares, right? I'm not asking you to specifically criticize him, but it doesn't seem like at this point after SBF went on his roadshow as the representative of the

industry, that legislators or regulators are too keen to sit down with, you know, 50 industry leaders and learn about it. It just doesn't feel that way to me. Maybe I'm being pessimistic. Can't answer that. But I would say, you know, one, one bad apple, as you know, as potentially is, should not necessitate that the entire basket of fruit is also spoiled. So let's focus more than on 2023. And what we don't not necessarily likely catalyst for an improved market, but what you guys are looking forward to see improved in the crypto space outside of prices, outside of regulation, all of these things. Are we still excited about GameFi?

Are we still excited about the metaverse? Are we still excited about NFTs? What are you guys looking at that you think could be truly groundbreaking in 2023? I talked about that from a venture perspective with defund security, thinking that that actually the marriage there could be something that creates sustainability and further growth. Another area that we think is really interesting for 2023 and beyond is the marriage of what we call Web 2 to Web 3. We see Nike with their acquisition of Artifact.

That's already been material in terms of their profits. It's been about $185 million in 2022, which is representative of multi-billion dollars of revenue for Nike, de minimis and small. But $185 million, nonetheless, is something significant in terms of revenue. We obviously saw Starbucks launch Odyssey in December, and we think that that's very interesting. We're tracking that vis-a-vis one of our portfolio companies. And we're seeing that this is very interesting because Starbucks has effectively abstracted away a lot of the complexities with NFTs and some of the infrastructure. stamps that you actually can get when you go through the Starbucks Odyssey platform. They're not called NFTs. They're called stamps. That's interesting. Again, I made the joke yesterday with some of my teammates.

You don't go to Amazon.com and say, oh, I went to my DNS. It's a domain name server. It's Amazon.com. It's not the seven, eight, nine digits that you normally have to put into to get into Amazon.com if you're using traditional methods. You don't say a DNS address. You just say Amazon.com. And so we think that that's possibly what's going to happen now is that you might not necessarily just call these NFTs. You might call them something else.

You might call them stamps. You might call them a number of different types of linguistical possibilities here. So we think that this idea of Web 2 to Web 3 is very interesting. We think that large brands are trying to find ways to better their relationship to their customers and to their consumers. We also see that some of the regulation that's actually coming through in the next few months here with regards to cookies. There is a massive clampdown on cookies, especially in Europe, that's going to be coming down over the course of the next few months where they're really trying to enforce that the cookie collection is becoming something of the past. And so how do large brands get a better social graph of their consumers? We think that's

possibly the use of NFTs. And so we're exploring that as a way forward is that all of these large brands are trying really to create innovative new ways with a new demographic. Going back to the comment about GameFi, there's 3 billion gamers around the world. They live in different types of ways. That's why Mr. Beast is now in Fortnite, because he understands that this is a great way to get more of a market share of subscribers. These are all things that happen in real time. And we think that the NFT actually, as Genevieve alluded to, goes beyond the collectible to something new that is much more consumer facing. That's another one of our trends for 2023.

I like that. I like that. I do believe that decentralized identity is going to be a major part of this as a class. I think it's a big unlock in terms of what it can actually offer. So I would definitely put that on the top. I would add probably four other things as well. And just on a very granular level, I do think that liquid staking is going to be a very major part of 2023. We're already starting to see it, you know, like how well Lido has been doing, the demand that we're seeing for liquid stake derivatives, for example. And a big part of that, of course, has to do with the fact that if the Ethereum withdrawal, excuse me, withdrawals from state ETH on Ethereum is going to be allowed probably in Q1. I mean, they say it's March. That's much earlier than a lot of people were expecting previously. So I think that's a big deal. I would say that layer twos are also going to be a really big kind of topic that we're going to see. The user experience we've known for a while had to be improved. I think we're starting to see that.

Plus, I think we're probably going to see that scaling solutions are going to be enabled by the upgrade path for Ethereum itself. But that doesn't discount all the other L1s, which is topic number three. I would say the race for the L1s. And I'm not saying that it has to be a winner-take-all market, but certainly we have seen a shift

from the FAT protocol thesis to the FAT application layer thesis. And that's been happening probably over the course of 2022. I think that that is very meaningful. So a lot of the technologies are coming out in terms of integrating the Move programming language into an L1 and say like, you know, a SUI launch or something like that. It's going to be closely watched. So I'm going to be paying attention to that. And then lastly, tokenization. You know, it's a topic that we've been talking about

since probably at least 2017, but it's really kind of come in in a big way over the last year or so. And now I think that there's a lot more institutional participation in this. So I think we there's a lot more institutional participation in this. So I think we're finally ready to see tokenization some form. Probably it'll be in securities rather than, say, real world assets in the form of real estate, for example. But I think that's already a large step. Of course, then we'll need to build the market for that.

So it's not, you know, it would still just be the first step rather than seeing it fully formed in 2023. Yeah, I mean, tokenization of securities leads us back to regulation to some degree. Right. So I think that it's definitely going to happen. The question is, will it be able to happen here? Yeah, but we've been seeing that, for example, JP Morgan, the deal with Project Guardian, for example, and MAS, you know, like that was done, of course, in Singapore. But that's already proven that it's being used, that people are doing it, or the fact that SockGen was able to basically, you know, put on chain a bunch of mortgage bonds and use it or, you know, propose that it be used as collateral on Maker. So I think things like that are happening, and we're seeing more and more of it happening.

You talked about all the things happening with Ethereum, of course, the upcoming Shanghai fork, which will allow people potentially to start unstaking. The merge just happened at the worst possible time in context of the market. And you don't hear people talking about it anymore. But for me, the merge is still the most massively bullish catalyst that we have in the crypto market. And it was always, to me, similar to a halving in Bitcoin, where people get really excited about it when it happens.

But obviously, there's no immediate result. And it takes many months for that sort of supply reduction to play out and all these things. I mean, should we still be talking about the Ethereum merge? Do you guys agree that that's still just because of the timing of it, it kind of was less hyped than it should be, but that we're going to start to see that really play out in 2023? I would say one of the things that we see, especially as I said, this notion of web two to web three, we've spoken to brands and we've spoken to projects that are working directly with large brands. And the majority of them, as of right now, for the last few months, have opted for Polygon because Polygon has done a very good job kind of educating and marketing themselves as something where you can do it sustainably green, low impact, low carbon impact. And that's been a very big thing, especially for Starbucks and other large

corporations that have an ESG mandate. And so I think one of the things that was missed in terms of the grander marketing of the merge is that now Ethereum is kind of in the same kind of boat. It's not using proof of work, you know obviously you know the general consensus outside of crypto believes is dirty and pollutant etc etc we're not going to get into that diatribe because obviously it's it's been gone for years but you know now that ethereum has moved over to pos and you know that also i think could be you know again from a marketing perspective a point of of retention they can use that and say, well, listen, we're also the same way that if you're concerned about, you know, carbon emissions,

and you're worried about, obviously, you know, some of the work there, this is also now in a more, you know, sustainable green kind of environment as well. So I think, you know, from that perspective, yes, I think the merge could also be talked about more. But to Genevieve's point, you know, before, you know, as an industry, and we've been trying this for years, you know, do a very good job marketing and a very good job educating. And so I think we need to go back to that and really try to get some profound marketing for 2023 to really educate people out there about what some of these things can and cannot do. I would say the merge was technologically like a hugely meaningful event. Of course, you know, many people have compared it to changing the engine on a plane mid flight.

But we also need to recognize the humanistic effort that it took to get there. You know, this wasn't a centralized entity directing people to do X, Y, and Z. And that I think is actually why the merge is going to be significant in 2023, because now we have another upgrade path. Like it basically opened the door to all these other things that are now going to be possible. You know, like we didn't talk about it, but for example, there's a new concept of restaking, which is possibly going to allow validators to actually have a new income stream. And that's going to allow middleware to actually be incorporated into the network in a much more efficient kind of way. Of course, again, we're still experimenting with that. It's going to take time. But I think things like that are

allowed. This is something that couldn't have happened prior to the merge. So I think everything that we're talking about now, everything that Ethereum is going to become, I think had to happen. But that kind of goes to your point that, of course, it, you know, it didn't nothing happened overnight. Like it was the it was the entry point to allow all these things to happen. But also, yeah, it's a poor time to launch because I would say this year, the big focus, not just on the macro side, but even in crypto, we're going to be talking about recession all year long. We're going to be talking about when are we going to see the recession? When is it going to happen?

And so it's going to be hard to insert anything into that new cycle when we're talking about, oh man, Europe looks like it's having a hard time. What's going to happen in the UK? Is the US going to actually get a soft landing? These are going to be the topics that we're going to be talking about. Yeah, Shanghai fork doesn't really make the mainstream media cycle when you're talking about a global recession. But going back to it, there's been a narrative that people believe that when the Shanghai fork happens and people can unstake that that would actually be bearish for Ethereum, that people would finally be able to pull their coins out. I believe it's completely the opposite. I mean, people that I speak to and people with sideline capital, I think are waiting

to deposit till they know that they will actually be able to eventually withdraw. Right. So I think that it's actually a huge bullish event that this is coming and will be yet another catalyst for that ecosystem. Yeah, I think the argument goes that, hey, if you started staking Ethereum like sub 1000, for example, like, man, you must be chomping at the bit to get out of there. But keep in mind, who did that? When people were actually staking at that price point, like you did it without the knowledge about how long it would take you to unstake. You did that with like an indefinite kind of time period in your mind. You don't do that because you're looking to capitalize or make a quick buck. You're doing

that because you believe in the ecosystem. And so I don't really believe that that's going to be the case. Plus, you know, like, you know, everyone's going to be allowed to unstake all at once. It's going to be staggered the way it's kind of structured. So technologically, it's also not possible. Like, I think you're only going to be allowing 1,350, like, people a day to actually to unstake. So I think that you got to keep that in mind as well plus you know like as you said i think in fact it's quite the opposite many people who were

worried about the liquidity versus yield kind of situation i think now they're going to have the opportunity because they're like oh i don't have to worry about that issue anymore like actually it's a much more opportune time to stake more than anything else. David. I hear this and I understand and I agree with everything that David is saying, but I also think back. One of the things I've been thinking about and one of the things that Genevieve also alluded to just before is. The everyday person out there that is not within the space for the last two to three years or as long as you have been david or he was you know scott doesn't know what the hell you're talking about um and so it's just for me it's i'm trying to you know you know i think we're trying to wrap our heads around how we can get to be to you know larger adoption curves of of this and so while it's great to

talk about the shanghai fork and about you know unstaking, what is Ethereum going to be used for going forward in 2023? You know, what are the major, you know, what's going to draw people to actually use Ethereum as a as a network, you know, from a function perspective? And so trying to think through that, you know, how are they going to start getting, you know, massive amounts of daily active users? How are they going to get more? You know, if it's a DeFi protocol on Ethereum, how's it going to generate more total value locked on there? All of those things, you know, how do we get back to that point of time where we focus on the consumer? And so while I agree with, you know, what you're saying, David, you know, my mind is really, you know, kind of focused on things like what Fred Wilson wrote, you know, just the other day about this is now becoming more of a durational, you know, 5, 10, 15 year type of mentality where you have to have, I believe you said, a very, you know, kind of, you know, tough stomach for it.

And so that's really where my head is going is that, you know, that's shorter duration events that are happening over the course of the next few months, I'm trying to think about what's going to actually cause, you know, hundreds of millions of people to start using Ethereum as a service. Any ideas? Because I, you know, listen, I think it goes back to the same question that we've already repeated, which is what we'll, you know, we've put it, posed it as 2023, but all the things you said about DeFi and NFTs and all those, that's the answer I would imagine. But it does feel like we've taken a major step back in actual usage, right? The utility is theoretically there, but how many people are actually using any of this stuff? Right. And so that, you know, that starts from the developer community, you know, how easy is it to build on these things? What kind of SDKs are there?

What type of tooling and compilers are there to make this easy for them to do? Is it literally something that someone who has more of a JavaScript background, is it something that they can pick up very quickly? So that educational ramp-up period is important. And then from there, from the developer community, then you start developing tools and applications that people potentially want to use. You really need to have an understanding of what people's pain points are right now, consumer pain points are right now. And I think we've, as an industry, we have been building towards a promise, but we haven't necessarily

been listening to the consumer as much as we should be. And so we think that one of the things that should be done more is that Web3 companies should really be doing more studies on the potential consumers that they're trying to target. What are your pain points? If you're using a game, for instance,

what are your pain points with the game? Do you really not like the fact that you don't own the asset and you can't trade the asset if you want to trade the asset? If it's a DeFi platform, do you really want to be able to use that as a productive asset? Or do you just want to be able to kind of store it away safely and let it just grow and appreciate? All those types of questions are out there. And I think

as an industry, we need to do a better job really focusing on understanding those pain points and those questions so we could build meaningful products that people love. And as Jason Kalanicka says, delightful applications. I think that's kind of what we need people love. And as Jason Kalanicka says, delightful applications. I think that's kind of what we need to do. And so we've been looking at companies that actually have been trying to do some of those case studies for Web3 companies to see, are you actually building something that over the course of the next six to 12 to 18 months can create fairly significant amounts of daily active users?

And so understanding that from the very core basics, I think is something that we need to have a better playbook for. And so creating that playbook, you know, not only just from the developer community, as I said, having the development tools, being able to, as David alluded to, you know, we've been talking a little bit about, you know, move as a language and how it is something that, you know, could be something meaningful over the course of the next few years,

because it has a lot of the AI kind of components of GBT-3 involved with it as well. A lot of people are talking about GBT-3. So from the developer side, can we continue to focus on that? I'm very curious when Electric Capital produces their developer survey, which I think comes out in the next few weeks. Very curious to see kind of what the trends have been from the developer community, but continuing to focus on the developer community, building applications and tooling for them so they can really build meaningful tools fast is something that we think is important.

But then really understanding, again, the consumer. What does the consumer want? What are some of the issues that the consumer deals with on a daily basis? And how can Web3 applications and infrastructure solve that problem? I think that there's a lot of merit to what you're saying in terms of trying to form fit what actually the final consumer demand is actually going to be. But you kind of got to keep in mind that what got us from the transition from Web1 to Web2? You know, there are a lot of underlying technologies that had to be in place in order to get us from just writing blogs to actually transacting on these things. Like we couldn't have Amazon without SSL, right? Like that was something that was a crucial point before I

was willing to put my credit card online and actually buy something on there. Are you reading my investor letters? So you're reading his investor letters. I made that point a few weeks ago. It's amazing. Yes, I completely agree. So I think in a lot of ways, that's what we're doing right now. We're laying the groundwork for, you know,

trying to build something in Web3, but we still don't know what that is yet. I mean, like we're in a lot of ways focused on rebuilding Web2 and Web3 more than anything else at the moment. And that's not a bad thing. I think it like, we're in a lot of ways focused on rebuilding Web 2 and Web 3 more than anything else at the moment. And that's not a bad thing. I think it's necessary as a first step. But I think that there is going to be some unlock of the underlying technology. I got to start moving my hands around. This is how I knocked my mic down the first time. But I think that,

you know, you need that underlying technology in order to actually build out for what Web3 will become. And I don't know what that is going to be. For example, like I think a lot of people talk about institutional adoption. I want to see institutional adoption mean institutional usage, because once we get something like a permission DeFi type structure, that they're going to be participating in this, settling trades on this. That for me is a real use case that's going to be participating in this, settling trades on this. That for me is a real use case that's going to build up activity on a public network like Ethereum. I agree with that. I love that point. Literally yesterday on the stream, we were talking about institutional adoption and sort of came to the conclusion that right now that just means how many people are going to buy and sell

these assets with no real concern with them for the future. It really has to be institutional. It's not adoption. I can't even now remember what word I use, but participation. We basically need them to actually use it, not just buy and sell it. But what I'm hearing from you guys, it's kind of stupid for me to even ask the what's going to happen in 2023 question

because all of these things are going to take years and years and years to build out. We're not going to flip our UI UX problem into a benefit in the next six months, right? There's so many things that need to be built and improved for retail to adopt it. I mean, I actually see some comments over here. Someone was saying, Scott, you talk about retail all the time, but no one's talking to retail. Why don't you have a round table of retail on to talk about their understanding? And I think that that's important to the point I was making about Jon Biev. We actually need to start listening to the people who aren't in the industry. And that's the only way. Developers are one thing, but if developers

aren't talking to people who are suffering those pain points on a daily basis or who even care, right? I mean, then what's the point? They're just developing blind and hoping something sticks. Yeah. Yeah. It's like building blackboards when people are using tablets. It's like, you know, it's why would you do that? And so we, you know, we really need to better understand the pain points. What makes someone happier? What makes someone's life better with these applications? And that's why it was very interesting when the whole kind of, and I know it obviously became something that was smirked on, but the whole kind of move to earn kind of moment

that we had last year. In theory, if you extrapolate away kind of what happened with, you know, what happened with that, the idea of being able to potentially incentivize and reward people for doing positive actions like exercise and walking and be able to collect that data and be able to use that potentially with an insurance company to lower their premiums is something that is actually a positive, a positive. But again, it's being kind of sucked into this whole world of, you know, kind of too

fast, you know, and now. And so we really need to, I think those types of things actually do have merit. But again, to your point, Scott, and what I said before, is that we really need to do a better job understanding who outside of our box. And again, for the last few years, we talked about TVL, we talked about yield, we talked about staking, it's all within the same box of, you know, the users that we've had for the last few years, we really need to do a better job of outside of that box. What do you need? What makes your life better? And then can Web3 infrastructure start to build for that?

And I think that's when you start to have real stickiness. I 100% agree because you can look back at the sort of internal bubbles in the crypto cycles, you know, DeFi summer and NFT summer and metaverse fall. It's a washing machine. It's the same, you know, call it 50, 100, 200,000 people moving from place to place to make money, but it's not a signal of adoption, right? I don't think there was massive DeFi adoption. It was a bunch of people yield farming, farming, I said yield farting, yield farming yams and tacos. Right. And then flipping NFTs. I think we have seen some real adoption there, but that really is the point. How do we get the new people here

and not just keep finding new ways for the people that are, you know, crypto native to flip their sort of coins to make money. Right. And I think, you know, what we talked about before is that UI, UX, UI, UX is you could start to see in again, you know, this we talked about before is that UI UX, UI UX is you could start to see in again, you know, this has been this has caught some fire, but something like a biometric where instead of having to necessarily rely on, you know, seed phrases, you know, something like a biometric could be meaningful. You know, as I said, 2FA has been in our lives now for the last few years, 2FA type of technology, we're kind of used to that and accustomed to it.

So how do you actually get from that earliest point of time, remove friction? And so one of the things that we've looked at, you know, from the venture perspective is how do you remove some of that friction? You know, for even as simple as off-ramping. Off-ramping, you know, digital assets has typically been about a 10-step process. And we've found teams that have been able to remove that to about a 10-step process. And we found teams that have been able to remove that to about a two-step process. That's much more in line with what we do on a day-to-day basis. So removing the friction points, making it more in line with what we do on a day-to-day basis, using our face scans or whatever it may be, so we don't have to necessarily be kind of

rudimentarily stuck within the complexities of the technology, rather abstract away the complexities of the technology, still have it in the background, but make it something that's much more consumer facing. David, you get the final thoughts. We got one or two minutes left. No, I have almost like no notes. But yeah, I would say that there's a lot of great points that I think David made. You know, like I agree. I think we often forget that the user experience in here really accommodates people who are already crypto native or people who are already involved in the ecosystem. So, you know, like it, I mean, it's not to say that it doesn't mean anything, but to say that like, oh, I'm moving my assets from an L1 to an L2. Like, well, it's easy for you to say, but the average person really can't do that very easily.

Not yet. I don't even know what it means. Right. So I think we still need to get that changed. And just the on-ramping, off-ramping, I think is also an important part to that as well. I do think we'll get there. And I think that we've been making progress towards that this entire time. I think that it's been happening. We recognize as an industry that it's required in order to get the next 1 billion users on here. But I think that probably just for the time being, we're still kind of licking our wounds from 2022. We're going to be dealing with repressions of that first before I think, you know, in the background, people are going to build, people are going to develop. I think that's what's going to be great.

But really to kind of change the mentality, we just kind of got to get through like the next couple of months. Well, if I'm looking to onboard the next billion people right now, I would take the next 150 people. I'll take anyone, guys. Come on in. And apparently next summer is going to be the summer of yield farting for anybody who missed this conversation.

That's the summary went from yield farming to my Freudian slip of yield farting. Thank you, Double Davids. Actually, that's David Young. That's your Twitter name, right?id young that's your uh twitter name right dd that's 3ds something like that it's great uh guys follow both of them of course john viev who was here earlier and i can't wait to have both of you back i think perhaps next time we'll do crypto outlook for the next 10 years as opposed to for 2023 because it'll probably be more accurate

and we can make much more reliable predictions on how this space will grow. Guys, thank you so much. Everyone else, I will be back, of course, tomorrow morning at 9.30 a.m. Eastern time. So until then, I will see you all. Thank you, Davids. Be good, everyone.

Let's go.