Podcast Summary
Learning about new projects and developments in DeFi: Stay informed with Meet the Nation episodes on Bankless YouTube, featuring interviews with up-and-coming DeFi projects.
The crypto and DeFi space moves quickly, and it's important to stay informed and learn about new projects and developments. The State of the Nation episode 6 features an interview with Rune Christensen, the founder of Maker, and an announcement of a new Bankless show called "Meet the Nation." In this show, Bankless will feature interviews with new and up-and-coming projects in the DeFi space. The first episode of Meet the Nation was released with Reflexor Labs, and an interview with the Ampleforth team is coming soon. To stay informed and learn about these projects, subscribe to the Bankless YouTube channel and catch Meet the Nation episodes as they are released. These shows provide valuable insights and help investors get ahead of what's happening next in DeFi.
Stay informed about DeFi projects with Bankless HQ: Follow Bankless HQ for updates on Aave, YFI, and other DeFi projects disrupting the crypto market
The decentralized finance (DeFi) space is experiencing exponential growth, with new projects and tokens emerging at an incredible pace. To stay informed and understand this rapidly evolving landscape, it's essential to follow reputable sources like the Bankless HQ Twitter account and subscribe to their YouTube channel for updates and insights. One such project is Aave, a borrowing and lending protocol on Ethereum that offers stable interest rates, an essential feature for bringing crypto to the mainstream and replicating traditional financial services. Another intriguing project is YFI (Yield Farming Infinity Token), which is part of the DeFi liquidity mining movement, but understanding how it works requires a deep dive into the specifics of the project. The potential for these projects to disrupt the market and displace established cryptocurrencies is significant, making it an exciting time for those with an open mind and a willingness to learn.
Argent: A User-Friendly DeFi Wallet with No Gas Fees: Argent is a wallet providing access to DeFi platforms with no gas fees, secure options, and a growing asset class for traditional valuation methods.
Argent is a user-friendly DeFi wallet that offers access to various decentralized finance (DeFi) platforms like AAVE, Compound, and Kyber, with no gas fees. Argent is also secure, with options for guardian and social recovery, making it a viable alternative to traditional wallets. The crypto capital asset class, which includes DeFi tokens, is different from other crypto assets as it has tangible cash flows, allowing for traditional valuation methods like PE ratios and DCF models. The Q2 token report by Lucas Campbell highlighted this emerging asset class, providing insights into the value of DeFi tokens through grounded and fundamental valuations. The growth in this space has been explosive, offering new opportunities for traditional investors to value DeFi tokens in ways previously impossible with other crypto assets.
DeFi Earnings Drop Significantly in Q2: DeFi earnings dropped from $20M in Q1 to $4M in Q2 due to Maker's 0% stability fee and Synthetix's disproportionate earnings reporting in Q1. However, Q2 saw the launch of new entrants and greater diversity in the DeFi space.
While DeFi tokens experienced explosive price growth in Q2, their earnings have significantly dropped compared to Q1. The earnings chart shows that DeFi protocols generated approximately $20 million in cash flows in Q1, but this number dropped to around $4 million in Q2. This drop in earnings can be attributed to several reasons, including Maker's 0% stability fee to stabilize DAI and Synthetix's disproportionate earnings reporting in Q1 due to front-running issues. However, despite the drop in earnings, Q2 saw a greater diversity in the DeFi space with the launch of new entrants like Uniswap v2, Balancer, Wren, and Genesis. It's important to note that not all DeFi tokens have tokens to capture their value, and the analysis of relative valuations of tokens can help create a "price-to-earnings" ratio, similar to the concept in the stock world. This ratio can provide insights into the investor sentiment towards a particular DeFi token. Overall, while the price appreciation has been impressive, it's essential to consider the earnings and the underlying fundamentals when evaluating the value of DeFi tokens.
Using PE ratios to evaluate DeFi tokens: PE ratios provide insight into a DeFi token's potential future growth by comparing it to tech stocks and established companies.
The Price to Earnings (PE) ratio, which is commonly used to value stocks, can also be applied to DeFi tokens to understand their potential future growth. Tech stocks with high expectations of future growth tend to have higher PE ratios, indicating the market's belief in their growth potential. While some DeFi tokens may have high PE ratios, their massive addressable markets and potential for growth make them relatively undervalued compared to established companies with lower growth potential. Additionally, unlike companies, DeFi protocols have limited ability to manipulate their earnings, making PE ratios a more nuanced evaluation tool. Overall, the ability to compare DeFi tokens to the stock market using PE ratios is a valuable tool in understanding their potential value.
DeFi protocols with real earnings potential gaining attention: DeFi projects undervalued compared to larger projects, market may shift focus, three types of crypto assets: capital assets, commodities, and store value coins
The crypto market may be experiencing a repricing event where DeFi protocols with real cash flows and earnings potential are starting to gain more attention from investors. The discussion highlighted the significant undervaluation of many DeFi projects compared to larger projects with minimal earnings or revenues. The speakers argued that as the market begins to recognize the value of these DeFi protocols, there could be a paradigm shift in the crypto space. Furthermore, they criticized the outdated narrative that pits Bitcoin against altcoins, suggesting instead that there are three types of crypto assets: capital assets with earnings and cash flow, commodities based on supply and demand, and store value coins. The speakers expressed optimism that the DeFi protocols, which have seen massive runs but are still below $1 billion valuations, could eventually be priced similarly to larger projects. However, they acknowledged that market narratives and irrational behavior could prolong the current state of valuations.
New projects and sponsors in the DeFi sector: The DeFi sector is growing rapidly with new tokens and projects, including Curve, BZR, Ooma protocol, Ampleforth, and Diversify. While the DeFi space offers high potential for growth, it's essential to approach it with a long-term perspective and ethical investing practices.
The decentralized finance (DeFi) sector is experiencing significant growth and innovation, with new tokens and projects launching regularly. This growth is expected to continue for years to come, making it an exciting investment opportunity. Notable projects include Curve in the decentralized exchange sector, BZR in lending, and Ooma protocol in derivatives. Ampleforth and Diversify are two sponsors worth mentioning. Ampleforth is a non-dilutive, supply elastic and price inelastic currency experiment with a unique rebasing mechanism. Diversify is a professional-grade, non-custodial DeFi exchange operating on a layer 2, offering low fees and instant execution. However, it's important to note that while the potential for growth is high, there are also ethical considerations when it comes to price manipulation and pumping of coins. Bitcoiners have recognized the connection between the health and protective barrier of a blockchain crypto system and the price of its native asset. Ultimately, it's crucial to approach the DeFi space with a long-term perspective and a commitment to ethical investing practices.
Ethereum's self-sovereignty relies on Ether's value: Ethereum's security and survival depend on Ether's value, making it crucial for Ethereans to prioritize the long-term value of the asset.
Ethereum functions as a platform for self-sovereign applications, with Ether acting as a protective force for the network. Ethereum's self-sovereignty comes from the market cap of Ether, and the value of Ether is crucial for the security and survival of the Ethereum network. When Ethereum or Ether holders prioritize the token's value, they are effectively protecting the network. The distinction between decentralized and centralized assets is essential when considering the morality of "pumping" their prices. Bitcoin and Ethereum, as sufficiently decentralized projects, have a community that prioritizes price increases as a means of network protection, rather than a malicious attempt to manipulate the market. The Ethereum community, however, has historically been less comfortable with this concept. The security of Ethereum relies on the price of Ether, making it essential for Ethereans to prioritize the long-term value of the asset.
Balancing Network Development and Price Appreciation in Ethereum: Ethereum's co-founder Vitalik Buterin emphasizes the importance of not neglecting network growth for price focus, while managing centralized components and token economics creates a balance.
The Ethereum community, like Bitcoin, faces the challenge of balancing the focus on network development and price appreciation. Vitalik Buterin, Ethereum's co-founder, has expressed concerns about becoming overly fixated on price, potentially leading to neglecting the network's growth and vision. Ethereum, while decentralized in many aspects, still has centralized components, such as client teams and the Ethereum Foundation, which distribute funding. This creates a delicate balance between fostering network growth and managing the political implications of distributing resources. Ethereum's token economics, with its link between network usage and ETH price appreciation, creates a virtuous cycle. However, the focus on fundamentals, like the upcoming EIP 1559, could potentially reduce the need for price-focused discussions. Ultimately, striking the right balance between network development and price appreciation is crucial for Ethereum's success.
From ETH price to DeFi value: The shift from Ethereum's price to the value and adoption of DeFi protocols is due to EIP-1559 and staking, with ERC-20 tokens' value surpassing ETH challenging the 'fat protocol' thesis. The focus is now on long-term value and real-world impact.
The value of Ethereum (ETH) is no longer solely determined by its price, but by the economic activity and real-world utility of decentralized finance (DeFi) protocols built on it. The shift in focus from ETH price to the value and adoption of DeFi protocols is a result of the implementation of EIP-1559 and staking, which have added more fundamental value to Ethereum. A recent development that highlights this shift is the aggregated value of ERC-20 tokens on Ethereum surpassing the value of ETH itself. This challenges the "fat protocol" thesis, which suggests that the native asset of a chain should have a greater value than the aggregate of tokens on the chain. However, it doesn't necessarily mean that the ether price should be directly tied to the value of DeFi protocols. Instead, the more value and adoption of DeFi protocols, the more likely it is for the ether price to increase. In essence, the conversation around Ethereum and its price is evolving from speculation and short-term gains to a focus on the long-term value and real-world impact of DeFi protocols. This shift is crucial for the growth and success of the decentralized financial system and the broader crypto ecosystem.
Ethereum's Security Not Compromised by Token Market Cap Surpassing Ether's: Understanding the distinction between Ethereum settling ETH and ERC-20 tokens, and the legal system settling non-bank issued tokens, is crucial for Ethereum's security.
While the aggregate market cap of all tokens on Ethereum can surpass the ether price, it doesn't mean Ethereum's security is compromised. The distinction between the settlement of native Ethereum assets like ether and ERC-20 tokens issued by banks and settled in the traditional financial system is crucial. Ethereum settles transactions of both ETH and ERC-20 tokens, but not all ERC-20 tokens are settled on Ethereum. Instead, they settle in the legal system, using Ethereum as a transport layer. It's essential that the value of trustless assets, like ether and non-bank issued ERC-20 tokens, maintains a ratio with ETH's value to ensure Ethereum's security keeps pace with these digital bearer assets. If a hack occurs and someone drains a USDC account, they could immediately sell it for Ether on decentralized exchanges. In such a scenario, Coinbase or other exchanges might freeze the account to prevent further transactions. The speaker emphasizes the importance of understanding these nuances.
Settling Transactions on Ethereum: Ether as Base Settlement Layer: Ether's decentralized nature makes it the base settlement layer on Ethereum, ensuring settlement guarantees and responsibilities not found in centralized stablecoins.
Settling transactions on Ethereum fully is crucial for avoiding ambiguity and potential legal issues. Ether is considered the base settlement layer due to its decentralized nature and the responsibilities that come with it. Centralized stablecoins like USDC or DAI may not have the same level of settlement guarantees or responsibility to refund stolen funds. The fat protocol thesis, which suggests that a few large protocols will dominate the market, is a flexible concept that may continue to shape the crypto landscape until a single ERC-20 token surpasses Ether's market cap. Ampleforth, a sponsor of the show, is an intriguing monetary experiment. Despite its volatility, the supply of Ampleforth is designed to always represent a constant percentage of the market cap for its holders. This concept, which is the inverse of what most crypto users are accustomed to (stable supply and volatile price), may be a psychological trick that could change the way we perceive and value digital assets. However, it's essential to understand the underlying supply dynamics to fully grasp Ampleforth's unique features.
Rebasing shifts volatility to supply, not price: Ampleforth's rebasing mechanism changes how volatility works, but it doesn't eliminate it. The team must extract utility and value from volatility, and market understanding and awareness are crucial for success.
While Ampleforth's rebasing mechanism changes the way supply and demand work compared to traditional ERC 20 tokens, it doesn't eliminate volatility. The market cap of Ampleforth is still as volatile as any other cryptocurrency. The rebasing mechanism shifts volatility from price to supply, but it's up to the Ampleforth team to extract utility and value from it. The market doesn't fully understand this yet, leading to psychological biases and misconceptions about price changes. Money, as a social construct, relies on memes and awareness for success. Ampleforth's legitimacy depends on its ability to distribute its token and gain awareness. The meme layer is an essential part of cryptocurrencies, driving their value and security. Ethereans may prioritize utility over memes, but both elements are crucial for success in the crypto space.
The value of cryptocurrencies is derived from their utility and perceived worth: Cryptocurrencies like Bitcoin and innovative projects derive value from their unique features and market acceptance, with utility and innovation intertwined.
Bitcoin and other cryptocurrencies have a symbiotic relationship between their utility and perceived value. Bitcoin, for example, has limited utility beyond proof of work and seizure resistance but derives value from its liquidity and widespread acceptance. Similarly, the utility of projects like Ampleforth lies in their unique mechanisms, and their value is derived from the team's ability to leverage that innovation. However, the creation of new tokens does not necessarily threaten the value of established cryptocurrencies, as regulation and market acceptance are significant factors. Overall, the value of cryptocurrencies is a result of a complex interplay between their utility, innovation, and market perception.
