Discover more from The Blockchain Sector With James Bachini
Invest In Longevity
The Blockchain Sector 2023-05-02
Digital assets have been portrayed by the media as speculative short-term investments, an unregulated casino for gamblers. There are a significant number of market participants who see crypto as a get rich quick scheme.
It will take time for the web3 thesis to play out and for blockchains to deliver the value developers and early adopters foresee.
Consider how the internet emerged and went through dotcom bubble, out of which grew some of the biggest businesses in the world today. It has take 25 years for those industries to mature and they are still evolving to this day.
If you could have predicted the winners of that disruptive period you could have invested wisely in the tech stocks that grew into global powerhouses. Those investments would have returned multiples and outperformed the indexes for decades.
In the blockchain sector I believe we have a new opportunity with digital assets that provide exposure to emerging disruptive industries. If it’s possible to predict what will still be around in 20 years and how the ecosystem will evolve it might be possible to replicate similar levels of outperformance.
These are the protocols that I think will still be around 10-20 years from now that can become fundamentally important to a future digital economy.
The assets below are listed roughly in order of conviction in the potential for longevity rather than pure outperformance
Bitcoin - seminal to everything that came after it. Likely to still be around in a 100 years and probably wont change much in that time. Perhaps a lack of utility will mean it can’t remain the biggest cryptocurrency but it’s likely BTC will hold value well in to the future.
Ethereum - a clear winner in the layer 1 smart contract space, it seems unlikely it will be displaced from this throne in the next decade. Eth is a yield bearing asset due to staking. Ethereum 2.0 can create new utility and use cases as on chain data becomes more usable.
Uniswap - the strongest brand in DeFi and the number one decentralized exchange by TVL. Perhaps Uniswaps biggest threat is through regulatory threat to it’s centralized governance. Strong team with potentially more use cases in the future.
Metamask - The leading digital wallet has a 70%+ market share and is slowly evolving in to a super app with DeFi components like Dex aggregators built-in. No token… yet.
Lido Finance & Rocketpool - Liquid staking is huge business already but I believe we are just seeing the early stages of adoption. My thesis is that liquid staking will become a $100B industry by 2025 as yield bearing digital assets are an attractive product. Lido has the lions share of the market today but Rocketpool has a strong following and I expect them to take a significant piece of the pie over the coming years.
Stablecoins - If the constant fud hasn’t killed tether’s USDT to date then it looks invincible. USDC has suffered a depegging event following the collapse of Silicon valley bank but bounced back strongly. We haven’t seen a leader emerge in the world of algorithmic permissionless stablecoins but this is a potential area for growth. Stablecoins offer low volatility and a flight to safety in decentralized finance and this seems likely to stay the same for the foreseeable future.
I had mixed thoughts about Binance and BNB as a digital asset. In some ways they are just as dominant as some of the projects listed above in the centralized exchange space. The concern is that they are public enemy number one for regulators and the sudden collapse of FTX showed how fragile the business model can be.
Sub sectors that we are still waiting for a market leader to emerge:
DeFi perpetual futures trading platform - GMX vs dYdX or more likely I think is that we see something else emerge out of nowhere with a great UI and deep liquidity (probably built by one of the big market makers) and it will grow very quickly.
Algorithmic stablecoins - discussed above. We need permissionless decentralized digital assets over-collateralized and pegged to fiat currencies. Frax is doing some interesting work in this field.
GameFi - probably multiple winners but likely to be one big release that blows up in the next bull market
Layer 2’s - I’ve spoken previously about my tin foil hat theory that the Ethereum foundation will launch a native zkRollup that will have interoperability with Ethereum mainnet. Potentially this is make belief and there will be a battle for attention from various parties for layer 2 block space.
Stocks & Real-Estate - If someone can solve the regulatory hurdles of bring real world assets on chain then there will be demand for it from funds and individuals looking to diversify their crypto holdings.
Crypto Index Funds - baskets of digital assets have never gained traction in the blockchain sector but they are huge in traditional finance where low cost index trackers are widely used by passive investors.
There will be numerous projects emerging in these sectors over the next few years and it will provide opportunities for those following the blockchain sector, it’s up’s, downs and evolving technology.
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