Podcast Summary
Staying informed in crypto: Expert insights and front-running opportunities: Listening to experts and attending events can provide valuable insights and opportunities in the rapidly changing crypto space. Don't miss the upcoming DeFi eating the banks panel for more insights.
The crypto space is constantly evolving, and staying informed and ahead of the curve is crucial for those looking to maximize opportunities. By listening to experts like Van Spencer, who accurately predicted trends in DeFi and Ethereum, and attending events like the upcoming DeFi eating the banks panel, Bankless listeners can gain valuable insights and front-run opportunities in the rapidly changing world of internet money and finance. This episode, focused on layer 2 and its potential impact on the crypto space, is a prime example of how staying informed can lead to valuable insights and opportunities. So, mark your calendars for the panel and keep listening to the Bankless podcast for more valuable insights from industry experts.
Innovative solutions for traders, developers, and investors in DeFi with Quinta and Aave: Quinta offers zero slippage trading and opportunities for developers and investors through synthetic assets, while Aave provides access to a wide range of assets, yield opportunities, and the ability to change collateral without repaying loans in DeFi.
Both Quinta and Aave offer innovative solutions for traders, developers, and investors in the decentralized finance (DeFi) space. Quinta, powered by synthetic assets, provides zero slippage for traders and opportunities for developers and investors. Synthetix, the platform behind Quinta, allows users to easily short assets and stake collateral to earn fees. On the other hand, Aave, a borrowing and lending protocol, offers access to a wide range of assets, yield opportunities, and the ability to change collateral without repaying loans. Both platforms represent the power and potential of DeFi, with Quinta focusing on synthetic assets and Aave providing a one-stop-shop for borrowing, lending, and yield farming. Vance Spencer, co-founder of Framework Ventures, shared his insights on the accelerating growth in DeFi, noting that the space has faced challenges but is now poised for another period of exponential growth. This growth is expected to come from the launch of new infrastructure, such as Arbitrum, Optimism, and zkSync, which will improve usability and functionality. During the previous interview in August 2020, Vance made bold predictions about the growth of DeFi, estimating that the total locked value would reach $100 billion during the next bull cycle. With the current growth trends, it appears that these predictions might not be far off.
Long-term adoption trend for cryptocurrencies remains strong: Institutional investors view crypto as a legitimate asset class, bull run not over, Bitcoin as hedge against uncertainty, Ethereum & DeFi offer high growth potential, optimism drives success
Despite the recent drawdowns and volatility in the crypto market, particularly in DeFi assets, the longer-term adoption trend for cryptocurrencies, specifically Ethereum, remains strong. Vance believes that the bull run is not over, as institutional investors continue to view crypto as a legitimate asset class, and there is a significant amount of capital on the sidelines waiting to enter the market. Bitcoin, with its finite supply and role as a hedge against economic uncertainty, has historically attracted investors through optimism rather than pessimism. Ethereum and DeFi, on the other hand, offer high growth potential and a large total addressable market, making them attractive investments for those looking for productive assets. Vance emphasizes the importance of maintaining an optimistic perspective when investing in crypto, as it can serve as a force multiplier for success.
Shift in focus from Bitcoin to Ethereum: Ethereum's potential as a technology layer is leading to increased investment, tripling of ETHBTC ratio, and a potential flippening with Bitcoin as digital gold.
As more people enter the cryptocurrency market, particularly institutions, there is a growing appreciation for Ethereum and its potential as a technology layer, leading to a shift in focus from Bitcoin as the sole dominant player. The speaker highlights the tripling of the ETHBTC ratio in the past 6 months as evidence of this trend. Framework, a venture fund, has never invested in Bitcoin, preferring instead to focus on investing in people and the potential of DeFi and Ethereum's technology. The speaker also notes that stablecoins are gaining popularity in developing countries, potentially taking wind out of Bitcoin's sails as a store of value. The expectation that Bitcoin must carry the entire space as technology, money, and more is a heavy burden, and a potential flippening with Ethereum could lead to a more comfortable role for Bitcoin as digital gold, allowing both cryptocurrencies to thrive. The speaker also suggests that as the industry goes mainstream, market dynamics may change, leading to less extreme boom and bust cycles.
Shift from traditional finance to digital assets: The speaker is optimistic about the long-term growth of digital assets due to generational preference and productivity, acknowledges short-term volatility, and advises focusing on long-term potential.
The speaker believes in the long-term growth of digital assets due to the generational preference for digital over physical and the productivity and utility of these assets. He sees a shift from traditional financial systems to the DeFi ecosystem and believes that the utility and functionality baked into crypto assets will delay the pressure of tax liabilities and borrowing against assets. However, he acknowledges the existence of boom and bust cycles for store-value assets but remains optimistic about the future of productive assets. He also acknowledges the continued existence of speculative behavior in the market, particularly with regard to meme coins, but emphasizes the importance of understanding the thesis and being willing to wait out potential drawdowns. Ultimately, his advice is to "zoom out" and focus on the long-term potential of the asset class.
Crypto Market Volatility Tests DeFi and Exchange Systems: Despite crypto market volatility, base layer DeFi held up well. However, bridge systems and certain exchanges faced issues. Long-term institutional investment may not be deterred, but infrastructure improvements are needed to protect individual investors.
While personal preference and speculation in cryptocurrencies like Dogecoin and Shiba Inu may not be long-term investments according to some, they can still serve as an onramp for new investors. The recent market volatility, including the 60% drawdown experienced by Ethereum, tested the resilience of Decentralized Finance (DeFi) systems. DeFi held up relatively well during the incident, with base layer DeFi performing positively. However, idiosyncrasies in certain bridge systems, such as those connecting Ethereum and Polygon, caused issues for some users. Exchanges like Binance Futures and FTX experienced more significant downtime during the market collapse. Despite the volatility, it's essential to remember that such events are part of the crypto market's history and may not deter institutions from investing in the long term. However, the industry must continue to improve infrastructure and make it more user-friendly to mitigate the impact of these extreme market swings on individual investors.
Institutional Investors Bullish on Crypto Assets Despite Complexity and Regulatory Concerns: Institutions see potential rewards of crypto investments outweighing risks, trained to navigate volatile markets, ESG concerns not deterring investment, Ethereum's transition to proof of stake may further stratify crypto space, ideological differences between Bitcoin and Ethereum shaping market landscape.
Despite the ongoing concerns around crypto assets, particularly Bitcoin, from an environmental and regulatory standpoint, institutional investors are increasingly bullish on these assets. The complexity and uncertainty surrounding crypto investments have only grown over time, but institutions see the potential rewards outweighing the risks. The volatility of crypto markets is viewed as a feature of free markets, and professional investors are trained to navigate such markets. ESG concerns, while a narrative gaining traction, have not deterred institutions from investing. The transition of Ethereum to proof of stake could potentially change the narrative, but it may also further stratify the crypto space, with Ethereum appealing more to liberal values and Bitcoin to strong property rights. Ultimately, the ideological differences between these two major crypto assets are likely to continue shaping the crypto market landscape.
The merge of PoS and DeFi is revolutionizing finance with ESG solutions and innovation: The merge of PoS and DeFi is driving innovation in finance, with a focus on ESG concerns, the rise of DAOs, and the development of layer 2 solutions for improved scalability and efficiency.
The merge of proof of stake and DeFi is revolutionizing the financial industry by offering forward-looking and productive solutions for Environmental, Social, and Governance (ESG) concerns, while also providing a sandbox for developers to innovate and unlock new possibilities in finance. Over the past year, the DeFi ecosystem has seen significant growth, creativity, and destruction, leading to the rise of decentralized autonomous organizations (DAOs) and the development of layer 2 solutions to improve scalability and efficiency. The focus on capital efficiency has been a major theme, with Uniswap's v3 launch and the introduction of new lending platforms. However, some expectations, such as the widespread adoption of derivatives and options on layer 1, have not yet materialized due to gas fees and slow oracles. Overall, the future of DeFi holds exciting possibilities, including the continued development of layer 2 solutions and the exploration of new use cases and applications.
DeFi's future: Capital efficiency and verticalization: DeFi's future involves capital efficiency and verticalization, with on-chain liquidity pools and borrow-lend markets being put into industry or geography-specific front-ends for tailored user experiences
The future of decentralized finance (DeFi) is heading towards capital efficiency and the fragmentation of market makers and pieces of capital across various layer twos. This trend is expected to impact multiple markets, including derivatives and lending, as everyone strives to earn fees from automated market makers (AMMs). The next step in DeFi's evolution is verticalization, which involves taking on-chain liquidity pools and borrow-lend or money markets and putting them in industry or geography-specific front-ends. This approach allows entrepreneurs to build tailored user experiences without having to build the entire financial services stack from scratch. This playbook was started by Fintech in the traditional banking system but has been slow to roll out due to the legacy rails' slowness and restrictiveness. However, in DeFi, this trend is expected to accelerate due to the hyper-focus on funding these vertical ideas.
DeFi's growth through new teams and fintechs: New teams, often led by engineers and entrepreneurs, will leverage existing DeFi infrastructure like Aave's institutional pools to build fintechs, leading to growth and increased usage of DeFi protocols.
The decentralized finance (DeFi) market is poised for significant growth as it brings innovative financial services to underserved regions and populations. New teams, often composed of engineers and entrepreneurs with both Web 2 experience and local context, are expected to lead this growth. These teams can leverage existing DeFi infrastructure, such as Aave's institutional pools, to build startups with minimal financial service development required. This verticalization of DeFi services is expected to result in the emergence of numerous DeFi fintechs worldwide and potentially increased usage and capital for existing DeFi protocols. Aave's institutional pools, for instance, offer a sidecar pool for vetted, institutional participants, providing them with the necessary assurances and regulatory compliance for larger-scale involvement in the DeFi market.
AAVE leading the way in institutionalizing DeFi, new version of AAVE for industries lacking knowledge: AAVE's new version offers self-regulated KYC, Uniswap explores DAO grants, potential resurgence of enterprise blockchain, and verticalization opportunities in DeFi
AAVE is leading the way in institutionalizing financial services in the decentralized finance (DeFi) space, but there are many industries looking to access these services but lack the knowledge. A new version of AAVE, which could be described as "KYC light," is self-regulated and provides a better solution than traditional KYC methods or government-controlled smart contracts. The Uniswap ecosystem, which includes Uniswap and Bankless, is also exploring opportunities for decentralized autonomous organizations (DAOs) to utilize grants for labor and capital. Another trend to watch is the potential resurgence of enterprise blockchain, which could be more productive this time around. Additionally, verticalization within DeFi is an opportunity for growth, and listeners should look for DeFi protocols that are capitalizing on these verticalization opportunities.
Enterprises adopting roll-ups for cost-effective blockchain interactions: Roll-ups offer a more modular and cost-effective way for enterprises to interact with blockchains, enabling them to deploy solutions tailored to their needs. Large consultancies recognize Ethereum as a credible neutral settlement layer, boosting enterprise blockchain adoption.
The integration of blockchain technology in software as a service (SaaS) companies is gaining momentum, moving beyond experimental private blockchains towards the use of roll-ups as native sandboxes. Roll-ups offer a more modular and cost-effective way for enterprises to interact with blockchains, enabling them to deploy solutions tailored to their needs. Additionally, the involvement of large consultancies and their recognition of Ethereum as a credible neutral settlement layer bodes well for enterprise blockchain adoption. However, regulatory clarity may still be required for large enterprises to fully embrace the use of tokens. The advent of cheaper block space on layer 2 solutions is expected to bring more unnoticed opportunities to the forefront.
Regulatory clarity is a major obstacle for blockchain adoption by enterprises: Regulators are cautiously putting rules in place for blockchain technology to ensure consumer protection while not hindering innovation, Layer 2 solutions like rollups are expected to play a key role in enterprise adoption, and the DeFi summer round 2 could bring new layer 2 solutions and increased adoption for decentralized finance apps.
Regulatory clarity is currently a major obstacle for the wider adoption of blockchain technology by enterprises. However, there's a growing recognition that blockchains can be productive for businesses, particularly in areas like volume rebates and smart contract interactions. Regulators are cautious about putting rules in place that could hinder innovation, but they're also focused on consumer protection. Layer 2 solutions like rollups are expected to play a key role in drawing more enterprises into the blockchain ecosystem. Meanwhile, the DeFi summer round 2 could be on the horizon, with new layer 2 solutions like Arbitrum and Optimism unlocking valuable real estate for decentralized finance (DeFi) apps. These apps are racing to attract users and adoption on these new platforms, and liquidity binding is seen as a key incentive to get people to move from Ethereum to these layer 2 solutions. Overall, the future of blockchain technology is nonlinear and full of surprises, but the potential benefits for businesses and consumers are significant.
The Future of DeFi with Layer 2 Solutions: DeFi's future could be shaped by L2 solutions like Arbitrum and Optimism, offering dual liquidity mining and native tokens, leading to lower fees, increased experimentation, and potential rise of multiple L2 ecosystems.
The future of DeFi (Decentralized Finance) could see a significant boost through the use of Layer 2 (L2) solutions like Arbitrum and Optimism, which could incentivize both the usage of DeFi apps and their L2 counterparts through dual liquidity mining and native tokens. This could lead to a more euphoric DeFi market with lower fees and increased experimentation, especially for projects that are currently too expensive or slow on the base layer. The potential rise of multiple L2 ecosystems, each with their unique identities, could bring diversity and maximalism to the crypto industry. However, the lack of interoperability between these ecosystems could also be seen as a positive, as it allows each to grow and develop its own first principles. Ultimately, the Rollup Wars between different L2 solutions could be won by the one that best utilizes Miner Extractable Value (MEV), a societal cost on the base chain.
Effective Management and Distribution of MEV in Roll-Up Platforms: MEV is a valuable resource in blockchain, becoming the business model in roll-ups. Distributing it to the native token can create a more equitable ecosystem, allowing wider DeFi participation.
Maximum Extractable Value (MEV) in the blockchain space is currently a contentious issue, with miners currently benefiting from it. However, in a roll-up system, MEV becomes the business model itself, and the value can be distributed back to users or allocated to a native token. The winning roll-up platform will likely be the one that effectively marshals MEV into a valuable and productive system. There are ongoing experiments, such as Optimism's auctioning approach, but the speaker favors distributing MEV to the native token of the roll-up to create a more equitable ecosystem. This shift to layer 2 solutions can open up DeFi to a wider audience, allowing new users to participate in the space. The conversation also touched on the idea that the crypto and DeFi landscape can be seen as a tech tree, with layer 2 being a significant unlock for the ecosystem. Overall, the effective management and distribution of MEV will be a crucial factor in the success of the winning roll-up platform.
Exploring new opportunities in gaming and finance with Layer 2 solutions: Layer 2 solutions like Immutable X and Polygon are set to disrupt industries such as gaming and finance by enabling high-value use cases like options, derivatives, and perpetuals while keeping other functions off-chain. Indie studios in gaming are particularly interested in monetizing virtual assets using blockchain technology.
Layer 2 solutions like Immutable X and Polygon are expected to bring about new opportunities in various industries, particularly in options, derivatives, perpetuals, and gaming. These use cases are not a question of value but rather a matter of when they will launch. The gaming industry, in particular, is poised for disruption as indie studios explore the potential of blockchain technology to monetize virtual assets. Skeptics argue that high transaction throughput is not necessary for most applications, and that only the highest value use cases will interact with blockchains. The hybrid model of using blockchains for specific high-value use cases while keeping other functions off-chain is seen as a viable solution. Additionally, the risk of one of these solutions failing is mitigated by the ability to revert back to the mainnet.
A multi-chain future for blockchain networks: Ethereum as a base layer, layer twos for retail use cases, interoperability crucial, shift towards settlement network model, composability less important in this multi-chain future
The future of blockchain networks may involve a multi-chain ecosystem, with Ethereum serving as a base layer for secure applications and layer twos like Polygon, Optimism, and Arbitrum handling the transaction load for retail DeFi and other use cases. The speaker believes that Ethereum will continue to evolve and attract enterprise projects, while layer twos will cater to retail users and traders. Interoperability between different layer ones and layer twos will be crucial, and there may be a shift towards a settlement network model. The speaker also mentioned that composability might be less important in this multi-chain future, as each ecosystem will have its unique strengths. Overall, the bullish thesis on layer twos does not necessarily mean the end for other layer ones, but rather a change in their roles within the blockchain ecosystem.
Ethereum's scaling solutions and being Ethereum first strategy: Ethereum's scaling solutions increase throughput, allowing Ethereum to capture a larger market share with open innovation and mentorship, and the 'being Ethereum first' mentality gives credence to investors like Framework.
Ethereum's scaling solutions, such as layer 2 solutions and sharding, are expected to significantly increase Ethereum's transaction throughput, making multichain a reality. This increase in throughput is important for Ethereum to compete with other networks, but the advantages of high transaction throughput have diminishing marginal returns. Ethereum aims to capture a smaller share of a larger pie by embracing various security trade-offs and proliferating different layer twos and side chains. The demand for block space is expected to remain high as markets grow rapidly, and Ethereum's values of open permissionless innovation and mentorship have paid off for investors like Framework. The "being Ethereum first" mentality has given Framework credence with Ethereum developers and has been a successful long-term strategy. The "ultrasound money" meme, which emphasizes Ethereum's potential to become the dominant global financial network, is currently a meme for the Ethereum community, but its reach may expand beyond that in the future.
Ethereum as the AWS of the next web for institutions: Institutions find Ethereum more appealing due to its technology-first approach, ability to stake, borrow, and use as a medium of exchange, and easier valuation methodologies. DeFi tokens are also gaining institutional interest, but their governance constructs require more education.
Ethereum is being positioned as the Amazon Web Services for the next web, making it an easier sell to institutions compared to Bitcoin. The technology-first approach and the ability to stake, borrow, and use as a medium of exchange are key factors that make Ethereum more appealing to institutional investors. The conversation around Ethereum is more relaxed and optimistic compared to the intense and complex discussion around Bitcoin. The recent interest in Ethereum from institutions is still at the beginning stages, but the ease of conversation and the valuation methodologies make the institutional adoption process smoother. The same trend is also observed with DeFi tokens, as institutional investors are starting to understand the concept of decentralized finance and seeing them as capital assets. However, the organizational and governance constructs of DeFi and the concept of DAOs are still esoteric to allocators and require more education.
Understanding Ethereum and DeFi fundamentals for potential institutional investment: Realization of Ethereum and DeFi fundamentals could lead to significant institutional investment, Ethereum's shift from fees to productivity could derisk persistent revenues, and DAOs will continue to expand the design space for human coordination
The fundamentals of Ethereum and decentralized finance (DeFi) are still not fully understood by investors, and the realization of these fundamentals could lead to significant institutional investment. The discussion also touched upon the idea of a "super cycle" in the crypto market, and how Ethereum's shift in focus from fees to productivity could potentially derisk the question of persistent revenues. Additionally, the trend of on-chain and off-chain Decentralized Autonomous Organizations (DAOs) was discussed, with the belief that they will continue to proliferate and expand the design space for human coordination. The investment in a non-custodial Discord called Satellite, which utilizes Ethereum and Solana and allows for tokenized and DAO'd communities, was also highlighted as an example of the new organizational construct that is expected to drive innovation.
Exploring the Opportunities and Challenges of DeFi and DAOs: DeFi and DAOs offer innovative financial services, but users face unique risks. Predicted to grow beyond crypto-native communities, over 10% of world GDP may come from DAOs in the next decade. Future involves enterprise solutions and streamlined tooling.
The decentralized finance (DeFi) world presents both opportunities and challenges for users, and being "about that life" means accepting the risks and embracing the benefits. DAOs (Decentralized Autonomous Organizations) are expected to continue growing, with potential expansion beyond crypto-native communities. DeFi users have access to innovative financial services, including NFTs, DFI rails, and Bitcoin, but they also face unique risks like sending funds to wrong addresses or computer hacking. The path to DeFi can be challenging, but for some, the potential rewards make it worthwhile. Vance, with his unique skill set and temperament, sees DeFi as a natural fit for him and is optimistic about its transformational potential, despite the edges. In the next 10 years, it's predicted that over 10% of world GDP will come from DAOs. The future of DeFi and DAOs will likely involve enterprise-oriented solutions and more streamlined tooling.
Finding Freedom and Belonging in Crypto and DeFi: Guest Vance predicts DeFi's total locked value could reach a trillion dollars in 2-3 years, with the first dApp reaching 10 million monthly active users soon, despite uncertainty in layer 2 metrics.
Crypto and the decentralized finance (DeFi) space offers individuals the freedom and inclusivity to explore and innovate, as opposed to being confined to a specific role in a traditional web 2 company. Vance, a guest on the podcast, shared his personal experience of finding a sense of satisfaction and belonging in the crypto community. He also made predictions for the future of DeFi, estimating that total locked value could reach a trillion dollars within the next 2-3 years, with the influx of institutional allocators and the increasing user base. He also anticipates the first dApp with 10 million monthly active users emerging in the next year. However, he noted that accurate estimates for monthly active users and total locked value on layer 2 are currently uncertain.
DeFi on Layer 2 Solutions Reaching 100 Billion in Next Year: Framework, a crypto native venture firm, is focusing on adding value to the on-chain ecosystem and founders, growing headcount, and expanding Labs and Venture sides, instead of just being a venture fund.
According to Vance Spencer, the total locked value in DeFi on layer 2 solutions like Polygon is currently around 10 billion and is expected to reach 100 billion in the next year. Ethereum and Bitcoin are predicted to reach trillions in total value within a 3-year timeframe. Framework, a crypto native venture firm, is focusing on active participation in the market, keeping it healthy, and providing essential services to the on-chain ecosystem and founders. They are also growing their headcount and expanding their Labs and Venture sides. Instead of thinking of Framework as just a venture fund, consider it as a company that adds value to both the on-chain ecosystem and the founders building off-chain products. Tune in to the Bankless YouTube on Wednesday, 1 PM PST for a DeFi panel featuring Vance Spencer, Spencer Noon, and Santiago Santos.
Exploring the Risks and Rewards of Crypto and DeFi: The crypto and DeFi world is risky but offers potential significant rewards. Embrace the risks, learn as much as you can, and explore this exciting new frontier with us.
The world of crypto and decentralized finance (DeFi) is a risky frontier, but an exciting one. As we explored in episode 28 with Vance, going crypto native involves embracing the risks and uncertainties of the blockchain world. ETH, crypto, and DeFi all come with their own set of risks, and it's essential to ask yourself if you're prepared for that. However, the potential rewards can be significant. If you're interested in diving deeper into this topic, I recommend listening to episode 28 again and relistening to this episode. There's a lot to glean from both conversations. And remember, we're here to help you navigate the crypto journey, risks and all. As Vance put it, we're headed west, and this is the frontier. It's not for everyone, but if you're with us on the Bankless journey, we're glad to have you. So, embrace the risks, learn as much as you can, and let's explore this exciting new world together.
