Podcast Summary
5 words: Gaining wisdom from crypto veterans: Learn from experienced crypto veterans for valuable insights into current market cycles and future direction of crypto, especially in relation to Ethereum, DeFi tokens, and economic bandwidth. Bridging the gap between traditional and crypto economies with tools like Monolith's bankless Visa card and Ramp's fiat on ramp.
Learning from this episode of Bankless is the importance of listening to and learning from those with experience and strong convictions in the crypto space. Chris Burninski, a guest on the podcast, is highlighted for his wisdom gained from being in crypto since its early days and his deep understanding of the values and systems at play. His insights provide valuable perspective on the current market cycle and the future direction of crypto, particularly in relation to Ethereum, DeFi tokens, and economic bandwidth. Additionally, the episode emphasizes the need to make it easier for people to move from traditional fiat systems into the crypto world, with the introduction of tools like Monolith's bankless Visa card and Ramp's fiat on ramp. These solutions help bridge the gap between the old and new worlds, allowing for a more inclusive and accessible crypto economy.
Understanding DeFi Tokens: Capital Assets, Consumable Transformable Assets, and Store Value Assets: DeFi tokens can be classified into three superclasses: capital assets, consumable transformable assets, and store value assets. Bitcoin started as a consumable transformable asset but has evolved into a store value asset with a financial premium. Understanding these superclasses can help determine price targets for DeFi tokens.
The DeFi landscape is evolving with the emergence of programmable value and new asset classes, such as DeFi tokens. Chris Burniske, a VC and partner at Placeholder and author of "Crypto Assets," explains that these assets can fit into three superclasses: capital assets, consumable transformable assets, and store value assets. Bitcoin, for instance, started as a consumable transformable asset but has evolved into a store value asset with a financial premium. The valuation of these new DeFi tokens is complex due to their programmability and ability to capture various forms of value. Burniske suggests starting with understanding the superclasses and how Bitcoin fits into them. He also mentions that the equation of exchange, mv equals pq, can help determine price targets for consumable transformable assets that overlap with store value assets. With the explosion of stake-based assets in the current DeFi landscape, accurately projecting prices becomes more challenging due to the financial premium associated with store value assets. To learn more, visit ramp.network and mention "Bankless" for a free first 100k in US dollars.
DeFi assets can be valued using traditional capital asset models: DeFi assets with on-chain cash flows are more fundamentally sound than 2017's store-of-value-only tokens, allowing for valuation through DCF and Dividend Discount Model
DeFi assets, particularly those that require staking and provide value flows from the network, can be valued using traditional capital asset models like Discounted Cash Flow (DCF) or Dividend Discount Model. This is because these assets give you a source of value and will be valued based on their net present value of expected returns. ETH, for instance, can be considered a triple point asset, fitting into all three asset superclasses - capital, store of value, and consumable. The recent resurgence of DeFi tokens with on-chain cash flows makes them more fundamentally sound than the 2017 market where every token was valued as a store of value asset. While there's some complexity in valuing these assets due to the type of asset flowing to the holder, it's more familiar to traditional analysts and provides a more solid foundation for understanding and valuing these exploding markets.
Understanding Crypto Asset Valuation: Fundamental and relative valuation models help institutional investors value crypto assets, leading to price stability and market understanding. Standardization is crucial for accurate comparisons.
As more crypto models emerge, humans create theories to predict prices, which can lead to price stability and better understanding of markets. This is crucial for institutional investors seeking to value crypto assets. The difference between fundamental and relative valuation models is significant, with fundamental models focusing on the intrinsic value of an asset, and relative valuation models comparing an asset's price to other similar assets. In the crypto world, this has led to exciting discoveries, such as assets being undervalued relative to their peers, leading to repricings. However, it's essential to standardize these valuation methods to ensure accurate comparisons. Overall, the development of these valuation methods brings us closer to a more sophisticated understanding of crypto assets and their value.
Birth of new digital asset classes within each super category in crypto space: New digital asset classes emerge within capital assets (DeFi tokens) and consumable transformables (Bitcoin, Ethereum), with Bitcoin and Ethereum serving as access currencies. Rapid distribution of upside potential distinguishes crypto from traditional markets.
We are witnessing the birth of new digital asset classes within each super category of assets, such as capital assets (DeFi tokens) and consumable transformables (Bitcoin and Ethereum), in the crypto space. The digitization of traditional assets is expected, with the creation of new examples within each asset superclass. Bitcoin and Ethereum serve as protocol-mandated currencies to access and utilize these digital assets, much like how gasoline is valued and consumed despite being composed of different commodities. The fairness and equality of distribution in crypto development, through mechanisms like DeFi tokens, SAFG, and liquidity mining, contrasts the traditional system where certain groups gain privileged access to upside before the public. This rapid distribution of upside potential sets crypto apart from traditional markets.
Baking labor into capital in DeFi: DeFi projects distribute capital and governance to a wider pool of participants, potentially reducing wealth inequalities by addressing the chicken-and-egg problem and creating more inclusive marketplaces.
The liquidity mining phenomenon in decentralized finance (DeFi) projects like Compound and Balancer is an innovative approach to address wealth inequalities by "baking" labor into capital. This is achieved by distributing the capital of the network to those who contribute to its growth, both on the supply and demand sides. This model, which can be seen as a "bootstrapping hack," aims to solve the chicken-and-egg problem and create more inclusive marketplaces. Unlike traditional equity systems that concentrate governance and wealth among shareholders, DeFi projects distribute capital and governance to a wider pool of participants, potentially reducing inequality. Additionally, access to productive assets in DeFi is less exclusive, as anyone can become an active participant and earn yields, unlike traditional equity where dividends are only distributed to shareholders. Overall, this shift towards decentralized finance and the distribution of capital and governance to a wider audience has the potential to create a more equitable financial system.
Democratizing Access to Capital with Crypto and DeFi: Crypto and DeFi projects like Balancer enable users to democratize access to capital, compress inefficient parts of traditional finance, and earn fees by providing liquidity. Balancer's commitment to significant liquidity provider rewards fosters user involvement and loyalty.
The current capitalist system, effective as it is for economic coordination and growth, falls short when it comes to providing equal access to capital for all. However, with the advent of cryptocurrency and decentralized finance (DeFi) projects like Balancer, there's a new opportunity to democratize access to capital and involve users as financers. Balancer, an automated market maker, is a prime example of this shift. By allowing users to create their own ETFs and earn fees for providing liquidity, it compresses and collapses inefficient parts of the traditional financial system. Moreover, Balancer's commitment to giving liquidity providers a significant portion of the network's capital is a departure from the extraction model of traditional finance. This new model not only empowers users but also fosters loyalty and involvement in the project's governance. The value of the asset and the credibility of the governance are intertwined, making good governance crucial for the asset's success.
Balancer's Equitable Governance Model: Balancer offers a more equitable system with returns for liquidity and governance tokens, but effective governance structures need to evolve, including full-time, prestigious governors with expertise and stratified decision-making.
Balancer, a decentralized finance platform, offers depositors returns for providing liquidity and governance tokens for participation, creating a more equitable and streamlined system. However, concerns arise about the ability of users, particularly those with less experience or education, to effectively participate in governance decisions. The speaker suggests that as these systems evolve, governors should be full-time, prestigious positions with expertise and that governance should be stratified to ensure the right decisions are made at the appropriate levels. The speaker also references the influence of Carlotta Perez's ideas on the need for more micro and supranational governance and less bureaucracy. In essence, the Balancer model offers a more equitable and streamlined system, but governance structures need to evolve to ensure effective decision-making.
On-chain governance in DeFi vs corporate governance: On-chain governance in DeFi has unique global, permissionless, and settled features, but potential risks of power concentration and collapse into corporate-like models require ongoing efforts to improve distribution and address human nature and power dynamics.
While on-chain coin vote governance in decentralized finance (DeFi) systems has echoes of corporate governance, it's not the same. The unique aspect of on-chain governance is the global, permissionless, and settled nature of the cash flows. However, there are concerns about potential concentration of power and the risk of collapse into a model similar to corporate governance. Ethereum's distribution of ETH through proof of work and its transition to proof of stake is an example of how distribution can help avoid capital capture. But human nature and power dynamics are still challenges that need to be addressed. It's crucial not to underestimate the complexity of governance in decentralized systems and to keep striving for improvements.
Distribution and governance are crucial for a cryptocurrency project's success: Distribution and community are key factors for Ethereum's success, while good governance enables projects to implement desired features but doesn't guarantee execution. Polkadot and AAVE are notable examples.
The distribution and governance model of a cryptocurrency project play a crucial role in its success. The speaker expresses concern about Ethereum's competitors, known as "ETH killers," as they lack the distribution and community that Ethereum and Ether have. He specifically mentions Polkadot as the only team they've backed outside of Ethereum, but acknowledges that Polkadot's lack of proof of work could be a potential issue. Additionally, the speaker highlights AAVE as an important project on Ethereum, specifically mentioning its stable interest rate loans and flash loans as valuable tools for the decentralized finance (DeFi) ecosystem. He also promotes Rocket Dollar as a solution for US listeners looking to invest in crypto through their retirement accounts. Regarding governance, the speaker explains that good governance can enable a project to have any desired feature, but it doesn't guarantee that the feature will be implemented. He also notes that there is a trade-off between centralization and execution speed, meaning that more centralized projects can execute faster but risk executing in the wrong direction. Projects with successful governance, such as Decred, Compound, and Balancer, have the potential to implement innovative features and adapt to changing market conditions.
Decentralized systems require effective governance for long-term survival: Effective governance, allowing for consensus-building and human intervention, is crucial for decentralized systems to evolve and remain resilient
Decentralized systems, while offering benefits such as stability during expansionary times, can become less cohesive and more prone to forking during times of duress. This is particularly true for systems without effective governance mechanisms. While no governance systems like Bitcoin and Uniswap have been successful in certain contexts, they may not be ideal for evolving projects. Effective governance, which involves giving people a voice and allowing for consensus-building, is crucial for long-term survival and resilience, even if it may slow down execution in the short term. As human history shows, governance is essential for peaceful coordination and scaling, especially in important economic industries. It's crucial to strike a balance between automating routine decisions and allowing for human intervention in complex situations.
The Role of Human Nature and Tribalism in Crypto: Human nature and tribalism influence crypto communities, driving progress and negativity. Balance is needed for rational decision-making and network protection.
While technology and governance are crucial elements in the crypto world, human nature and tribalism cannot be ignored. Tribalism, or the strong sense of loyalty and belonging to a particular group, is deeply ingrained in human psychology and cannot be eliminated completely. In the context of crypto, tribalism has played a significant role in driving the Bitcoin movement forward, especially during its early stages. However, it can also lead to extremism and negativity, which can be detrimental to the community. Therefore, a balance is needed between the necessary tribalism that protects the network and the need for rational decision-making and moderation. The hope is that as the crypto space grows, the focus will shift towards the economic and ideological underpinnings of these protocols, and the maximalist voices on social media will become less relevant. Ultimately, the most important human construction is the decision-making process for future human constructions, and it's essential to have venues for debate and decision-making to ensure the best outcomes for the community.
Digital economies offer individuals freedom to align with values and communities: Digital economies empower individuals to engage with multiple communities based on values, fostering growth and inclusivity.
The digital nation states, like Bitcoin and Ethereum, offer individuals the freedom to opt-in and engage with multiple communities, unlike traditional physical nation states where membership is determined by birth. This polyamorous approach allows individuals to align with values and communities they identify with, rather than being limited by their geographical location. Additionally, as these digital economies grow and mature, it's essential for them to adopt an open and welcoming approach to attract and retain more participants. The underdog mentality that drives innovation and competition in the early stages of a digital economy may not be sustainable once it becomes a champion. Instead, a more open and accepting attitude can help these digital economies continue to thrive and grow, as seen in the case of Ethereum compared to Bitcoin. Ultimately, the digital economy movement empowers individuals to be active participants and voters with their feet, rather than being relegated to their birthplace or nation state.
Crypto's mission to disrupt power structures and create a more equitable society: Crypto attracts big thinkers, but focusing on real-world impact and continuous progress is crucial for a more equitable and generative world
The crypto space, driven by individuals seeking fairness, effectiveness, and generativity, aims to disrupt traditional power structures and create a more equitable society. However, there's a risk that new power structures may emerge, and it's crucial to remain humble and adapt as needed. The crypto industry attracts big thinkers who envision a transformative future, but it's essential to focus on real-world impact beyond the community. Signs of meaningful crypto adoption include improvements in people's lives outside the ecosystem, such as increased financial access and efficiency. Ultimately, the crypto revolution is a recurring evolution, and the focus should be on continuous progress towards a more equitable and generative world.
Decentralized finance creating feature-complete financial system: Decentralized finance is attracting significant interest due to its cost-effectiveness, accessibility, and resilience, leading to potential wealth transfers and new opportunities, with Bitcoin and Ethereum at the forefront.
The decentralized finance (DeFi) sector, specifically the intersection between Bitcoin and Ethereum, is creating a feature-complete financial system that is global, more resilient, and cost-effective. This system, which is already attracting significant interest due to its potential for earning wages and creating new opportunities for livelihoods, is expected to lead to large wealth transfers and bring more people into the crypto space. The appeal lies in its cost superiority, accessibility, and resilience, as well as the allure of a digital migration to a new economy with infinite white space for innovation. This shift from the traditional financial system to the decentralized one is seen as inevitable due to the human tendency to seek novelty and the perception that the old economy is outdated. The financial services sector is just the beginning, and the potential for earning wages directly from these networks is a key area of focus for the future.
Ethereum's Growth in DeFi Driving Exponential Price Impact: Ethereum's growth in DeFi is expected to cause ETH's price to potentially triple relative to BTC due to stronger fundamentals and increased market efficiency.
Ethereum's current growth in the DeFi sector is expected to have a greater impact on ETH's price than the capital formation boom of 2017. The financial services sector represented by DeFi is driving exponential growth for Ethereum, and while there will be booms and busts, the leverage machine in Ethereum is more efficient and adaptable than traditional finance. Ethereum's fundamentals, such as higher transaction volume, daily active addresses, and lower value compared to Bitcoin, suggest a potential repricing that could cause ETH's price to triple relative to BTC. The ETHBTC pair is a crucial indicator of the long tail's performance, with risk appetite and value flow playing a significant role in the market. Those who were most destroyed by the 2017 bear market and became maximalists may be set up for massive outperformance by Ethereum and other higher beta assets. Bitcoin's size and liquidity make it harder to move value in and out, meaning that even half the value flowing into Ethereum would cause more price movement. Overall, Ethereum's strong fundamentals and the nature of the crypto market make it a promising investment, despite the volatility and potential for booms and busts.
Investing in DeFi assets as a leveraged ETH portfolio: Experienced investor Chris sees potential in DeFi assets to outperform BTC long term, having invested in middleware protocols during bear markets. However, a diversified portfolio including store value assets is necessary due to market volatility.
The speaker, Chris, believes in the potential of Ethereum (ETH) and decentralized finance (DeFi) assets to outperform Bitcoin (BTC) in the long term. He has experience in investing in middleware protocols built on Ethereum during bear markets and sees these assets as a leveraged ETH portfolio. However, when ETH's price dropped significantly, he had to buy it for his institutional investors, leading to a diversified portfolio of store value assets (BTC, Decred, eCash, ETH, and Polkadot) and DeFi assets. If he had the time to write a book today, he might update his previous book on crypto assets or write a new one focusing on DeFi and getting revenue in bankless systems. The importance of understanding the "what" and "why" of crypto assets remains crucial.
Staying informed and adapting to the ever-changing world of cryptocurrencies: Writing about emerging technologies requires balancing timeliness with relevance. Stay informed through multiple mediums and adapt to the rapidly changing landscape of cryptocurrencies.
Writing about emerging technologies and markets, such as cryptocurrencies, requires a balance between staying current and maintaining relevance. The speaker, Chris, discussed his experience writing a book about cryptocurrencies in 2017, which was perfectly timed to onboard the next wave of interested investors. However, he emphasized the importance of ensuring that the information remains relevant for at least a few years to avoid coming across as outdated or irrelevant. The conversation also touched upon the idea of updating a book every market cycle or every few years to keep up with the rapidly changing landscape. Additionally, the speakers discussed the value of Chris' writing and encouraged listeners to check out his articles and follow him on Twitter. They also mentioned the importance of staying informed through multiple mediums, such as podcasts and YouTube shows, and subscribed to their own State of the Nation show as an example. Overall, the conversation highlighted the importance of staying informed and adapting to the ever-changing world of cryptocurrencies.
