3-min summary of “Crypto Mega Theses” by Kyle Samani

This is a 3-minute summary of “Crypto Mega Theses” post by Kyle Samani of Multicoin Capital published on 24 April 2019. The original is available at https://multicoin.capital/2019/04/24/multicoin-investment-thesis/

Multicoin Capital identifies 3 markets with Total Addressable Market of $1tr+ over next 10+ years:

1. Open finance. Recording units of value (stocks, bonds, real estate, money) on blockchain and enabling interoperability between them
2. Web3. Internet where people control their data
3. Global, state-free money. “Digital gold”

Preface: Trust

• For the first time in history, open networks bound by cryptography and free-market economics enable trustless cooperation between any people connected to the internet without limitations inferred by middlemen
• Each of the 3 theses stem from this breakthrough

Open Finance

• Apart from trustless exchange, the key innovation enabling open finance (or decentralised finance or DeFi) is modularisation of financial primitives. Independent open protocols will be combined to produce customer solutions. Open nature of the protocols will spur innovation by traditional businesses who would create tailored solutions to local laws and consumer preferences. The outcome is enhanced level of competition and trust minimisation in the economy
• Openness and efficiency of open finance would enable un-banked and under-banked population to obtain access to previously unattainable financial services
• As of April 2019, $400mn is already locked in open finance smart contracts

Web3

• In Web2 companies own and control (legally and technically) closed databases containing valuable customer data. It enabled them to profit from network effects and created some of the most highly valued companies in the world
• In Web3 users keep control of their data that is encrypted and stored on open networks
• Web3 reduces hurdles for individuals willing to reveal data (less risk of data misuse and fraud). More data stored on open ledgers can spawn increased levels of innovation and competition for businesses building on top of it
• Global transition to Web3 will not be driven by consumers concerned about their privacy. The growth will come from businesses choosing to build on Web3 stack due to reduced dependence on counterparties over which they have little control
• There are already hundreds of teams building the Web3 stack

Global state-free money

• Native digital money take the best gold qualities (a bearer asset bound by physics and free economics) and improve on gold limitations as they are seizure-resistant, easily transportable and divisible, 100% auditable and with transparent supply schedules. Hence the market for native digital money is higher than that for gold
• Potential growth drivers include: (i) 500mn people living in countries with >10% inflation for lower and transparent inflation, (ii) High Net Worth individuals currently storing $20–30 trillion in offshore banks for seizure-resistance, (iii) investors in yield-generating assets (looking to stake on layer 1 in proof-of-stake or on layer 2 in proof-of-work and (iv) growth in blockchain-enabled economic activity leading to appreciation of coins powering the underlying blockchains
• Network effects will result in convergence to single state-free money. It is unlikely to be Bitcoin or another Store of Value asset. Multicoin Capital believes that coins that provide utility (e.g. smart contract platform native coins) are the strongest contender. Algorithmic stablecoins are not expected to survive the test of time due to intrinsic trade-offs and the impossibility trinity

Conclusion

• The transition from a trust-based economy to one of self-sovereignty will be behind one of the largest wealth transfers in human history