Welcome back,
This past week, I went to Permissionless in West Palm Beach. This is one of the largest crypto conferences in the world, with thousands of crypto enthusiasts attending alongside key leaders in the field.
Besides getting to know some great people (and meeting Ryan Selkis - the inspiration behind the first ever Crypto Monkey Blog newsletter), I learned a lot through the various panels and speakers. So, this week, I wanted to share some of my key takeaways from this conference.
Enjoy!
-Katja
P.S. Starting this Monday, I will begin working full-time for a crypto company. For those that have been following my journey since the beginning, this is an incredibly exciting opportunity for me. However, that also means that I will have less time to write these newsletters. My goal is to post every other week, but the schedule will develop naturally as I settle into my new role.
Recap - Permissionless Conference
Despite all the negative news regarding the Terra/LUNA crash and crypto entering a bear market, this conference was filled with optimistic views of the future. I hope to bring some of that confidence in the industry to you.
Crypto’s bigger picture
Just like how the internet built a space for distributing information, blockchain technology is building a space for distributing ownership. This “internet of finance” is creating an opportunity to realign incentives to better serve the community and solve some of the biggest market failures and public goods problems as well as increasing individuals’ data sovereignty.
Such potential for good is why most in the industry, especially leaders in the space, take a long view of blockchain and crypto. Chris Dixon, General Partner at a16z, is one of those individuals. Because of his attitude, he offered a positive take on crypto in the current markets.
He said that crypto cycles have underlying trends that you will only see if you zoom out to the bigger picture. These larger cycles follow a four-step process: prices drive interest, interest drives creativity and ideas, ideas drive innovation, innovation reinforces the price. He called this feedback loop “the price-innovation cycle.”
Because of this cycle, crypto has consistently experienced long-term growth. The swings between greed and fear that we’re used to hearing only show the short-term market sentiment and miss the mark of what this technology is building and where it’s heading.
As written in a16z’s 2022 State of Crypto Report,
“As legendary investor Benjamin Graham once allegorized: It’s best to pay no mind to ‘Mr. Market’, who frequently boomerangs from exuberance and euphoria to despair and depression. To Graham’s wisdom we add an addendum: Better to build. Consider that any prospective founders who swore off tech and the internet in the aftermath of the early-2000s dotcom crash missed the best opportunities of the decade: cloud computing, social networks, online video streaming, smartphones, etc. Now is the time to consider what the equivalent successes will be in web3.”
Dixon further broke down the technological landscape, saying that every 10-15 years, there’s a major computing wave. He believes that not only is blockchain the next wave of innovation, but that we’ve also entered the golden era of web3.
Developments in the creator economy
Li Jin, Founder and General Partner at Variant, divided the creative economy into four phases, which date back to the creation of the internet.
Late 90s - Early 2000s: When the internet first started, everyone started to build and work on their own projects (just think dotcom bubble).
Early 2010s: The rise of social media brought the rise of influencers, who make money through sponsorships.
Now: Creators can function as businesses in their own right. They are their own brand, rather than selling someone else’s brand, and can earn money through subscriptions or their own products.
Future: The distinction between creators and their audience will get blurred, as the community becomes more influential and gains financial stake in what creators produce.
Although complicated and still not fully formed, there are two aspects of this fourth phase in the creator economy, which Anne Favre-Willis, VP of Special Projects at OpenSea, discussed. The first involves altering the relationship with fans and the broader community while the second focuses on removing friction over time.
A new idea, referred to as “Patronage+,” captures this shift in the creator-consumer relationship. Patronage refers to supporting someone because you like them. “Plus” extends patronage to include supporting someone because of potential to profit.
This not only realigns incentives between platform, creator, and consumer, but it also changes the life cycle of creation. In traditional systems, an individual must create content for free to build an audience and only then monetize work. Whereas in this new system, a creator can flip the playbook. An individual can mint work and sell to speculators, which would help bootstrap the creation of content and foster a community. In this case, as the artist gains traction, the community also benefits.
Such a system feeds directly into the removal of friction. Turning customers into community (either because of patronage or patronage plus) through the use of NFTs or social tokens requires transforming the transactional relationship evident in traditional systems with something more. It makes users into owners and gives them governing power and influence over creators. Art is therefore transformed from a product of a single person to the work of a cohesive collective.
Stablecoins & Terra/LUNA reflection
After the Terra/LUNA crash, it’s no surprise that the panel around stablecoins garnered the most attention. Right at the start, the general consensus was that algorithmic stablecoins are a feat of poor financial engineering.
Sam Kazemian, Founder of Frax Finance - issuer of a fractional algorithmic stablecoin, discussed at-length the importance of exogenous backing. He noted how even Terra/LUNA realized this (even though too late) and tried to boost BTC reserves. Algorithmic stablecoins target exchange rates and don’t necessarily function under the principle of “fully redeemable.” Although the system behind algorithmic stablecoins can work, it’s not meant to replace reserves behind a currency.
Despite the agreement, the debate around the right amount of collateral did not get settled. However, maybe having choices is the correct path. Sam MacPherson, Lead Developer at MakerDAO - an issuer of one of the most widely used (and overcollateralized) stablecoins, DAI, discussed how design differences are necessary because people need options depending on their risk tolerance and preferences.
In contrast, Catherine Gu, Director of CBDC & Crypto Infrastructure Build at Visa, turned the discussion to CBDCs. She discussed the central questions that she asks when evaluating the potential of CBDCs and how they compare to stablecoins: What are these currencies going to be used for? Who is driving the use? What will liquidity management look like? How will governance and community respond?
The other panelists did not express support for CBDCs. As Nic Carter, Partner at Castle Island Ventures, mentioned, people want transactional autonomy, which stablecoins provide. No government will allow that with CBDCs, meaning they will never give consumers what they want. However, maybe CBDCs could offer an additional alternative for developers to build faster and more efficiently.
Joao Reginatto, VP of Product Management at Circle, seemed to agree from an ethos-perspective and emphasized how these systems need to build the infrastructure that developers can use in the long-term. He underscored how the industry needs to focus on the customer instead of starting with solutions and searching for a use-case.
On this last point, I wanted to mention an interesting project brought up by Eric Peters, Founder, CEO, and CIO of One River Asset Management, and Brett Tejpaul, Head of Coinbase Institutional. In their search for use-cases to disrupt the traditional financial services industry, they’re now working on Project Hamilton which involves the government issuing T-bills and settling them with privately-issued stablecoins.
They discussed how the most important assets in the world are the US dollar and Treasury bills. Tokenizing the dollar would mean strengthening it in the global economy as the system continues to move into this new, digital space. Once the US moves in that direction, other countries and banks will follow.
The crypto industry has been suffering as of late, but that doesn’t mean it’s slowing down. Those in the space are in it for the long haul, and this conference really highlighted the spirit of and belief in crypto.