ETHDenver recap: 10 behaviors that will make you money in 2022
The recap to read after you've read the others
I spent a few days at ETHDenver. There will be many recaps out there after the event. I’m trying to go a step further and think about how to get ahead in a world where people are absorbing those recaps. Here are ten ideas.
<TL;DR>
Know people, not just projects.
Use the ecosystem funds and/or help protocols develop funding strategies.
Help investors with their compliance.
Craft better tokenomics and financial models that prioritize capital efficiency.
Build at the intersection between AI and DeFi.
Go out and shape regulation.
Think value before UX.
Fix “crypto for good,” please.
Treat DAOs like house plumbing - demand 100% functionality.
Give DeFi a credible vision, both for insiders and outsiders.
</TL;DR>
Know people, not just projects. Conversation after conversation, I was impressed at the level of understanding, both financial and technical, of the people I spoke to. I was energized by their enthusiasm. The caliber of the teams I spoke to often far exceeded the caliber of the projects they ran. I wrote about this phenomenon in my CEE writeup. I think point #10 below partly explains this. The other reason is the early stage of the entire industry, the FOMO, the “me too” attitude. Much creative destruction, pivoting and reshuffling lies ahead. I have no doubt that many of these people will indeed define the foundations of the future economy, through their work in crypto or otherwise. At such an early stage, for the investor, it makes more sense to map out the talent (the “who”) rather than just the projects (the “what”).
Use the ecosystem funds and/or help them develop strategies. The lowest-effort strategy for raising money right now would be to have a short project proposal and submit it to all the different protocol-associated foundations to receive funding. Ecosystem funds are massive (e.g., NEAR’s is more than a billion) and funding approval rates in some cases are 70% and up (!) Who needs VCs, right? I spent quite a lot of time understanding each L1 / L2’s ecosystem development strategy and they vary massively, from “let 1,000 flowers bloom” (e.g., Arbitrum) to highy intentional (e.g., Harmony - GameFi and NFTs). The latter model is clearly the way to go - I’d like to see protocols run startup studio-style operations with in-house R&D, talent sourcing, etc. They’ll need help with that.
Help investors with their compliance. Forget about pension funds just yet, but your HNWIs, family offices and the like are already in DeFi. For businesses serving them, compliance is a major headache. This is hurting new investor onboarding. Many DeFi projects only integrate Metamask whereas Wallet Connect is what custodians rely on. Simple trading operations tend to generate dozens of theoretically taxable events: it’s often nigh on impossible to reconcile Etherscan records with the reporting requirements of the fund administrators. This is primarily a contract design issue that developers will need to think about, possibly to be solved by some auto-staking mechanisms.
Other problems include: lack yield parameters and historical data, clarity around the impact of governance changes, lack of APR standards, etc. Projects that can solve all these issues systematically will be worth gold. Experts able to add decisive value here can, as one HR director told me in Denver, “pretty much name any salary they want.”
Craft better tokenomics and financial models that prioritize capital efficiency. On the tokenomics side, it’s amazing that we’re still in some cases in the world of boom and bust MasterChef-style contracts of high initial APYs and no governance pool lockups, which incentivize mercenary farming and dumping. Curve’s veToken model solves part of the problem but imposes long-term holding that locks up capital and only works for VCs and the like. The Curve model also leads to centralization as retail investors look to cash out via derivatives - Convex now owns 42% of CRV supply, for example. There’s still lots of room for improvement here. Say Platypus has a model whereby vePTP is not locked but unstaking PTP leads to loss of all accumulated boost. That’s a good start.
From an investment standpoint, we need more products that take on purely market risk (rather than the inflationary one) in a capital efficient way. For example, Lyra, an options AMM on Optimism, has a pool (soon automatically delta hedging) against which calls and puts are traded, thus generating yield from short-term volatility risk. Projects like Gearbox are trying to solve the leverage problem in a composable way. All this gets technical fast, and is another amazing opportunity for experts including TradFi folks with an understanding of risk and incentives, to become involved.Build at the intersection between AI and DeFi. I am seeing at least a few obvious directions for this. For example, a natural next step in your bot-driven MEV extraction or yield farming strategies is using the dataset to train AI to come up with these strategies dynamically. This would give a new dimension to the endless loop of seeing your competitors’ strategies on the chain and trying to one-up them, which often results in no profit for either party. Conversations I had with teams working on these problems were some of the most interesting I had at the event. Even experts are still struggling with this - a great time for people with those unique skill sets to join in.
Go out and shape regulation. Most people understand that some regulation is coming. But we’re still treating the fact with cartoonish narratives of tyrant regulators oppressing poor freedom-loving crypto folk. Phase one was ignoring all regulation and trying to get too big to ignore, fast. A handful of companies (arguably) achieved this. But now we’re in phase two.
We must engage; there’s a huge space out there for people who know how to. My experience influencing ESG regulation in the EU and Switzerland gave me more than a glimpse into the mind of the regulators. They are just people. They mostly negotiate in good faith. Many of them use crypto. They want to understand. They can be incredibly collaborative. They can also be confused, constrained by political realities, insecure. You know, just like anyone else. If we don’t take initiative and engage on our own terms we will be engaging on someone else’s.Think value before UX. The narrative around “how we bring the next billion into crypto” is big, and people are starting to see the user experience as crucial for this. Cue in easy to use wallets, automatic portfolio rebalancing, robo investors, all sorts of dashboards, etc. Five years from now, the tools will be there for my mother to be a DeFi degen, for better or worse. But here’s the catch: she’ll still need a compelling reason to want to do this. If you’re trying to onboard “the next billion” onto DeFi then steps before UX include deponzification, addressing pain points in the real economy and having product-market fit. Only then comes UX.
Fix “crypto for good,” please. With the exception of a few projects presented by the Celo team, the talks around what DeFi can do to “make the world a better place” were either just insipid or downright dangerous. There were people talking about climate action and saying that influencing policy was a “lost cause” and that we needed to self-organize to save the planet (?) There were people peddling long-discredited microfinance strategies, with a DeFi twist. There were others selling impact investing like a cure-all, the way TradFi has done for years with poor results. I don’t blame the presenters - sustainable finance, climate science and philanthropy are tough and nuanced fields that require as much education and experience as crypto does, and you can’t be an expert at everything. But we clearly need more people with more appropriate profiles steering DeFi towards sustainability.
Treat DAOs like house plumbing - demand 100% functionality. We’re past the initial DAO hype and projects are trying to solve the practical problems we’ve encountered along the way. We need better ways to structure the hierarchy, solutions for freeloading, inactivity and voting, etc. It’s really important not to mystify DAOs. They are the plumbing of DeFi - they need to be functional and seamless. They just need to work, in ways that are uniform and predictable. The bar set by other forms of organizing is not that high - companies can be dysfunctional, governments notoriously so. We can do better than this but need to keep innovating mercilessly until we do. The presentation by Mochi caught my eye in this regard.
Give DeFi a credible vision, both for insiders and outsiders.
This point is super important but I kept it for last since it’s long and rambling.
The intro slides of an average project deck these days remind me of reading countless papers on arXiv presenting unsuccessful P vs NP proof attempts. The latter have two characteristics - first, they go round in circles using heavy maths to essentially present an intuitive claim that obviously P = (or !=) NP; second, they ignore the fact that such a monumental result can’t stand in isolation but must imply half a dozen important interim results, truths about our reality that have to hold if the proof is to hold.
My point: DeFi has a vague mission statement centered on decentralization, privacy, financial inclusion and better governance. Many people repeat that line readily, treating its value as concrete and obvious. It’s neither. Its validity depends on major assumptions which, depending on your interpretation, might include the following:DeFi will stop being a closed system (a ponzi scheme, effectively) for speculation and will have benefits for the real economy. Questions: what specific benefits, and when? What will be the incentives for the different economic actors in that world to change their behavior and adopt DeFi?
DeFi will have something to offer to people who don’t care about the theoretical or technological tenets and want instant transactions at low fees, impeccable UX, seamless global on and off ramps for remittances, and reversibility of transactions when they mess up. Question: how and when will this happen?
DeFi will give us financial inclusion. Question: What is the relation of financial inclusion and financial inequality in the resulting world? Are we bringing the unbanked on board so as to give them power or so as to take their money?
A project needs to position itself towards those assumptions and have answers to the questions. Some are easier than others. The answers can evolve with time. But they must exist, because their implication on the business model is direct. If you believe in the world where DeFi wins then you are happy to build for years and don’t care about bulls and bears. You know the pie will grow. You know regulators won’t be able to ignore or subdue you. If you don’t believe then you focus on extracting value from the retail investors in the short term.
My impression is that many projects still profess allegiance to the former position while implicitly building for the latter. This is not because they operate in bad faith but because they haven’t taken the time to connect the dots between the current reality and the future one. To do so, the founders, the investors, and the industry as a whole, will need inspiration and guidance from a fresh batch of thinkers low on shill and high on understanding economic, social and historical dynamics.