William Mougayar

On Tech, Business, Society.

What Type of Investors Does Crypto Need?

Let’s beg the question – how relevant are traditional Wall Street fund managers as investors in the crypto sector? 

My viewpoint is that we need fund managers that are long term believers and are committed because they have done their own original research. They should be able to understand crypto to the point where they are able to comprehend what the technology does, where it is going, and are able to form their own defendable (and original) thesis across the many emerging blockchain sectors. But do they? 

For example, of the traditional investors that get it, Ray Dalio is one of them. In a CNBC interview this morning, he said that he sees Bitcoin, cryptocurrencies or digital gold, as part of the “new money” that is a medium of exchange and a store-hold of wealth that you could move between countries. He admitted that Bitcoin had made tremendous achievements over the past 11 years towards those goals.

Sadly, many other so-called crypto investors have a superficial knowledge pertaining to what they got into, and often haven’t even used the technology themselves.  

Fickle investors will flee their investments the minute there is a weakness or bad news, because they need to protect their capital, and will wait for the next momentum cycle. 

Maybe, the crypto industry was too early for the proverbial “Here comes everybody”.

Most current crypto investors have no real relationships with the projects they are investing in, except the relationship they have with the price chart. I doubt some of them even spoke to entrepreneurs directly. 

Investing in crypto is not yet like investing in the stock market where companies are at a known stage of predictability in their business, and where valuation metrics are more easily quantifiable or visible. There is no such thing as a missed quarter that later corrects itself. Instead, the field is full of information asymmetry. 

Traditional Money Managers Don’t Get It, Won’t Get It, Can’t Get it

Reality is that not all traditional fund managers will be able to fully comprehend, let alone believe in the crypto revolution. The grand-daddies of conservatism, Buffett and Munger have already spoken, and their views are the epitome of denial that there is something new here.

In part, the analogy of asking traditional fund managers to get into crypto is like asking a professional basketball player who has never heard of soccer to suddenly play that game. Imagine they would start saying things like: 

  • The net is too wide, that doesn’t make sense!

  • You can’t touch the ball with your hands? That will never work.

  • Why is the field so long and wide? It will be too tiring to go up and down both ends!

  • Why are there 11 players? You can’t easily talk to each other. 

  • Why don’t you stop the clock if there is a whistle? That’s not fair. 

Well, the rules of soccer are very different from those of basketball. And the type of players it attracts is different. Both games have tackling, intercepting, shooting, and blocking in common, but it doesn’t mean that an athletic basketball player that is willing to learn and adapt couldn’t play soccer if they wanted to. However, not all of them will be able to.

Taking the analogy one step further, imagine a sports regulator stepping in and saying: we’ve had the rules of basketball for years, all other sports must adapt to them.

What Matters is Who is Staying, Not Who is Leaving

During the UST/Terra debacle and overall crypto prices correction of mid-May, talking-head after talking-head went on CNBC exposing their ignorance of crypto and predicting the darkest scenarios about an industry they clearly never understood well enough. Most of them would be hard pressed to talk for more than 15 secs about what crypto really does in terms of the variety of use cases and state of practice.

In retrospect, it wouldn’t be such a bad thing if some types of investors flee the crypto markets, as they get replaced by smarter ones who get the longer term view. What matters is who is staying. Developers, entrepreneurs, smart investors and dedicated users are all staying. 

If the narrative shifts too hard towards prices, speculation and superficial involvements, instead of latching on the fundamentals of blockchain technology via a discriminating eye, we have lost the plot about what crypto is about.

It is mind boggling to see most coins (especially the L1 variety) move up and down almost at the same rate. Do these “investors” clearly have any clue about how different the top 10 L1 blockchains really are? For example, for the amount of weight it carries and share of transactions it commands, it is surprising that Ethereum’s market dominance keeps hovering below the 20% level. 

As long as most cryptocurrencies fall and rise in unison, and investors follow each other like sheep, this points to the fact that the market is full of investors that are not very sophisticated nor discriminating. The crypto industry will not be able to break free of its own if it continues to be linked to the vagaries of the traditional markets. 

In the next post, I will debunk the theory of crypto-to-market coupling…or decoupling. 

Bad Actors or Failures Do Not Define The Crypto Industry

There is no point second-guessing the viability of the crypto industry. The industry’s active participants are not going anywhere. The crypto/Blockchain industry is a complex set of technology pieces that are still maturing and growing, so it’s common that it gets mischaracterized along the way. While its boundaries are still being defined, the ambitions of its dreams are not being lowered.

Increasingly More Severe, But Self-Inflicted Injuries

In retrospect, the tough moments that the crypto industry has endured in the past several years were self-inflicted. Mt. Gox, the DAO hack, Quadriga, every DeFi rug pull or vulnerability exploit and the recent UST/Terra situation were the result of bad/incompetent actors or projects from the industry itself.

What just happened with UST/Terra was not a symptom of a systemic matter. It was just one project. But since everything is interconnected, there is cause for concern because this last disaster and extent of the damages became bigger in scope.

Mt. Gox’s losses were into the hundreds of millions, the DAO hack was $60 million, Quadriga was $200M, DeFi rug pulls or smart contract vulnerability exploits are typically in the $50-350M range. But the UST/Terra debacle was a $60B blow, accompanied by another $500B in overall market cap decrease.

That is an order of magnitude jump and it is not to be underestimated, but let’s not allow bad actors or failures to define the crypto industry. There are so many other good parts about crypto and the Blockchain industry that are still in the works:

Web3 is unraveling with its many pieces and use cases: the creator economy, smart contracts, GameFi, DeFi, DAOs, NFTs, token-based models, cryptocurrencies, self-custody wallets, the metaverse and much more. These are the artifacts and mashups of the blockchain economy from which web3 will emerge.

Extreme Enthusiasm or Excessive Hope?

There is no doubt the UST/Terra situation will be analyzed for months and years to come, just like the DAO hack and Mt. Gox fiascos were. Whether it was extreme enthusiasm or excessive hope in an unproven experiment, both of these factors were certainly responsible for compounding the gravity of the situation.

Longer term, we need to wonder if this incident was caused by a rare reckless driver or whether there are other projects or people with potential failures on the horizon.

There is a difference between experiments and fully proven and tested projects. The UST stablecoin relied on a protocol of algorithmic adjustment of supply (arbitrage) to stabilize its price. That type of algorithm is really at the experimental stage, and it did not pass the ultimate stress test that eventually killed it. The utopian thought of an algorithmic central bank is just that, for now.

Cryptocurrencies have given us innovative possibilities in the programmability of money, and it’s very exciting. This led to the field of smart contracts that codify business or technical logic into programs and commit them to auto-run on the blockchain. However, money protocols (e.g. UST) are at another level. They combine smart contracts and algorithms together in a compounded manner. If they work well, it’s great. But if they don’t, the failures can be spectacular.

The backers of Terra (or any other crypto project) shouldn’t be confused with an assurance of success. Backing a project simply means that you are willing to go down the risky path with them. It is an endorsement of the journey, not a guarantee for success. VCs are portfolio managers, and their true north is to diversify risk by investing in multiple projects so that the winner end-up offsetting the failures. It’s one thing if Terra/UST represented 5% of a given fund’s portfolio, but it’s another thing if it was 50% of someone’s investments or savings.

While experiments are necessary, we cannot just rely on the hope they succeed without knowing well what the impacts of failures might be. In retrospect, UST/Terra became too big too quickly due to excessive marketing and misleading analysts (that’s another subject I will cover in a subsequent post).

Stablecoins are essential and important for the future of cryptocurrency. Perhaps we should confine their constitution to the simple backing of verifiable assets, and refrain from exotic algorithms that are broadly at the experimental and risky trials stage.

“It takes a lifetime to build a good reputation, but you could lose it in a minute”. Such were the famous words of Will Rogers.

The crypto industry has been working hard to build a good reputation for the last 10 years, despite it being perceived to live in a closet as a fringe sector and not getting the respect it deserves.

We are still testing the boundaries of what’s possible or not. Back in the early Web/Internet days there were many stupid ideas and failed ones. And there were spectacular failures as well (Pets.com, Enron, Webvan and others).

We should not let failures or over zealous / reckless entrepreneurs define the crypto industry. Let us extract the lessons, and spring forward without that baggage.

We Need to Let Crypto Come Out of The Closet

The crypto market just had a rough week in mid-May, like a hurricane or tornado hit it. 

As the overall market cap of cryptocurrencies shed billions of dollars in value, the doomsayers came out and repeated the same absurdities: this asset class has no backing, Bitcoin is useless, cryptocurrencies are going to zero. 

Amidst this backdrop, there is cause to wonder if the cryptocurrency revolution is progressing well or facing existential challenges? 

There is no denying that challenges exist. But a significant macro challenge has been lurking since the beginning:

the crypto industry and its participants are not getting enough acceptance or respect from the mainstream.

The sad reality is that many aspiring crypto businesses and participants are living in a closet, and it is time for crypto to come out of that closet. It’s time for the industry to be recognized and widely accepted as being credible, long-lasting, strong and fundamentally sound.

We are already in a vicious circle. Bad actors or spectacular failures continue to appear and give reason for the mainstream to disallow crypto to normally co-exist with the rest of the world. For these reasons, the establishment keeps pushing crypto to the edges of business and society, and forcing it to find refuge in jurisdictions with inherent lax regulation. 

A wild west of crypto is not the modus operandi we want, nor is it the desired final state for this industry. But the mainstream needs to start by being more welcoming. The best blockchain entrepreneurs prefer to operate inside more clement jurisdictions where certainty is not questionable.

Today, many businesses operating in the crypto industry are being discriminated against in more ways than one, a situation that is not stemming from their own making. 

Here are some data points:

  • Blockchain startups can’t easily open a bank account at established financial institutions

  • Startups have to choose legal constructs rooted in offshore jurisdictions, a situation that makes it even more difficult to be accepted by many Western financial institutions

  • Fiat transfers from exchanges to banks are scrutinized, often resulting in sudden account closures

  • The SEC has yet to approve a spot Bitcoin ETF, as they keep rejecting or placing on hold one application after another

  • Many exchanges are not US-based and rely on external jurisdictions that are more relaxed or offer little oversight on safety or risk controls 

  • US/Canadian consumers are often shut down from participating in token offerings

The opposite of this situation is exactly what needs to happen. 

Embracing or Repelling Crypto? 

I don’t understand why the US government keeps beating down crypto when the industry is at its doorstep begging for acceptance.

Bitcoin and the underlying blockchain technology are not a purely American invention, but it might as well have been. Most of the original core developers that worked with Satoshi Nakamoto were in the US. Nick Szabo, credited to be the original proposer of smart contracts is American. Ethereum took roots in Canada. Some of the most successful blockchain businesses are US-based. The largest and most successful VC funds supporting the blockchain are also in the US.

So why doesn’t the US government embrace an industry that can easily produce the next FAANG (Facebook, Amazon, Apple, Netflix, Google) set of companies, a fate that would hugely benefit the US economy at a scope of billions of dollars?

Instead, by pushing exchanges and blockchain projects to operate in less stringent regulatory environments, bad habits are being formed and excesses committed without adverse repercussions. 

Blockchain businesses should feel safe about being in the US. I regularly talk to smart US founders that wish they wouldn’t have to select offshore locations to concoct their legal structures, token offerings, or governance jurisdictions. 

Let’s Talk About Regulators

When it comes to regulators, there is a difference between protecting investors and preventing them from benefiting from available opportunities. When regulators get fixated on the bad side of crypto, they start to mold their frame of mind around protection at all costs, and that results in an unbalanced outcome and a self-fulfilling prophecy of negativity. 

Regulatory knee jerk reactions are not going to solve anything. This is a time when regulators need to be super smart and display a deep understanding, so they don’t throw the baby with the bath water. 

Actually, regulators need to let everybody in, to get closer to them, so they can regulate them better. Strictly practicing enforcement without clarifying the rules will only continue to frustrate industry participants and push many to jurisdictions that allow them to perpetuate bad behavior. The situation is not as simple as pounding the table while insisting the “tokens” debate is strictly about security vs. commodity vs. utility.

What if crypto were accepted and not discriminated against and became part of the normal business environment? Good things would happen. 

If you want to protect consumers, don’t scare off companies, people and projects. Embrace them and learn from them so you can regulate the bad parts but let innovation thrive in the good parts. 

Now that the last hurricane has passed by, the good parts that remain are what counts. 

The proverbial – what doesn’t kill you makes you stronger – applies here. 

There is no doubt the crypto industry will continue building with a stronger base than before. 

Understanding Why Warren Buffett and Charlie Munger Keep Bashing Bitcoin And What I Wished They Should Have Said

Warren Buffett and Charlie Munger of Berkshire Hathaway

The news was buzzing over the week-end that Warren Buffet and Charlie Munger bashed Bitcoin again during their latest annual Berkshire Hathaway shareholder meeting. This wasn’t the first time the duo expressed their disdain for Bitcoin, when they called it “rat poison” and “dementia” in 2018.

On one hand, one could ignore their comments under the pretext that the duo isn’t really in touch with the technology sector in general, let alone Bitcoin and cryptocurrency. Warren Buffett is definitely the oracle of Omaha. However, by no means has he been close to being an oracle on technology phases. 

On the other hand, we should take the challenge of rebutting their issues and debunking their soundbites…which is what I’m doing here. They do influence a large segment of followers, so we shouldn’t just ignore ignorance. Education is necessary. 

First, there is no doubting the tremendous business industry respect that Buffett and Munger command. Their financial performance track record speaks for itself. That said, let’s put things in perspective: Berkshire Hathaway’s experience hasn’t been focused on emerging technology. Aside from Microsoft and Apple (current holdings), the bulk of their investments is in traditional large industries segments: insurance, financial services, pharmaceuticals, food, railroad, utilities, energy, and manufacturing. Mature industries are their comfort zone. Bitcoin and cryptocurrencies are anything but mature. Understandably, you need a different set of optics when looking at emerging industries. So, the first strike against their comments is: wrong lens. 

The quote that made the headlines from Buffett was: 

“Now if you told me you own all of the bitcoin in the world and you offered it to me for $25, I wouldn’t take it because what would I do with it? I’d have to sell it back to you one way or another. It isn’t going to do anything.” Buffett was contrasting an offer he would accept – to buy 1% of all the apartment houses in the country for $25 billion. That’s telling about his mentality of seeing everything as something that can be either bought or sold. 

“What would I do with it” is an over-simplified answer which shows he probably doesn’t know (or selectively ignores) what Bitcoin can be used for. If we were to dumb down that statement via an Apple analogy, the same can be said about an Apple stock he owns. What can he do with the piece of paper that represents an Apple stock? Nothing. But he can re-sell the Apple stock, in the same way that he can re-sell the Bitcoin he figuratively might own. In fact, had Buffett bought Bitcoin in 2018 when he first started to bash it, he would have been able to realize a 4.5x gain, which is actually a better return than Apple’s stock (x3) during the same period. So, even if he didn’t know anything about Bitcoin use cases, he could have just bought it and sold it, as he does routinely with his other holdings. Let’s roll this argument one more layer. Granted, the good employees at Apple are creating products and services, whereas, if you asked Warren Buffett, Bitcoin doesn’t create anything. Well, it does. Bitcoin’s underlying creation, the Blockchain, has already created a few million jobs, hundreds of thousands of products and companies, while inspiring millions of people worldwide about its unlimited potential. 

Then this one came from Munger: 

“In my life, I try and avoid things that are stupid and evil and make me look bad in comparison to somebody else – and Bitcoin does all three. In the first place, it’s stupid because it’s still likely to go to zero. It’s evil because it undermines the Federal Reserve System … and third, it makes us look foolish compared to the Communist leader in China. He was smart enough to ban bitcoin in China.”

One can easily rebut this trio of claims. Stupid is a very subjective term, and frankly an insult to the millions of worldwide entrepreneurs who are innovating on cryptocurrency projects and companies who are inventing the next Internet, one that will create the next series of multi-billion dollar companies. Apple was once a small fledgling company…until it wasn’t. Saying that it undermines the Federal Reserve System is a bit of an alarmist over-statement. Will it compete with it? Possibly. There is nothing wrong with an alternative system, given the Federal Reserve is doing a fine job undermining themselves with diminished credibility. Finally, a reminder that China has also previously banned Facebook, Google and Twitter, but for different reasons. The Chinese government wants to control everything and routinely bans US-based inventions in order to replace them by their own home-grown versions. In fact, China is pushing another version of its own Bitcoin-like cryptocurrency. Sorry, the China analogy really backfires in Charlie Munger’s face.

Truth is that crypto enables new types of businesses just as that silly clunky technology initially called the “Internet Protocol” morphed into the Web and started transforming one industry after another, while creating behemoth new companies like Google, Facebook, eBay, Amazon and many others. Take Coinbase. Coinbase could be on Berkshire Hathaway’s potential list of investments. It does have a good core product (trading cryptocurrency), is growing fast, and generates profits. Coinbase wouldn’t be where it is today had it not been for Bitcoin’s crazy start. And there will be dozens of Coinbase-scale companies emerging from the cryptocurrency phenomenon.

The irony of Buffett/Munger’s statements is that many Berkshire Hathaway’s underlying businesses are flirting with Bitcoin and cryptocurrencies in general, or will eventually become affected by them. Nu Holdings operates digital bank holdings that are friendly to crypto. Microsoft’s Azure cloud business runs several blockchain related projects including several high profile ones like Ethereum. Apple’s App Store is filled with crypto wallets and apps that comprise Bitcoin and other cryptocurrency related apps. BNY Mellon bank will be offering cryptocurrency custody services, including Bitcoin specifically. I am sure that executives in those companies were cringing when they heard the duo’s comments.

Eventually, crypto will infiltrate all industries, just as the Internet did. Wait til all loyalty cards become NFTs. Or when insurance companies start insuring crypto-based businesses or metaverse properties. Or when banks start accepting crypto and stablecoins deposits routinely, and offer related services.

What Buffett and Munger need to understand, along with all of the naysayers that believe them is that – what really matters is everything that Bitcoin, the Blockchain and crypto enable. Don’t be shortsighted with a limited judgment based on your limited understanding.

Due to their influential voices, their comments will be amplified by many people who don’t get Bitcoin. So, we must rebut them and pick these arguments apart. 

The problem is that Buffett and Munger had an advantage this past week-end. They had the microphone, were on “their” stage emanating soundbite after another, and no one dared to challenge them. Someone should be asking them the “3 Why” questions. Why do you hate Bitcoin? Let them answer, and they can’t answer via trivial nonsensical answers, like rat poison, dementia, or saying it’s a stupid idea. Then ask them Why again? And Why on that second answer? Maybe we could have gotten to the bottom (or shallowness) of their thinking. The closest answer that merited a debate was Charlie Munger saying Bitcoin undermines the Fed, although it wasn’t technically correct because the Feds has already discounted Bitcoin proper and is now more concerned about the impact of stablecoins. 

Sadly, there is laziness in understanding Bitcoin and cryptocurrency everywhere. Warren Buffett and Charlie Munger aren’t the only one exhibit it. I’m not sure where they were getting their education about Bitcoin or cryptocurrency, because everything they are saying points to a superficial understanding. I doubt they have made serious readings on that topic using the method Warren Buffett often describes as his forté: pouring over documents for hours and days before committing to investments. Actually, I am going to send a copy of my book, The Business Blockchain to both of them, at the Berkshire Hathaway 3555 Farnam Street Omaha address.

Obviously, it seems that the duo is happy with the status quo. They don’t want to change their lens to better see the new things. Truth is that Charlie and Warren are pure traditionalists. 

They are good at assessing large organizations when all the parts are visibly known, revenues are steady, new products can almost be predicted, and the uncertainties of growth are clear and manageable.  

In contrast, crypto and Bitcoin are anything but that. They relatively embryonic, and with many imperfect parts. A naysayer will immediately focus on these weaknesses and ignore the good parts. 

Do Buffett and Munger realize the magnitude of the vast inefficiencies that currently linger within the current financial services industry? Do they realize the potential cost savings that exist, just by streamlining old databases and slow processes along with the back-end proprietary integrations that wire the world financial markets? Do they realize how outdated SWIFT is? Have they recently sent a bank wire transfer or dealt with the latencies and administrative costs resulting from the processing of money? Have they experienced delays in trade settlements, or examined the inefficiencies in small or large money transfers?

Everything about the blockchain touches the core of banking and will transform it or replace it over time.

Old habits die hard. New habits take a while to get formed. New markets emerge out of the ashes or stumblings or end-of-life of previous ones. We are gradually leaving the glamours of Web2 and entering the glories of Web3, but the handover will not be smooth. Bumps will be exploited along the way. 

Obviously, crypto wasn’t getting respect from the grandpas of the business world. 

The best parents and grandparents are able to let go of their children’s aspirations and dreams, and never hold them back or dictate to them what they should be doing. Buffett and Munger sounded like angry parents dictating to their children what and how they should be thinking about something, while stifling them from forming their own opinions on the most important technology of their lifetime. 

I wished they would have just said instead:

“We don’t understand Bitcoin or the blockchain, and aren’t focused on it or cryptocurrencies. It could be part of the future, just as the Web is today, and wasn’t 30 years ago. By the time we’re gone, we hope you will embrace it responsibly and create thousands more new companies and wealth to benefit humankind.” 

Crypto is going to thrive for the new generation. It would be cruel to rob them from that future by spreading fear, uncertainty and doubt along that journey’s path.

Picking Apart the State of Blockchain, And Have We Earned It?

Cutting to the chase, here’s what I’m seeing in blockchain and crypto markets. I started writing these thoughts last week, before signs of the current market downturns became visible.

Meme Coins Will Not Yield Anything Except Speculative Fever

I understand the power of community sentiment and excitement as levers that can lift demand, but the intent of a cryptocurrency is not just about the cliché statement: “number goes up”. A bonafide cryptocurrency must serve a purpose and have multiple utilitarian use cases. Meme coins are an interesting phenomenon, but they offer little utility outside of speculative trading. Cryptocurrency markets are already irrational to start with. If you add uncertainty on top of uncertainty, you get irrationality at a multiplied level. The meme coins mania will not end well. Cryptocurrency is not a game or a joke.

SEC and Regulators Still Too Slow

There are the two types of regulators: the slow ones, and the negative ones. As the leading body amongst Western regulators, the SEC continues to be slow and overwhelmed in terms of bringing significant change. A ray of hope was recently uttered by SEC Chairman Gensler when he hinted that a new regulatory entity might be needed in order to properly deal with crypto-regulation. In my opinion, a focused (new) U.S. regulatory body will be necessary if we want to see real innovation in the form of benign regulation. Otherwise, we will get a continuation of hit-and-miss positions, incomplete guidance, overlapping regulatory frameworks, more wild-west behavior and overall risk for all involved. No new regulation is as bad as some incomplete regulation.

China Needs To Blockxit

Let’s be straight: China does what is good for China. Corollary: China doesn’t care about the impact of its actions on the rest of the world. True for technology, economy, trade, healthcare, politics and cryptocurrency. When the Chinese government says they are banning cryptocurrency, miners, crypto-banks, ICOs, or whatever the next thing is, these directives are oriented towards its own people. However, these communications missives muddy the water because of global interdependence implications. For example, I’m looking forward to the day when Chinese miners aren’t the majority anymore. Like the boy who cried wolf too many times, China’s roars on cryptocurrency are often like thunderstorms that don’t bring rain, or a bark without the bite. Each time China tries to whack the next mole, the crypto industry goes “ouch”, feels some pain, but things quickly rebound thereafter, by discounting these actions, and the whole market gets stronger overall.

Exchanges Crave Volumes, Not Validation of Projects

Most exchanges are challenged about managing their vertiginous growth. Volumes are their drug, and they need increasing fee revenues to continue funding their operations. In addition, they are fighting like hell to differentiate themselves from what appears to be a commoditized business. However, exchanges are not the ultimate quality validators for projects, despite what they might lead you to believe. At the end of the day, they just want volumes and will list token projects that are making headlines. Just look no further to how quickly many of the top exchanges tripped over each other to list the top meme coins, caving-in to “popular” demand.

No Price Discrimination

The reality is: some projects are under-valued, while many others are over-valued. But here’s the key question: how do you rationally evaluate tokens? Transaction levels, number of users and fee volumes (if applicable) are still the true North of activity; assuming there is a real raison d’être for a token. Many token-based projects have “apparent” success if you judge by their market caps, a number that has become a vanity metric more than anything more indicative of real value. Many crypto market caps need to be discounted, as there is little correlation to their fundamental metrics.

Governance Tokens Are Overrated

At the heart of most governance tokens, you will see a common legal rider that “the token has no economic value…holders have no claim on financial rights…governance token is used to oversee the xyz ecosystem”. That said, the dichotomy is that, no sooner are these tokens declared to be governance tokens, and supposedly distributed to “voters”, that you see that same token being listed on exchanges (central or decentralized), and very quickly these “no economic value tokens” start to earn exponential economic benefits to their holders. Incidentally, many of these “governance-first” projects end-up with very low voting turnouts (1-3% is not uncommon), and most of them don’t even have a utility role that is critical to operations.

Bitcoin and Ethereum Still The Only True Leaders

I’m not only referring to market cap leadership, although these 2 coins command close to 64% of the overall crypto market cap (as of June 22 2021). Rather, the fact that there are only 2 true leaders in a new emerging era is problematic when you contrast to the 5 Web2 leaders that comprise the FAANG analogy. Today, Facebook, Apple, Amazon, Netflix and Google have a combined market value of $6.7 Trillion, and if you add Microsoft, those 6 tech leaders add-up to $8.7 Trillion. Bitcoin is sitting at about $600B market cap and Ethereum close to $220B. What will be the FAANG of crypto? We are probably far from seeing that group emerge, although for fun, I have made-up the CUBBE gang: Coinbase, Uniswap, Binance, Bitcoin, Ethereum, as potential blockchain lighthouse leaders.

DeFi Is Underhyped, And Mostly Mysterious

Despite its kwarkiness and risk, DeFi is the tip of the iceberg when you think of the future of global finance. But DeFi’s impact won’t be so significant unless it reaches awareness and adoption levels that are orders of magnitudes over the current ones. For that to happen, the barriers to user adoption must be lowered even further. Democratizing liquidity provisioning might be a foundational core upon which other layers build on top of. But each successive layer must be solid first, so that the whole doesn’t come crashing when things start to shake or when the boundaries get tested.

Talking Heads Who Are Not Experts

The market is fickle with commentaries from talking heads who don’t see anything but price action and momentum plays. Every other TV financial commentator is now asked to talk about Bitcoin or cryptocurrency when their knowledge is actually superficial or opportunistic. Most of them are clueless and just spitballing stuff. The loudest or most articulate mouth isn’t the smartest nor the most insightful. Beware of so-called experts who aren’t really experts. Ask them to enumerate several cryptocurrency use cases, or to intelligently describe DeFi, and their knowledge will be as thin as a razor. Someone who invested in an NFT company or just bought an expensive NFT last month is not necessarily an expert on NFTs or their future.

Ethereum Killers Who Are Not

“Ethereum killers” will not kill Ethereum, but will make the market larger. So-called Ethereum killers are still gunning for it, touting this or that feature as their ace card. However, those claims aren’t going far, because each blockchain should stand on its own, by self-differentiating itself based on its peculiar features or achievements. The reality is that – as other emerging blockchains become successful, they make the market larger as a whole. Ethereum and Bitcoin are in a league of their own. Most other blockchains attempt to mimic Bitcoin/Ethereum key aspects, with some degree of variation. Claiming feature superiority is one thing, but acquiring a network effect level of users to validate market success is an entirely different ball of wax.

Working Together Doesn’t Exist

The blockchain is natively global. It knows no borders, and doesn’t like barriers. Just as global issues require global cooperation to solve our world problems, I wished there was more native cooperation between some blockchain standards to increase interoperability, and make the user experience more seamless. Take stablecoins for example. When sending them around, you often need to specify which blockchain network you want them settled on. Sometimes, it’s a choice of 6 different networks. The user shouldn’t need to worry about that. On the other hand, wrapping coins on Ethereum has proved to be another way to ingest standards instead of fighting them.

Wallets Are Still Archaic

On one extreme, there are innovative wallets that are optimized for DeFi (e.g Zapper or Zerion), and on the other side of the spectrum, there is a variety of straightforward wallets that are simply optimized for token swaps. Of course, there is MetaMask as the uber wallet for non-custodial transactions. But there isn’t an all-around wallet that combines ease of use, security, variety (e.g. voting/rights access), DeFi, NFTs and generalized Dapps entry. General-purpose wallets will be to blockchain what browsers were to the Web. We need to see an evolution of wallets that captures the imagination of millions of users. Just as browsers stitched together the hyper-connectivity of content, wallets are stitching together the hyper-connectivity of money.

ICOs By Another Name

ICOs are still happening, but they aren’t called ICOs in order to stay under US regulatory radars. They typically start via a private offering of tokens at a favorable price to accredited investors. Then, a small percentage of tokens is offered (typically to non-US investors) at attractive prices with a cap on the allowed amount (in the $500-$1,000 range) in order to fake the decentralization of ownership, which is a factor along the decentralization spectrum. All these have some lock-up periods that are not excessive. Then, the network is launched, and the token is gradually released into circulation, and finds itself trading on DEXes first, then it gets picked-up by exchanges, depending on the number of headlines generated.

I do not see how the industry can positively move forward while logging garbage tokens with it. Some large market cap tokens in the top 20 will be a train wreck when it is revealed that the Emperor had no clothes. Some other under-valued tokens that represent real token usage, transactions, a circular economy, and active users will emerge and earn their rightful place along the valuation spectrum.

Irrational exuberance and bubbles are good propellers of activity. But bubbles don’t discriminate between good and bad activity.

No matter where we are in the overall market cap spectrum, we need to ask again this fundamental question that Vitalik Buterin once asked in December 2017 when the crypto market hit its first half Trillion mark: “Have we earned it”? Now, this question needs to be applied to each and every token and organization behind it, not just to the market as a whole.

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