After a crazy year with predictably strong growth in decentralized finance (DeFi) and store-of-value (SoV) crypto assets generally, things are about to get weird. Diversification is the only way to stay sane.
Crypto is set to bifurcate and we will begin to see two parallel economic superhighways being built and used. One economic superhighway will be for know your customer (KYC)-compliant “digital currencies” such as central bank digital currencies (CBDC) or corporate-backed digital currencies such as USDC or diem (formerly libra).
This post is part of CoinDesk’s 2020 Year in Review – a collection of op-eds, essays and interviews about the year in crypto and beyond. Ryan Zurrer is founder of Dialectic AG, an alternative-assets focused multi-family office. Previously, he was a Director at the Web3 Foundation and led the investment team at Polychain Capital, pioneering the SAFT as a legitimate investment instrument.
In parallel, the other economic superhighway will be a detour-filled adventure of crypto-anarchist money Legos being stacked and iterated on by anonymous teams, self-organized via a myriad of DAO-like governance structures. It’s all about to get quite strange. Diversification is the only coherent path forward both within crypto ecosystems and beyond during these uncertain times.
A defining narrative of 2020 was the DeFi space, mostly within the Ethereum ecosystem. In spite of the silly food memes and 1990s-inspired user interface, DeFi is dominated by stone-cold professionals executing platform-agnostic “mercenistic mining”. It is interesting that, contrary to the irrational and outdated maximalism we see among layer 1 enthusiasts, the application layer, led by DeFi, is proving to be decidedly non-sticky and transient. The cost of switching between platforms is negligible (when gas fees are not outrageous due to network congestion) and participants follow the risk-adjusted yield.