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    Good Game

    Round-Up: Will Real-World Assets and Consumer Apps Drive Crypto Adoption?

    Thu Jul 20 2023
    Crypto IndustryCoinbaseSpeculationNFTsMusic NFTsMarket VolatilityFinancialization of NFTsMessaging IntegrationReal World AssetsTokenization of Real World AssetsPrivate CreditChallenges in Tokenizing Real World AssetsChallenges in the Crypto IndustryFuture of Crypto Startups

    Description

    This episode covers various topics in the crypto industry, including Coinbase's role, speculation and NFTs, music NFTs, market volatility, financialization of NFTs, the future of NFTs and crypto, messaging integration and real world assets, tokenization of real world assets and private credit, challenges and opportunities in tokenizing real world assets, challenges and opportunities in the crypto industry, and the future of crypto startups.

    Insights

    Speculation plays a crucial role in enabling product market fit for real apps

    Speculation in the crypto industry is often seen as dirty and something to move on from, but it plays a crucial role in enabling product market fit for real apps.

    Compressed NFTs enable more affordable minting and bring in users from lower-income regions

    Compressed NFTs are expected to be a major onboarding tool for the masses into crypto, allowing for the deployment of millions of NFTs at a fraction of the cost compared to Ethereum. The high cost of minting collections on Ethereum limits the number of collections that can be created, while compressed NFTs enable more affordable minting and bring in users from lower-income regions like India and Southeast Asia.

    Crypto-native organizations want to minimize counterparty risk by holding US Treasuries

    Crypto-native organizations want to minimize counterparty risk by holding US Treasuries. Tokenized treasuries offer a source of revenue with high yields. Stellar has $300 million in TVL from tokenized RWAs. Layer ones need to capture RWA TVL to become the de facto RWA layer.

    Tokenizing individual properties is a challenging problem due to varying state regulations and the need for uniformity

    Tokenizing individual properties is a challenging problem due to varying state regulations and the need for uniformity. The time horizon for tokenizing individual properties is on the order of decades, not years. Stablecoins, like USDT, were one of the first real world assets to be tokenized and adopted at scale.

    The current crypto market is small, so being an incumbent doesn't guarantee success as new users can enter at any time

    The current crypto market is small, so being an incumbent doesn't guarantee success as new users can enter at any time. Some incumbents fail because founders stop caring about their product. Few founders want to work on something for a long time, leading to a lack of commitment in the space.

    Chapters

    1. Coinbase and the Crypto Industry
    2. Speculation and NFTs in the Crypto Industry
    3. Music NFTs and On-Chain Media
    4. Market Volatility and Financialization of NFTs
    5. The Future of NFTs and Crypto
    6. Coinbase's Role in the Crypto Industry
    7. Messaging Integration and Real World Assets
    8. Tokenization of Real World Assets and Private Credit
    9. Challenges and Opportunities in Tokenizing Real World Assets
    10. Challenges and Opportunities in the Crypto Industry
    11. The Future of Crypto Startups
    Summary
    Transcript

    Coinbase and the Crypto Industry

    00:00 - 06:58

    • Brian Armstrong wants Coinbase to be the WeChat for crypto
    • Google's Play Store now enables NFTs, with Reddit and Mythical Games as partners
    • Apple's 30% transaction fees hindered NFT-based consumer applications
    • The move by Google opens up opportunities for founders in the space
    • Anatoly, founder of Selana, claims credit for pushing the move by Google
    • Consumer NFT ecosystem enables speculative trading and social applications
    • Speculation is a fundamental aspect of crypto-based social applications
    • Crypto already has product-market fit through speculation

    Speculation and NFTs in the Crypto Industry

    06:39 - 13:43

    • Speculation in the crypto industry is often seen as dirty and something to move on from, but it plays a crucial role in enabling product market fit for real apps.
    • VCs and others may feel ashamed of speculation because it doesn't have the same impact as industries like defense tech or healthcare, but increasing people's bank accounts can be seen as a form of saving.
    • Compressed NFTs are expected to be a major onboarding tool for the masses into crypto, allowing for the deployment of millions of NFTs at a fraction of the cost compared to Ethereum.
    • The high cost of minting collections on Ethereum limits the number of collections that can be created, while compressed NFTs enable more affordable minting and bring in users from lower-income regions like India and Southeast Asia.
    • Solana is positioning itself as the blockchain for consumers, focusing on enabling mass adoption through products like compressed NFTs.
    • Validium is used for off-chain storage and compression of NFTs on Solana, providing a scalable solution that Ethereum should consider.
    • Enabling technologies like Google Play Store and compressed NFTs often emerge during bear markets, highlighting the importance of surviving long enough to take advantage of these opportunities.

    Music NFTs and On-Chain Media

    13:20 - 20:27

    • CNFTs and on-chain media are potential elements of the next bull market
    • Sound XYZ recently raised $20 million and has 10,000 holders of music NFTs
    • Music NFTs can be seen as personal tokens and access tokens to artists
    • Speculation is a key aspect of music NFTs
    • Superfans are willing to buy NFTs for closer access to artists
    • There are mixed opinions on the value of music NFTs
    • Interesting applications in the on-chain media category are emerging
    • Azuki launched Elementals, a secondary collection similar to Mutant Ape Yacht Club's subsidiary collection
    • The similarity between Azuki Elementals and the main collection caused controversy among collectors
    • The price of Azuki OG dropped significantly due to dilution from Elementals

    Market Volatility and Financialization of NFTs

    20:06 - 27:26

    • The price of Zuki OG collectors dropped by 70% and Zuki elementals dropped from 1.8 e to.
    • People started questioning the entire NFT ecosystem after the drop in collections.
    • Board apes and other collections dropped by 50%.
    • Blend liquidations caused some NFT collections to dump.
    • Financialization is happening within NFTs, similar to BitMex's volatile moments.
    • New NFT5 startups are emerging, offering leverage trading and derivatives on NFTs.
    • NFT5 volume is growing, similar to the early days of DeFi.

    The Future of NFTs and Crypto

    26:59 - 34:05

    • Aynf T5 is still pretty non-consensus now, but it's possible it could grow similar to D5 summer.
    • An FT total market cap may surpass tokens due to financialization of the asset class.
    • NFTs won't surpass fungible tokens because of lower liquidity and inability to do arbitrage.
    • Calculating index price for NFT perps is difficult due to non-fungibility and illiquidity.
    • Physical settlement could be a cleaner way to do derivatives on NFTs.
    • Options on NFTs could provide leverage and hedging opportunities.
    • Robinhood's options trading volume shows the popularity of leverage among retail traders.
    • NFT5 is an exciting growing asset class that will get big soon.
    • Brian Armstrong wants Coinbase to be the WeChat for crypto, but replicating WeChat's success may not happen in the US.

    Coinbase's Role in the Crypto Industry

    33:46 - 40:57

    • WeChat dominated the social app market in China due to lack of competition.
    • Competition and existing payment rails make it difficult for one app to dominate in the US.
    • Coinbase could become the gateway to crypto if it remains unchallenged.
    • Coinbase is positioning itself for a future where crypto touches every industry.
    • Binance and MetaMask are potential competitors to Coinbase outside of the US.
    • Coinbase aims to own customer intent and be the identity provider in crypto.
    • Base, Coinbase's platform, may attract startups building on its infrastructure.
    • Coinbase's wallet-to-wallet messaging feature enables social experiences within the wallet.
    • Address-to-address messaging is a natural human behavior in the crypto space.

    Messaging Integration and Real World Assets

    40:29 - 48:03

    • XMTP is leading the way in messaging integration with lens and Coinbase
    • Coinbase is paving the way for wallet-to-wallet messaging and social interactions
    • Com is transitioning from a DJN Chicago casino to a native developer ecosystem
    • Real world assets, such as US Treasuries, are gaining traction on-chain
    • Crypto-native organizations want to minimize counterparty risk by holding US Treasuries
    • Tokenized treasuries offer a source of revenue with high yields
    • Stellar has $300 million in TVL from tokenized RWAs
    • Layer ones need to capture RWA TVL to become the de facto RWA layer

    Tokenization of Real World Assets and Private Credit

    47:36 - 54:58

    • Goldfinch offers private credit by allowing people to deposit USDC and find legitimate borrowers, particularly growth stage startups.
    • The current lenders in this space are predatory towards these borrowers who lack reputation or collateral.
    • Startups can deposit USDC and earn a fixed yield while providing collateral in the form of real-world assets to borrow at an interest rate of around 18% or 15%.
    • This has attracted new users to crypto who previously didn't have access to credit, with USDC being the main stablecoin used.
    • Tokenization of real world assets (RWAs) has always been envisioned, but it's important to start with assets that are immediately useful to certain user segments.
    • Real estate tokenization may not be practical due to fragmentation, but MLS could potentially become an exchange for property transactions.
    • A player like Zillow could revolutionize the way we buy property by entering this space.

    Challenges and Opportunities in Tokenizing Real World Assets

    54:32 - 1:02:08

    • Tokenizing individual properties is a challenging problem due to varying state regulations and the need for uniformity.
    • The time horizon for tokenizing individual properties is on the order of decades, not years.
    • Stablecoins, like USDT, were one of the first real world assets to be tokenized and adopted at scale.
    • Stablecoins initially solved the problem of providing stability in a volatile market and enabled cross-exchange arbitrage.
    • The adoption of real world assets often starts with niche use cases, such as stablecoin arbitrage, before expanding into broader markets.
    • The number of active developers in crypto has decreased by almost 20% from its peak, and the number of new developers entering the space has dropped by nearly half.
    • Crypto startup founding rates are at an all-time low since 2012, according to a report from Crunchbase.
    • Investment in crypto ventures has also significantly decreased compared to previous bull markets.

    Challenges and Opportunities in the Crypto Industry

    1:08:42 - 1:15:51

    • Venture funding investing is becoming harder than it has been in the past two years.
    • The private market always lags behind the public market by around six months to a year.
    • Many founders have unrealistic expectations of valuations and fundraising terms.
    • Founders should focus on their own product and not compare themselves to competitors.
    • Data points seen in public announcements may be outdated.
    • Security-related products are more likely to stay relevant due to the Lindy effect.
    • For other types of products, new enabling technologies can disrupt incumbents within five to ten years.
    • The current crypto market is small, so being an incumbent doesn't guarantee success as new users can enter at any time.
    • Some incumbents fail because founders stop caring about their product.

    The Future of Crypto Startups

    1:15:21 - 1:19:47

    • Incumbents can get unseated if the founders stop caring about their product.
    • DeFi protocols are often maintained by the community, but it's unclear if they will continue to innovate.
    • Compound and Aave founders are working on different startups now, raising questions about the future of their projects.
    • SushiSwap's community-led decision-making led to product fragmentation and a decline in price and users.
    • It's hard to know how much founders still care about their projects or if they're still working on them.
    • In traditional markets, startups take longer to launch and have reporting requirements as publicly traded companies.
    • The crypto ecosystem lacks long-term focus and has poorly aligned incentives for quick monetization.
    • Few founders want to work on something for a long time, leading to a lack of commitment in the space.
    • Cain from OG DeFi is respected for his continued focus on building products like Quenta.
    • Founders should take a long-term view in order to create significant value for themselves and their products.
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