Buckle up and get ready for the next ride
Cycles Part ⅠⅠⅠ
Is it dead?
DAOs
Decentralized Autonomous Organizations (DAOs) have taken the crypto world by storm and promise to become the new form of organization, replacing hierarchical and top-down structures like companies and corporations. Many crypto projects like Uniswap or Maker are organized and managed by DAOs, constituted of native token holders, who have a saying in deciding upgrades and changes in how the protocols work. Other DAOs emerged independently of existing products with the goal of creating a product or a service, such ad Friends With Benefits, or Bankless. While these DAOs are more generic in their scope, others were constituted to achieve very precise and limited goals, such as ConstitutionDAO to buy one of the original copies of the US Constitution, or KrausDAO with the goal of buying and managing an NBA professional team.
DAOs are usually in charge of managing the treasury that that organization, and eventually the underlying project or product, generates, typically using multisig and tools like Gnosis Safe. Data from DeepDAO show that DAOs’ Asset Under Management (AUM) decreased slightly from about $11 billion in April 2022 to just over $8 billion in June 2022, despite still representing a considerable sum.
Interestingly, albeit not surprising given the above-mentioned ranking of fees, Uniswap DAO represents 25% of the total DAOs’ treasuries.
While DAO as a concept is still nascent and has been evolving continuously, an interesting new trend that emerged is the so-called metagovernance, the act of one DAO participating in the governance of another through the use of tokens, to influence the governance in a way that is favorable to the first DAO. The typical strategic goal of metagovernance is to have a say in proposals about products held within its own assets. A perfect example of this is the one involving FEI Protocol, Aave, and the DeFi Pulse Index token. FEI Protocol managed to successfully add support for its FEI token as a deposit currency on Aave by leveraging the INDEX token. INDEX behaves as a metagovernance token, meaning that INDEX token holders automatically get voting rights on the project within the index, including Aave, without having to hold each of those tokens directly.
An exciting example of how DAOs could play a key role in solving real-life macro problems, like funding scientific research, is Vibe Bio, which sets to create DAOs that fund research and drug development for rare diseases by aligning a community of patients, scientists, and other partners.
DAOs opened up a lot of promises and excitement, but apart from a few successful DeFi projects, where the goals and the scope of the DAO were very clear from the beginning, there haven’t been many tangible successes yet. While they hold a lot of potential as a new way to raise capital and organize people and tasks, a lot of uncertainties still remain that limit the applications.
Firstly, use cases: are DAOs the optimal organizational framework for any organization, or a top-down traditional structure is more suitable for tasks like creating a physical product, where fast and efficient iteration cycles are needed? Can DAOs be successful if the mission and goals are not narrowly defined? Secondly, operational issues, such as the ideal size of a DAO, how to best organize it internally, whether to maintain a completely flat and homogeneous organization, try to organize it by sub-DAOs, or chapters, or assign the core founding team a more prominent role of guidance. Another highly debated topic is governance, which in short tries to find the optimal way to ensure fair and efficient representation within an organization. Different DAOs have experimented with different methods, starting with the simplest one-token-one-vote, or one-wallet-one-vote, to more refined mechanisms like quadratic voting supported by Vitalik, or all the different ways to delegate votes to a few, more active representatives. The governance problem is real: despite democratic principles, the research firm Chainalysis found that less than 1% of all DAO holders have 90% of the voting power. This has obvious practical implications, such as preventing members’ to have a meaningful impact on voting, let alone the power to make a proposal, and substantially empties the promises for fairer governance and, more in general, clashes with the Web3 tenets of decentralization. Finally, one of the most important issues, and a potential obstacle to the growth and adoption of DAOs, is the legal framework. Most DAOs have been operating outside any legal boundaries because there are no existing boundaries for this new type of organization. This could become a problem as DAOs step up their game, hire people, pay salaries, invest in traditional assets, participate in the management of public goods, and more. There is still immense uncertainty around how DAOs should be regulated in the eyes of the law.
Despite all challenges, DAOs represent the forefront of governance innovation, and as in many other areas in crypto, they are running thousands of real-life experiments every day. In the next few years, as they run experiments and iterate toward the best approaches for shared governance, DAOs are more likely to find an optimal approach compared to traditional institutions and organizations and might become the standard for organizing projects and teams in every industry.
Gaming
GameFi and Play-to-earn were definitely one of the biggest hypes in the 2021 bull run. Games, unlike DeFi protocols, require much longer to be brewed and shipped (from two to five years or more for triple-A games), as it basically involves adding DeFi protocols to high-quality, well-designed, and fun games (which themselves take years to be produced). Gaming is part of the bull cycle’s low conviction rally because there was really only one vastly successful game, Axie Infinity, which seemed to have found the right formula, but then eventually showed its shortcomings with the huge hack on the Ronin chain (over $600 million) and problems with tokenomics long-term sustainability. Nansen’s Index Points for 50 major games NFTs show a considerable drop since the beginning of 2022.
Axie Infinity and StepN
Until recently, no other blockchain game has gained so much success in such a short time as Axie Infinity. In less than a year it generated over $4 billion in sales volume, and at its peak, it was played by over 700k players every day.
About seven months ago, it sold a land plot for over $2 million. The only other project that promises to reach Axie’s levels is StepN, a game (or gamified app?) that rewards users for their daily physical activity. New users need to sign up and purchase a pair of virtual sneakers to ‘get in the game’ and start earning STEPN tokens. The game, which brought fame to the move-to-earn trend, managed to accumulate millions of monthly active players and received so many requests that it had to introduce a cap to daily new users. Despite the recent success, many doubt that StepN is sustainable in the long term, while some directly call it a Ponzi scheme, an accusation which is hard to dismiss. The main issue is that StepN’s tokenomics and game mechanics look quite similar to the one championed by Axie, which also means it shares the same weaknesses. For starters, both games adopted what could as well be considered as the ‘original sin’ of play-to-earn games and blockchain games in general: gating the access to the game behind an initial, quite significant purchase (three Axies in Axie Infinity, a pair of virtual sneakers in StepN). Then, for both games, in order to maintain or grow revenue, they either need to create such addictive gameplay and ecosystem that users will rarely cash out and leave, or they have to keep adding new users faster than the churn rate of existing ones. Else, the value of the token would quickly go down, gets hyperinflated, and moves towards a death spiral mechanic. This is what happened with Axie at the end of 2021, when the price of SPL dropped, and with it the daily revenue.
StepN so far is still in the growing phase and it’s managing to keep adding new users faster than it loses existing ones. However, the price of its native token STEPN also faced a quick drop
StepN is aware of Axie’s problems and has put in place some measures to avoid falling down the same path, such as price manipulation in order to stabilize the value of STEPN tokens and keep high incentives. Moreover, the demographic of StepN is significantly different from Axies’s: while StepN users mostly come from high-income countries like the US, Europe, and Japan, Axie Infinity was mostly played by developing countries like Vietnam and the Philippines. Finally, StepN betted on the underlying activity, running, as a stronger intrinsic incentive than a simple game, since users would still keep getting benefits (health) regardless of the financial incentives.
Despite the many problems, StepN had the merit of popularizing Move-To-Earn as a subcategory of blockchain gaming. The other two interesting projects which share similar mechanics are Sweatcoin and Genopets.
More Move-To-Earn: Sweatcoin and Genopets
Sweatcoin is a traditional (non-crypto) gamified app that rewards users’ physical activity with Sweatcoins, off-chain points that can be redeemed for in-app purchases of various physical items, such as sneakers, or other fitness-related accessories. For example, in June 2022 users redeemed their Sweatcoins for $15M+ worth of goods and services in the Sweatcoin Marketplace. The app has been running for a few years, reaching the milestone of 100 million users in June, and becoming the most downloaded Health & Fitness app globally in 2022. Many of these new users joined in April after Sweatcoin announced that it would launch SWEAT, its brand new native token on the Near protocol. The‘ token generation event’ will take place in July 2022 and the over 860 million Sweatcoins earnt by users will be matched 1:1 with SWEAT tokens.
Genopets defines itself as ‘the world’s first Move-to-Earn NFT RPG’ and it’s built on Solana. The idea is powerful and innovative: users can transform their physical movement into in-game progression to upgrade and evolve their own Genopet NFT, a sort of spirit animal representing the user within the game, thus combining virtual and physical worlds. Genopets is different from Axie Infinity and StepN, as it tries to integrate the proven economic models of F2P mobile gaming and P2E NFT gaming to craft a game that offers the best of the two worlds. This means that getting started with Genopets is free for users, who can obtain a Genopet, start walking, earn experience points, and level up their Genopets to the point where it actually becomes valuable and can be sold on the marketplace. The NFT collection generated over 100k SOL in trade volume on Magic Eden, and 30k on Solanart only for the Pets. Genopets also have the Habitats, Eggs, and Seeds and soon will integrate the crafts with blueprints. The project launched its native token in November 2021, it reached an ATH of $35 in December and then dropped to $8 now. And recently airdropped KI to native token stakers.
Overall, GameFi hype considerably scaled back from the hype peak last Autumn. Moreover, Play-To-Earn and NFTs received a lot of backlash from the traditional gaming community, so much so that some established Web2 gaming companies were forced to cancel their plans to jump into the space (Discord, EA, Ubisoft, among others). Nonetheless, games, especially when they have a direct utility in the physical world, are likely to become the biggest funnel to onboard the next millions or billions of users in crypto. Sweatcoin, for instance, managed to get over 700k users to open a wallet in the first week after the announcement of the upcoming crypto economy and native token SWEAT, numbers that make DeFi figures pale. This bear market will be precious for the many teams building in the space to focus on crafting games that players will genuinely want to engage with, regardless of the crypto elements.
Wallets
Wallets are either software or hardware tools that allow users to store and access cryptocurrencies, while also serving as a gateway to access decentralized applications. Despite the term ‘wallet’ perfectly describing its main initial use case, it’s clear that wallets do, and will, serve a much broader and more important function, to represent users’ identity on-chain.
Source: Bankless
The MetaMask extension is the most widely supported browser wallet in the crypto-economy and has become a standard among all decentralized applications. With over 30 million daily active users, a crisp revenue model, and an upcoming native token, the future looks bright for Metamask. MetaMask has a good source of income, primarily thanks to MetaMask Swaps which acts as a DEX aggregator and helps traders to find the best rates and make transactions via the wallet for a 0,875% fee. According to data from Dune Analytics, MetaMask Swap earned $400 million in fees since its launch in October 2020, with daily peaks of $2 million. In June, MetaMask said that it uncovered a critical security vulnerability in older versions of its crypto wallet, but also guaranteed that the vulnerability was gone with later versions.
Phantom is another major web browser wallet and the major gateway to applications on the Solana blockchain. It shares the security vulnerability with Metamask, and same as Metamask, also Phantom quickly took measures to patch and secure users’ funds. In December, Phantom wallet reached almost 2 million monthly active users, and $1.3 billion in swap volume.
Rainbow is an interesting example of a Web3 product that invested a lot in user experience and user interface. The Ethereum wallet is primarily mobile, with a dedicated app for both iOS and Android, while it recently announced that it will also launch its own browser extension.
The interface of Rainbow wallet is also a friendly and captivating one, quite different from all the other more ‘serious’ wallets’ interfaces. There are not many metrics about Rainbow wallet out there, but one of the few data available is the number of installs from the Google Play Store, currently around 10k.
Trust Wallet, a major self-custodial wallet owned by the Binance crypto exchange, just integrated Binance’s official fiat-to-crypto provider Binance Connect which will enable users to purchase more than 200 crypto assets directly from credit or debit cards.
Coinbase recently announced that it’s releasing a “semi-custodial” wallet where custody of wallet keys is part-owned by users and Coinbase. This means that Coinbase can retrieve keys should users need them.
Ledger, the most popular solution for a self-custodial, hardware wallet, announced a browser extension “Ledger Connect” that lets users connect their hardware wallets to dApps bypassing the mediation of other extensions like Metamask.
Finally, GameStop, the largest video game retailer in the world, launched its own wallet solution, in anticipation of future involvement in the crypto-economy. It’s a self-custodial Ethereum wallet with Loopring zk-rollup L2 integration (more Layer 2s to come), direct fiat-to-L2 onramps, and NFT compatibility.
The browser wallet sector will likely grow considerably in the years ahead as more projects rush into it, starting with Ledger, Rainbow, and Argent who already announced they will be pivoting toward their own respective native browser wallet. Overall, wallets will increasingly become a building block of decentralized identities, a sort of digital, on-chain luggage where users can store their cryptocurrencies, NFTs, Soulbound tokens, and anything that helps define them in the virtual world. Wallets, as we know them now, may soon become an outdated concept, gradually replaced by true digital passports.
Conclusion
No man ever steps in the same river twice, for it’s not the same river and he’s not the same man. It’s a bear market again, but it’s arguably a different (better?) bear market than the previous ones. Despite being the first crypto winter to coincide with extensive macroeconomic setbacks, it’s also characterized by higher levels of activity and public awareness, more players (developers, users, retail and institutional investors), and more technology and tools available. All in all, the space is progressing faster than ever despite the prices.
The last bull cycle has built momentum around crypto and its narrative, driving a pool of talents, both developers and execs from established tech companies to Web3 to Web3 space, another bullish sign for the level of adoption of Web3 in the next bull cycle. Noah Davis left Christie’s to become the brand lead for CryptoPunks at Yuga Labs; Ryan Wyatt left YouTube to become CEO of Polygon Gaming; former Disney CEO Bob Iger joins Board of Web3 platform Genies, built on the Flow Blockchain; Lyft’s former CFO and Uber’s ex-director of corporate development have joined OpenSea.
Bear markets, on the other hand, are an excellent time to focus on building and making high conviction bets on the most promising ideas and projects. When the dust settles, it’s easier to see it clearer and identify the most promising trends. Some of the trends and hypes of the past bull market failed (algorithmic stablecoins, most NFT collections, some DAOs, some DeFi projects, and so on), but a few selected projects will affirm themselves in the next cycle, after going through a tough, but necessary, period of squeezing and refining.
Many projects will fail, but those who don’t will probably consolidate their position and come out as the industry’s leaders in the next bull run. The bear market will bring most of the projects to the brink of collapse, which will be a great opportunity for those few solid teams wishing to further consolidate and expand their market share. Consolidation is currently happening in the following ways:
- Diversification. Companies that reached primacy in one sector, are leveraging their resources to expand their dominant positions in other verticals. Examples: Uniswap expanding to NFTs, Ledger expanding to browser wallet, Coinbase expanding to semi-custodial wallets, Solana expanding to hardware (Solana phone could become a sort of super hardware wallet and a major gateway to decentralized identity and applications).
- Investment. Double down on investments and discount buying spree by companies (like Animoca Brands) and VCs (new a16z $4 billion fund).
- Acquisitions. Uniswap acquiring Genie and preparing to launch a challenge to OpenSea and other established NFT marketplaces. OpenSea acquiring NFT aggregator platform Gem. More acquisitions will probably follow.
- Private ‘bailouts’. FTX provided a credit facility to VCs and crypto companies in difficulty, like BlockFi and Voyager, to avoid a domino effect while at the same time gaining an edge over competitors.
Consolidation will also reflect on the products, with the emergence of super apps and protocols that aggregate various features and combine different verticals (NFT aggregator, cross-chain DEX aggregator, analytics aggregators, and so on), thus generating synergies and simplifying the user experience thus facilitating the onboarding of the next millions of users. Overall, more hybrid solutions, with hardware going software (Ledge with browser wallet and NFT curated marketplace) and software going hardware (Solana with its own mobile).
Co-written with Filippo ❤
About VIA
Thanks to its intelligent routing system, the cross-chain liquidity aggregation can automatically scan over 53 DEXs across 13 networks and 15 of the most popular cross-chain bridges in order to let users swap tokens on the fastest and cheapest routes, seamlessly. The VIA Protocol aggregator uses liquidity from the protocol’s execution pool in the target chains, allowing users to efficiently route orders across all the available liquidity sources within 60 seconds.
VIA cross-chain aggregator supports two types of routing:
- Basic routing
- Advanced routing (coming soon)
Basic routing
If there are bridges between networks with sufficient liquidity, the exchange will occur directly from the source chain to the target chain.
✨Advanced routing✨
If a direct exchange does not exist, lacks liquidity, or is less profitable, the exchange will occur with a few intermediate steps. Regardless, the swap will be run in the backend by the Via protocol to provide a completely seamless experience for users.
Also, don’t forget about Trusted Token List that we have for Devs.
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