98 - 5 Things We Got Right

Breaking down our recent '5 Things We Got Right' article, in this episode we tackle this year in crypto from a high level. We cover the predictions we made, what we planned to look out for, and then we dive into how it all played out. There were some things we got right—and some things that surprised us—but perhaps most of all, we learned a ton. Come reflect with us on all the lessons from 2021 that we can arm ourselves with as we head into 2022. Will it be another bullish year? ------ 📣 HASHFLOW | POOL & TRADE OTC https://bankless.cc/Hashflow ----- 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/ 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ ------ BANKLESS SPONSOR TOOLS: ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum 🍵 MATCHA | DECENTRALIZED EXCHANGE AGGREGATOR https://bankless.cc/Matcha 🔐 LEDGER | SECURE YOUR ASSETS https://bankless.cc/Ledger 🧙‍♀️ ALCHEMIX | SELF-PAYING LOANS http://bankless.cc/Alchemix ------ Topics Covered 0:00 Intro 4:00 Reflections on 2021 8:43 Reviewing our Predictions 5 Things We Got Right 17:53 Multi-Trillion Dollar Asset Class 23:14 ETH Strong Against BTC 27:20 ETH is Money 31:40 It’s Raining Airdrops 33:03 DeFi Usage 5 Things that Surprised Us 34:10 NFTs Exploding 38:45 Axie Infinity 41:47 Web3 45:15 DeFi Lagging 49:00 Alt-L1 Tokens 5 New Mental Models 55:17 Cryptography 58:17 Legitimacy 1:01:56 Ultra Sound Money 1:05:38 Modular vs Monolithic 1:09:54 Crypto Renaissance 1:14:50 5 Bets for 2022 1:17:31 Bullish Blockspace 1:21:34 Next Gen DeFi 1:24:33 DAOs 1:27:00 Crypto Gaming 1:29:16 Decentralized Identity 1:33:30 Is 2022 A Bullish Year? 1:39:18 Closing & Disclaimers ----- Resources: 5 Things We Got Right https://newsletter.banklesshq.com/p/5-things-we-got-right Ultra Sound Money https://shows.banklesshq.com/p/-ultra-sound-money-justin-drake Ultimate Guide to Airdrops https://newsletter.banklesshq.com/p/the-ultimate-guide-to-airdrops The Crypto Renaissance https://shows.banklesshq.com/p/-the-crypto-renaissance-josh-rosenthal Ultra Scalable Ethereum https://newsletter.banklesshq.com/p/ultra-scalable-ethereum 5 Mental Models for Web3 https://shows.banklesshq.com/p/-90-5-mental-models-for-web3-chris ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Ryan Sean Adams?

  It was crazy. And I would just say, rest up, because it's not slowing down next year. Like crypto just accelerates, only moves forward in velocity, it only goes in one direction. That is the direction of acceleration.

• 0:15Ryan Sean Adams?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, this is our five things we got right episode. It's really more of like lessons from 2021. It's been a crazy year. It's kind of our wrap up of the year, what we're taking with us into 2022. So we're going to go through a few things for you guys. The first is, which of our predictions last year came true? And which ones were a flop? Which ones we failed on? We're going to talk about five things we got right. We're going to talk about five things that surprised us, five mental models we unlocked, and five bets going into 2022.

• 0:58Ryan Sean Adams?

  And then we end this podcast with some reflections on the market, whether we think there's a blow off the top coming, whether we think next year is going to be a good year, bullish, or bearish. So stay tuned to catch all of those details. David, been a fun year, man. Maybe we should just get to the episode. Do you have any thoughts before we do that?

• 1:17David Hoffman?

  Yeah, 2021 has been a crazy year, and I feel like almost every single quarter deserves its own reflection. But crypto moved so fast that we didn't have the time to do that at the end of every single quarter. So we were trying to summarize and reflect upon an entire year in crypto, which has also been crypto's craziest year. So it deserves a ton of reflection and a ton of attention. So we are going to unpack something that we have all experienced already, and try and discover what it means, where it's pointing, where it's going, and why the things unfolded in the way that they did. So we'll go ahead and get right into those conversations. But first, a moment to talk about some of these fantastic sponsors that make the show possible.

• 1:55Ryan Sean Adams?

  Arbitrum is an Ethereum scaling solution that's going to completely change how we use DeFi and NFTs. And now it's live and has over 100 projects deployed. Gas fees on Ethereum L1 suck. Too many people want to use Ethereum, and it doesn't have enough capacity for all of them.

• 2:10David Hoffman?

  And that's why teams like Arbitrum have been hard at work developing Layer 2 solutions that makes transactions on Ethereum cheap and instant. Arbitrum increases Ethereum's throughput by orders of magnitude at a fraction of the cost of what we are used to paying. When interacting with Arbitrum, you can get the performance of a centralized exchange while tapping into Ethereum's level of security and decentralization. This is why people are calling this Ethereum's broadband moment, where we get to add performance onto decentralization and security. If you're a developer and you want to save on gas costs and overall make a better user experience, go to developers offchainlabs.com to get started building on Arbitrum. And if you're a user, keep an eye out for your favorite DeFi apps being built on Arbitrum. Many DeFi applications on the Ethereum L1 are migrating over to Layer 2s like Arbitrum,

• 2:54David Hoffman?

  and some are even skipping over the Layer 1s entirely and deploying directly on Layer 2. There's so many apps coming online to Arbitrum, so go to bridge.arbitrum.io now and start bridging over your ETH or any of the tokens listed and start having the DeFi or NFT experience that you've always wanted. Alchemix is one of the coolest new DeFi apps on the scene. It introduces self-paying loans, allowing you to spend and save at the same time. Deposit the DAI stablecoin into the Alchemix Vault in order to get an advance on the interest it generates. Borrow up to 50% of the total amount of your deposited DAI in the form of AlUSD stablecoin. Here's the craziest part: The loan pays itself back and you cannot be liquidated.

• 3:37David Hoffman?

  Unlock your asset's potential in the ultimate DeFi savings account. And brand new to Alchemix is the ETH Vault, where you can deposit ETH into the application, borrow Al ETH against your deposits, while having your advance gradually paid back over time. V2 is rapidly approaching, which will allow for even more collateral types plus a variety of yield strategies to choose from. Harness the power of Alchemix at alchemix.fi. That's A-L-C-H-E-M-I-X dot F-I. Follow Alchemix on Twitter at @AlchemixFI and join the Discord to keep up to date with Alchemix V2 and to get involved in governance.

• 4:15Ryan Sean Adams?

  David, how you doing, man?

• 4:17David Hoffman?

  Just fine, Ryan. Back in Seattle. It's extremely cold. And that's been at the top of my mind this morning, how goddamn cold it is.

• 4:26Ryan Sean Adams?

  How much you want to be back in San Diego, Southern California, right?

• 4:29David Hoffman?

  Very much so, yeah. My flight back to San Diego is the day after Christmas.

• 4:34Ryan Sean Adams?

  As soon as possible. Let's make this flight as soon as possible. Well, David, I think this is gonna be a really fun episode because it's our chance to really reflect back on 2021. Everything we learned and Bankless listeners, we're gonna split this episode into two parts. So part one is everything we learned this year, the year of 2021. And also how that informs the bets that we're making going into 2022. Our thesis, the bets, the framework, the mental models, all of that is gonna be in part one. In part two, we're gonna talk about this thing that we kind of helped start, which is the Bankless movement. Thing that we're building now that we've kind of dedicated our working lives to. Maybe not just our working lives, like I think about Bankless a lot, David.

• 5:18Ryan Sean Adams?

  And that's what we're gonna be talking about in part two. So this is a special holiday episode for you. It's gonna be our last episode of the year. Hope you're enjoying the holidays. Hope you've had some time to get away from screens, spend with your loved ones, spend with your friends and family. Also some time to reflect on the craziness that was 2021 in crypto. Why don't we start with kind of part one, our reflections on the year that was 2021. These last 12 months really felt like, I don't know, I mean, January feels like five years ago? Like six or seven years ago at this point in time, all that's gone on, all that's happened. What did you think, high level, about the year, David?

• 5:58David Hoffman?

  Man, I've said it before, but 2021 is the year that the whole entire crypto industry, starting from probably when Bitcoin first got any sort of like meaningful attention on it from its first few adopters. 2021 was the year that like crypto predicted. And obviously it's gonna throw us a bunch of curveballs left and right. And we totally got those curveballs in 2021. But some of the underlying themes definitely were predicted by crypto. Well, before even you and I got into crypto, like the inflation in, you know, the the the dollar mainly and all other fiat currencies. Starting to see some fiat currencies pop off one by one with hyperinflation events. That you can definitely see the writings on the wall. Some of them have already happened.

• 6:43David Hoffman?

  And then like the Turkish lira happened this year and then, you know, inflation in the dollar picking up. So that's been a crypto prediction from the from the beginning. And that definitely happened this year. We we finally started to see just, you know, public companies putting Bitcoin on the on the balance sheet. Celebrities and big companies moving into crypto in meaningful and sustainable ways. It it really just in so many different ways was what crypto people always thought would happen and hope for for a really long time. And so when it's time to reflect on the end of the year, like that's kind of where my head's at. No, this wasn't just another year. This was the year for crypto. This is when so many things happened that are good for crypto.

• 7:26David Hoffman?

  And like I said in one of my recent articles, like this was the 2021 was a big W for everything new and everything crypto. And a big fat L for everything incumbent. And I kind of think that's that's kind of the the theme of the year, like W for the new things and L for the old things.

• 7:44Ryan Sean Adams?

  Yeah, it's it's kind of surprising how much crypto got right this year, right? How like how much was kind of proven this year? I mean, it had been a it had been a dark bear market and I wouldn't say 2020 was a bear market, right? We definitely got some some some tailwinds that year, right? DeFi summer, lots of great things happened the the previous year. But 2021, it felt like the first year it felt undeniable. It felt like we had mainstream's attention. I think Ryan Selkis used the word inevitable. We've said this all along about crypto, hey, crypto is inevitable, like, but that's been kind of more hopium. Now I think mainstream sees the inevitability of this asset class and that's been cool to see.

• 8:27Ryan Sean Adams?

  So maybe just surprising the amount of things that that crypto got right in a very concentrated year, but that's not to say. There weren't some curveballs, like some things that were total surprises, some things that we didn't expect. David, let's see this, man, because at the end of every year, we put together a list of predictions. And so we did that the end of 2020 and we created a piece called Bankless Predictions 2021. And I want to review some of these because it's interesting, the mindset that we were in at the time. And I feel like the end of 2020, the beginning of 2021, if I'm thinking about it correctly, I think ETH was around 700 or so. Do you recall the Bitcoin price at that time?

• 9:12David Hoffman?

  Yeah, Bitcoin had just crossed its all time high and December 14th. I don't know what day we released this, but December 14th Bitcoin had crossed $20,000 again for the first time.

• 9:24Ryan Sean Adams?

  And it was crushing it, right? Like relative to Ether as well, it was just having a really good year. And there was this sentiment in the year, everyone was very bullish DeFi at the time, if you recall. Because we had just seen, we'd just come out of an incredible DeFi summer, all of these token launches and discovered yield farming. And that was a big focus and it was in that backdrop where we're trying to figure out, okay, what's going to happen in 2021? And so here are some of the predictions we made. We call these our layup predictions. So one, we said ETH will cross all time highs. Remember to that point, like ETH had never been above, what, 1300 or so?

• 10:04David Hoffman?

  1400 was the previous high and at the time of writing, it was something like 700 to $900.

• 10:09Ryan Sean Adams?

  Yeah. And that was like, you know, we were feeling pretty good at 700. So we said ETH would cross all time highs and hit 2500, called that a layup prediction. We said crypto would become a multi-trillion dollar asset class. Okay. It had just barely touched 1 trillion in market cap. We said that was like, obviously going to double, triple, something like this. We made predictions about Ethereum settlement value. We also talked about DeFi protocols, reaching the top 10 in market cap. So I recall one of the things I think we really Expected at that point in time was coin market cap would be full of Ethereum,

• 10:51Ryan Sean Adams?

  Bitcoin, maybe a couple of others, but then the DeFi tokens would launch into the

• 10:57David Hoffman?

  Populate like 10 through 5, yeah.

• 11:00Ryan Sean Adams?

  Yeah, they'd kick out the ripples and the neotrons of the world and the stupid coins that were in the, you know, in the top 10.

• 11:06David Hoffman?

  We got that one wrong, by the way.

• 11:08Ryan Sean Adams?

  That was wrong.

• 11:09David Hoffman?

  The other, so far, all of them have been right, but that one was wrong.

• 11:13Ryan Sean Adams?

  That one was wrong, very wrong, and I think we want to talk about that today. We also said DeFi total market cap would cross 100 billion. We were at 28 billion in total locked value at the time. And we also, we said, so we got that right, although we did say 100 billion is our bearish estimate. And now here we are in 2021, we had, we just barely crossed 100 billion. I think the high-

• 11:36David Hoffman?

  We kept at 120, yeah.

• 11:38Ryan Sean Adams?

  And this is measured by, you know, DeFi Pulse, so if you look at other alt layer ones and such that, you know, those aren't included, those numbers, but we just barely did it. We beat our bearish estimate, but I'll, I'll checkmark that as a, we got that right. We're also pretty bullish on Bitcoin on Ethereum, like tokenized Bitcoin on Ethereum. And I didn't even know, we said 2.5% of the total Bitcoin supply would be on Ethereum sometime in 2021. I don't even know the status of that, David. Like, how did we do on that prediction?

• 12:10David Hoffman?

  I'm pretty sure we are above 2.5%, and I am pulling that up right now.

• 12:15Ryan Sean Adams?

  Will you pull that up? Another prediction we, we called a layup was Coinbase's IPO. They would IPO, which that in itself is a checkmark prediction, but we said it will have a valuation greater than 100 billion. And last time I checked, I mean, it probably depends on the day, but like Coinbase, about 60 billion or so? I'm not sure what the highs were, if it ever got above 100 billion, but close-ish, but maybe no cigar in that prediction. I think we got the main thing right. It was just a Coinbase IPO and we were just off by a couple dozen billion in terms of the valuation of Coinbase.

• 12:51David Hoffman?

  Yeah, currently clocking it at 62 billion in market cap. I think it got up to like 80 billion, 85 billion at the, at the very, very peak at the very start, but it did not sustain that at all and fell quite a lot, actually.

• 13:04Ryan Sean Adams?

  How are we on that Bitcoin? How much Bitcoin is on Ethereum?

• 13:08David Hoffman?

  According to DeFi Pulse, 228,000 Bitcoin are on Ethereum. So that is about a little bit more than 1%.

• 13:17Ryan Sean Adams?

  A little bit more than 1%, so it didn't get quite like it started to slow down, right? It was it was really crushing it last year in 2020. We kind of extrapolated that and said it would, you know, get 2.5%. Didn't quite hit that. We also said banks would start adopting Ethereum as infrastructure to settle dollar payments. I think we saw a lot of that with not quite formal banks, but like the visas of the world and the PayPal's of the world getting to stable coins. So overall, predictions are hard, but I feel really good about some of these predictions we made at the end of last year. I feel like where it was wrong, we were probably overly bullish on DeFi relative to other things. But everything else was pretty darned close. Any thoughts?

• 14:01David Hoffman?

  Yeah, you can definitely tell when in the year some of these predictions were made. This was also the moment of under collateralized stable coins. So there's a lot of predictions about stable coins in here.

• 14:12Ryan Sean Adams?

  Yeah.

• 14:12David Hoffman?

  I make the prediction that no significant new Layer One will launch in 2021. And granted, technically that's true because both Avalanche and Solana had launched in 2020, not 2021, but meaningfully I did not get that one right. Directionally wrong. And there's a few other ones as here, like we talked about Libra will launch and no one will care. I don't think that definitely happened.

• 14:39Ryan Sean Adams?

  That was your prediction, yeah.

• 14:41David Hoffman?

  Yeah. Lucas, the editor.

• 14:42Ryan Sean Adams?

  It's kind of like Libra didn't launch and also no one cared. So that was kind of half right.

• 14:47David Hoffman?

  Yeah, either way. Lucas made some fantastic predictions. Uniswap will reach 1 trillion in annualized volume. I think that's I think that did happen. And value of crypto art will cross $1 billion in art sales. Definitely predicted like, you know, NFTs leading the way. These are always just fun to look back on.

• 15:06Ryan Sean Adams?

  They are. He also said DPI crosses 1 billion in market cap, which it didn't get there.

• 15:11David Hoffman?

  Nope.

• 15:12Ryan Sean Adams?

  This is interesting. Again, overly bullish on DeFi going into the year.

• 15:17Ryan Sean Adams?

  Let me see a few others. You said that Tron would go the way of XRP, one way or another. And I feel like that kind of happened, David, right? Like, there's been almost no conversation about Tron. The end of, end of last year, remember that was the ETH killer de jour? And now, like recently, was it last week, Justin Sun just said, "Oh, I'm done with the project."

• 15:38David Hoffman?

  I'm done with Tron, yeah.

• 15:39Ryan Sean Adams?

  Yeah, "I'm moving on. I'm gonna do something else with my life." And yeah, it feels like that project is kind of stalled, not doing very much. We also, obviously, predicted EIP 1559 gets shipped, starts burning some ETH. That was actually a harder prediction to make at the time. Right now, it's deployed and everyone forgets, everyone forgets that that was not a layup prediction at the time.

• 16:04David Hoffman?

  Right.

• 16:04Ryan Sean Adams?

  Because there had been a ton of delays for EIP 1559. It was like two, three years in the making. And we got that one right. The internet bond gets memed into existence. I feel like that kind of happened.

• 16:17David Hoffman?

  That definitely happened. That definitely happened. That, yeah, Ether and ETH staking was discussed as like,

• 16:25David Hoffman?

  head and like shoulder to shoulder with the risk-free rate in a number of financial reports from, from banks and funds and stuff like this. And so that absolutely happened.

• 16:35Ryan Sean Adams?

  Look at this one. I'm actually proud of this one. A central bank will acquire Bitcoin. All right? It's kind of happened in El Salvador, didn't it?

• 16:43David Hoffman?

  100%. Yeah, 100%. Yeah, definitely.

• 16:46Ryan Sean Adams?

  That was also something that, you know, seems obvious now that's happened, but was definitely not obvious at the time. I don't know if this happened to you, but I predicted that we'd start getting text messages, like bull market text messages.

• 16:58David Hoffman?

  I have so many of those.

• 17:00Ryan Sean Adams?

  Yeah.

• 17:01David Hoffman?

  So many.

• 17:02Ryan Sean Adams?

  I said, "We'll enter a 2017-like retail FOMO, and the friends and families that you know, that know you're in crypto will be asking you for advice."

• 17:11David Hoffman?

  That definitely happened.

• 17:12Ryan Sean Adams?

  Now, they were asking about NFTs, though, weren't they?

• 17:15David Hoffman?

  Yeah, this is true. But hey, crypto's, NFTs are crypto.

• 17:19Ryan Sean Adams?

  I also said the digital one will launch. It kind of has launched as well. And I said, if it was successful, the US will be forced to consider a digital currency strategy.

• 17:31David Hoffman?

  That second part did not happen.

• 17:32Ryan Sean Adams?

  Yeah, I mean, I feel like they're in this constant state of kind of considering it, but like not being serious about it. And so that's just never, never be bullish on government timelines. Especially US government timelines. I think there's a lesson there. So overall, man, pretty good predictions, actually, going into the year. So let's talk about this now, David. Some of the big things that I feel like we got right in the bankless thesis. So more than predictions, there were at least five things I think we nailed.

• 18:06David Hoffman?

  We hammered on for, for quarters, for almost a whole entire year that we, yeah, definitely big themes that we had a very strong conviction on that did end up playing out in 2021.

• 18:18Ryan Sean Adams?

  So let's talk about these. We got five of them. The first is one of that, that prediction. So the crypto became a multi-trillion dollar asset class. We said that would happen. Again, bullish crypto, right? Bankless has always been bullish generally crypto. Now we're in the multi-trillions of dollars. We said that was a layup. And I feel like crypto has really reached escape velocity with, with this. Like when you're in the multiple trillions, I mean, yeah, you can, you can dip, you can, you know, enter bear markets, that sort of thing, but it ain't going anywhere now. Like it's no longer just a fad. What are your thoughts on, on that?

• 18:58David Hoffman?

  I think this is the zone of like total market cap where there's a decoupling between the naysayers of crypto and the capitulators of crypto. People are just looking at crypto now and choosing to not ignore it and say, oh, it's in the multi-trillions now. I guess I'll take this seriously. Paul Tudor Jones comes to mind. Ralph Paul comes to mind. You know, banks issuing reports comes to mind. This is. When crypto like triples in size and the number of crypto antagonists or crypto naysayers did not stay, did not track the growth of crypto.

• 19:40David Hoffman?

  Crypto outgrew its naysayers with this in this metric. And I think that's a great summary summary for it. So like there's with crypto becoming a multi trillion dollar asset class. It has more tailwinds of support than it does antagonism, which is actually, I think, one of the new things about the world of crypto in 2021 and 2022, moving forward.

• 20:02Ryan Sean Adams?

  I totally agree. I think it makes the naysayers look foolish.

• 20:05David Hoffman?

  Yes.

• 20:05Ryan Sean Adams?

  Look kind of silly when they were saying things like, hey, it'll never recover. Crypto is dead. It'll never come back.

• 20:10David Hoffman?

  It makes them, it looks like bitter people that missed out.

• 20:14Ryan Sean Adams?

  It does. And it becomes increasingly so as the market cap goes up. I wonder about that point, whether you agree with that point about escape velocity. Do you think that this is now like cats out of the bag, genie's out of the bottle? You know, it's, it's, it's over. Crypto is now here to stay. It can't be shut down, can't be regulated out of existence, can't be squashed as maybe early Bitcoiners felt in the, in the earliest days of Bitcoin, when it was just an infant in the crib.

• 20:38David Hoffman?

  Yeah, even if we had like the worst possible 2022, when it comes to prices of crypto assets, even, even if we had like the doomsday scenario where like we get hit with a 2018, 2019 bear market scenario, God forbid that that happens, but the amount of funding into teams, projects, startups, you know, client teams that we have that are is in dollar terms, not crypto terms, is orders of magnitude than we've ever, larger than we've ever had ever before. And so if you ask me like, is crypto in escape velocity? I would say yes, because now the prices of these assets mean a lot less because so many like startups and everything, all the infrastructure has so much funding behind

• 21:23David Hoffman?

  it that we can all, the whole entire industry can withstand a bear market way better than it ever could ever before. So it's almost like the prices of these things almost don't matter because we are now in escape velocity. We are now building our way out of bear markets with ease. So yes, we are absolutely in escape velocity territory.

• 21:41Ryan Sean Adams?

  I feel like this was the first year that the conversation, you know, we didn't even have the conversation in crypto around will the government shut this whole thing down?

• 21:49David Hoffman?

  Right.

• 21:50Ryan Sean Adams?

  In all my previous years in crypto, that was in the background, that was looming like, and that was actually coming from the antagonists. Well, if Bitcoin gets strong enough, then the government's just going to like deactivate it, shut it down. We're no longer having that conversation. The conversation around interacting with the government is, well, how much regulation is going to be applied to various subsectors of the space, say, stable coins, or DeFi, or AML KYC in crypto and these sorts of areas. No one is talking about the governments of the world banding together and actually trying to shut the whole thing off, because I think there's the recognition that it's impossible. Escape velocity has been reached.

• 22:27David Hoffman?

  I remember my biggest thing that I'm, not the biggest, but one of the things that I'm really, really appreciative of that did not make its way into this, this recent bull market from the 2017, 2018 era, is this common line that you would hear all the time throughout 2017 and 2018, that it could all go to zero. No one says that anymore. Like, if it could have gone to zero, it would have done it in 2018. And so, no one, no one ever says like, hey, people say, don't invest more than you can lose, but no one says it can go to zero. When that used to be like a common line throughout the previous bear market. So I'm so happy that that trope is, has now like completely moved away from people's like headspace. It is now dead.

• 23:11Ryan Sean Adams?

  That is great. That is great. And that's definitely new this year. Let's talk about number two. So the first was crypto became a multi-trillion dollar asset class. It's something we got right. The second thing we got right is ETH. ETH showed remarkable strength relative to Bitcoin. Anyone who's been familiar with, who's familiar with Bankless knows we're bullish on Bitcoin, knows we love Bitcoin, we think it's fantastic, but also knows that we are disproportionately overweight ETH relative to Bitcoin. Like, we do believe that flipping is inevitable.

• 23:41David Hoffman?

  Yeah.

• 23:41Ryan Sean Adams?

  And ETH was super strong relative to Bitcoin this year. So ETH hit a high of 4,600. And then, more importantly, the metric we're tracking, if you're tracking this, is the Ratio strength. So ETH Bitcoin ratio strength highs highs since I think 2018 was the last time we saw them this high. So something else we got right. ETH was up 490% on the year versus Bitcoin, which was up 101%. What are your thoughts on this, David?

• 24:12David Hoffman?

  Yeah, and I'm pulling up the ETH BTC ratio chart so I can look at the exact start of the year because Ether started 2021 at, let's see, .043. So you would, for one Ether, you would get 0.043 Bitcoins. And we are currently clocking in almost double that at .082. And so since the start of 2021, Ether has doubled in Bitcoin terms. And back at the start of 2021, there was still a lot left, a lot of ground left to cover to like reclaim some of the highs set in the previous bear market or bull market in 2017. And Ether just did exactly that.

• 24:54David Hoffman?

  And not only that, it's again, currently looks like it's primed to recover even more ground. So the amount of time that Ether has spent above, above previous all time high or yeah, excuse me, the amount of time that Ether has been higher than it is now is like, it's like 95 to 5. As in like 5% of the time, it's been higher in Bitcoin terms than it is right now. 95% of the time has been lower than than what it is now. And so, yeah, this is one of the big stories of 2021 is that Bitcoin got beat out by basically everything down below it in market cap.

• 25:32David Hoffman?

  And for the second largest thing to double versus it is a significant deal because you can actually only, Ether can actually only double versus Bitcoin one more time before it flips it, actually less, less than that, right? So one more doubling and then it's a flip. So that's a huge story out of 2021.

• 25:49Ryan Sean Adams?

  That's it's a question of.

• 25:54Ryan Sean Adams?

  And that's a question of are we primed for the flipping going to the next year? But here's one of the mistakes. I don't want to make the mistakes that maybe Bitcoin Maximus made at the end of 2020, which is just assuming the next year would be an extrapolation of the previous year. And if you look at this, this is the ETH Bitcoin ratio, David. Look at us all in 2020, even as DeFi was like crushing it. DeFi was breaking out, proving the use case, proving product market fit for Ethereum block space. ETH was pretty flat relative to Bitcoin anyway. It was going up, but not relative to Bitcoin. And so there was this idea of DeFi, not Ethereum. Do you remember that? It was a common trope at

• 26:38Ryan Sean Adams?

  the end of 2020. And so I think people didn't see this going to the next year. They just thought Bitcoin would continue to dominate. And that's not what we saw. We saw a recovery on the ratio and a ton of strength, which makes me wonder what's going to happen next year, which is also the reason, though, David, I feel like you have to track fundamentals because, I mean, EIP 1559, look, when did that happen, right? August, yeah. August, right? You know, that accounts for some of the anticipation working up to EIP 1559. It's another fundamental. Next year, we're going to see fundamentals like the merge coming on board. And so how does the ratio fare in the face of that? That's

• 27:19Ryan Sean Adams?

  something we're going to be going to be tracking. But let's get to number three. Another, I think, contrarian idea that we've held for a very long time, since the very beginnings of the bankless newsletter and the podcast, is this idea that ETH is money. And that had a breakout year as well. This narrative hit the mainstream. EIP 1559 was just an idea when we first wrote about it. In fact, you first wrote about it in 2019. Do you remember this article? The final puzzle piece to ETH's monetary policy, August 10, 2019, talking about EIP 1559? It took two years for that thing to come to fruition. But from so much that I've read this year, not just on the bankless side, but industry

• 28:03Ryan Sean Adams?

  reports, investors talking about ETH as an asset class, even bankers talking about ETH, they refer to it as a monetary asset. Some even refer to it as an internet bond, which we've talked about for a long time. And all of them refer to ETH as a store of value. So that is now the commonly accepted narrative for Ether as an asset. That is not just gas, it's a store of value asset. So this year, I feel like the narrative flipped and ETH actually became money. What are your thoughts on that?

• 28:33David Hoffman?

  I think, dare I say, that the narrative flipped and ETH became money and displaced Bitcoin as money. Because Bitcoin is now just digital gold. That's what it is when you read the big reports. And so Bitcoin is sound money is like a common trope from Bitcoiners. But you don't really hear that in mainstream. That's not a meme that broke out. You don't really hear that ETH is money chanted by mainstream either. But what you do hear is Ethereum as the currency of the Ethereum network, which is what it's always been. But people are also wrapping their heads around the Ethereum network being able to do basically anything.

• 29:15David Hoffman?

  And if Ether is the currency for that network, then therefore ETH is money. And so just a growing acceptance. And this definitely is coming on the backs of the point we were just talking about, which is Ether appreciating versus Bitcoin. That's definitely a tailwinds into this narrative that Ether is just the currency that you need to use to do the things in the crypto world. So that's just becoming more and more just embedded into many, many people's heads. And also, I would also credit having so many metrics to look at when it comes to Ether, the currency, especially when blockchains are open, permissionless, transparent ledgers. We have so many numbers. We have Ether issuance, Ether burn rate, total fees, network security, volume, liquidity,

• 29:58David Hoffman?

  so many things that we can directly look at in terms of what Ether is as an asset. And these metrics that we are able to view just backstop, put up foundations on the narrative, on the meme that ETH is money.

• 30:09Ryan Sean Adams?

  Yeah, even the even the burn rate is a constant reminder that, hey, like, this is a scarce digital asset that is becoming more disinflationary.

• 30:19David Hoffman?

  Yeah, as a function of the economy that it resides within, which is exactly what you need to have a money. The monies are tied to economies.

• 30:27Ryan Sean Adams?

  So that that brings me to a question because I think this is an interesting lesson. In general, we've seen this kind of play out, but like, what's more important or which comes first? The meme or the fundamentals is sort of a question, right? And in some, in some ways, the meme came first for this. You know, in other, like ETH is money, we started saying it before it was fully true. But yet there were hints of it being true in the very early stages. We just saw the vision, you know, a little bit earlier. But what do you think? Which comes first? The the meme or the fundamentals?

• 31:01David Hoffman?

  In this particular scenario, fundamentals absolutely came first. Other currencies memes come first, like Doge, for example. The the fundamentals are the meme, but with Ethereum, the memes came out of a fundamental truth about what Ether is in relationship to Ethereum.

• 31:17Ryan Sean Adams?

  Well, it's it's kind of a, I feel like what happens is the meme always gets tested by the fundamentals.

• 31:22David Hoffman?

  Yes.

• 31:22Ryan Sean Adams?

  And like memes and fundamentals are related. But the only way fundamental, the only way meme, the narrative can last through a a cycle is if it's like reinforced and backstopped and proven out, gone through the forgery of fundamentals. And that's what's happened with this meme. So. Number four, it rained airdrops. All right, we said this would happen. There'd be a ton of airdrops for 2021. And indeed, there were. What were some of your favorite airdrops of the year, David?

• 31:50David Hoffman?

  Oh, gosh. Well, the tornado cash airdrop was lovely. The one inch airdrop was also fantastic. Did that happen in 2021? I can't remember. But of course, the big winner of the year has got to be ENS, the ENS airdrop. It was fair, it was distributed, it was a different kind of airdrop in that it wasn't. It ENS, the token, isn't really like the other tokens that are out there because of just how close to public. Goods, the Ethereum Name Service System is, and it's a different breed in my mind. Similar to Uniswap, similar to Gitcoin, but also meaningfully separated in the fact that

• 32:32David Hoffman?

  it wasn't supposed to reward early users, it was supposed to decentralize power over the ENS naming system. And so I feel like the ENS airdrop is definitely takes the cake as the airdrop of 2021, Uniswap being the airdrop of 2020.

• 32:49Ryan Sean Adams?

  Getting airdropped responsibilities, nothing like it. We've got a ton of other potential airdrops as well. We published the ultimate guide to airdrops, one of our biggest, most popular content pieces of the year. So make sure you check that out as well as for Bankless Premium Members. David, let's talk about the fifth one and last one in this section of things that we got right. And we got right that DeFi usage would continue to go up, but like

• 33:12David Hoffman?

  With an asterisk.

• 33:13Ryan Sean Adams?

  Yeah, this is like barely. We just like barely made it above the bar. We squeaked by on this one. Total locked value got above 100 billion. Why didn't it go further is kind of a question? What like, why didn't DeFi have another explosive year? I guess we'll get into that in a little bit. But what are your thoughts?

• 33:33David Hoffman?

  Yeah, I think the answer to the question is like so much about cryptos based on attention. And if your thing doesn't have attention on it, then like you are suffering. Attention and market cap go hand in hand in the crypto world, especially in the short term. And so NFTs are the most attention grabbing thing that exists out there.

• 33:51Ryan Sean Adams?

  Yeah.

• 33:52David Hoffman?

  And DeFi is just kind of like, it's now like the boomer side of crypto. It's like, oh, boring old DeFi. Like there aren't any JPGs related to that. I think that's what happened. I think NFTs stole all of DeFi's attention.

• 34:06Ryan Sean Adams?

  That's so funny. Yield farms are out, NFTs are in. That's what happened. So those are the five things we got right. Let's talk about the five things that surprised us.

• 34:12David Hoffman?

  Yeah, because there are a lot of those.

• 34:13Ryan Sean Adams?

  There's always a lot of curveballs. I feel like for as many things as we got right, there were some surprises and a lot of the surprises were surprises of timing. So let's talk about these five things. The first one is NFTs. They just blew up this year faster than I think any of us thought, maybe even faster than the biggest NFT bulls we know thought they would. Like it all happened at once. We've been bullish NFTs for a while, right? But it was always like, oh yeah, someday these would be cool. Like someday these will be meaningful and we'll be able to bring our sword out of World of Warcraft into something else. And then like it just happened all at once in 2021. NFTs went mainstream. We had Beeple,

• 34:57Ryan Sean Adams?

  we got CryptoPunks, we got Bored Apes, we had OpenSea. They went mainstream in a way that DeFi never has, right? As we said before, NFTs got us on Jimmy Fallon and SNL and Snoop. Not DeFi, not talking about Bitcoin monetary policy. It was NFTs. I want to hear about like your learning lessons from that or what you, but why do you think we missed that? Why do you think that surprised us?

• 35:22David Hoffman?

  You know, always in the back of my head, I was like, man, this DeFi thing is so fantastic. I can trade assets on Uniswap. Like I can do it all myself. I can self custody this stuff. Like this is great. But in the back of my head, I was like, do people really like, dude, does everyone else think, will they think that this is great? And like in the back of my mind, I was like, you guys got to try out this DeFi thing. It's so revolutionary. It's going to change the world, which it has and will continue to do. But when, again, when it comes to popular culture, people just don't care about finance.

• 35:53Ryan Sean Adams?

  Yeah, no one goes on, no one's going on like late shows and talking about their savings account ever. Like it's never happened.

• 35:59David Hoffman?

  And so like, I think, I think the thing that we didn't realize or we, yeah, we didn't put the dots together is how simple and just how simple it is to ask someone to trade JPEGs. It's like, hey, do you want, if I slap on this financial asset onto this JPEG, would you trade it? And like, society gave a resounding, oh yeah. Oh, we'll totally trade those things.

• 36:21Ryan Sean Adams?

  Didn't that surprise you though?

• 36:23David Hoffman?

  Yes. A hundred percent, but yeah, in hindsight, it's so easy to just look at it. It's like, oh, put and put a token behind pictures. Like, again, it's one of those things where like I too, I middle bell curved it so hard and I should have been on the far left being like, oh yeah, picture tokens, like.

• 36:40Ryan Sean Adams?

  It's hilarious. It's hilarious to you because I feel like we heard the bull case super early. Do you remember when Andrew Steinwald and Jake came on? We did a bull case for NFTs. I think this was in September of last year, right after DeFi summer. And they were like, oh yeah, guys, like NFTs are going to be way bigger than DeFi. Just you wait, you'll see. And we're like, okay, cool. But like, explain what an NFT is and why is that more valuable? I remember you talking about a picture of art that you had on the wall. And you were like, hey, this is a one of one, but like, how does that translate into the digital world? What about the kind of the right click save aspect? And like, not one year later, but not just you and I are fully bought into NFTs and the value proposition, but like,

• 37:25Ryan Sean Adams?

  the whole rest of society is, I never anticipated it would happen so quickly.

• 37:30David Hoffman?

  Yeah, no. And again, it just boils down to the simplicity of of NFTs. Like you get to own a picture. Like, don't think about it too hard. And society didn't. And that's why they got accepted.

• 37:40Ryan Sean Adams?

  Do you know the other thing I was thinking is really DeFi, money, these types of conversations, not only is it easier to understand, but you know, NFTs are far less threatening than those things to incumbents, right?

• 37:53David Hoffman?

  Right.

• 37:53Ryan Sean Adams?

  So mainstream brands, they didn't have to worry about like regulatory issues with NFTs. They could just use their digital brand equity and IP and issue them as NFTs. Social media, like the Twitters of the world, for example, just add NFTs as features. No disruption. Edit, fully embrace it. It's great. It's another competitive advantage.

• 38:16David Hoffman?

  Christie's and Sotheby's made hundreds of millions in sales by selling NFTs. So like, oh yeah.

• 38:21Ryan Sean Adams?

  Easy. What a gift.

• 38:22David Hoffman?

  Yeah. All right.

• 38:23Ryan Sean Adams?

  What a gift to them.

• 38:24David Hoffman?

  NFTs were a gift from the crypto world to the rest of the world. And everyone else was like, oh yeah, I love it. Everything else is like, okay, we're going to come and eat your lunch about crypto.

• 38:32Ryan Sean Adams?

  Well, and even. Even like the regulators, right? Crypto is scary. Bitcoin is for drug dealers and terrorists or whatever, but NFTs, man, they're just like you.

• 38:39David Hoffman?

  NFTs are for everyone.

• 38:40Ryan Sean Adams?

  Like, you can't be angry about them. So I totally underestimated the surface area of NFTs. But let's get to the second one. And this is Axie Infinity, and it deserves its own category in and of itself because crypto gaming took off in a way, but only because Axie Infinity just like plowed the door wide open for all of these other crypto games. It melted faces a few things. Biggest Discord server in the world, bigger than Fortnite, okay? Revenue in the billions this year, millions of players from all over the world. It went, AXS, that's their native token, went from 30 million to $8 billion last year. Okay, 30 million to $8 billion. What's going on here? And how did, uh, why were we so surprised by this?

• 39:24David Hoffman?

  Yeah, uh, it's just like, it's this very rudimentary like game that there's, it looks like a flash game, looks like a browser game. It has crypto elements into it. Like, so like, looking at it, it's like, how is this ever going to catch on? Like, who's actually going to play this? Like gamers want more than just this very simple, like, you know, flash game. Turns out that gamers are not the right target audience. And it turns out there's a number of other people, a larger, much larger population in the world that has, you know, doesn't have super souped up GPUs in their gaming computers and they just casually game on their laptops or whatever, you know, hardware that they have in their country.

• 40:04David Hoffman?

  And because of the economic game behind it, that is the real story. It's not the visual gameplay game side of things. It's the economic game that underlied Axie.

• 40:15Ryan Sean Adams?

  It's the open economy. It's the GDP of the economy. It's providing employment opportunities for people. That's the discovery.

• 40:21David Hoffman?

  Token, and yeah, that's exactly right. And kind of, yeah, it's, it's, it wasn't had anything to do with the actual game itself. It has to do with the economics of the system. That's what got adoption in my mind. And again, when you, when you talk about crypto gaming, you still kind of think about their, your old mental models of games, which are like Call of Duty, super high graphics, uh, you know, intuitive gameplay, like, no, like gaming, crypto gaming studios don't optimize for that sort of thing. At least right now, they are optimizing for the economics. And that is a brand new paradigm shift that I think surprised everyone.

• 40:56Ryan Sean Adams?

  The other thing that made this take off, I think, was a catalyst because we were talking about Axie Infinity at the beginning of 2020, right? We thought it was cool. We just had no idea it would take off the way they did. Proof of concept, like there'll be other crypto games, but this is one of them. We were really bullish on it at the time, but like, not like this. We didn't expect all of this. But when we had Jiho on earlier, who's one of the co-founders of Axie, he, you know, he talked about Layer 2, basically, not quite Layer 2, but the Rowan sidechain as being a massive growth catalyst for this, right? So at some level, what we discovered in 2021 is that high block space fees were the thing holding Axie back and holding crypto gaming back.

• 41:37Ryan Sean Adams?

  And that like, once you untether that, once you unleash all of this and provide cheap block space, then it absolutely explodes. So I think that's something that happened too. Let's talk about the third one. Web 3 became a narrative, all right? I was, I was not a fan of Web 3 back in, you know, 2017, 2018, because it felt like it was associated with like, all of these unrealistic ideas, these naive ideas, like, oh, we're gonna, you know, create a white paper for decentralized Uber, or like decentralized Twitter, and then we're gonna raise an ICO. But today, I see something completely different in Web 3. Like, it feels much more real. We've got the creator economy, we've got the ownership economy, we've got this self-sovereign

• 42:20Ryan Sean Adams?

  identity concept, we have NFTs and crypto as like a digital property layer for the metaverse. What happened with Web 3 becoming a narrative in 2021? And why wasn't that on our radar?

• 42:35David Hoffman?

  I think Web 3 is really riding on the back of the fundamentals of the crypto industry. And so we had Web 3 in 2017, as you said, and it meant many, many different things, like decentralized Uber, decentralized Ticketmaster. And then there's also components of it, like the broader Ethereum ecosystem, where it's literally trying to be the decentralized internet, like decentralized file sharing, decentralized file storage. The Web 3 meme wasn't solidified. And I think slowly over the years, and especially as the industry... Built itself in the bear market and actually established meaningful fundamentals like the fundamentals of DeFi that are meaningfully strong and real and stark contrast to the fundamentals of the ICO movement, which are non-existent.

• 43:19David Hoffman?

  So the Web 3 meme, the Web 3 narrative was able to stand on the shoulders of actual true fundamentals of the crypto industry. And I actually kind of think that Web 3 and crypto are almost completely synonymous. But Web 3 is just like crypto throws a lot of people for a tizzy, like it's the crypto word. Word has got some negative connotations, kind of like, you know, the dark, shadowy super coder connotation. Web 3 is illustrates a lot more things like we already have the web. We already know what the web is. Web 3 implies some continuation of that. And we've been, Ron and I have been talking with a bunch of funds like A16Z and

• 43:58David Hoffman?

  just regulators, people on Capitol Hill, who are actually doing real research into the term Web 3 and how it lands with just people all over the world, demographics and politicians. And it's overwhelmingly positive. Everyone loves the term Web 3. It is the correct and great branding for the crypto world moving forward. That doesn't have the negative connotation of the word crypto and is considered, I think it's kind of a populist term. Web 3 is a populist term. It's a pushback against Facebook. It's a pushback against any top-down monolithic Silicon Valley company. And I think, you know, more and more and more, Web 3 is going to become a household name

• 44:39David Hoffman?

  that is going to hopefully resemble a brighter future of the internet that people wish that we had in the last like decade or so.

• 44:46Ryan Sean Adams?

  Yeah, I agree with you and I do think Web 3 and crypto are synonymous, but not everyone agrees with that, right? Particularly strong Bitcoiners, Bitcoin maximalists, I would say. Jack Dorsey, a number of tweets earlier this week saying, hey, Web 3 is something different. There's Bitcoin and Web 3 is this thing owned by a bunch of venture capitalists and he's like distancing himself from that. Which is interesting that the Bitcoin community, at least the strong maximalist community is not adopting this term Web 3. But, you know, we'll see how that plays out. Come back to this concept because we got to emphasize it was something that we were super bullish on going into 2021 and didn't quite pan out in the way that we hoped or thought it would.

• 45:27Ryan Sean Adams?

  And that is DeFi. DeFi wasn't the golden child this year. That's number four. We talked about the first reason for that, which is like, everyone was distracted by NFTs, of course. But, you know, just to give you some sense, the DPI, which is the index of, you know, the Aves and YFIs, makers of the world, the blue chip DeFi assets was only up 115% on the year. Okay, that's barely above Bitcoin's rise. And, you know, you'd think an asset class would be much far higher beta than than something like Bitcoin. Like DeFi overperformed in 2021. I jotted down a couple of other reasons for this besides everyone is distracted by NFTs. Another reason I think, David, is because this industry is just a bunch of fractals on fractals and fractals.

• 46:12Ryan Sean Adams?

  Right? There's a familiar pattern in crypto that goes like this. Builders, they'll start, they'll build for years. No one will pay attention to them. There's like no market reaction. Then suddenly, in this violent upward burst, the market's like, oh shit, this is a big deal. We got to reprice this asset class. And they FOMO and they pile in, price shoots up and then price overshoots fundamentals. And it tends to either drop or flatten out, stop growing at the exponential pace. Attention moves to other sectors. And then we go back to step one, where builders keep building with years with no market reaction. I feel like that's what was happening in 2021. Like, DeFi builders were building. They were hustling.

• 46:54Ryan Sean Adams?

  And that's when I start to get bullish in the asset class, when the builders stay and they keep building. But the attention has drifted elsewhere because that's where I think the biggest opportunities are for purchasing. And I feel like DeFi is in that zone right now. The other thing I feel like this holding DeFi back is we still don't have cheap block space, right? And we have alternative layer ones and sidechains and things like this. But we haven't reached the golden age of layer twos yet. And I think that is coming, but that's been holding DeFi back and hindering it for a while. What are your thoughts on that?

• 47:27David Hoffman?

  Yeah, I think just to elaborate on that last point, number four, DeFi wasn't the golden child. I think we also have to add in the label that Ethereum DeFi wasn't the golden child because DeFi did take off elsewhere. A lot of things quickly moved on to Binance Smart Chain and then Solana, activity on Solana picked up and then also Avalanche. We thought there was going to be this world of DeFi layer two summer where tokens and yield farming on layer twos would happen. Turns out that, you know, if you go look at the Avalanche, when Avalanche started doing token incentives, as in come do yield farming stuff on the Avalanche L1.

• 48:05David Hoffman?

  As soon as they started doing token incentives, which is what kicked off DeFi summer, by the way, that's when Avalanche started to really, you know, get into its heyday. And so I think Ethereum DeFi wasn't the golden child. DeFi did take off, but it took off more horizontally across L1s. Again, exactly what you said, looking for cheaper block space than it did vertically on already existing DeFi ecosystems on the Ethereum L1. So I think you're totally right. Like it is, DeFi wasn't the golden child because Ethereum didn't have the cheap block space needed to really allow for experimentation and innovation.

• 48:40Ryan Sean Adams?

  The other bright spot for DeFi was this like DeFi 2.0 projects, like projects that were, you know, playing around with their token economics and, you know, doing some tweaks on standard DeFi, like making the protocols more permissionless, like Olympus, TokenMac, Rari come to mind for that. That was another bright spot, but yeah, overall, DeFi was not the golden child. That gets us to number five, which is kind of the point that you were making and something that I don't think we anticipated going to 2020. At least the degree to which this happened, we didn't anticipate. And that is this, all layer one tokens pumped, okay? They went absolutely crazy. I'm talking things like Solana, Luna from the Terra Network, Ava from Avalanche.

• 49:24Ryan Sean Adams?

  We saw some adoption in terms of NFT and financial projects, some of them kind of copies from Ethereum, some of them sort of net new. And yeah, these tokens just absolutely destroyed.

• 49:37Ryan Sean Adams?

  All other, everything else in their path, right? It's like far outperformed Bitcoin, of course, and also outperformed Ethereum. And Ethereum had, Ether had a fantastic year. And so we started hearing narratives like this. It's now a multi-chain world. Remember the Suzy thing? Ethereum abandoned its users, right? Ethereum is getting leapfrogged by better technology. These are some of the narratives that partially follow the token pumps, but also maybe partially cause them, depends. For me, this is like a point of reflection, right? For us, right? So like, what is happening here? Because the bankless thesis is very much, we have these three asset categories. We've got monies and capital asset and commodities. And I'm looking at these token valuations and I'm asking myself like, why are they pumping so hard?

• 50:22Ryan Sean Adams?

  What is the value based on? Are these assets actually becoming money? Okay, that's one thing. Is there a monetary premium? Are we pricing in some future transaction fee growth? Because when you look at the fees, block space fees generated, it's like nothing on these all the other alternative layer ones relative to Ether. So is that why? Are these chains just like assuming that they're going to flip in Ethereum and be long-term competitors to Ethereum? Or like, or do you take the Suzy, three hours capital approach? And it's like, ah, none of that matters. Okay, it's just memes all the way down. And like, don't be, don't have such hubris, bankless guys. We don't really know what fundamentals are in this crypto industry at all. And the market's just showing you why it's foolish to assume

• 51:06Ryan Sean Adams?

  you actually think there's a thing that exists called fundamentals. All right, that's what they would say. And these are some of the biggest questions, I think, facing investors going to 2021 and facing sort of the bankless thesis and us on the journey. I have a few thoughts on this, but what are some of your thoughts, David?

• 51:23David Hoffman?

  Again, taking a hindsight perspective at 2021, if we all thought 2021 was going to be the year that we thought that it would be at the start of 2021, then block space would have been the thing to invest in. If crypto is everyone who go mainstream and everyone's going to come on to the blockchain and do their crypto things, what is going to be the most scarce thing? And that is block space. And so I I think it was kind of naive to think that like the block space on Bitcoin and Ethereum would have been like sufficient to supply all of the adopters of crypto in 2021 with sufficient block space to do so.

• 51:59David Hoffman?

  And what really happened was that there were some, there were some people that I, and like, I think people like you and me is like, oh, well, if we were presented with that critiques, like, hey, Ethereum doesn't have enough block space to support until a whole entire bull market. Like, what's gonna happen? We would be like, oh, there's gonna be layer twos, where there's like almost infinite block space. We can just go there. Right. And we just, I think we just mistimed it. L2s are certainly here. Their block space is certainly adding more to Ethereum. But if you go to ethtps.info, we can actually see how much, ethtps.info. We can actually see how much actual block space was added to the Ethereum blockchain with just rollups. And it's actually not that much. It's a decent percentage, but it's still in its infancy.

• 52:44David Hoffman?

  And the alt-layer ones were able to go to market with more block space faster than Ethereum layer twos were. And so that race against time, I think, was won by the alternative layer ones before Ethereum layer twos could really add their supply of block space to, you know, the global total supply of block space that, you know, a bull market totally demands. And so I think that's what happened. I do think that the pendulum has shifted far too in the favor of alternative layer ones. And with the advent of, you know, optimism removing its whitelist, arbitrage from Nitro coming out, optimism also releasing the brakes, Starkware and Starknet happening. The pendulum is going to shift in the opposite direction because it's super overweight L1s right now.

• 53:29David Hoffman?

  Like you said, the token pumping is just pricing a ton of growth in, into these alt-layer ones, when they've definitely supplied the world with enough block space, but they have not at all addressed the monetary economics of their, of their L1 asset, which is a battle that Ethereum definitely won in 2021. And the alt-layer ones still have to fight that fight.

• 53:49Ryan Sean Adams?

  Yeah, that's why I feel like calling the market maybe a little wrong. Okay, and I know that's dangerous to do and Suzy would be like, who the hell are you to like, call the market wrong. But I feel like your point is very well made that like being bullish on block space is definitely something you should have been in 2021, right? Totally get that point. But there's a difference between block space and actually purchasing the underlying asset of that blockchain. Okay, because like those two things are different. All right. And if the blockchain is not generating sufficient fees to make to turn the asset of that chain into a capital asset, productive asset that

• 54:32Ryan Sean Adams?

  is harvesting those fees, or turning it into a money somehow, then why should the asset be worth tens of billions of dollars? I feel like maybe what's also happened is people in the market are just saying, oh, okay, Ethereum is worth $500 billion. And what is the TLV of Solana or Avalanche? Okay, it's, you know, 5, 10% of that? Okay, then we should, you know, we're about 5, 10% of the value of Ethereum. They're calling it a day. That's like the depth of the analysis, right? And I feel like that is a flawed assumption. Now, maybe I'm wrong. Maybe, maybe this is the wrong fundamental to be thinking about. But that's something I'm thinking a lot about going into 2022, and we'll talk a bit

• 55:16Ryan Sean Adams?

  about that later. But David, before we do, we got to get to some of the mental models we unlocked in 2021. And there were so many on Bankless. I don't think we got to all of them. But let's talk about just five of them anyway. So five new mental models for 2021. You know, let's start with this one. Do you remember that episode we did all the way back earlier in the year? I think it was like February with Justin Drake.

• 55:35David Hoffman?

  The first Justin Drake episode, which already blew people's mind, which wasn't even the episode that is known to blow people's mind by Justin Drake.

• 55:42Ryan Sean Adams?

  It was a great episode and it was a key episode for me and my learnings for 2020. And this is the bull case for cryptography. It was the episode not about price, not about economics, just about raw cryptography and the magic that cryptography brings. And here's the thing I learned from that episode. Basically, these are all trust machines. These blockchains that we're building, they're all trust machines. And the things that actually scale them, the trust machines are like, it's cryptography. That's the magic. That's the solution.

• 56:14David Hoffman?

  Always has been.

• 56:16Ryan Sean Adams?

  Cryptographic cryptography breakthroughs are the only things that actually scale blockchains. Everything else is kind of a hack. So that's what that episode taught me. And there's a lot to it. We just refer you to the episode. Go back and listen to that one. But what that really, that mental model made me is more bearish on high transaction throughput chains that just don't use cryptography to scale. They use high node requirements to scale, right? Because that's, that's kind of a hack. It's kind of a shortcut. And it makes me very bullish cryptographic breakthroughs. So things like ZK rollup chains seem to be the future and are much more exciting to me. Any reflections on that mental model? Cryptography being the only real breakthrough for performance?

• 56:58David Hoffman?

  The line that Justin Drake left with me that stuck in my head is that if you can't solve it with cryptography, then you can do it with cryptoeconomics. But that's prioritizing cryptography as in like, you gotta really, really try to solve your thing using cryptography alone. And only when you know that you can't, can you then rely on cryptoeconomics. Adding in cryptoeconomics in order to solve a problem is again, a compromise on a complete solution to that problem, which is solving through cryptography. And remember, cryptography is compression technology. Using cryptography, you can compress. Gigabytes of data down to a very small hash.

• 57:41David Hoffman?

  It's just a matter of how you do that in this inside of the context of the system that you're trying to create. If you can't do it, then you use crypto economics. But the idea is that it's always cryptography first. And that's why Ethereum has always been a cryptography first, a cryptographer first ecosystem. Because it's always going to, the world of cryptocurrency is always going to be won out by the system that has the best cryptography that powers it. So that's why cryptography is really important.

• 58:10Ryan Sean Adams?

  Yeah, I feel like I developed a holy reverence for cryptography this year and partially through that episode. So go back and listen to this. The second mental model I feel like we unlocked is this mental model of legitimacy. In particular, legitimacy as the only scarce resource. That is the thing these social systems we call blockchains are actually producing and actually optimizing for. And legitimacy is like a social technology. Okay, it's like governments use it, you know, religions use it. It's a social consensus technology and it's one of the most, it's layer zero. We'll get to that soon, but like it's one of the most overlooked and most powerful.

• 58:51Ryan Sean Adams?

  You know, coordination mechanisms and systems that we have as a species. It's the reason why Bitcoin is a store of value and Bitcoin Diamond isn't, right? It's the reason why Ethereum has a larger market cap than Ethereum Classic. It's the reason why Doge pumps, Binance chain, you know, rises based on performance. It's the reason why CryptoPunks are more valuable than Putchy Penguins. This is a nine cat, okay? This is a famous internet meme. It's like 10 years old. But if I just right click, save this and issue this as an NFT, it'd be practically worthless. Okay. But the creator of nine cat, the person who actually has the legitimacy to issue this as an NFT can issue it. It's worth 300 ETH and it's sold for 300 ETH this year.

• 59:35David Hoffman?

  And it's not, it's not like a little Po app that you get like, oh, you have the legitimacy. It's not an actual asset. There is no like known tangible form of legitimacy.

• 59:44Ryan Sean Adams?

  Exactly. It's just raw legitimacy.

• 59:45David Hoffman?

  It's just what's in people's brains.

• 59:49Ryan Sean Adams?

  Yep, absolutely. And so I found myself, this was an episode, by the way, that we did with Vitalik, who wrote a blog post that we kind of parsed apart and, you know, understood what legitimacy actually means. And he talked about brute force as one path to legitimacy, continuity, fairness. There's lots of other things that you need to get your mind wrapped around. But I found myself, once I unlocked that mental model, David, I'm no longer asking the question of, okay, what's the path to the most secure blockchain, right? Like, the technical side of things, like, how does a blockchain get there? I've now started asking, what's the path to building the most legitimate blockchain? And that is a, that is a mind shift that I didn't have. It's a different question, and I think a more fundamental and important question. And I'm bringing that with me into 2022.

• 1:00:35David Hoffman?

  It's a really hard, like, I don't think this theory of legitimacy could have come from any other sector in the world other than crypto. Crypto is like the proving grounds and like the testbed for finding legitimate things versus illegitimate things. And like, we've seen illegitimate things like left and right, like, for example, in my mind, funks, which are CryptoPunks, but mirror images of each other. And now they're trying to like, gain some sort of adoption by just being the mirror image of a CryptoPunk. Not legitimate, in my mind. There's a bunch of things like that. Tron, for example, has its white paper just copied and pasted from the Ethereum IPFS white paper. Like, not legitimate. And that's why, among other reasons, why Tron didn't really work out over the long term. And so I think one

• 1:01:20David Hoffman?

  of the greatest things that crypto has to export is our values and our culture. And that is, comes with that, a concrete definition and appreciation for the concept of legitimacy.

• 1:01:33Ryan Sean Adams?

  It's also a concept that you can export to the real world, right? You think about the institutions, the existing legacy institutions, their legitimacy is eroding relative to some of these new crypto systems. And that's interesting to watch, as well as they try to grapple to reestablish their legitimacy. What will they do? Will they, will they use brute force, for example, in some cases? And maybe it depends on the jurisdiction of the government. Let's talk about the third mental model we unlocked. This is a big one, man. We haven't talked about it in a while. ETH is ultrasound money. Okay, so a series of three podcasts, actually two podcasts, we did with Justin Drake on this. The the largest, most famous being that you could start with, the podcast just simply called

• 1:02:14Ryan Sean Adams?

  Ultrasound Money with Justin Drake. And the simple case that was made on that podcast and the articles that you wrote about that podcast was ETH is on track to become the best monetary asset the world has ever seen. Okay, Bitcoin started with this fixed 21 million supply cap. It was not the optimal system to maximize value and network security. Ethereum's approach is better. That's kind of the contrarian thesis that we put forward with Ultrasound Money. And I think if you own ETH, if you're looking at ETH as an asset, this is a required listing, a vitally important podcast and mental model to download and see if you agree with. And I feel like this one's held up pretty well, David.

• 1:02:59David Hoffman?

  Yeah, I'm gonna try and give a very short summary and then a prediction for in 2022 about this is Ether is a groundbreaking new relationship between an economy and its own money, where currently we have the dollar and the United States economy, where the United States GDP, it trends up over time. Meanwhile, the value of the dollar in real terms goes down over time. So we have a discrepancy there, like economy goes up, but dollar value, dollar, but dollar, value of the dollar goes down. Then we have Bitcoin. And if the Bitcoin economy goes up, the Bitcoin supply stays completely the same. Therefore, the value of Bitcoin goes up. And so Bitcoin economy goes up, Bitcoin value goes up, Bitcoin supply stays the same. Ethereum,

• 1:03:41David Hoffman?

  if the Ethereum GDP, the Ethereum economy goes up in value, the rate at which Ether is burnt also increases. And so, and also the value of Ether goes up even more so. So value of the Ethereum GDP goes up, the scarcity of Ether, the asset, also goes up. And that is something that's brand new as a function of Ethereum's monetary policy, monetary system that we've never ever seen before. Ryan, I think in 2022... 22, we will not see too much of this talk happening because that is going to be coming around after what I think will be coming in 2022, which is, you know, general institutional and market adoption of layer twos and having the economy of Ethereum spread outwards more horizontally

• 1:04:26David Hoffman?

  across these layer twos and then having these layer twos have their own internally native interesting economies. And then, once we have this very vibrant multi-layer two, multi-chain, like economy flowing around Ethereum with, you know, stablecoin flows and Ether payment flows and layer twos buying L1 block space with Ether, then we will get to see deeper and more interesting analysis into Ether's role in the Ethereum economy. And then I think in 2023-ish, people will start to like really refocus in on the relationship between Ethereum, the economy, and Ether, the asset, because there's going to be so much data to look at and people like data.

• 1:05:03Ryan Sean Adams?

  Yeah, I totally agree. And this is, I can't underscore your point enough. This is brand new. We've never seen an economy act like this, right? So, you know, this is as if a government is taxing you and it takes all the tax revenue based on usage, based on GDP of the economy and then burns all of that money it collects.

• 1:05:20David Hoffman?

  Effectively giving it back.

• 1:05:22Ryan Sean Adams?

  Yeah, we're giving it back to basically any of the holders of, you know, its underlying bonds, right? So, super exciting and I totally agree with you. We're going to have so much more data on this. It's going to become self-evident. We don't have to keep saying it anymore. Okay? That'll be, that'll be the day. Let's talk about this, this, this fourth mental model that I feel like was, I don't want to say it's our biggest mental model of the year, but it was for me personally. I will say that. And that's the idea of modular chains, modular blockchains and the idea contrasting modular blockchains with monolithic chains. We did a, the writings of Polinaia were key for me to sort of understand this, I think for both of us and to come to the conclusion that modular

• 1:06:04Ryan Sean Adams?

  blockchains are the best scaling solution for crypto. We put out a podcast about this called, Ultra scalable Ethereum and an episode called Modular versus Monolithic Blockchains. There's an article and there's also a podcast about this. But the idea that Pauli Nia put forward was refreshingly, I guess pragmatic and utilitarian to me because so often when crypto people talk about the value of decentralization, and you and I are guilty of this too, right? Because they'll talk about it almost in like religious terms or in social value terms, right? And it's like, why should you care about decentralization? Well, think about the greater good, okay? Don't sacrifice these temporal things for the long term.

• 1:06:49Ryan Sean Adams?

  Don't be seduced by the dark, like, black power of centralization, wealth creation opportunities, think about future generations. It almost sounds like religious. But Pauli Nia's argument for decentralization is very different.

• 1:07:01David Hoffman?

  It's very technical.

• 1:07:02Ryan Sean Adams?

  Yeah, it's a technical and economic argument. It's like decentralization is just the best strategy for survival and it's going to outcompete all the more centralized chains. And why does he say this? Because of this modular blockchain thesis, because modular chains will easily outscaleable monolithic chains and modular chains invert the scalability trilemma. So it effectively rewards decentralized chains.

• 1:07:30David Hoffman?

  With more scale. More decentralization equals more scale.

• 1:07:33Ryan Sean Adams?

  It's just a super pragmatic, non-religious, it's like, oh, you want to be the most scalable chain? You have to be the most decentralized chain then. And like, mic drop. And so that was such a cool unlock for me. And we're not going to have time to talk about what we mean by modular chains versus monolithic chains. If you haven't heard that episode and read that article, it's homework for you to do. I think this is an important mental model that you need to bring with you in 2022 because if it's right, it will reshape everything in crypto. Well, what are your thoughts on this, David?

• 1:08:09David Hoffman?

  Yeah, the one quick thought is that going into Ethereum after sharding and proof of stake, the final fully fledged version of Ethereum that we see on the horizon, that's actually not Not one thing. The proof of stake validators are different from the data shards, are different from the layer twos, and they're all different modular components that only when you stitch them all together is that Ethereum. So unlike a monolithic blockchain where you can point to like one computer saying like, well, that computer is doing the execution, it's also doing the data storage, it's also doing the validation, it's also, you know, doing all the consensus, all that stuff. That's a monolithic chain. With a modular blockchain,

• 1:08:50David Hoffman?

  there's so many different modules that there isn't actually one thing about Ethereum. And so it's very, like itself is even decentralized. The actual construction of the blockchain, in the construction of the blockchain is decentralized of a decentralized blockchain network.

• 1:09:06Ryan Sean Adams?

  It's very emergent.

• 1:09:07David Hoffman?

  Very emergent, yeah. And so overall, this is going to be, I think, a theme of 2022 is that, you know, is it going to be the modular, the monolithic L1s that brute force themselves into relevancy? Or is it going to be the modular systems that, you know, pragmatically and practically scale themselves out?

• 1:09:24Ryan Sean Adams?

  And, you know, for us, what this makes us, I think, from a thesis perspective, is bullish rollups, bullish Ethereum roadmap, bullish modular chains, whether it's Ethereum or some other chain, bullish decentralization, and bearish monolithic chains, at least until they embrace their role as maybe an execution layer or something to that effect. So go listen to that episode if you had no idea what we were just talking about. Go listen to that modular versus monolithic blockchains episode. It is incredibly important to bring with you into the next year. The fifth and final mental model of our top five mental models is this one. "We're living in a crypto renaissance." The episode with Josh Rosenthal. David, could you like give a synopsis of that episode?

• 1:10:06Ryan Sean Adams?

  It was probably my favorite episode that we've ever recorded of any year. And yeah, I know you feel similarly about it. Why do you like it? What's in that episode?

• 1:10:18David Hoffman?

  Yeah, I think the reason why everyone loves that episode is because it's a story. And humans love stories and kind of in the same vein as you were talking about with decentralization and Polynoi and modular blockchains, like it's a story, but it's also a very technical and well backed up story with actual evidence, with actual real fundamentals behind it. So like, like all things, it's a great meme, but there's actual fundamentals behind it. So yeah, we're living in a crypto renaissance. It's a great meme to tell your family. It's like, oh yeah, crypto is going to bring in usher in a new renaissance, something of equally of equal magnitude to the old renaissance. Yeah, like the one you studied in high school.

• 1:10:56Ryan Sean Adams?

  That will also make your family think you're crazy, which is again, another fun talking point.

• 1:11:00David Hoffman?

  Right, but at least you can tell them, show them this story. And also one thing I learned in 2021, Ryan, is that stories do way better for onboarding than like technical arguments. Like the, what is crypto? What is a blockchain? How's a blockchain work? That all those pieces of information and content have their place, but it's, it's really stories that embed meaning and significance into people's brains. And so the TLDR of the crypto renaissance podcast, even though you absolutely need to listen to the whole thing, is that there are two technologies that triggered the creation of the renaissance. One was double entry bookkeeping, which is basically democratizing and decentralizing the concept of finance into the average, you know, everyday individual's brains.

• 1:11:40David Hoffman?

  And also the printing press, democratizing the freedom of information and the, the availability of information and also the low cost of reproducing information. So that's what triggered this great wealth creation and wealth distribution event in the renaissance, allowing everyone to any, any and everyone to be their own bank. Double entry bookkeeping allows you to be your own bank. That's what it does. Slowly over the year, over 500, 600 years, that became centralized into the current banking system that we have today. And now we have another set of decentralized technologies that allows a renaissance 2.0 or the crypto renaissance. And that is the internet, the modern aid, the new age printing press, and also blockchain technology, which is the new age double entry bookkeeping.

• 1:12:25David Hoffman?

  And these same two technologies, which are ones about information, ones about finance, allows individual rights and individual sovereignty, individual power to create and spread wealth as the individual sees fit. And so without any hyperbole, we are living in the crypto renaissance.

• 1:12:43Ryan Sean Adams?

  I absolutely agree. And you know, the Renaissance is an exciting time. It's a time of turmoil as well. People look at the Renaissance as rose colored glasses, but there were some institutions that had a hard time. But on the, on the other hand, we had new governance systems that arose like fledgling democracies and nation states. Culture really bloomed during the Renaissance. A new class of Medici, creating a world of economic opportunity. And I think that's the takeaway from that episode with Josh Rosenthal and this mental model of the crypto Renaissance. Like, we're here now. So like, what are you doing to be part of the new crypto Medici? Right? Like, that's a great place to be if you're an individual on the journey. And so bullish crypto, bullish

• 1:13:24Ryan Sean Adams?

  crypto Medici. This is an episode that's bullish humanity and bullish optimism, which is something we've talked a lot about on Bankless lately. The only thing that's bearish, David, is pessimism. If you are short humanity, like, GTFO, man. It's like, you're like, get out of here, because that's not what we're doing in the crypto Renaissance. So it's a, it's a very optimistic lens through which to view all of crypto.

• 1:13:49David Hoffman?

  You know what also came out of the Renaissance, the actual OG Renaissance in the 1600s? The Dutch East India Company.

• 1:13:56Ryan Sean Adams?

  That's true.

• 1:13:57David Hoffman?

  And you know what is, I think, the, the new Dutch East India Company today? DAOs.

• 1:14:03Ryan Sean Adams?

  DAOs, yeah. The new capital formation structures, right? These DAOs. Absolutely. There are two other mental models. Like, we did this, this fantastic episode with Chris Dixon on Web3. Check that out. That's kind of a, you know, bonus mental model for you. Also, David, you and I did this episode on the metaverse. I feel like it's still one of the best episodes I've heard on the metaverse, just because it actually defines it. Okay?

• 1:14:26David Hoffman?

  Concretely, yeah.

• 1:14:27Ryan Sean Adams?

  Concretely, so many people still think like Zuckerberg's version of the metaverse, where it's just like virtual worlds. That's the metaverse. It's not, okay?

• 1:14:34David Hoffman?

  VR or whatever.

• 1:14:35Ryan Sean Adams?

  Yeah, VR. It's not about virtual worlds. It's about property rights. That's what the metaverse is about.

• 1:14:40David Hoffman?

  Zoom is not the metaverse.

• 1:14:42Ryan Sean Adams?

  Zoom is not the metaverse. All right. It's just like an overlay of the metaverse. Property rights are the metaverse and crypto is a key aspect of that. In fact, the foundational aspect of it. So listen to that podcast where we define the metaverse and talk about that in depth. Okay.

• 1:14:56David Hoffman?

  Matcha, everyone's favorite DEX aggregator, has just launched an open beta for gasless trading. So if you're trading more than $5,000 in common ETH and wrapped Bitcoin pairs, then your gas fees on Matcha are free. And that's why you should be using Matcha. Matcha routes your orders across all the various DeFi exchanges on Ethereum, Polygon, Binance Smart Chain, and gives you the best possible price without any trading fees or unnecessary slippage. Matcha has smart order routing that splits your orders across multiple liquidity sources if Matcha sees that it gives you better pricing. Trading on Matcha is super easy because it pulls the liquidity for me into a single and easy-to-use platform and has even saved me multiple times from accidentally picking the wrong DEX to trade on and getting a bad price.

• 1:15:39David Hoffman?

  Matcha also allows you to make limit orders on chain so you can set and forget your DeFi trades and they will go through automatically while you're away. So when you're making a trade, head over to matcha.xyz/banklist, connect your wallet, and start getting some of the best prices and most liquidity when you trade your crypto assets. Living a bankless life requires taking control over your own private keys. Not your keys, not your crypto. That's why so many in the bankless nation already have their Ledger hardware wallet, which makes proper private key management a breeze. But the Ledger ecosystem is much more than just a secure hardware wallet. Ledger is the combination of the Ledger hardware wallet and the Ledger Live app. And if you're used to seeing all of your crypto services and favorite DeFi apps all in one spot, Ledger Live is where you want to be.

• 1:16:25David Hoffman?

  Not only does Ledger let you buy your crypto assets straight from the app, but it also hooks into all of the DeFi apps and services that you're used to. Using Ledger Live, you can stake your ETH and Lido, swap on DEXs like Paraswap, or display your NFTs with Rainbow. You can also use Wallet Connect inside of Ledger Live to connect to all the other DeFi apps that keep coming online. DeFi never stops growing, and the Ledger Live app grows alongside with it. So click the link in the show notes to see all of the DeFi apps that Ledger Live has and stay tuned as more apps come online. And if you don't have a Ledger hardware wallet, what are you even waiting for? Go to ledger.com, grab a Ledger, download Ledger Live, and get all of your DeFi apps all in one space.

• 1:17:06Ryan Sean Adams?

  How to get to five bets going into 2022. All right, so if you've been hanging with us so far, what does all of this mean? All right, it's like, how does number go up as a result of these theses, David? What are you, how are you positioning your time and resources and capital going into 2022? Here are five of our bets going into 2022. Not all of them, but I think some of the more interesting concentrated bets. I'll start with the first. The first is this, okay, bullish block space? But that comes in the form, at least for myself, of ETH, layer twos, and also some of the bridges from layer two to layer two. So Chris Dixon, in our episode earlier this year, called block space like the most valuable commodity asset of, you know, 2021.

• 1:17:51Ryan Sean Adams?

  And I agree, but as we talked about earlier, I feel like some of the block space out there is overvalued and some of it's undervalued.

• 1:17:59David Hoffman?

  Not all block space is the same.

• 1:18:01Ryan Sean Adams?

  It's not all the same. Some has stronger settlement guarantees, which is a mental model from 2021, Bankless Mental Model, settlement guarantee keys, go look that one up too.

• 1:18:10David Hoffman?

  That might have been 2020, actually.

• 1:18:12Ryan Sean Adams?

  Yeah, 2020, excuse me, I said 2021, but 2020. The modular blockchain thesis that we're talking about earlier makes me really bullish on Ethereum, of course, but also layer twos, you know, Polygon, Immutable, Starkware, Arbitrum, Aztec, Optimism, a slew of others that are about to enter. And I think Ethereum's roll up scalability strategy, which is essentially the modular blockchain thesis, is massively undervalued. I expect layer twos to absolutely explode next year. I expect all layer twos to issue tokens at some point in the future. They're not going to tell you they're doing that, but that's what I expect. I also expect bridges like Hop, Connects and Across to be a big deal. And for me personally,

• 1:18:56Ryan Sean Adams?

  That's kind of the block space for my portfolio that I want. I'm more neutral on alt-layer ones. Like, I don't hate them. I just, I don't understand what the valuations are based on. And I don't like to invest in things I don't understand. So I'm not, I'm not a great meme investor personally. And I think some of these monolithic chains, they'll have some success in areas. You know, in the, maybe the medium term even. Some of them will pivot and become successful execution layers. Some of them will become more centralized, become a bit more like central banks. And Binance Chain is an example of that. I think others will fast follow Ethereum and go in the modular blockchain strategy direction, and I'm more bullish on those. But for me personally, I don't feel like I have a need to be exposed to those relative

• 1:19:39Ryan Sean Adams?

  to Ether and Layer 2s. What are your thoughts on that, David?

• 1:19:43David Hoffman?

  I think this prediction for 2022 hinges on whether or not these projects, teams, Layer 2s, Bridges, issue tokens. We need them to issue tokens. It's going, if they issue tokens, it's Layer 2 summer. Bridges getting farmed with tokens, Layer 2 is getting farmed with tokens, liquidity, all that stuff. It's really, it's a matter of, and like, think of the Layer 2s that have issued tokens. Immutable, incredible adoption, incredible usage, incredible BD. DYDX, incredible volumes, they have a token. The other ones that haven't had tokens are-

• 1:20:22Ryan Sean Adams?

  Polygon.

• 1:20:23David Hoffman?

  A Polygon. Again, token, adoption. Like, this is how this goes. Like Arbitrum, Optimism, StarkNet, I mean, it's still very, very early on StarkNet. They're like, no token, not, not so much adoption. Like, people need the incentives. And I think as soon as these tokens come out, people are going to start to view these Layer 2s as the things that you, that you and I, Ryan, think that they are, which are like, you know, multi-decade, long time horizons, investment thesis as for block space. And so owning these tokens now are going to be very, very valuable. And that's going to be how a lot of momentum moves into the Layer 2 world.

• 1:20:59Ryan Sean Adams?

  Don't you think, David, tokens are inevitable, though?

• 1:21:01David Hoffman?

  Yes.

• 1:21:02Ryan Sean Adams?

  Because of that economic fact?

• 1:21:03David Hoffman?

  Yes. It's just, it's just like, they've been very, some of them have been very, very patient to issue tokens and- I know, I know, like, long-term thinking, long-term thinking, like, I'll be patient.

• 1:21:14Ryan Sean Adams?

  Hold your horses, we can wait a year.

• 1:21:16David Hoffman?

  But goddamn, do I want the L2 token summer to happen?

• 1:21:20Ryan Sean Adams?

  I think it's coming, and I think we're building towards that, and I think we'll start to see some of that in 2022. And I think people are way underexposed on Layer 2 relative to alternative Layer 1s, but we'll see. Let's talk about the second bet category, which is next-generation DeFi, all right? So DeFi's been sleepy from a price perspective, but the builders haven't been. The builders have been continuing to build, and now we have Layer 2s that are coming out. I think that will bring a whole new cohort of breakout DeFi applications. Applications that are born on Layer 2s rather than mainnet, weren't even possible on mainnet. I'm watching for these. I also think a lot of the blue-chip DeFi assets, like the stuff that's inside of DPI,

• 1:22:03Ryan Sean Adams?

  they're an absolute steal when you look at it from a price-to-sales or price-to-earnings ratio, okay? Like, some of these from a price-to-earnings ratio are like lower PEs than Apple or General Electric, right? It's like silly how much cash these things are creating. Now, maybe you could argue the token valuations aren't tuned to capture them, but they will be. Governance will adjust that and make it so. And so I feel like if you think about the growth story of blue-chip DeFi assets on Layer 2, and you think about them as also value assets from a price-to-earnings, price-to-sales perspective, they're both value assets and growth assets. So I'm actually bullish on the category.

• 1:22:45Ryan Sean Adams?

  I think the blue chips are pretty cool, too. I'm also, too, keeping an eye on alternative Layer 1 projects. So there are new projects spinning up on, DeFi projects spinning up on alternative Layer 1s and sidechains, like Polygon, for instance, and I think some of these could start to give some of the traditional Ethereum-only DeFi projects a run from their money if they start to expand into Layer 2 and Ethereum, right? Ultimately, this is a battle for liquidity. It's the great battle for liquidity, and the best-money robots will win, and I think that's a great thing for consumers. So I'm keeping an eye, at least one eye, open on what's happening in the alternative Layer 1 and DeFi space as well.

• 1:23:28Ryan Sean Adams?

  So those are some thoughts on DeFi assets. What do you think?

• 1:23:31David Hoffman?

  Yeah, I think the only thought I'll add is that there seems to be, hopefully, an aligning of the stars behind a lot of great, under-the-radar DeFi projects that are coming into, onto, may net be that Layer 1 or Layer 2s, just production-ready. Simultaneously, as Layer 2s start to, you know, remove whitelists and also remove the brakes and allow for more unconstrained, or lesser constrained, supply of block space. That has really kind of been the thing holding optimism and Arbitrum back, going from like, having like Uniswap fees going from $5 where they currently are, down to like 50 cents, or even, even less than that.

• 1:24:08David Hoffman?

  So, brand-new DeFi use cases simultaneously aligned with a lot more supply of block space to experiment and innovate and allow these new use cases that are coming online to also be surface area for additional use cases on top of them. And in order to incentivize and create that sort of, you know, innovation, Cambrian explosion, you need cheap block space. So, hopefully, those stars are actually aligning in the way that I see them.

• 1:24:31Ryan Sean Adams?

  Yeah, yeah, yeah, totally agree. The third bet going into 2022 that I'm making is DAOs, as a category of all types. And it, it's kind of weird to bet on DAOs, David, because like, what are DAOs? Kind of like, uh, it's kind of weird to think of them as a category. It's kind of like, I'm betting on LLCs as my investment strategy, right? It's like, okay, but what LLCs? Right? But it, it kind of makes sense going into 2022 because DAOs are so early-stage, right? There are thousands of these experiments. There's the Creator Economy DAOs, Fan Token DAOs, Media DAOs, Social DAOs. DAOs that are doing weird things that we couldn't even predict, like trying to outbid a billionaire for a copy of the Constitution. All right? Like, weird stuff.

• 1:25:14Ryan Sean Adams?

  And I'm monitoring as many of these experiments as possible because some of them, I think, will be breakout successes. I think we're looking at, you know, potentially the future Fortune 500. And these assets will dwarf their traditional competitors. So, what does getting exposure to a DAO look like? I think at this early stage, it just means tapping into as many experiments as possible. Getting into these DAOs, actually becoming a member of them, participating in them. Investing in infrastructure that they need to, that's a whole nother category under DAOs. When it makes sense, potentially looking and evaluating their token. And I think DAOs as a category is not so much like, you're not betting on specific

• 1:25:56Ryan Sean Adams?

  areas of crypto as much as you're like betting on the blockchain's ability to coordinate. It's like DAOs are a bet on blockchain coordination. And that's why it makes sense to me. And I think coming out of 2022, I hope we have some like categories, subsectors of DAOs that make more sense. But right now, I'm just like, I'm bullish DAOs. Are you bullish DAOs? What do you think about that?

• 1:26:18David Hoffman?

  Oh, yeah. Just the amount of flexibility that a DAO has. Because like you said, betting on, saying I'm gonna bet on LLC is kind of weird. But that's because like, an LLC can be anything, right? And a DAO can also be anything. And so, not only will I see more, do I expect to see more DAOs in 2022, but I also expect to see DAOs be formed in an attempt to do weird new things that like, I don't think we can predict right now. For like, buying the constitution would have been a great example, having that already.

• 1:26:50Ryan Sean Adams?

  Yeah, that's weird, man. That's weird. It's gonna get weirder.

• 1:26:53David Hoffman?

  Bullish on weird DAOs, let me say that.

• 1:26:55Ryan Sean Adams?

  Exactly. That's it. Weird DAOs as a category. Let's talk about this, crypto gaming. So that's the fourth category of bet. I know you're super interested in this. We had two podcasts recently, one with Arianna Simpson on the crypto gaming revolution, another with Amy Wu, Crypto Gaming 101. If you want to get up to speed, a primer on crypto gaming, I recommend you listen to those two podcasts. David, what are your thoughts on crypto gaming? And maybe, maybe as the key to the metaverse? Because I think both you and I see crypto gaming as basically a portal, a first instance, a manifestation, early manifestation of the metaverse. What do you think about this category of bet?

• 1:27:32David Hoffman?

  Yeah, I think in 2022, the story is going to be a lot of gaming studios wanting to do crypto gaming, and then getting a lot of pushback from their fans who don't want NFTs in their games at all. And then that friction leaving a lot of energy, a lot of room, for newer, more indie upstart gaming studios to innovate and tinker with crypto asset-powered games. And so I think there's going to be a big story of gamers and game studios having a lot of friction, because game studios, knowing that it's the right direction to go, but also trying to answer to their very committed and loyal fanbase and not trying to undermine them, because in gaming communities, everything. But ultimately, crypto gaming will definitely become a thing.

• 1:28:17David Hoffman?

  Meaningfully different and distinct from non-crypto gaming, it's just going to be a matter of who's actually going to build them. Crypto gaming is one of those things where there's a lot, a lot of development under the radar that those games are not yet released, but they are being built by startups and crypto-native people, building games for crypto-native people, crypto-native gamers. And they're not going to come from theme people like EA or Activision or anything like that. It's going to be smaller studios that can make more basic indie-level games, but they are specifically built for crypto people. I think that's going to be 2022.

• 1:28:56Ryan Sean Adams?

  Yeah, I agree. Bullish crypto-native games, right? Not games coming necessarily from the big studios. But what does this mean for an investor? It's like, play games, play as many games as you can. If you like a game, look at the tokens, evaluate the items of that game. You can also get involved in gamer guilds. It's another opportunity for you. So lots of opportunities to plug in, get exposure to that. Decentralized identity, that's the fifth one. This is a bet that I think is interesting in 2022, and not a lot of people are talking about it right now, because I guess there's not a lot of projects tackling this space. But I feel like we're kind of here, right? At the tech tree that is crypto. We have some of the core primitives in place to bring about decentralized identity, and that's we have sign-in with Ethereum.

• 1:29:41Ryan Sean Adams?

  If you have your private key, you can sign in better than Facebook. You just like plug in via MetaMask or via Ethereum address. We have self-sovereign ENS names. It's kind of a form of identity. We have an ecosystem of NFTs, right? These are like blue checkmarks potentially on Twitter. What I feel like we need to complete the decentralized identity story is like attestations, some sort of proof of reputation. There are a few projects that I'm tracking that are related to this, but nothing has really broken out. But I think it's not far fetched to start to see this emerging in the space of like on-chain resumes, right? Like the work, the things that I'm doing on-chain, I can associate with my reputation and I can get kind of a real life level up with that.

• 1:30:25Ryan Sean Adams?

  I also think we might start to see interesting experiments with crypto-native social networks in this space too. So decentralized identity as a category. I guess I don't have a lot of specific projects in mind, but like my eyes are peeled wide open. I think something cool could happen in 2022, but that's just a hunch. What's your take on this?

• 1:30:44David Hoffman?

  Yeah, I think the whole sign in with Ethereum thing, like imagine, imagine like, you know, sign in with Facebook, signing, sign in with Google, sign in with Ethereum. That button existing at the same time the Web3 narrative is taking off and becoming mainstream. That I think we're like, hang on, I can sign in with Google like per normal, or I can sign in with this Ethereum thing that like, from what I'm told, it gives me self-sovereignty and power and I get to stick my middle finger up to Google and not give them any of my data. Like, hmm, maybe that sounds like kind of compelling. I like to stick it to the man. And maybe, maybe that's how this goes. Maybe sign in with Ethereum like arises at the same time that what the Web3 meme starts to become, you know, a household name.

• 1:31:25Ryan Sean Adams?

  Absolutely, guys. There are a few other spillover categories we can't get into. We touched five, but let me just list them off really quick. Still kind of bullish on crypto banks, okay? Because these are going to outmaneuver the incumbents. And by that, I mean like the Coinbase's, Gemini's, BlockFi's, FTX of the world. There's space for that, probably in a good investor portfolio, not financial advice. Also, infrastructure, like Block Explorers, analytics tools, decentralized storage, all these indexing protocols like the graph. These are really the picks and shovels of crypto. And I think that's an interesting category to to keep inside of a portfolio. I'm also bullish on super wallets, right? We saw MetaMask start adding DeFi features. I'm really excited about things like Xerion and Zapper and what they do in the future.

• 1:32:08Ryan Sean Adams?

  These are really the front ends to the decentralized financial system. I think these are the the banks of the future in a way. It's bankless banks of the future. Really excited about what Argent's doing with its smart contract wallets now that it has layer two. I think we'll see that experiment play out bullish on that. NFTs and DeFi. I know that was a major theme in the recent NFT conference you went to, right? So kind of this hybrid investment category where we're fractionalizing NFTs. We're getting indexes of NFT exposure. There's hedging projects on NFTs. Like DeFi meets NFTs is a really interesting space. And of course, NFT apps. Okay, OpenSea was not the last answer to like, NFT apps.

• 1:32:52Ryan Sean Adams?

  All right, guys, like OpenSea is awesome, but it's eBay. Okay, and it's 1998 and we still have like Google and Facebook and Instagram and all of these other application categories to unlock. So I think there's going to be several generations of opportunity of apps that are built on top of this NFT primitive. And they'll look a lot different than OpenSea and do different things versus OpenSea. So that's it from a Bets perspective. Man, we went through a lot. We just went through the the five things that we got right, the five things that surprised us, five mental models and five bets going into 2022. How do you want to end this for for the holidays? What's what are we thinking about going into, you know, 2022 that you want to leave folks with?

• 1:33:36David Hoffman?

  Yeah, the discussion I want to have just to wrap this this whole 2021 year up and 2022 predictions year conversation up is Ryan, 2022, bigger, equal to, or not as big as a deal as 2021 is with regards to crypto? We're going to get crazier? It's going to be about the same amount of crazy? Oh, yeah, definitely bigger. Why do you think definitely bigger?

• 1:33:59Ryan Sean Adams?

  Well, first of all, I could be wrong, right? It's like probably. I could be wrong, but like I've learned that when you're wrong, it's best to be wrong bullish in crypto. And we have a ton of momentum going to the next year. I think there's a ton of growth catalysts ahead for crypto. And yeah, I think layer two is going to be huge. I think Ethereum merge, I think in general crypto as a category is going to absolutely fly next year. And it's going to be a very bullish year. Could be wrong. Other things can happen, but like I'd rather be wrong bullish than wrong bearish. Because on average, you'll be right and you'll be more right over the long run. What's your take on that? What do you think?

• 1:34:38David Hoffman?

  Yeah. So if say that in order for that take to be right, as in like, it's going to continue, continue to be bullish. You maybe even be a little crazier than 2021, even though that's really hard. Being bullish and being crazier than 2021 are different things. I'm also bullish. I'm not, not necessarily ready to commit that 2022 will actually be crazier than 2021. Cause 2021 was pretty damn crazy, but I could definitely get on board with it being another bullish year. And so granted, say, let's say, let's say 2022 is a bullish year. And what that means is that three out of the four quarters of the year are green. And Q4 is, is higher in market cap values than, than the end of Q2, for example. Does that mean that it was a super cycle in that mind, in your mind?

• 1:35:23Ryan Sean Adams?

  I'm still, so I'm still, I'm still kind of longer fourth cycle, you know? So I, I'm still not fully bought into the idea that this is a super cycle and the bull run never, never ends. Basically, and that we've, you know, reached this place of mainstream adoption. I do think that we'll have a very bullish next year. I think this is just a longer cycle than previous cycles. I do think this cycle kind of breaks the mold of, of previous cycles. Except that it's just a repeating pattern and every cycle gets a little bit longer. I mean, we did this episode with Ben Cowan, talked a little bit about that. But I do think we'll.

• 1:36:04Ryan Sean Adams?

  Get exuberant and there will need to be a pullback and that pullback will feel very drastic to a lot of newer entrants in the space. I think some of the people have seen cycles before will just sort of shrug it off and stay zen, but you know, people will call it a bear market rather than this idea of a super cycle. What do you think?

• 1:36:25David Hoffman?

  I'm just trying to wrap my head around if we have a blow off top or not because like, say, say we can get some sort of just like vision of the future and the future tells us that like crypto prices are going to go up 20% quarter after quarter for the next four to six quarters. Well, you know what happens next? A blow off top because everyone buys it because then and then it just gets too exuberant, right?

• 1:36:48Ryan Sean Adams?

  Yeah, exactly.

• 1:36:48David Hoffman?

  And so like there, in my mind, I'm kind of worried like it doesn't matter how long and slow and steady and sustainable crypto price rises are because the more that that's true, the more likelihood you accidentally accidentally manifest a blow off top.

• 1:37:04Ryan Sean Adams?

  Oh, I think there's going to be a blow off top, to be clear.

• 1:37:06David Hoffman?

  Blow off top in 2022?

• 1:37:09Ryan Sean Adams?

  Maybe not in 2022, maybe not, but like if not 2022, then you know, into 2023, you know, like it's going to happen. Like we're not done with blows, blows off the top.

• 1:37:20David Hoffman?

  And like, and it's not binary either, right? Like you could have two blow off tops that are smaller blow off tops and maybe that's just part of the larger bull market. Maybe it's a mini blow off top. Like, who knows? The 2017 blow off top was one single gargantuan blow off top eruption. And then we suffered our hangover for the next two years. I don't know. Maybe, maybe we're more mature as an industry. Maybe we just have a bunch of mini blow off tops for the rest of time. Who knows?

• 1:37:46Ryan Sean Adams?

  You know, I'm feeling zen though, David, is because like I don't feel a pressure to trade those things.

• 1:37:49David Hoffman?

  Oh, yeah.

• 1:37:50Ryan Sean Adams?

  Like, I'm just like, all right. Yeah. I mean, I don't, I don't, I don't, I don't feel like I have to time it, right? Like I'm, you know, holding space next decade, settler, not a trader and that restores some, some zen. So just let it play out slowly and let the traders worry about these things at some level. But yeah, it's always nice to be bullish.

• 1:38:10David Hoffman?

  I think, I think the case for a crazier 2022 resides in inflation. If inflation stays hot, 2022 will get crazy.

• 1:38:20Ryan Sean Adams?

  I wonder if there's some diminishing, I'd be interested in having Jim Bianco on or somebody like talk about in Linn Aldner or somebody it's like, how is there a point of diminishing returns where it's like inflation gets so hot and you know, maybe double digits, something that like crypto gets crushed as a result, we get into this like

• 1:38:40David Hoffman?

  People just get scared and spooked.

• 1:38:42Ryan Sean Adams?

  Yeah, people get scared like crypto is still a risk on asset.

• 1:38:44David Hoffman?

  Yeah.

• 1:38:45Ryan Sean Adams?

  Is it not? And so in high inflationary circumstances, how many people are going to want to hold risk on assets versus other?

• 1:38:53David Hoffman?

  It's a, it's a risk on asset, but also it is strong property rights in a world where inflation tends to bring on governments that try to take a lot of property.

• 1:39:04Ryan Sean Adams?

  It's weird, right? It's in this weird place where that's why it's this industry is notoriously hard to predict from that perspective, but you'll be fine if you're bullish long run, I think.

• 1:39:14David Hoffman?

  I think that's always worked before.

• 1:39:18Ryan Sean Adams?

  Look, we haven't said it. Thanks for hanging with us throughout the year. We definitely appreciate the community. We appreciate you listening to this podcast, giving us your time. You know, we hope you enjoy some time with the family. It's Christmas. Hope you come back in 2022 refreshed and ready for a new year. We'll be right there with you. You've got some awesome podcasts and articles planned for next quarter that we're super excited about. And I think crypto is about to have another tremendous year. So anyway, thanks. Thanks for hanging with us. Our best to you, you and your family and, and friends and stay safe this holiday season.

• 1:39:55Ryan Sean Adams?

  Guys, some action items for you as well before we get to risks and disclaimers. We'll include some of the readings that we mentioned, the five things we got right article, our predictions, as well as some of our thoughts on the legacy of Bankless. It's another podcast we'll get to at some point in time, too. Also, David and I are putting together, we've already put together a year in review for the roll up. So these are the top 25, I think, news events of the year. David and I are covering them. They are on a previous podcast. So tune into that if you want to get caught up on the near, the year's news as well. As always, guys, risks and disclaimers. Ether is risky, crypto is risky, so is DeFi. You could lose what you put in, but we are headed west. This is the frontier.

• 1:40:40Ryan Sean Adams?

  It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.

• 1:40:44David Hoffman?

  Hey, we hope you enjoyed the video. If you did, head over to Bankless HQ right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence. We recommend joining our daily newsletter, podcast, and community as a Bankless Premium subscriber to get the most out of your Bankless experience. You'll get access to our market analysis, our alpha leaks, and exclusive content, and even the Bankless token for airdrops, raffles, and unlocks. If you're interested in crypto, the Bankless community is where you want to be. Click the link in the description to become a Bankless Premium subscriber today. Also, don't forget to subscribe to the channel for in-depth interviews with industry leaders, Ask Me Anythings, and weekly rollups where we summarize the week in crypto and other

• 1:41:29David Hoffman?

  fantastic content. Thanks, everyone, for watching and being on the journey as we build out the Bankless Nation.