All you need to know about crypto in 2019
Lessons from 2018 and predictions for the coming year.
$800 billion. That was the number. $800 billion total market capitalisation of all token projects. Next stop..moon! But it wasn’t to be. On 21st December 2018 we are staring at $133 billion after nearly glimpsing a sub $100 billion moment not seen since August 2017.
While one could look at reasons varying from markets simply returning to efficiency to the impact of instability in the larger financial markets (equity markets crashes and trade wars) as contributors to the situation, it is safe to say 2018 balanced out the exuberance of 2017. As with all markets, the token ecosystem is playing out its cycle of excitement and panic. Given the sea of red across charts it is only fair that one becomes skeptical of where the industry is headed and the potential it holds. However, looking beyond just price reveals an entirely different story. We look at what may have gone wrong and the key differences between the bear markets of 2018 and 2014 to find a balance in perspective.
5 Things we learned from 2018
1. Token sales are far from disrupting venture capital
Tokens were once heralded as the all-new way to back early-stage ventures. For a good year, founders preferred raising from retail markets over traditional venture capital due to the relative ease of raising large amounts of capital. Over the course of the year, as Bitcoin’s price declined and the returns from last year’s investments failed to materialise, public appetite for token investments declined. The irrational exuberance of 2017 and early 2018 was met with fear and scepticism of the second half od 2018. With barely any successful token sales in the last quarter of the year, it is safe to say that public sentiment towards tokens has changed completely. The after effects of excess capital raises for early-stage investments and bad treasury management are becoming evident with multiple startups declaring bankruptcy. A trend we expect to see accelerate in early 2019.
2. DApps struggled to go beyond gambling
DApps can be incredible. Censorship resistance and decentralisation can empower citizens in regions where nation states encroach upon individual rights. While it is not a dApp in the traditional sense, Ethereum’s blockchain was recently used to expose sexual harassment at a Chinese university. Inspite of all the potential they hold, combine scaling challenges with the lack of developer mindshare the sector has and you have an ecosystem that makes gambling apps and digital game figures instead of “changing the world”. While much was anticipated from the dApp ecosystem, little more than Ponzi schemes, gambling applications and kitties that clog the blockchain was evident. This is not to imply that they haven’t evolved much over the year. Projects like MakerDao have shown the potential these systems hold.
3. IPOs did not exactly occur as planned
Those looking at the ecosystem with hopes of IPO exits this year were left with major disappointments. Bitmain and Canaan mining could not register the IPOs they were looking to file despite of the incredible amount of interest they registered. Bitmain rose a total of $800 million between two rounds in Q2 2018. Canaan’s Inc let their IPO application lapse in Hong Kong. There were a few smaller raises in London Stock Exchange (Argo Blockchain) and a few stocks did rally due to mentions of blockchains in their name. However, the impact of the prolonged bear market has indeed converted to a drastic reduction in public market interest in listed companies that engage with the ecosystem.
4. Stablecoins are still not stable
The year began with concerns of prominent stable token — Tether not being truly pegged by the dollar. The markets have been fraught with concerns of fraud, lack of audits and market manipulation since then. While there is no substantial proof to the matter, it is fair to say that the stable token market has boomed since then. We have seen close to 150 stable tokens come to the market. While the bulk of the market share continues to stay with Tether, alternatives such as MakerDao witnessed unprecedented volume (and investor mindshare) over the course of the year. Basis could not manage to stay in the game despite the estimated $135 million raise from VCs and shut down citing regulatory headwinds.
5. Venture capital set new heights
While one could take the drastic dip in token sales as an indicator for the lack of faith in the ecosystem, it needs to be noted that traditional venture capital set new highs for investments in the space this year. These investments were across stages and not necessarily in ventures that were profitable or found product-market fit. Traditional investors filled the gap left by token sales and provided much needed early-stage backing for ventures. While only time would reveal whether the “crowd” would play a key role in investing in ventures from the blockchain system going forward (perhaps through STOs?), there is no lack of data to prove that institutional interest in startups using blockchains to solve relevant problems has not necessarily diminished.
6 predictions for 2019 from the Outlier Ventures team
As the industry sobers from the excesses of 2017, it is helpful to look at what could be the key events that could occur in the coming year. Instead of relying on research alone, we reached out the extended team at Outlier Ventures for their thoughts on what could be the key drivers for the ecosystem in 2019.
1. Governance is the story of 2019
We passed the peak of inflated expectations, so we can expect VCs that only invest money and not have substantial teams to back projects dying off along with projects that shouldn’t have gotten funding in the first place find it hard to raise. Venture capitalists that can wait the longest to bring returns are likely to be preferred and win as founders understand that web 3.0 is way more complicated than web 2.0 where you had data while in the former you have value along with governance. The reason Web 3.0 will take longer is not because of the tech side which is to an extent straightforward led by research until it’s solved but rather from the governance of both the companies and the protocols. — Vangelis Andr
2. Crossing the Chasm
Expect to see a focus on how the industry can ‘cross the chasm’ and move away from innovators and early adopters to the early majority. Innovators and early adopters were focused on technical details, censorship-resistance and levels of decentralisation. But the early majority will focus much more on usability and design, and ultimately are unlikely to want to understand how the technology works but instead how it makes their lives easier. Expect to see more use of the big centralised cloud providers like Amazon and Microsoft for blockchain deployments and even the likes of Facebook offering blockchain-based services. The revolution may not be decentralised after all… — Lawrence LB
3. The Year of Corporate Tokenization
In 2019 we will begin to see the fruits of corporate adoption in the real world. I anticipate that b2b and industrial infrastructure is where we will see this first, and that adoption will follow a similar theme to the adoption of internet technology in the 90s and 00s, initially using closed, proprietary systems as large enterprises are relatively risk averse and the “ICO mania” has created a poisonous residue around tokenisation. However, similar to the LAMP stack taking over server architecture, over time the functional and philosophical benefits of open source will begin to win out, but not yet in mainstream use during the next 12 months. Where open tokenised systems begin to be adopted, it will be via emulating existing SaaS or enterprise software models, where for big business, the tokens themselves are abstracted via network access packages and supported services. — Matt Law
4. The Leap To Web 3.0
The bear market is at its peak and the continued “crypto winter” dried up the capital coming from retail investors. In the first two quarters of 2018, we still saw quite a few projects going public and raising directly from the retail investors. The expectation for these people was to turn into users, however, there were more speculators and “hodlers” out there than people keen on the tech. This led to crypto startups starting off to raise pre-seed and seed rounds with the promise of going public within a couple of months. As time went by, the seed turned into series A and my expectation for 2019 is to see series B, C, D before going public. These projects will need a solid codebase, a solid crypto economic modeling, and good go-to-market strategies before selling, airdropping tokens or simply opening their products as SaaS solutions.
Alongside raising money, we will see some projects getting creative with their revenue streams. Some already started offering private chains to corporates for internal use. For a short period of time, we are bound to see some Web 2.5 projects getting attention. These will be the applications disrupting other industries by using DLT/blockchain, but not necessarily enriching the convergence and token ecosystems. Web 3.0 is still far ahead of us, but it is being worked on at full steam. The industry is professionalising as the markets mature. — Ana-Maria Yanakieva
5. On Scale In 2019
We will finally see dapps and hybrid tokenised apps with significant adoption because we’ve reached the stage when the networks, tech frameworks, dev tools, developers and infrastructure are reasonably ready to create things that are actually usable and solve problems for a lot of users rather than the gimmicks, experiments and PoCs we’ve seen up to now.
In 2019 we will see tokenised cryptonetworks and the apps built on top of them start solving real problems for significant amounts of people.2018 was a year of realism and building. All of the below are now available in some form — some more established than others:
- Mature programmable decentralised ledgers
- Mature development frameworks and tools
- Scalability to millions of users
- Enough talented developers who understand the paradigm, when (not) to use a blockchain
- Enough great product, strategy, marketing people who can help build great apps and grow their adoption
- Frictionless ways for users to use a DApp — without the need to purchase a token to get started
Therefore I predict that in 2019 we will see an application backed by a tokenized cryptonetwork be used by over 1 million users in a single day. — Aron van Ammers
6. Fundamental Change In Architecture
We are likely to see a movement away from traditional virtual machine architecture in favour of WebAssembly (WASM). WASM is an open standard being developed by engineers from Mozilla, Google, Microsoft, and Apple. It is a universal compile target that enables developers to write smart contracts in a variety of languages, including C/C++, Go, Rust and Typescript, among others. WASM also allows for running untrusted high-performance code in a browser. Use of the standard would in theory make blockchains more inter- and intra-operable, improve performance, allow for stronger claims about security and potentially enable users to run nodes in-browser.
It is already possible to deploy WASM contracts on the Ethereum Kovan Testnet. Support for WebAssembly in the blockchain industry is being spearheaded by Ethereum 2.0’s EWASM project and Parity, and may prove one of the most significant steps in attracting developers to the blockchain space. — @theoturner
As we move from 2018 to 2019, we reflect on a chastening moment for the industry as a whole. Price was never a true reflection of the state of the technology or user adoption on the way up and it most certainly isn’t on the way down either. We at Outlier Ventures see first hand with our portfolio tremendous energy and progress, putting in the hard work of building and getting products to market. As a final note we repeat what we said in our 2019 Convergence Ecosystem paper at the beginning of the year:
“People will continue to focus on the price of crypto-assets and worry about the regulatory implications of public token sales. But behind the scenes, a decentralised infrastructure is being built. Network by network. Protocol by protocol.”
That’s all for the year. Happy holidays and a new year. See you for more in 2019!