06 | The Perfect Storm

Are we at an inflection point for DeFi?

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Stats From DeFi Pulse

It’s been really fun to watch the decentralized finance or “DeFi” space grow recently. For those of you who are less familiar, DeFi loosely refers to financial products & services built on public protocols and open-source software. What started out as an idea has taken off, with nearly $2B+ in assets locked in the ecosystem. Since 2017, the crypto industry has been growing strong, albeit without that same dangerous mania we witnessed with ICOs. Over the past two weeks though, people felt ICO level excitement.

We’ve started to feel some palpable energy. So what gives? Crypto projects are shipping at a crazy fast pace - new tokens, growth hacks, and excellent UI. Speculation is still the main use case for platforms bootstrapping liquidity, but in doing so, they hope to sustain longer-term growth. Despite the recent growth, DeFi is still in its “toy” phase - many cool projects are looking for that killer app. But to anyone watching closely, DeFi has proven itself to be resilient and crazy innovative over the past 18 months. Jesse Walden wrote up a great post about DeFi crossing the chasm and how DeFi might make its way to mainstream adoption. He discusses three popular narratives: (1) banking the unbanked (2) institutional adoption, and (3) a real crypto economy. I tend to think it’ll be a combination of all of the above. But there is a missing piece here - the context of the world DeFi is maturing within. There are three broader trends I believe are important to the success of DeFi.

(1) Memes | Investing culture is increasingly becoming a sport.
Meme investing is a hallmark of crypto and now, its found its way into the stock market. We have David Portnoy doling out advice on YouTube, Hertz brought back to life momentarily, and the stock market hitting all-time highs in the middle of the pandemic. Memes are mainstream and investing is increasingly becoming a sport. This behavioral shift from niche to mainstream audience behavior could alter how individuals engage with trading platforms of the future. This attitude lends itself well to DeFi, albeit with high degrees of risk.

(2) Content Creators | Own your distribution
The time for individual content creators to shine is here. However, unlike the early days of social media, there is a new mantra: own your distribution. Creators continue to rely upon aggregators but are constantly looking for ways to maintain control over who they reach and how they engage with communities. Crypto projects are poised to provide economic tools for the creator economy. Whether it’s monetizing a creator specifically or coordinating incentives for new product launches - crypto projects like Roll and Foundation are providing an economic incentive layer for creators that will increasingly be in demand.

(3) Globalization | First with communication, now with money.
The web made it easy for anyone to communicate with anyone around the world. Yet, financial markets remain relatively siloed. With the onset of financial companies removing global barriers for payments, infrastructure, and more (e.g., Stripe), markets are opening up. DeFi platforms take this idea of open access even further. While the globalization of the internet may not solve all the “unbanked” challenges, I do believe the macro trend will open up paths for adoption in DeFi that would not have been possible a decade prior.

It’s unclear if we have the perfect storm yet for DeFi to really cross the chasm, but it certainly feels like we are witnessing an inflection point in financial markets. Would love to hear other thoughts on why the DeFi ecosystem may or may not be successful - and what’s needed to get there.

Monthly Links

Crypto & creators

  • Foundation is experimenting with building markets on ethererum for creators. This paired with Jesse Walden, Fred Ehrsam and Blake Robbins’ podcast on crypto & creators is a great explainer on the opportunity space.

  • Li Jin touches upon critical crypto ideas with her thread on platforms vs. creators

Meme investing & the Robinhood casino

  • The markets saw some wild behavior with Hertz - I loved Alex Danco’s breakdown of this.

  • Howard Marks shares thoughts on the rally and risk vs. reward in this sobering memo.

  • Anuj Abrol is doing an experiment called The Witty Transparency Fund that I’m looking forward to following - the goal is to emulate Chamath’s investing style.

Odds & Ends

  • Tracey Young’s account of being a female founder is a must-read.

  • Laura Deming’s writing is mature beyond her years - this thoughtful post on how not to be sad is brave.

  • I’m working my way through this masterclass list of essays. Will Haynes kindly aggregated them in this Notion page.

Monthly Mood 😂 we all are just giving up