2021 represented a record year of investment in cryptocurrency and blockchain, with venture capital allocating roughly $33 billion into the space. While 41% of these dollars were put towards companies specializing in the exchange, trading, and lending of digital currency, another 17% was invested into innovative startups building on new trends in the marketplace including NFTs (non-fungible tokens), DAOs (decentralized autonomous organizations), and Web3 (decentralized internet system). Despite the volatility in crypto markets, it doesn't seem that expansion in crypto and blockchain services is expected to slow down in 2022.
In order to zoom in on the complex landscape of crypto and blockchain tech, I spoke with three Boston-based crypto professionals:
Liam McDonald - Director of Partnerships at Sarson Funds
Dennis Miller - Senior Investment Analyst, Defi at Token Metrics
Vlad Vronsky - Methodologist at Index Coop and Steering Committee Member of Boston Blockchain Association
The three pointed to seven specific trends that they believe will drive the conversation in 2022.
1. The future is DAO.
You may have heard of DAO, particularly in the last twelve months. But as a primer, DAOs (or decentralized autonomous organizations) are created by a group of crypto wallet holding individuals and organizations by which decisions can be made safely and securely via code without a structured legal or banking foundation.
“Companies and projects are essentially owned by a community. This is the direction a lot of crypto startups are going in order to remove centralized decision-making power and foster true democracy,” noted Liam McDonald.
DAOs remove the decision making power from hierarchical management structures and replace it with a community of members who themselves vote on proposals put forth by the group directed at its common mission. Built on open-source blockchains that anyone can view, DAOs also remain innately transparent, foundational to the strength of an organization.
In order to better understand how they operate, I asked Liam to provide an example of a well-functioning DAO he believes in.
Enter PopcornDAO - a community of users looking to ”drive social impact for the public benefit in perpetuity.” In order to become a member, as with DAOs on a broader scale, users purchase governance tokens (in this case called Popcorn), granting them membership into the community.
Through the growth of the Popcorn protocol, in other words as more users purchase Popcorn tokens, the community becomes more decentralized. “As a user buys a Popcorn token and invests into the community, fees in the smart contracts flow sub-capital to social impact organizations,” says McDonald. Once the protocol identifies a user as a part of the community via status as a Popcorn token holder, members are granted voting rights in which they can then determine what kind of social impact organizations to fund.
DAOs have drawn significant attention given their potential to bring significant real-life, tangible impact to society rooted in their democratic nature.
2. Now, let’s get Quadratic (Funding).
Introduced by GitCoin, a leader in open source software solutions, Quadratic Funding is a way to democratize funding of projects where the number of contributors matters more than the dollar amount contributed.
“As startups try to launch in the crypto space, projects can enter into a funding pool or community,” explains McDonald. “Depending on how many people decide to give to your protocol, Quadratic Funding matches the individual user funds with a much larger pool of funds often donated by institutions.”
For example, let’s say there are three projects (A, B, C) that each receive $1,000 in funding, but from a varying number of contributors.
2 people donate $500 to Project A
5 people donate $200 to Project B
20 people donate $50 to Project C
Now, let’s say the matching pool in this scenario is $10,000 coming from an institutional investor. Utilizing the formula for Quadratic Funding, Project A would receive an additional $1,851.85, in this case ~185% on top of the original contributed amount. Project B would receive only a match of $740.74, in this case ~74% on top of the total contributions. Now to appreciate the power of Quadratic Funding, Project C would receive $7,407.41 of matched funding, ~740% on top of the initial amount contributed.
While the Project pool sizes will likely differ in a real-world scenario, the core principles hold true → more original contributions = higher matched contribution.
3. Buying cryptocurrency will get easier - we promise.
In the early days of cryptocurrency, discussion centered around who the dominant rising blockchain force would be, largely between Bitcoin and Ethereum. Yet, while Bitcoin and Etheruem have remained the largest two, there have been a number of different blockchains jockeying for position with the big two as well as with each other. As such, the narrative has pivoted from the early days of “one dominant blockchain” to one of “an intraoperative, multiple-channel solution” for the benefit of the user.
Dennis Miller, Senior Investment Analyst, DeFi at Token Metrics, explained why he believes the trend is not only imminent but also extremely important for broader adoption. “If a user wants to buy Bitcoin, for example, they could go to Coinbase and buy it easily. But if you want to actually interact with other projects, protocols, etc., you have to step outside of Coinbase and take your crypto elsewhere. In order to take your crypto with you, the user needs a wallet. The ongoing pain point continues to be the wallet experience; it is not the most intuitive process and can actually be quite convoluted.”
Dennis mentioned that crypto enthusiasts and technologists are already investing heavily to simplify the experience for navigation and usage of crypto with the ultimate goal to make it as easy as Venmo to get in and out of (check out Ansible Labs).
An improved wallet experience for the user will certainly have a sizable role to play in the broader adoption of cryptocurrencies.
4. To Axie Infinity…and beyond!
With 10 million (1 million daily) active players as of December 2021, Axie Infinity is one of the hottest blockchain gaming experiences in the crypto ecosystem and a favorite of Miller’s.
For those unfamiliar, the Axie universe has a player-owned economy where players can truly own, buy, sell, and trade resources they earn in the game through skilled-gameplay and contributions to the ecosystem. “What’s interesting about this game is that it shows a window in which crypto could be used as a source of income for people,” says Miller. “There was an interesting story out of the Philippines in which local people realized the amount they could earn playing the game outweighed the minimum wage.”
Blockchain gaming has continued to see widespread endorsement with new products frequently coming out over the past few years. Another of Miller’s favorites is STEPN, built on the Solana blockchain and allows users to earn coins (worth real dollars) for simply walking, jogging, or running. STEPN can be accessed on the Apple or Android store and following account setup, users purchase a pair of digital shoes in the form of an NFT (~$1,200 / pair given the current Solana rate as of 4/17/22).
“When you buy a new pair of shoes, you’re injecting money into the ecosystem,” explained Miller. “Every time a new pair of shoes is sold in the app, there is a small royalty collected which is then held in a treasury.” After the shoes are purchased, members of the STEPN community can adventure outside to earn in-app coins known as Green Satoshi Tokens (GST) (a detailed structure of ability to earn based on a number of variables explained here).
“You then even have the option to earn a secondary coin instead of Green Satoshi Tokens (GST) down the road if you level your sneakers up to the max,” said Miller, “or you can just buy it directly on an exchange if you're interested in participating in the governance/profit-sharing aspect of the game.”
GST can be used for upgrades within the game or can be turned into stablecoins (indexed to the USD), shipped back to Coinbase (or some other exchange), and turned into USD (to buy a real pair of sneakers if you so choose!).
Blockchain gaming experiences demonstrate the ability for new crypto products to mesh with our lives and bear real-world implications.
5. DeFi is the word(s).
Decentralized finance, better known as DeFi, uses smart contracts on a blockchain to provide financial tools without the need to transact with a brokerage, bank, or other intermediary. People around the world have already begun to utilize DeFi methods to improve transaction efficiencies via cheaper and quicker processes. One particular marketplace that Miller is focusing on in his day-to-day research is the borrowing ecosystem.
“It's really the first and most fundamental problem that we can solve,” he detailed. “Banks face significant costs in the financial system. More efficient borrowing and lending will only continue to grow through DeFi as you introduce a blockchain to reduce the overhead expense.”
Miller went on to explain one real world example in which coffee farmers in South America were able to access capital via lenders on a blockchain rather than taking on bank debt in order to fund equipment purchases and other capital expenditures. They were able to not only cut costs tremendously, but were also able to receive the cryptocurrency much quicker.
The sentiment and importance of DeFi was universally agreed upon by each of the respondents I was able to speak with. “Crypto is the easiest on-ramp to non-judgemental financial access; anyone with an internet connection can have a crypto wallet,” explained Sarson Funds Director of Partnerships, Liam McDonald. “It has the power to bridge the gap between developed and developing countries.”
And while inequity attributable to lacking internet access has been a continued hole poked in the side of the crypto industry, an estimated 59.5% of the world’s population are active internet users. “With the development of Starlink (satellite internet constellation offered by SpaceX), we’re really pressing hyperspeed on global adoption of mobile tech and crypto access for everyone,” McDonald enthusiastically explained.
6. Click, Clack, Moo. Lawyers That Code.
Lawyers have always been an instrumental piece in the financial system, with services ranging from providing legal counsel to drafting transaction documentation and everything in between.
Yet as more transactions shift from banks, brokerages, and other exchanges onto a blockchain, so too do the technical capabilities needed from a legal perspective. Vlad Vronsky, Steering Committee Member of the Boston Blockchain Association and avid participant in crypto-focused efforts, detailed the importance of adaptability by legal professionals.
“Attorneys are currently knowledgeable in business affairs, but lack the technology and coding capabilities necessary to be dangerous. As blockchain technology becomes a larger part of the way we interact, there will start to be a massive need for lawyers who can audit smart contracts and assess their viability.”
Preparing the future generation of lawyers with the technical skillset to advise on blockchain-based transactions is going to be critical not only for smart contract enforcement but for upholding all laws impacted in one way or another by this technology.
7. Tokenization of Real Estate.
Vronsky, like both Miller and McDonald, is also keeping a close eye on the utilization of tokens, with his particular zoom being focused on the real estate market.
“Take an apartment trust for example,” he began. “You have a number of people in the trust purchasing the apartment. You also have a number of people renting the apartment. A token system can be used in which owners and renters are granted tokens, with a larger amount / portion of the tokens going to owners and a smaller amount going to renters.”
Vronsky argues that this system eliminates the costs of ownership transfer by taking out the middleman, eliminates financial barriers to entry as assets are divided into smaller shares, undeniably proves ownership via blockchain technology, and improves transparency and security of the marketplace given other users are required to approve transactions.
The concept of tokenization also extends to the real estate documentation process as NFTs (non-fungible tokens) are now replacing physical paper deeds. These NFT deeds all sit in a centralized marketplace, easing the search process for potential investors and allowing anyone to view RE assets across geographies. As such, it broadens the scope, increasing the number of potential buyers in the pool and orchestrating a quicker, more efficient transaction process.
After speaking with Liam, Dennis, and Vlad, beyond gaining a deeper understanding of some trends in the industry to keep an eye on, I left with two high level takeaways: 1) crypto and blockchain tech speak can get very granular, very quickly, and 2) the number of real-world applications and process efficiencies crypto and blockchain tech provides is massive.
Final Thoughts
I’ll be the first to admit it, I’m certainly no expert on this stuff and it is certainly complicated to process. That being said, whether you believe in its staying power or not, it’s important to engage and digest its potential impact on our society. The principles rooted in its very capabilities are those which humans tend to universally support including democracy, transparency, individual freedom, fairness, and innovation.
There’s something we can all take away from at least digging in and conversing about the role crypto will play in our society’s future.
I’ve provided each of the seven trends below as well as a broad translation to get that conversation started.
DAOs → democratzing ownership and decision making
Quadratic Funding → number of contributors > amount of contribution
Improved User Transaction Experience → significant investment in making cryptocurrency easier to access + use
Blockchain Gaming → play to earn
DeFi → eliminating the middleman, cutting costs, and doing it all quickly
More Crypto Savvy Lawyers → equipping future lawyers with necessary tech skills
Tokenization of Real Estate → making owning real estate easier, more fair, and more transparent
If you made it all the way here, first of all, thank you for taking a read through, but more importantly, drop a comment sharing your thoughts on trends we may have missed or any thoughts you have after taking a read through the piece!