What’s your expected rate of return in crypto in the next 5 year period? Benchmark here will be total crypto market cap. Think that will do a 3-5x in the next 5 years reaching a peak of $7-10T

But many will do <3x. normal distribution to things. Venture = power law. Many underperform benchmarks in traditional markets and in crypto

Much less from a MoM or realized cash on cash return

If you hold USDC do you:

A) Swap to USD & withdraw to bank (are they solvent next week?)
B) Swap to major (ETH/BTC) & take market risk
C) Hold USDC

Everyone in crypto is doing this calculation rn Exhibit A: Circle held $33.6B in US Treasuries and $8.7B in US Banks*

* Cash held at U.S. regulated financial institutions BNY Mellon, Citizens Trust Bank, Customers Bank,
NY Community Bank, Signature Bank, Silicon Valley Bank and Silvergate Bank

Source: circle.com/hubfs/USDCAtte…

1/ In this dark hour for the industry it’s crucial to remind ourselves why we’re here & why this matters. We’ve lost a lot of ground this year but let’s not lose sight of the good things happening. Among others, Ethereum migrating to PoS & scalability thru L2s 2/ I don’t think crypto goes away or remains niche. Digital scarcity/property rights are becoming an integral fabric of society & reshaping industries - similar to how the Internet did. We’re closer to releasing killer products that are too hard to ignore. Faster, better, cheaper

Few thoughts on regulation:

1/ Envision a state of the world where tokens need to register as securities (see @SBF_FTX 🧵). Is that the end of the world? Historically, it's been portrayed as such but I'm optimistic clarity will unlock much trapped energy

https://twitter.com/SBF_FTX/status/1567865404684476420?s=20&t=z1X44a-kP2zHtN92RPYIRA

2/ A lot of regulatory uncertainty is already priced in and has help up many participants on the sidelines waiting for clarity to operate in DeFi & crypto

The spirit of the law is consumer protection & fairness, which I think are essential properties for any market to thrive...

1/ When you think you've missed a trend there's usually a 3-9 month window after the broader market discovers it where you can scale into a trade in size & still make outsized returns. You didn't have to catch DeFi at very bottom of last cycle & you won't this cycle. Here's why 2/ When Compound launched liquidity mining, the market woke up to DeFi. Until then only a few of us were investing across DeFi. Many thought they had missed the DeFi train. Data below supports my framework: usually have a 3-9 month window to catch up & still make outsized returns

1/ Crypto isn’t perfect. To expect it to be this early on is unreasonable. But the fundamental premise of having robust systems governed by predictable & transparent set of rules no one can control is here to stay. The possibility of having digital property rights is here to stay 2/ Crypto has a long way to go to realize its full potential. It’s important to remember this is still very experimental - on both the technical and socioeconomic side. The encouraging part is that the rate of experimentation is faster in open source systems (vs closed ones)

1/n Ponzi is used liberally in crypto without much rigor. When you call everything a ponzi a boy cried world effect kicks in and you miss real ponzis

Let’s unpack that so we can be more vigilant and understand what is and is not one… 2/n Next time you call it a ponzi understand if fraud is being committed. Madoff was running a ponzi. He took money from investors and ran a classic pyramid scheme. Some crypto projects have done that. But providing incentives (be it yield farming, block rewards) is not. But…

Some predictions for 2H 22:

- Coinbase acquired by large tradFi
- Crypto dips <$1T ($750/800 bottom) / $20k BTC / $1k ETH
- Immersive game onboards +10M DAUs (@Stepnofficial @illuviumio 👀 )
- Few crypto funds close shop (blow up or deeply underwater)
- Merge happens by October - More Web2 talent moves to Web3 as value of their RSUs is lower now
- Industry consolidates (fluff teams exit/bleed out)
- Off-chain insurance co makes entry into crypto & opens DeFi to many sidelined tradFi
- New tokenomics & standards improve float to fully diluted gap

1/n A few thoughts on current state of markets and what it means for crypto: 2/n Everyone that is long innovation is feeling pain. It's not fun seeing zeros evaporate. Could've/should've managed risk better. Hindsight is 20/20. Managing risk in crypto is hardest thing to do since it's early stage venture w liquidity in price discovery mode (yes even BTC)

1/ Consider this when trying to call tops on tech cycles:

> Web2 was much different than Web1. Software as a service (SaaS) lowered costs for startups to scale by shifting capex to opex

> Web2 also benefited from massive infra rollout & smartphones (big for social & e-commerce) 2/ Web3 improves Web2 as it creates a stronger incentive and value capture layer for open source development

> Devs and creators will favor building on Web3 systems as they provide better economic opportunities & guarantees: Read, Write, *Own*

Most don’t own content in Web2

I'm not a maximalist. I believe in a multichain world serving many use-cases where aggregators route to most efficient chain. @LayerZero_Labs interesting as fabric that enables it

Security & decentralization are spectrum not end state. Aggregators will value this more than users Ethereum - captured mindshare of developers. L2s (Arbitrum, Polygon, Optimism) are here and viable scalability solutions. zkRollups (Starkware, zkSync) very promising

Solana - impressive ecosystem. Dev tooling improving. BD push attracting new developers/projects. Expanding pie

There are two kinds of errors: process & outcome. Focus on fixing the latter. Systematically diagnosing and learning from errors of process is the only thing you have true ownership over & creates winning results that compound over time.

What are errors of process? 👇 It’s the things you could’ve done differently. Obviously attribution is a problem because you may think correcting x, fixes y. But pattern recognition helps. If you’re making poor choices when you’re sleep deprived or around certain people, then that’s something you can fix.

1/ Web3 games will dominate. Here's some data. Of note:

@AxieInfinity is on pace to generate ~$1.4B in 2021 revenue, up from ~$80M in 2020. @SkyMavisHQ, studio behind Axie, is 3 years old w/ 61 employees making it arguably the fastest growing & most capital efficient game studio 2/ The impressive growth of Axie is, in large part, tied to novel play-to-earn (P2E) mechanics which, much like ride sharing apps, has become a primary source of revenue for gamers across the world. P2E combines digital asset ownership w/ the passion economy empowering users

If CryptoPunks were a protocol, what mkt cap would you give it?

Few data points to inform your choice:

> ~$780M realized market cap (aggregate of last sale prices - h/t @coinmetrics)
> 15% have never moved wallets
> Brand value?

I’m biased obv but curious 🤖 Valuing brands is difficult. But here’s some context on brand value:

Source: interbrand.com/best-global-br…

1/ We need to design better token mechanics of DeFi protocols. Specifically, tokens used for insurance/managing protocol risk (AAVE, PERP etc). Problem w/ current designs is correlation. If protocol insolvency, value of collateral token drops wiping out insurance fund. Solution? 2/ DeFi insurance solutions suffer from correlation risk. Risk increases as DeFi is tightly integrated and composable (you’re only as strong as your weakest link).

Current solutions try to contain risk by isolating it thru silos (Kashi) or capping aggregate exposure (Nexus)

1/ Some thoughts on portfolio construction (each section expanded below):

> think in probabilities
> think in risk units
> don't forget about duration
> don't fall in love with positions
> have entry/exit strategy
> don't try to be a hero 2/ Think in probabilities:

Position sizing should be based on probability relative to another asset/theme.

Example: What is the probability Solana surpases Ethereum? Likely not zero or 100%. If probability is x%, then size SOL relative to ETH according to x

1/ Crypto teaches your lessons quickly. I've you've been around for a few years, you've seen compressed - but no less severe - market cycles in a span of months/years that most traditional investors only see once or twice in their careers. A 🧵on some of my crypto lessons 👇 2/ Cutting winners too early & rotating to laggards expecting them to catch up.

This catch up trade typically underperforms. I've made this mistake when my thesis is not sound and/or I don't follow the project as closely. Expect things to move non-linearly and update your model

A short thread:

Investing in crypto for me is the ability to connect w/ founders & a passionate, global community. It requires engagement & collaboration. It can be an intellectually enriching experience and/or a very humbling one. Over the years I’ve questioned why I’m here… The “why” can be lost in the midst of bull market noise. Bear markets weed out tourists, the wheat from the chaff. But then I realize I wouldn’t want to be doing anything other than crypto. Crypto is not perfect but I believe it’s the most fascinating & important socioeconomic…

Last year was a trial run for DeFi as core money legos were put in place. In spite of the suboptimal user experience (UI/UX, gas fees), DeFi saw a marked YoY increase in adoption & usage across the board (see👇).

L2s come at the right time to support more users & use cases 🧵1/6 Total Value Locked (TVL):
- 75x growth in TVL from $580M to $43.5B
- 4x growth in ETH TVL from 2.5M to 9.8M

Note: 75x growth in TVL is USD denominated so factors underlying asset price appreciation. Therefore, the figure is overstated. Likely closer to ~10-20x in underlying

1/ A few thoughts on algo stablecoins. Touching on DSD, ESD, Frax, BAC & Fei.

These systems rely heavily on game theory. The most important thing to monitor is sentiment

Seeing these algos in the wild leads me to believe some game theory is good. Only game theory is not enough 2/ On coupons:

Been running thru various scenarios and second-order effects of coupons expiring OTM. Judging by secondary market prices of DSD coupons, it seems that probability has been growing. Next 10 days will be key

We have yet to see what happens if coupons expire OTM...

1/ Crypto is undergoing a critical transition in its evolution of becoming the foundational global settlement layer. I liken it to moving from gas (ideas) > liquid (fluid narratives) to a solid-state

2008-17: gas 🎈
2018-20: liquid 💧
2021 +: solid (paradigm shift)

A short 🧵 2/ Bitcoin is farthest along in this state transition hardening as a non-sovereign store of value.

Ethereum is second in line moving from liquid to solid w/ a thriving DeFi ecosystem (PMF) & EIP-1559 (soon)

But there are still legacy parts of crypto that must be shed to advance