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Dear Bankless Nation,
We’ve said this plenty of times before: Bear markets are the best opportunity to build wealth.
The tourists (speculators) have all left, and now it’s the off-season.
This is the time when the builders put their heads down and get to work.
And this is the time when investors place their bets on the next big trend.
The recent bull cycle saw the rise of DeFi and NFTs, where both of these sectors saw a massive surge of innovation, interest, and capital.
So what’s next?
What will be the key themes and trends in the next bull market?
It’s hard to predict the future, but here are some starter ideas to get you thinking.
– Bankless Team
Guest Writer: Jean-Paul Faraj, Community at Influence
For newcomers to crypto, we know it hasn’t been easy watching crypto prices plunge to lows. Even for veterans in the second cycle, experiencing potentially life-changing money going down further and further is never easy.
We are here for the tech though, right?
Bear markets are commonly referred to as the time when you can get rich. Why is this?
It’s because the opportunity to buy into projects at disproportionately low prices compared to their activity, development, and utility is abundantly present across the space. It’s not easy to choose the right project, but the opportunity is clear.
This article isn’t a guide to being rich, but if you spend time learning and watching during this bear market, you are likely going to be well-positioned.
This article will outline what’s bubbling to the surface of the crypto market and what will lead the charge during the next major bull run.
Within the blockchain space, there is a clear and present push for enabling scaling and increasing transaction throughput. During this last bull market, we saw MASSIVE interest and speculation around projects like Solana and other “Alt L1s.” A lot of this was because Ethereum had yet to scale properly to handle the bull market demand for its blockspace.
However, many of these blockchains, while touting incredible speed and throughput, left many users angry with consistent downtime or underperformed when demand was high. Ultimately many of these blockchains fail because they are monolithic vs modular, which try to provide all the security, decentralization, and throughput in a single product.
It simply does not work on a mass scale, and it is abundantly clear (biased opinion, but well supported). So what’s the solution to providing high throughput, high security, and high decentralization?
Layer 2 solutions offer the ability to increase the throughput and thus scaling of the blockchain while inheriting the security from the main chain. Solutions like StarkNet and zkSync enable “batching”, which bundles thousands of transactions into a single one and posts it to the main chain (Ethereum). This lowers the cost per transaction by orders of magnitude and increases the speed and total transactions that the chain can handle.
So why is this so amazing and why should you care? Well for this wondrous technology to bleed into the mainstream and be adopted as the backbone of the new internet, we need it to be fast, secure, and decentralized.
Layer 2 solutions solve the speed, while the main chains provide security.
This will enable a wide breadth of use-cases to function to the standard we need them to, for the world to adopt it. Examples include video games that process thousands of microtransactions per second, media to be shared instantly and cheaply, and money to transact in a blink of an eye.
Without Layer 2 solutions it would very likely be impossible to scale blockchains to their full potential for a very long time. If we want adoption we need to provide the layer to easily transact at the volume that allows for mass adoptions – Layer 2s provide this core need.
Currently, Layer 2 solutions like zkSync, Starknet, Polygon Hermez, Optimism, and Arbitrum, are all in active development and showing massive amounts of progress that will soon lead to the base requirements needed for adoption.
Much of this last bull run was driven by two things: DeFi and NFTs. These are both incredibly powerful tools, but both are still very much in their infancy—NFTs more so than DeFi.
With the markets quiet, it’s now time for these products to refine their ability to perform and retest for product market fit.
So why will Decentralized Finance enable the next bull market?
DeFi is an open financial system that enables ANYONE, ANYWHERE with ANY AMOUNT of money to participate.
This is not only massive in terms of opportunity for the “unbanked” but enables a wide range of new FinTech to grow and mature. The issue is, “Decentralized lending is in an early phase. It doesn’t offer everything centralized lending does, but it can outperform traditional finance’s inefficiencies and tap into the creative minds drawn to Web3.”
The existing financial system of centralized finance (CeFi) is a giant walled garden controlled by banks and governments. They choose who gets in and who gets how much. It doesn’t matter if you have all their requirements met, they can still easily turn you away, and oftentimes do.
DeFi lending protocols and services eschew this permissioned gatekeeping, offering the same financial services that banks currently supply for everyone.
It’s 100% transparent and trustless. Everyone can look at each other’s chips (anonymized by their address), as well as assess for themselves the creditor/debtor’s financial health according to their own standards. This means you can peel back the layers like never before and have a window into the inner workings of new-age banks that exist in DeFi.
This opens up a world of financial innovation, introducing new utility, new opportunities, and clarity around people who can make, borrow, or lend money.
But what about NFTs? Those are just jpegs, right?
Why would they lead to the next bull run?
You couldn’t be more wrong. Non-Fungible Tokens (NFTs) are a trojan horse to the world of true digital ownership.
In this last bull run, monkey pics and pixelated punks ruled the universe. This only marked the beginning, a simple show of the basic utility that is digital ownership.
When we buy a shirt from a physical store, it’s yours, only you own that particular shirt, and you have the receipt to prove it. It is “non-fungible” in every sense.
But up until NFTs, this wasn’t possible in the digital landscape. Sure you could buy X, Y, or Z online collectible, but it was stored by the company you purchased it from on a server they rent space in. With NFTs, the asset exists in a wallet you control.
The sheer amount of industries this technology can and likely will disrupt reach gaming, and music, all the way to home mortgages and money lending. The scope is unimaginably large and some of the other products and solutions that will lead us into another bull market outlined below, use this pivotal technology.
In summary, watch for innovation within the NFT space and teams that are working on bringing out the full potential of what they can do.
Single sign-on web3 authentication allows for a single password and account free of personal details attached to millions of new websites and existing major news outlets and platforms.
Another massive topic that is in the news constantly is privacy and data. Companies like Meta, Amazon, and Google pretty much own your identity. They know everything about you—your passwords, date of birth, SSN, and every action you take on the internet.
They say it’s secure, but how many times have you had your data breached? It’s essentially Westworld level of data collection, and most people simply allow it to happen, because no better solution has gained traction… yet.
The market for data collection is worth BILLIONS of dollars, and this is how these companies make their money. From Datamation:
“The global data collection market in 2021 was valued at $1.66 billion. It’s estimated to reach $8.21 billion by 2028 at a compound growth rate of 25.6%.”
These trillion-dollar companies are in the business of selling you. Not just random data about a female, 25 years of age, white, and lives in Ohio, but your name, your email, your location, the products you buy, the list goes on.
Web3 single sign-on solves this problem. It allows for companies to collect data, understand your preferences, and provide you with a personalized feed of information they think you are interested in, with the security of being attached to who you are.
But they can only have the data if you allow them to. (For more on personalized data sharing, check out Brave browser.)
The future as I see it looks like this: Create a web3 wallet/identity and link that to any of the hundred sites you have an account on. When you visit any of them, click one button – “sign in with web3 wallet” – and you’re good to go. It’s one password to rule them all, while protecting your data and identity and making it easier to surf the internet.
Currently, in traditional gaming environments, gamers either pay for the game upfront, pay monthly, or buy digital assets in a free-to-play game.
However, regardless of the game played, every action they take and every item/character they acquire isn’t theirs. It’s stored by that game and if they stop playing or paying, it sits dead in a server they have no control over. Current game studios typically have strict terms of services that ban players from any “Real Money Trading”.
This means all those hours gamers sunk into their games and all the value added to the game’s universe, isn’t theirs. Current systems do not allow gamers to capitalize on it, and if they try to skirt the rules they can get permanently banned.
This market is ripe for disruption. Allowing players to take ownership of their time and money sunk into games powered by the blockchain with verifiably owned NFTs will create opportunities for games and players.
We may soon live in a world where moms instead of saying “why waste your time gaming”, to “I don’t understand what Jimmy does on these games, but he pays for all his stuff.”
Currently, the game industry is more profitable than all other media sectors combined, and up until now, players were simply cut out of that equation. Web3 gaming isn’t some fairytale fantasy, it’s a reality already in the making.
Unfortunately, there is a great lack of finished playable web3 games at the moment. But in this bear market, watch for games that become playable, and have strong communities.
Those are games you want to pick up and try.
Some games I follow closely:
Making a living as an artist today is harder than it has ever been, even though the ability to get your music out there is easier than it has ever been.
Why? Simply put: Streaming services and record labels take most of the money and artists are left with pennies on the dollar.
As an artist, you have to be the lucky few to get picked by a record label or farm social media algorithms for content revenue. However, even with content creator revenue, you need to be at the top of the totem pole before it’s sustainable living.
In Web3, artists can better monetize their music through new avenues of monetization, stronger ties with their community, and fuller ownership of their music.
Selling exclusive membership NFTs that give fans special access to the artist e.g. VIP access to shows, limited edition merch, facetime with the artist
Sell revenue-sharing NFTs that share a % of the profits from their future sales to allow the artist to freely work without being beholden to the multitudes of red tape that is created when working with record labels and streaming services.
The ownership of artists’ music is the crux of the issue in the current market. The record label owns most of the profits and then the streaming service pays a tiny amount which is then split inequitably between the artist and the record label.
With NFTs and web3, artists can put music out in the form of NFTs, whether it’s a single or full album, and let your fanbase purchase the music directly from you, rather than going through a record label.
With web3 authentication and NFTs, an artist can leverage on a small fanbase for sustainable living. You don’t need to global audience to buy your world tour – all you need is 100 loyal fans.
A prime example of an artist already doing this is Gramatik, who has been a long supporter of crypto, blockchain, and empowering artists to own their catalog of music and create freely.
Unleashing content creators and giving them the ability to create how they want and where they want, while being able to own their audience.
In web3, artists and content creators are no longer beholden by the platforms they build their audiences on or rely solely on advertisements as an income stream.
Being able to provide their followers with a basic and potentially free NFT to allow them access to your private website, content, discord, and community will empower these content creators too, be able to get closer to their community, take port their following to any new platform, and unlock new uniquely web3 monetization opportunities.
It’s still early days in web3. There’s a massive amount of development and user experience design that is needed to push us to the next level.
A few big things are still needed to support this growing ecosystem:
Layer 2 solutions to be fully operational and provide the base layer the ability to support the number of transactions to support mass adoption and utility
Ethereum to successfully merge, switching off Proof of Work (PoW) and move to Proof of Stake (PoS)
The user experience to onboard new users into these platforms and products to improve to the point that they are comparable with the web2 experience we all enjoy today
We don’t know when the next bull market will be upon us. But we’re building our way out of the bear market and can expect the next bull market to offer serious utility and mass adoption.
Jean-Paul Faraj is an experienced entrepreneur who is passionate about all things Web3. He is currently working within the blockchain and gaming sector helping build community and creating partnerships for Influence, an on-chain space strategy MMO. When not working on Influence he’s likely to be reading fantasy or sci-fi novels, foraging for edible plants in the Pacific Northwest, or writing blockchain related articles and twitter threads.
Aave is the leading decentralized liquidity protocol. The latest deployment, V3, was launched on 6 networks (link) and introduces new features like Isolation Mode, Efficiency Mode and Portals. If you’re building in the ecosystem, apply for a grant from Aave Grants – a community run grants program.
Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.
Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here.