Discover more from Ansem’s Newsletter
Quarter I 2022
always keep a few gems in your pocket
2022 General Market Outlook
Hello! To my fellow degenerates and other readers who have somehow stumbled their way onto this page, I’m going to try to synthesize all of my thoughts for the first quarter and I guess partially the next year here. This is my second time writing something long-er form like this, so bear (haha) with me, hopefully it’s more coherent than the hundreds of loosely strewn together tweets that come from my account every day.
2021 was a clearly a breakthrough year for crypto assets, from institutional acceptance to retail adoption, crypto has far surpassed any other period in its’ history. Crypto assets have experienced strong two year bull run, propelled in part by the FED’s dovishness fueling market participants’ appetite for risk, in conjunction with the rapid innovation of web3 protocols. It has been astounding how prevalent crypto has been in society this cycle, outside of the typical news blerbs that shout “look at this token that’s up one thousand percent!”: Visa has bought a punk, Adidas bought a Bored Ape, many TradFi firms like Jump have acknowledged crypto’s longterm legitimacy, Crypto.com bought the Staples Center and FTX bought the Miami Heat’s American Airlines Area, crypto funds consistently raise billions it seems like every other week, Facebook changed its’ name to Meta, and stablecoin legislation is front and center in the minds of congress. Crypto has effectively fast-tracked its' way into the forefront of the public’s conscience and this time not in a negative way, and that isn’t going away any time soon.
Although it is a given that crypto markets will still experience parabolic boom & bust cycles because of this industry’s nascency, from my point of view I see many Fortune 500 companies attempting to position themselves to benefit from this new metaverse and there is no other way to do so genuinely without supporting these existing decentralized protocols. If this continues to be the case, it’s likely that crypto becomes much more tightly woven into traditional markets. As this develops, crypto assets should transition into a slower growth trajectory with various sectors outperforming at different times alike the stock market, which is a trend we have already seen starting to begin in the past couple years.
The inability to adapt to new narratives in crypto has been the most expensive lesson for retail investors, while those most willing to be on the forefront with trying new things have benefitted the most, whether that be directly by receiving a retroactive airdrop or by simply being in tune with where the market is headed allowing them to make more informed investment decisions. To highlight this constant shift in crypto’s market leaders, we can look at three separate iterations of DeFi protocols, originating in early 2019 with LINK and SNX’s strength. Chainlink and Synthetix are two protocols that were some of the first major innovations in DeFi. After going up 50x+ against Ethereum from the beginning of 2019 to their peaks, the SNX/ETH and Link/ETH charts topped during the first DeFi summer in August of 2020. They have been in a bear market against ETH for over a year now, with SNX/ETH being down -92% from the highs. After the first DeFi summer in 2020, there was second wave of DeFi that did well at the beginning of 2021, of which one of the most well-known tickers was Sushi. Sushi went up 40x from the lows of $0.50 in November of 2020 to ~$22-23 at its’ peak in February of this year, as an innovative fork of Uniswap. Accompanied by other “DeFi blue chips” at the time, Aave, Comp, and Uni, which similarly peaked against ETH around the same time, going mostly sideways on their USD pairs until crypto markets’ large selloff in May. Following the peak of “DeFi 1.0” in February and the consolidation in the summer, we have seen the emergence of a third wave of protocols, spearheaded by OHM, DPX, SPELL, TOKE, and others, most notably SPELL & OHM. These protocols also rapidly gained the market’s attention, both achieving 100xs+ from inception and multi-billion dollar market caps at their peaks. Currently these are both down significantly off their local highs, but it remains to be seen whether they will continue their downtrend against ETH for multiple months or if they will be able to sustain value better than their DeFi predecessors.
While all of this has been happening this year, we’ve also had the emergence of a thriving multi-chain ecosystem. Many of the alternative layer 1 blockchains have bootstrapped a ton of new users to DeFi in the past year, and the market has reflected that user growth directly in each project’s market cap. In the same period that SNX/ETH is down -92% , Solana is up ~10x against Ethereum since August 2020, 25x if you measure from its’ lows in January of 2021. So when market participants assume that we’re due for a multi-year bear market because alts have gone up too much, I think there needs to be some nuance applied to that analysis because some alts have already been in bear markets for many months now.
Going forward in 2022, we will see if the trend continues of certain sectors experiencing bearish cycles within a macro bull cycle for crypto, or if we will have another market wide -90% drawdown across the board like previous cycles. The difficulty for traders lies in determining what the current mispricings are in the market and how to take advantage of those, as well as finding which new trends are developing before the herd discovers them.
The five main trends I envision being important in 2022 are:
- Accelerated growth of talented developers joining web3 from web2 + increased usage of dev tooling & blockchain infrastructure/middleware
- Sustained prominence of the multi-chain DeFi trend, with existing alternative layer 1 ecosystems strengthening their newly formed communities, and layer 0 ecosystems like Cosmos & IBC finally becoming more cohesive
- Actual modular blockchain architectures get closer to mainnet, with specializations of the execution layer / data availability layer / settlement layer
- Emergence of many different successful play-to-earn economies that find creative ways to attract non-crypto users to the world of digital assets and financial sovereignty
- *Everyone* trying to join the Metaverse, from large tech companies, to well known celebrities, to clothing brands, in 2022 we will see a noticeable uptick in crypto partnerships and attempted land grabs on the web3 domain as user attention shifts that direction
FAANG Developers → Shadowy Super Coders
One of the most important aspects of crypto’s recent success is the sheer amount of intelligent mindshare that is now working in web3 and building new dApps for users. I believe that we’ll see a larger shift of talented devs leaving web2 tech companies for web3 companies as the industry has been much more legitimized this year. It is evident that builders can have an immediate impact in crypto if they work fast and fill market inefficiencies, and there is a lot of opportunity for innovation here. Especially with the growth of alternative platforms that use languages other than Solidity, like Golang and Rust for example, those are much more attractive to traditional devs who have never touched crypto before. Previously, there was honestly no incentive for talented engineers to pay any attention to crypto. In an industry where new grads can make six figures easily and senior devs 300k+, nobody cared about Ethereum when the flagship application was Crypto Kitties and a hundred different ERC-20 token ICOs with no real use case. Now, there is real value being transacted on these networks, and the $$$ incentives for developers to build within these new ecosystems is massive. You can feel the conversation shifting amongst the SV tech bros as people realize web3 is not going away.
Blockchain infrastructure is one of the most overlooked verticals in crypto at the moment because users don’t use any of these services directly, so they are not in the forefront of most people’s minds. Even though a ton of ETH users know what Metamask is, barely any users know that behind the scenes Infura helps power a large majority of all of the dApps running on Ethereum. Infura allows developers to build without having to focus on the devOps side of the tech, so instead of having to spin up their own Ethereum nodes to access the blockchain’s data they can use these provided services. Infura for ETH is comparable to AWS for most traditional developers. As we grow in this multi-chain world, there are many other services that are popping up to help service devs on other chains. This is the lane that I think is going to accelerate the most in 2022. What initially brought this to my attention, and is one of my favorite plays for the year is Pocket Network. The only reason I even knew about this team is because they helped solve part of Harmony’s RPC issues, which is the home to Defi Kingdoms. I had no idea what POKT was prior to this development, but their infrastructure improved my personal experience tenfold when previously the lack of RPCs for the Harmony network was a huge bottleneck for users. Pocket Network connects developers and node providers, similar to Infura, but their economic structure is much more focused on remaining as decentralized as possible, and incentivizing full node users by paying them as developers use this service. Some other interesting infrastructure plays that I’ll talk about later are Aleph.im, Aragon, Arweave, and Lido.
A new Multi-chain World: which Layer 1s will remain sticky and wtf is IBC?
I don’t believe that AVAX, LUNA, and Solana will be the EOS of 2018, in 2022. Comparing the altcoin space in 2017 to the altcoin space in 2021 lacks in-depth insight because there was very little that users could do on these blockchains four years ago. Today, it is possible for users to access many of the financial primitives that exist within the traditional financial system, by interfacing directly with other users within these decentralized applications. Back in 2017, me & many other market participants’ expectation of these blockchains was much, much lower. I don’t remember using any, literally not one at all, decentralized application on the other alt L1s at the time. My second month in crypto in 2017 I read NEO’s whitepaper & thought I had found the best thing since sliced bread, much to my dismay I discovered months later after alts had fell 90+% that I had not. There is a huge difference now in the actual usability of these systems, which is why I think this cycle is not comparable at all to previous ones.
So, which layer 1s will win? Although we have progressed a lot across the board, there are still going to be leaders which separate themselves from the rest. A lot of layer 1s that have established cultish-like communities in the past year, but we also had those in 2017, as evidenced by the *still* existing bagholders if you check any of the cashtags of old dinocoins on twitter. A fervent community of retail may create parabolic price action in the short term, but the teams behind these protocols building and innovating is what will establish the long-term support levels.
Solana was the first alt L1 that I found personally, initially because I saw the connection between Anatoly & SBF, which is when I started looking more into the project as both of them are very intelligent individuals and Solana at only ~300M just looked very mispriced. The innovations with their consensus protocol Proof-of-History and their incredibly efficient parallel runtime architecture called sealevel allow Solana to process transactions much faster than other chains. Its’ user experience compared is second to none, even though it isn’t even EVM-compatible yet (Neon Labs wen?). SBF being an advisor to Solana is a super strong benefit on the community building and business development side, as the connections to tradFi through his previous connections and new retail through presence in the media, marketing, and FTX platform cannot be overstated. Pyth Network, an oracle providing data for dApps on Solana, has an extremely long list of prominent partners that have come from traditional finance so you can see the benefits of that influence occurring in realtime. A lot of the critique on SOL this year has been its’ connection to VCs & billionaires, but I don’t see that as a negative, if anything its’ a positive of what people are very openly endorsing and putting their money behind.
Avalanche is the strongest EVM chain by far in my opinion and has delivered one of the best user experiences out of all of the other layer 1s this year. The dev team is very strong with an extensive history of research in the blockchain space and it shows in the product that they’ve delivered to users. Its’ core innovation is its’ Snowman consensus algorithm, which allows its’ validators to use sub-sampled voting measures to come to consensus much quicker when observing transactions. Although its’ EVM implementation has been the main focus this year, that only describes Avalanche’s c-chain, while the possible future implementations of subnets with different VMs is what makes it stand out from other layer 1s to me. In the future, it will be possible to have various app-specific blockchains deployed within their own Avalanche subnet, each with over 4k tps and sub-second finality. Alike Solana, AVAX also has a very strong team on the business development side, which we’ve seen is vitally important for user adoption.
Terra Luna is a blockchain built with Tendermint and the Cosmos SDK that focuses primarily on its’ decentralized stablecoin TerraUSD [$UST], while also developing a strong ecosystem of dApps that will be connected to the other Cosmos chains through IBC. Luna has the best tokenomics of any L1 as it is the only chain with a built-in decentralized stablecoin. UST is designed such that as the demand for UST increases, there are mechanisms in place where LUNA is burned to match this demand and maintain UST’s peg to $1. The current market cap of other stablecoins USDT, $80B, and USDC, $40B, have been growing consistently over the past few years and the growth of stablecoins as more ppl enter crypto is arguably one of the easiest bets that you can make. The market cap of UST is only $10B and it is already developing many strong cross-chain partnerships: all of the Cosmos IBC chains, NEAR Protocol, Solana, and Harmony Protocol to name a few. Terra Luna is the only play in the crypto space where you can directly bet on the growth of stablecoins and the growth of layer 1 smart contract ecosystems at the same time. For this reason, LUNA is my favorite out of all of the largest layer 1s going into 2022 and I’m betting that their ecosystem growth, stablecoin growth, and also the growth of IBC in general will propel them above other competitors.
The Cosmos ecosystem may be the most misunderstood in the entire crypto space. Evidenced by the fact that the average market participant is unaware when they are even using a chain built with the Cosmos SDK and nobody really knows what IBC does. IBC stands for Inter Blockchain Communication protocol and it allows different blockchains to talk to one another. There has been a lot of discussion recently around Ethereum and modularity, but the Cosmos ecosystem was designed from the very beginning with the core ideas of decentralization and modularity in mind. The Keplr wallet is still very much under the radar as there hasn’t been much to do with Cosmos DeFi, but now that Cosmos chains are connected via IBC & with the deployment of the Gravity bridge to connect ETH to IBC around the corner, they should see a significant increase in usage over the next 12 months. In H1 of this year, Umee, Shade Protocol, and Astroport should be the first major test runs and it’ll be interesting to see how Cosmos DeFi compares to what users have experienced on other EVM chains and Solana.
Modular Blockchains and ETH 2.0
Modular blockchain design describes a system architecture that separates the different parts of the typical monolithic blockchain, by creating specialized chains for each different layer: execution, data availability & consensus, and settlement. Currently, the layer 1 blockchains do all of this on their own, which is why we’ve seen some of them hit bottlenecks with fees as more users join their networks. If we’re going to scale crypto to the global population, it seems like modularity is the eventual end state in this reality, if for no other reason than all of these systems will have to be optimized in the most efficient way possible.
For a large portion of 2021, Ethereum was unusable for users with small wallets because of how high the fees were to engage with DeFi protocols on the base layer. The market reflected this sentiment with the returns of the various other layer 1 smart contract platforms that arose and solved this issue for users. Ethereum’s roadmap towards a modular blockchain stack, utilizing ETH as the settlement and data availability layer and other layer 2 scaling solutions like zkRollups and optimistic rollups to handle the majority of the transactions, will be implemented in full this year. Once this transition is complete, users will be able to use layer 2 solutions for the network while still benefitting from the security of Ethereum’s base layer.
My favorite project focusing on building a piece of this modular blockchain architecture is Celestia. They are building a blockchain dedicated to being the most efficient and decentralized data-availability layer and will be able to connect to other execution and settlement layers to complete the full modular stack. Since Celestia is only focused on data availability and ordering transactions, their methods for block verification can be simplified with data availability proofs. Essentially, each node in the network is required to sample a small piece of each block to confirm its’ validity and through this collective sampling the network comes to consensus. Because of this, as more nodes are added to the network, it actually increases the throughput of the entire system so the network benefits from being as decentralized as possible.
Play-to-Earn, The Gamification of Digital Assets
Axie Infinity achieved something that no other crypto asset had done before in 2021 by creating an in-game ecosystem that millions of users interact with every day. As the first play-to-earn game to bootstrap a large audience that barely interacts with crypto in any other way, they’ve shown how powerful these economies can be when executed properly at scale. Many people in the Phillipines were able to make more from playing Axie Infinity than they were from their actual jobs, demonstrating the possibilities of profitable economies that prioritize their users. The difficulty of this trend moving forward is going to be how to maintain these economies so that they are sustainable in the long term, and how to continuously attract new users.
NFT mania was wild in 2021, with people paying millions of dollars for Crypto Punks, Bored Apes, even digital EtherRocks. We’ve seen huge sales of NFTs whether it was because they were the first on-chain or just the most popular at the time. There was a period during the summer when every new 10k profile-pic project was selling out and reselling immediately for excessive multiples of the mint price on opensea, even with ETH’s high fees. Although we saw a lot of interest grow around NFTs in 2021, the next iteration will be digital assets that provide utility to users. We have not even scratched the surface of the possibilities that you can accomplish integrating NFTs directly into blockchain games and other DeFi primitives. As the space matures and more money continues to enter I think we are going to see a lot of strong teams emerge in 2022 that will deliver products to users that not only look good, but also deliver value to users in many different ways.
One of the main attractions of web3 vs. web2 is that the user is no longer the product being sold, but a network participant being rewarded for their active contributions. The project I’m most bullish on for 2022 is Defi Kingdoms, which sits at the center of three major developing trends in crypto of the past few years: DeFi + NFTs + multi-chain collaboration. DFK is positioned well to be the first *fun* play-to-earn game to capture mindshare across multiple chains, already competing with Axie Infinity for in-game volumes with a tiny fraction of Axie’s userbase while only on the Harmony blockchain. The two main features of DFK are its’ decentralized exchange where you can trade various crypto assets, and their hero NFTs that you can use to summon other heroes, do quests, and eventually compete against other players in PVP. Their in-game economy and hero NFTs benefit users more than any other ecosystem that I’ve seen so far. Regarding their dex, users who stake the governance token Jewel in the bank receive 30% of all transaction fees. For those providing liquidity, they are rewarded with the majority of the initial token distribution, partially locked, instead of early deals to VCs and others in seed rounds like most projects. Even with the in-game ecosystem of heroes, the majority of the costs associated with summoning new heroes are re-introduced back into the system. 30% of all summoning costs are provided later to players as questing rewards and 10% of all summoning costs are paid out to to xJewel stakers in the bank. As the project moves multi-chain to Avalanche and others in the future, there will be airdrops provided to those actively playing the game currently on Harmony. Even considering the future roadmap milestones, certain land purchases and other upgrades in-game will only be available to those who have actively been questing and leveling up their heroes. A lot of the issues with current existing DeFi projects is that holding the token doesn’t really benefit users, by inserting these tokens into well-designed functioning in-game economies players are incentivized and rewarded for being active participants.
Metaverse Mania: Modern Marketing in Web3 with NFTs
The FOMO, or fear-of-missing-out, is palpable right now amongst many of the companies in the traditional finance world and other industries. In 2019, if you would’ve told me that Tom Brady would be the lead in a crypto ad for one of the top exchanges and Visa would be buying NFTs on Ethereum I would’ve looked at you like you had lost your mind. High NW individuals, traditional VCs, gaming companies, sports companies, etc. etc., ALL of them are head over heels trying to get up to speed on web3 and determining what role they can play in this new world. NFTs provide a really easy way for these companies to connect with this younger target market and I think we will see a lot more smart marketing tools using them this year.
Quarter I, 2022
Core position focus is comprised of a combination of layer 1s, layer 2 scaling solutions, blockchain middleware infrastructure, and DeFi + metaverse plays. Largest positions in Q1 will be Jewel LP positions, Near ecosystem, and Cosmos ecosystem. Near ecosystem is positioned to do well with a 800M ecosystem fund, strong development team, and also bullish technical chart breaking out to new highs from a 100 day+ consolidation. The Cosmos ecosystem has a lot of development milestones to hit in Q1, including Interchain Security, Liquid Staking, Interchain Accounts, Evmos [“EVM-on-Cosmos”], and the emergence of a cohesive Cosmos Defi ecosystem. Interchain security should address the issues with value accrual to Atom for token holders, while the other developments will greatly improve the user experience within the ecosystem. Blockchain infrastructure and middleware is one of the least talked about sectors because users don’t interface with them directly, but it is one of the most important verticals in crypto. Pocket Network, LIDO, Arweave, and Aleph.im all fill critical roles in the space. Treeverse and Defi Kingdoms are my favorite NFT/GameFi projects. Treeverse is a mobile-first MMORPG that is building an interactive world in the metaverse. You will be able to use your Treeverse founders plots alongside your Timeless NFT characters to complete quests, buy equipment, build land, while earning their in-game currency $SEED. Defi Kingdoms is a functioning decentralized exchange that is also a multi-chain play-to-earn game where users can collaborate together to form guilds with their DFK Heroes that they can use to quest, level up, summon other heroes, and in the future compete against other players in PVP.
If I’m wrong about 2022 being bullish, the best way to hedge against this would be looking for shorts on BTC & ETH in their current ranges near resistance protecting against the case that short term bear trend continues and they breakdown. Since I’m expecting higher beta plays to outperform them if we breakout to the upside, any ALT/BTC ALT/ETH pair trades should still do well & would be able to close shorts on confirmation of market-wide strength.
Layer 1s / Layer 2s
NEAR is a sharded proof of stake layer 1 blockchain that is both developer and user-focused with a very strong tech team, and nearly no hype on the media side… yet. What I’ve quickly realized this year is that while I was out partying and not paying any attention to crypto during the bear market of 2018, there were actually a lot of really, really smart people building the technologies that exist today. If you’re anything like me and you found crypto in 2017, then you likely also forgot about crypto when prices went down ~90%, and now here you are trying to get caught up to speed again. So if that’s you then welcome back!
Anyways, the biggest difference between NEAR and other chains is their focus on usability, not only for users but also for developers. A large hindrance with onboarding new people to crypto right now is the differences in the user experience: asking people to learn about blockchain tech, managing their private keys, avoiding scams, and navigating to the right websites is a lot to ask the typical non-technically savvy user, which we have seen with the prevalence of BAYC users who keep getting their apes stolen. To do this for the end user, NEAR allows developers to abstract away the confusing parts of interacting with many blockchain dApps by setting up NEAR accounts that: onboard users without them having to choose a wallet each time, enable easy subscriptions for users to manage each app’s permissions, hide costs of infrastructure by allowing devs to pay for usage fees on behalf of users, and provide predictable pricing for transactions. To provide ease of user for new developers: NEAR nodes run WASM which can be compiled from popular languages like RUST, and they provide extensive tooling that makes it easy for developers including one-click deploys, integrated unit testing, and easy front-end integrations + debugging.
Aurora Engine is a high performance EVM built on the NEAR protocol blockchain. The fees on Aurora are abstracted away from the users and it is easily accessible through the Aurora Bridge and other bridges like Allbridge. Most of the activity on NEAR is on Aurora for now, but I expect that to change with projects that launch following NEAR’s $800M ecosystem fund.
The Octopus Network is a multi-chain network designed to create an interoperable ecosystem of specialized appchains, which utilize the Octopus Network for security. Octo does not have its’ own blockchain, rather it is a set of smart contracts that live within the Octopus Relay on the NEAR blockchain, combined with a set of validator nodes that appchains will pay for security of their application. Its’ structure is similar to that of Polkadot, but it is much less expensive for appchains to bootstrap their networks on Octo than it is for parachains on Polkadot. The plan for each of these appchains is for them to be built with the Substrate framework and a specialized front-end for their application. These appchains will also be IBC-compatible once the implementation of the Substrate-IBC Pallet is complete, as well as being able to communicate with other NEAR tokens as the Octo bridge will deploy a NEP141 wrapper contract for each appchain token.
This project is interesting because it fills a specialized niche that I don’t see others executing well yet. If the Octo Network is able to effectively bootstrap many appchains, the $OCT token will benefit greatly from all of these chains needing the shared security of the Octo validator set. Because their ecosystem is designed to function alongside IBC chains, I see a lot of upside here for cohesive multi-chain collaboration. Terra and NEAR have already announced a major partnership, as UST will be integrated within all NEAR & Aurora ecosystems, so it is unsurprising that this relationship will continue to grow in the future.
Metaverse / DeFi
Defi Kingdoms [Jewel]
Defi Kingdoms is a decentralized exchange, NFT marketplace, and immersive play-to-earn gaming ecosystem. At its’ base layer it is a dex living on the Harmony ONE blockchain, that allows users to trade between various crypto assets. Jewel is the governance token of DFK and users can stake Jewel in the DFK bank to earn 30% of all trading fees on the platform. In addition to the ability to stake Jewel in the bank, users can provide liquidity between different pairs of crypto assets in the Gardens at various APRs currently between 400-600%. These APRs are so high because Defi Kingdom’s intent is to incentivize early contributors for bootstrapping the ecosystem. DFK was a fair community launch without any VC-funding and delivering value to players of the game is a key focus of the team’s long term vision. The LP rewards are designed such that there are unlocked rewards and locked rewards paid out in Jewel. The unlocked rewards are received immediately, while the rest of the rewards are locked until July 2022 and will be unlocked linearly afterwards until July 2023. The % of unlocked rewards increases with each epoch, and it is currently sitting at a 30% unlocked / 70% locked split.
LP Positions: Jewel-Matic, Jewel-Avax, Jewel-Luna
Polygon [Matic] is one of the leading research teams building various zkRollup solutions for ETH 2.0, while also maintaining their own proof-of-stake layer 1 chain. Monthly chart should close at all time highs after breaking out above its’ previous yearly highs in May, has been consolidating for most of the second half of the year while other L1s were in the spotlight.
Avax and Luna for reasons discussed above, if Solana had an active LP pair would probably add that one as well
DFK has taken up most of my time in Q4, it reminds me of when I used to play WoW as a kid, but instead its’ a dApp on the blockchain. I could write a really long article describing all of the nuances of the game and strategies involved, so I’ll probably do that somewhere else where I have more room to write in detail. The core feature of DFK are the heroes, which can be used to quest & level up, summon other heroes, and eventually compete against other players in game in PVP. The ceiling for this project is extremely high, considering the possibilities if the longterm roadmap is completely across multiple different blockchains. In 2022 I’m expecting a lot of different guilds to emerge in Defi Kingdoms, as players compete with each other for who will have the strongest team and kingdom in crypto. Making it to the citadel is a common catchphrase around CT, but Defi Kingdoms will enable you to team up with other players and build your own.
Pocket Network is vitally important Web3 infrastructure that operates as a decentralized relay network for blockchain API requests. Their economic structure is setup to incentivize full node operators by paying them when developers need to use the network to access data for their applications. Many developers need access to high quality read/writes directly from blockchains, but don’t always have access to RPCs specialized for their applications. Pocket describes itself as an “Uber for servers” because you technically don’t know what *server* you will connect to when you query their network but they handle all of the service requests via their blockchain to provide users what they need. As more developers use the Pocket Network, node operators make more money from participating in the network, which in turn incentivizes more node operators to join the network.
Pocket Network’s economic system is very clever and it is designed in a way that reduces costs substantially for developers using the network. There are three main functions: staking, minting, and burning POKT. On the application side, you have the ability to put your POKT in escrow while you are using the protocol. For developers, instead of paying fees to a company for some infrastructure-as-a-service, with Pocket Network they can stake POKT up front for access to the network and then use the network until they remove that escrow. Because Pocket Network is not a centralized company that needs to charge fees to cover margin or pay for cloud hosting services, all of this overhead is removed and it is much cheaper for developers. Regarding nodes within the Pocket Network that service developer’s requests, they stake POKT for the right to do work within the network and they will earn a certain amount of POKT for each request that they serve from the application side.
I’ve been speculating on ways to capitalize on external non-crypto dev talent joining crypto and this seems like one of the best ways to do that. To me, POKT is one of the most efficient ways to bet on the growth of the builders, users, and speculators within the crypto space. As the community of web3 developers increases, there will be many more web3 applications that need this access to blockchain data, and in turn many more individuals using these applications.
Arweave is a decentralized network focused on permanent data storage, many NFT projects use Arweave as their backend for storing data, as well as many blockchains who use Arweave for storage of transaction data. Instead of using AWS to store data, teams can utilize Arweave for storing all of the data for their applications. Instead of attempting to bet on which 10k pfp NFT project will succeed each week, making a bet on the infrastructure that many applications will need to use is a much easier bet to make. Arweave’s blockweave architecture and SPoRA consensus mechanism make it much more scalable than other storage solutions like Filecoin, & one of my favorite pair trades for next year is AR/FIL.
From technical perspective has been consolidating over previous all time highs from May for the past three months, assuming this is re-accumulation before expansion upwards that should happen relatively soon.
Lido is a multi-chain liquid staking solution. It allows individuals to stake their tokens through the Lido platform and receive tokens representing that collateral, that can then be used throughout other DeFi ecosystems. Lido is positioned really well as it doesn’t have a lot of competition in this lane, and it has been able to deploy on multiple blockchains incredibly quickly. In a world where users are active on various blockchains, the ability to have full access to your capital cannot be overstated. Looking at the technical chart, Lido is close to its’ all time lows, testing a major support level. Even though they’ve been shipping code extremely quickly they haven’t received a lot of attention from most of the crypto space, which I think will change as more people start using their services.
Aleph.im is a decentralized distributed cloud platform that offers compute services, file storage, and database hosting. One of the primary use cases for Aleph.im is its’ indexing solution for the Solana blockchain, and it has flown under the radar while building some really strong partnerships. They have partnered with gaming company Ubisoft, to be the storage solution for their first dynamic NFTs in their game Tom Clancy’s Ghost Recon Breakpoint. This is one of many collaborations that I think we’ll see in 2022 from AAA gaming companies and crypto builders. Another one of their big partnerships is with the Neon Labs team, which is focused on bringing the EVM to Solana. Neon Labs will use Aleph.im as their indexing solution, to get information on all of the transactions between Ethereum and Solana.
ATOM is the native token of the Cosmos Hub, which connects all of the other blockchains built with the Cosmos SDK through the inter-blockchain communication protocol. One of the main gripes with ATOM is the tokenomics because the focus has largely been on developing Tendermint and the Cosmos SDK for teams to build out their own specialized ecosystems as Cosmos zones. Now, the focus is on connecting all of these ecosystems together and tying that collective value back to the Cosmos Hub. With Interchain Staking, ATOM stakers will not only provide security for the hub, but will also provide security for smaller blockchains connected through IBC; which means that instead of just being paid out in ATOM, stakers will also receive rewards in each of the respective native tokens of each chain.
LUNA was one of the strongest alts in 2021, as it experienced impressive growth of its’ core use case: the decentralized stablecoin UST. Terra Luna’s primary offering to users has been its’ flagship 20% APR savings protocol Anchor. Now, LUNA is focusing on building out more of its’ Defi ecosystem and connecting to the rest of the Cosmos chains through IBC. The launch of Astroport, Mars Protocol, Levana Protocol, and others will bring even more attention to an already thriving community. The growth of UST should accelerate in 2022, as Terra Luna positions itself squarely in the center of a developing multi-chain world.
Secret Network is a layer 1 blockchain that focuses on programmable privacy. It was the top performer in Q4 and is still relatively low market cap compared to other more popular chains. The SCRT ecosystem should grow a lot in 2022, beginning with the launch of Shade Protocol as a DeFi hub and also its’ Stash Network as a NFT marketplace. The major attraction of privacy for users is huge for DeFi, where currently all of your financial history is completely visible on the blockchain. One of the major downsides existing now in web3 vs. web2 is this lack of privacy for users, it is commonplace for traders to track the wallets of large funds and other traders, and blockchain analysts will only get better over time.
Aragon focuses on providing groups with all of the necessary tools and infrastructure to build their own DAOs. DAOs have become more common as of late as crypto-native individuals are finding more official ways to collaborate on their ideas, as well as organizations choosing to structure this way instead of as a business in traditional markets.
There are a lot of other smaller market cap coins in the Cosmos ecosystem that fill their own niche really well. Most of them have been building while the focus has been elsewhere in the crypto space, but a lot of these are at best r/r entry points here as attention shifts back towards IBC. Most of them are easy to find if you look.
Treeverse is building an interactive MMORPG with built in NFTs that will be usable in-game. They are focusing on android development first, following up with iOS and later PC/Mac. This team is led by @Loopify and has raised at a $25M seed round led by Animoca Brands. ROOT will be the game’s governance token while SEED will be the tokens that you earn by playing the game. The art & animations that the team has released so far have been really well done, and I’m looking forward to tracking development as they get closer to launch.
The Strange Clan game will be the first metaverse to exist within the Cosmos ecosystem. It is a 3D world built by the Passage3D team utilizing the Unreal Engine and Akash’s decentralized cloud computing network on the backend. Characters in game will be able to complete quests, buy and sell equipment and land within the game’s NFT marketplace, discover creature mounts for their characters and also participate in the Passage guild.
Aurory is a play-to-earn game being built on the Solana blockchain. They’ve already completed their intial token sale and the launch of their first set of NFTs that you will be able to use in-game. Currently you can stake the $AURY token for ~33% APR, or ~75% APR if you lockup your tokens until June. A lot of these games that have launched their NFTs prior to the game launch are in a weird state of limbo at the moment as attention fades when there isn’t much for users to do, so it will be interesting to see how price action develops as milestones are hit closer to launch.
Thoughts on other majors
Solana has two major catalysts upcoming in Q1: Phantom’s mobile wallet and Neon Labs EVM-compatible implementation. Both of these should be huge for attracting new users and also developers into the SOL ecosystem. In the short term I think there are better plays from a R/R perspective as Solana’s market cap is the largest out of the other L1s other than BNB, but I still think the current range is re-accumulation before more upside and not distribution. Sentiment on Solana DeFi coins is at peak lows, think next year we see an increase in developers joining the Solana ecosystem and a lot of the top applications outperform Solana in returns. There are a lot of projects from the most recent hackathon that would be great ones to look into. Hopefully I’ll be able to roll profits from my other trades back into Solana as these catalysts come to fruition later in the quarter.
Avalanche’s main catalyst this quarter for me is the launch of the DeFi Kingdoms Crystalvale realm. AVAX has outperformed nearly every other chain in the second half of the year in terms of onboarding users, and this in combination with a game like DFK should be a great collaboration. The AVAX/Crystal pool after the single-staking Jewel pools will likely be my largest position in Q2. I am unsure of the timeline on the rollout of projects using their subnet architecture, but that is another fundamental catalyst that should separate them from other chains.
Boomercoin, aka Bitcoin
Bitcoin is in a really weird place where it is the riskiest, but now considered safe enough, asset for traditional finance allocators, but at the same time is the least risky investment for crypto natives. I’ve said before I consider Bitcoin dominance a metric of risk-on / risk-off in crypto markets and I still think that’s the most accurate way to think about it. As crypto matures there will be many competing smart contract platforms that grow to a larger piece of the entire total crypto market cap, but none of them will ever compete with Bitcoin as fulfilling the singular role of being hard money. So, when the altcoin market is expanding as it does during bull markets, btc.d is typically trending down, but as froth reaches peaks and markets pull back, btc.d is typically trending up because Bitcoin will almost always fall less than alts which are usually up insane multiples in very short amounts of time.
In Q4, BTC made two pushes towards new highs in October and early November and failed to breakout each time. One of the things I’ve noticed is that all of the BTC ATH breakouts this year have aligned with the local lows on the ETHBTC chart. I don’t think that’s a coincidence. It’s apparent to me that there’s a shift in how these smart contract platforms are viewed by investors external to crypto and also by crypto natives. The emergence of DeFi and NFTs have been the main focus of the crypto space in the past couple years, while BTC maintains its’ role as hard money, investors non-crypto and crypto-native want a piece of this rapidly growing ecosystem. Although there are a lot of very outspoken Bitcoin maxis who speak ill of all other alts in the crypto space, I think there is a quickly growing, albeit much quieter, group of old crypto-natives who have a lot of Bitcoin and very little exposure to other crypto assets. As traditional finance asset allocators are warming up to Bitcoin as an investment, many Bitcoiners are warming up to altcoins as they start to move down the risk curve. This is a great balance to have if you’re a trader like me because as long as there is a steady inflow of capital to the crypto markets, it makes it much easier to capitalize on the opportunity of alts without having to worry about BTC.
Bitcoin still holds value for me as a long term investment and in my opinion it’s prudent to keep a BTC stack for many years in the future, as I don’t think there are any other better forms on money for storing value longterm, but as far as trading during bull markets I think it serves a better purpose for hedging downside. I’m expecting BTC to range in the 42k-53k area for awhile, possibly testing that weekly breakdown area of 58-61k before continuing to consolidate further. My most bearish scenario would be a breakdown of the 42k-53k range and an eventual test of the lows of 2021 around 27k, but I think that’s the hard floor that’s been set. The most likely scenario for me regarding Bitcoin is ranging in this area before pushing to new highs later in the quarter.
By mid-year ETH should have all of the necessary scaling infrastructure in place to effectively achieve its’ vision of a functioning modular blockchain stack. If there are no further delays with the merge, Ethereum will be switching over to proof of stake from Proof of Work in late spring-summer, while the zkRollup solutions like zk-sync 2.0, Polygon Hermez, Polygon Miden, Starknet, and others should be fully built out in production. Currently only a few zkRollup implementations exist like dYdX and Immutable X, but none of the existing solutions utilize the EVM like the ones in the future will. zkRollups will allow Ethereum users to experience low fees because of the rollups novel usage of zero knowledge proofs, that allows transactions to be performed off-chain and batched into one proof that the base layer can use to acknowledge the validity of those transactions. I’ve tried one of the zkr dexes, ZigZag, and it is incredibly fast and easy to use. I expect the UX of those applications to be just as great as the dApps on other L1s. It will be interesting to see if users of alternative layer 1 blockchains will decide to use these rollups versus the chains they have become accustomed to. To me it seems unlikely that ETH’s scaling solutions take this market share away from the L1s who onboarded non-crypto users directly to DeFi without any friction, unless the user experience is vastly better on these rollups than it is on the other layer 1 blockchains. If we use Arbitrum as an example, which has essentially the same speed and slightly higher fees atm than other L1s, then we can see that the growth there is minimal in comparison.
So, why don’t users care? Or more accurately, why haven’t they cared thus far? I think there are two main reasons. The first is, the main source of ETH’s TVL is crypto-native ETH rich users who aren’t really bothered by ETH’s high fees. If their 8-figure stablecoin farms operate without interruption and they feel their funds are safe on mainnet, they aren’t necessarily concerned with paying higher gas fees to ensure that security. They have absolutely no issue with waiting for the complete transition to proof of stake, and will have their 32 ETH at the ready to run their nodes. So even though Arbitrum provides much lower fees, there isn’t much for that group of users to gain from bridging over and then using the same applications that exist on the base layer. They aren’t looking for the next 100x because Ethereum *was* their 100x. Unlike MoonboiApeUser123 who joined in August of 2021, these older ETH users are not chasing the next ohm fork, new algo stables, or any of the other creative pvp DeFi games.
Now, the second reason highlights the composition of the other focus group of users, which is mostly new retail who are new in crypto and chasing the next 100x. This group loves every new ponzi-esque launch, will ape new stealth launches with reckless abandon, and foam at the mouth when they see these massive ecosystem incentive funds boosting liquidity mining for new users. The reality is that for this group, they are looking for the shiniest new thing and what they think can make them the most money in the shortest amount of time, and usually this is not what they see in Ethereum. Currently, Solana and Avax are like the cool uncles at the cookout who’ll give you money to go to the movies with your friends after, while Ethereum is the grouchy uncle who goes on tangents about how kids never respect their elders anymore, and will likely tell on you to your parents if they catch you drinking with your friends in the park while you’re eating your hot dogs.
Ethereum’s claim to fame is the security and decentralization of the network, which although very important for crypto networks in the medium-long term, it isn’t a selling point for onboarding new users. Maintaining the security of the network should be a major focus for developers and builders, but not something that users will care about on the front-end as long as their experience is unaffected. From my point of view, all of these networks will trend towards being more decentralized over time as long as the developers have that core focus in their longterm roadmap and a lot of these alt L1s have had user activity for less than a year. Web3’s current target market is not the 60+ year olds who have their retirement funds with Fidelity and their savings with Wells Fargo and Chase, the group of people that will bootstrap these systems is the younger generation who don’t have any allegiance to those banks and are much more interested in trying out these new things. If your selling point is just “a decentralized and secure network where you can interface with DeFi applications and earn 5% a year instead of .01% a year” you might convince some of the non-crypto boomers if you have an integrated application that does all of this behind the scenes for them, but you aren’t going to attract a large portion of this new crowd of active investors because that is now the default for each of these smart contract platforms.
In the short term, I don’t think ETH is a great trade for a few reasons.
Its’ market cap is much larger than other monolithic L1s, with a worse user experience than all of the other monolithic L1s.
If L2s are going to compete with L1s, they are going to need a seamless onboarding experience and be just as enticing to new users as other ecosystems, so the L2s that perform the best will likely have tokens and be accessible directly from centralized exchanges. Unless you assume these tokens will be completely worthless, holding the tokens of these networks should be a much better trade than just holding spot ETH.
ETH is not optimized for modular architecture, while there are other chains further ahead in development with just as competent dev teams and similar system architectures, and there are other teams focusing on the parts of the modular architecture that ETH is pivoting to from the ground up. NEAR is a sharded PoS blockchain with EVM compatibility through Aurora, and soon the possibility of connecting multiple appchains with its’ Octopus Network. The design of ETH 2.0 is similar, but much harder to accomplish quickly because of its’ existing design and the massive amount of value that lives on the network. The merge has been pushed back many times because it has to be done extremely well due to all of the existing $$$ that lives on Ethereum, other L1s have the benefit of building with none of these hindrances. In present day, ETH is a monolithic blockchain but is pivoting to a settlement and data availability layer w/ rollups as the execution layer. There are other teams like Celestia, which are only focused on being a data availability layer, but similarly to NEAR since they are being built from the ground up they can focus purely on doing one thing really well.
Once ETH transitions from being a settlement layer, execution layer, and data availability layer, to just a settlement layer, some of the value of Ethereum’s market share will be taken by other parts of the ecosystem. With zksync 2.0, users will have the option of using zkRollups with on-chain data availability or the option of using zkPorter with data stored off-chain. zkPorter will be much more efficient and cheaper for transactions but it will require the zkPorter accounts to be secured by Guardians, which refers to zkSync token holders. These are what will be used to keep track of the zkPorter state and the data availability of these accounts. Because the ETH roadmap is rollup-focused, the plan is for the majority of common daily transactions to be performed off-chain. If zkPorter and other design patterns like it are going to be successful, then they will need users staking their tokens to maintain the security of these additional systems. I expect the market to find a balance between valuing the settlement layer and the other layers of this new modular architecture, and I definitely believe that once fully deployed on mainnet the entire modular system will benefit greatly. In the beginning though, I expect more value to go to these implementations of the other layers because they will be starting from zero.
The future of decentralized finance will not exist on one blockchain. I don’t think we’ve seen the end state for any of these smart contract platforms. In a space that is rapidly innovating and iterating on new ideas, it seems much more likely to me that we have a multi-chain ecosystem of networks all functioning at the same time rather than one solution working well while all of the other ones fail. Decentralization not only applies to the system design implementations to maintain the security of a network, but also to the diversification of ideas, users, and developers in the crypto space.
Other plays I think are worth looking at but didn’t write about:
Curve Wars: CVX / CRV / YFI / BTRFLY
Spell & MIM + Sushi
GMX / dYdX / PERP / MNGO / Drift Protocol
DPX / RBN / PsyOptions
Ninja on Sol
If you’re active in crypto you likely know all of these tickers already, but if you’re relatively new I think these are good additional things to research
At the end of my last write-up for Q4, I posted a couple of questions that I’d been thinking through for the next few years:
“What is going to be the killer app of the 2020s? For the 2010s it was Amazon, for early 2000s it was Facebook, what does this look like in the metaverse space & how do you onboard millions of non-crypto users?”
I am still actively thinking about this question, but I believe the answer may be developing in front of us currently. There has only been one dApp that was able to onboard millions of daily users, and that was Axie Infinity. Although still in very early stages, DFK is the *first* decentralized application I’ve seen that has began to connect DeFi with gaming in a way that is fun for users. Uniswap was a revolutionary development, but it isn’t fun just clicking add ETH/USD LP and then doing math to calculate your impermanent loss against your estimated earned trading fees. I don’t know many regular dex users who participate in governance on these platforms, or really use their tokens at all for anything other than speculation. The gamification of these DeFi primitives + accessible mobile access is the next step that could really unlock a large portion of the target market for DeFi because users are excited to participate in the ecosystem, rather than just pure speculation. In addition, since users are actively participating in the ecosystem, the tokens of these games if designed properly have much more utility than the typical governance token.
“What market segment isn’t being discussed now that will be more popular over the next few months / next year?”
In an attempt to answer this, I think the least discussed market segment and one of the most important ones right now is the underlying infrastructure that powers these decentralized applications. It is a tall order to expect non-crypto users and developers to join our new world without providing them with the proper tools to interact seamlessly. If we want fully decentralized networks, then we need to make it very easy and accessible for users to participate without them needing the knowledge of a senior devops engineer or a cypherphunk who has lived and breathed cryptography every day of the past decade. Also, if we want to bring more developers into the space, then it is vitally important to have the necessary tooling and documentation for all of these systems to make new applications easily deployable, as well as vibrant communities that are ready and willing to help and answer questions.
Looking back on 2021, some of the things I could’ve done better that hopefully I can improve upon this year
overtrading choppy market conditions
selling spot bags too early and not sticking to longer term plans
initial hesitation on being more aggressive when my ideas are unpopular
not being setup on each chain early in the year, knowing which wallets to use / bridges to use is exceedingly helpful
inconsistency with journaling, have been much more accurate and clear-headed when I write everything down
Favorite Pair Trades
long Avax / short Ada
long Jewel / short Axie
long Atom / short Dot
Some bold predictions for the year:
Keplr onboards more users than Metamask
DeFi Kingdoms in the top 10 by market cap
Phantom 20M+ users by 2023
SOL-DeFi outperforms Solana by a wide margin
DAOs comprised of crypto native traders become much more commonplace
At least one play-to-earn guild in the top 25
More ppl using crypto mobile applications than chrome plugins by end of year
SoLunAvax flips Ethereum and stays there
Atom $100B+ market cap
DeFi options gain a lot of traction
Significant stablecoin legislation is passed, allowing banks to hold them on their balance sheet
One of the top tech companies starts using an AVAX subnet as a devnet for blockchain development
My main question for 2022 and the years forward that I tweeted the other day is focused on the modular blockchain architecture & value accrual:
In a modular blockchain stack, which layer should accrue the most value, or should it be about equal between all layers?
I honestly don’t have an answer for this question, but as scaling efforts ramp up over the next few years I think this’ll be one of the most important things to think through for traders and how to position for it accordingly. Initially, my thought process is that the teams that focus on building really efficient and specialized chains focused on one part of this modular stack will do well, which is why I like zkSync & Celestia a lot as plays later this year.