SMAPE: Investing in tokenised economies

Blockchain technology — and in a broader sense DLT (distributed ledger technology) — has come a long way. What started as an academic concept (1,2), led to the creation of the first cryptocurrency, Bitcoin, in 2009 (3,4), and has since seen an explosion of concepts and platforms. Ethereum first introduced the widespread functionality of ‘smart contracts’ in 2014 (5,6), followed by the launch of cross-chain interoperability ecosystems, such as Cosmos or Polkadot (7,8). Many alternatives (9,10) have been launched since and the respective ecosystems are ever-growing. However, overall we are still in a very early phase of crypto adoption (e.g. 11), especially when it comes to Decentralised Finance and NFT use cases as the ground for adoption in other industry areas.

But what is next? What are our thoughts on future developments and the innovations we will invest in? What is still missing to fill the gap to actual widespread adoption?

DLT-infrastructure development has been very active in recent years. But it is clear that further improvements will be required to address e.g. scalability, efficiency and interoperability across ecosystems. While powerful in their own ways, we presently have approaches that operate in their own ‘hub monopolies’ widely unable to communicate satisfactorily across infrastructures. This shows that we are not yet ready for full decentralisation and interoperability of the ‘Web 3’. But this will be key to unlock the many new business models that blockchain technology and tokenised ecosystems promise. We see it as an opportunity to invest in and benefit from participating in still early developments.

In terms of sectors, we saw an explosion of DeFi (Decentralised Finance) applications in 2020, which attracted worldwide attention beyond the usual crypto insider. It was followed by significant investments by MicroStrategy, Tesla and Square in Bitcoin. While we have experienced a lot of creativity, we believe we haven’t reached the peak quite yet and haven’t seen all possible innovative business models from this space.

Earlier this year, NFTs (Non-Fungible Tokens) became more prominent and yet again highlighted the potential of blockchain technology of creating new ways of doing business. Digital collectibles in art, sports, and gaming were amongst the first applications. Further expansion is expected with promising early followers entering the market. We believe tying valuation frameworks to NFTs, especially for a variety of intellectual property instruments will be a game changer. Mixed reality and the ‘metaverse’ are slowly becoming part of our everyday lives. But NFTs won’t stop there and will surprise us all with unexpected use cases in the next couple of years (e.g. applications in music, science, etc).

The third big wave in development is already here: more and more DAOs (decentralised autonomous organisations) are coming up in several sectors (finance, healthcare, etc). DAOs are new forms of self-organised global organisational structures that will challenge and change traditional management theories, and alter the way we create and extract value — not just in companies but society at large. This trend will certainly gain more momentum throughout the next months and rise into 2022. It will be interesting to watch how DAOs — same as individual protocols — will be able to interconnect and add value across ecosystems / protocols.

With increased demand in IT security and privacy, DLTs will provide an additional security layer in sensitive applications while also offering financial incentive schemes for stakeholders. We believe especially healthcare and medtech applications (supply chain management, clinical trials management, data acquisition, data analysis and patient incentivisation) as well as hardware and IoT (e.g. computer chips) in general will be prominent sectors of 2022 and beyond.

But it will not stop there. Throughout the Covid pandemic, we experienced a digitisation push. We could experience how economic systems came under pressure and are opening up to alternatives. While CBDCs were long-time discussed, they are finally in development for real and will come to every household. We will experience the more widespread adoption of decentralised currencies, decentralised applications and finally the advent of true decentralised, tokenised economies where people will trade different tokens for other tokens, goods or services. People will become self-sovereign and will be able to share and profit from their data. We will see more technologies that will allow humans to become an interconnected, interplanetary species — digital assets may pose a universal source of value by allowing anyone to participate in a network.

Sectors that we preferably invest in:

SMAPE is a team of seasoned investors and industry thought-leaders investing in internet-native ecosystems that are built by value-driven founders, obsessively solving fundamental problems by shaping the future of doing business. What started as an investment collective of like-minded professional investors, is intended to transform into a token VC fund/ecosystem in the coming months. If you want to learn more about us, reach out to us — welcome@smape.capital

References:

(1) Sherman, Alan T.; Javani, Farid; Zhang, Haibin; Golaszewski, Enis (January 2019). “On the Origins and Variations of Blockchain Technologies”. IEEE Security Privacy. 17 (1): 72–77

(2) Haber, Stuart; Stornetta, W. Scott (January 1991). “How to time-stamp a digital document”. Journal of Cryptology. 3 (2): 99–111.

(3) Satoshi Nakamoto (17 November 2008). “Re: Bitcoin P2P e-cash paper 2008–11–17 16:33:04 UTC”. Satoshi Nakamoto Institute.

(4) Nakamoto, Satoshi (24 May 2009). “Bitcoin: A Peer-to-Peer Electronic Cash System”

(5) Buterin, Vitalik: Ethereum whitepaper: https://whitepaper.io/document/5/ethereum-whitepaper

(6) Wood, Gavin: Ethereum yellow paper: https://ethereum.github.io/yellowpaper/paper.pdf

(7) Kwon, Jae; Buchman, Ethan: Cosmos whitepaper: https://v1.cosmos.network/resources/whitepaper

(8) Wood, Gavin: Polkadot whitepaper: https://polkadot.network/PolkaDotPaper.pdf

(9) Team Rocket; Yin, Moafan; Sekniqi, Kevin; van Rennesse, Robbert; Gün Sirer, Emin: https://arxiv.org/abs/1906.08936

(10) Yakovenko, Anatoly: https://solana.com/solana-whitepaper.pdf

(11) https://www.coindesk.com/chainalysis-says-defi-adoption-is-still-far-from-mainstream