1/ 2021 and beyond:

DeFi enters “1-to-N” scaling phase (vs “0-to-1” invention phase). Most of the fattest protocols are built. Credit Expansion, Yield Income, and Trading are the pillars of DeFi and each is getting crowded. Fewer blue sky/moonshot opps in the future.

2/ Next big opportunities now focused on scale. Technical scaling, cross-chain, and UX improvements are inevitable. Institutional adoption is also inevitable — question is HOW they choose to adopt (more predictable) and WHEN (unpredictable). Three main pathways forward:

3/ Option 1: They never adopt DeFi. Imo not a risk. DeFi has proven its superiority in many ways vs. legacy financial markets infrastructure. It, or something like it, WILL feature heavily in the future of finance, and WILL reach the mass market. It’s just a matter of time.

4/ Option 2: They co-opt the movement. Fork every key protocol and relaunch within a sandboxed, KYC’d, regulated environment. Imo a medium-high risk. I don’t think Wall Street has enough coordination (or courage) to pull this off. But I do think centralized tech startups could.

5/ Imagine if Carta rolled out a private Ethereum fork, tokenized every private security registered on its platform, then made algorithmic interest rate markets, AMMs, and stablecoins available to their users. It’d be an extraordinarily compelling closed ecosystem.

6/ The consolation for decentralization maximalists is that Carta’s business would still be minuscule relative to the potential of an entirely open system that does the same thing. They’d be looking at $ billions. Permissionless DeFi would still be looking at $ trillions.

7/ Option 3: The dream — institutions enter DeFi on level ground with those of us here today. They acquire gov tokens to exert influence. They abstract away technical complexity to deliver DeFi to millions of users. We should be thinking about how to make this easy as possible.

8/ But this road is tough. There is no clarity on timing, mostly dependent on lack of clarity around regulations. Legacy finance and its regulators are kind of just moving into Web 2.0, it’s a tough ask to push them into Web 3.0. When it happens it will obviously be huge.

9/ So what to do?

As a builder, I think you want to retain optionality for playing in both an Option 2 and Option 3 world. What would need to be the case for Carta (and its regulators) to choose to work with you instead of fork? What parts of your stack would you need to own?

10/ As an investor I think the moonshot window for finding “0-to-1” opportunities in DeFi is closing (though I think it’s just opening for Social Tokens/NFTs/DAOs). A large “blue chip” allocation makes sense. It is time for the winners to grow massively, not for new winners.

11/ Not to say there won’t be new winners at all. As alluded to above, all big winners open up new modes of Credit Expansion, Yield Income, or Trading. But these three categories are maturing quickly, and it’s hard for new projects to carve out blue sky opportunities within them.

12/ Thus ends the DeFi thoughts I scribbled down on my first sober (quarantined) NYE in 15+ years. I guess I’ll add a few more bonus thoughts, since I mentioned Social Tokens/NFTs/DAOs:

What I’m excited to see there is for the previously impossible to become possible.

13/ So far I don’t see this; I see iterative improvements on existing solutions, e.g. jamming a pet rock token into a manually run community that relies on social, not smart, contracts.

I want to see more automation. I want an online entity totally remote controlled by a DAO.

14/ An entity that already has mass distribution, valuable IP, or true power. Let it be Anonymous, run collectively and on-chain by a hive mind of hackers, each unknown but with equal power to contribute and direct an organization to change the world.

15/ Let it be Miquela. I want a DAO to co-create a PERSON and define that person to the world through online-only distribution channels like IG/Snap/TikTok. Could Miquela ever provably hand over her Twitter account to $MIQ holders? What needs to be built to make that possible?

16/ That’s it! Good luck to all this year.

If nothing else, crypto in 2021 will be interesting. It always is. And it always has been.