What's after NFTs? | Market Monday LITE

4 things to look out for after the NFT mania

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Dear Bankless Nation,

Crypto is clearly in a state of manic speculation for JPEGs.

Almost every corner of the NFT industry is experiencing unprecedented levels of demand. The hivemind of crypto is now focused on all conceivable variations of NFT art and collectibles.

How do I know?

This:

Art Block projects are flying off the shelves.

The PFP Avatar communities bringing in new crypto users non-stop.

1-of-1 sales on SuperRare breaking new records.

This morning Three Arrows Capital spun up an NFT-focused fund, and they’re just one of many funds putting high-profile NFTs on their balance sheet.

OpenSea continues to dominate the ETH-burn leaderboard as volumes go parabolic, clocking in at more than double the amount of ETH burn than Uniswap over the last 30 days.

Just a few weeks ago, we were worried about draconian regulation coming to end our industry. Now, we’re more concerned with the next Art Blocks minting.

We trade pictures. It’s just what we do now.

Zooming Out

For some reason, I don’t think this NFT mania is ending any time soon. It’s too simple, too fun, and generating an insane amount of mainstream noise.

BUT…

I also think this tunnel-vision on pixels means most people haven’t bothered to think about what’s next. When everyone’s going left, go right.

So while the world’s focused on NFTs, we should ask: what opportunities are being forgotten about?

Let’s take a step back from the JPEG speculation and find out.

Here are 4 things that might be the next big thing in crypto.

1. GameFi

The momentous rise of Axie Infinity has triggered a conversation about the evolution of gaming. The intersection of digital assets and gaming has always been a hot topic, but before Axie Infinity there hasn’t been much to talk about.

Now Axie has risen to a $20B market cap (fully diluted), and made its community members extremely wealthy along the way. The value of digital-asset-powered gaming has been proven, and now it’s just a matter of building games that people want to play.

In the legacy gaming world, the most successful games are free-to-play. But in crypto, we can do better—we can make them play-to-earn. DeFi Summer was all about DeFi apps giving away free tokens to their users. GameFi will follow a similar path, and the tokens and assets that you earn from playing games will inspire new levels of player engagement and community ownership.

Pay attention to Immutable X and the games that deploy on it; it’s an L2 that’s optimized for NFTs. Games must be built on L2’s for them to be practical, so keep your searching focused to L2 games.

2. Resurgence in Yield Farming

We’ve seen the success of yield farming in DeFi last summer. We’ve gotten a taste of L2 farming on Polygon with MATIC, and that’s worked wonders for Polygon TVL.

What’s next?

Layer 2 DeFi

We’ve been talking about Layer 2 Summer for a while now, and we’ve long expected it. The Layer 2 Summer thesis is this:

  1. Every Layer 2 or DeFi app will have a token

  2. That token will need to get distributed

  3. The main way to distribute it is with yield farming or retroactive distribution

Importantly, DeFi apps that want to claim L2 real estate will bolster yields via their own incentive programs. We’ve seen Sushi engage with this, and I expect many more.

I also expect many new DeFi apps to deploy straight to Layer 2. Some of these will be applications that simply weren’t possible on Layer 1. If these applications don’t yet have a token, please return to the steps above.

Arbitrum is opening the gates to its scaling solution on August 31st. Optimism is seeing more protocols launch on its main net deployment.

It feels like we’re at the tipping point for Layer 2 Summer—keep an eye out.

Layer 1 Incentives

Outside of the Ethereum ecosystem, the same game is being played by other Layer 1’s. Ethereum competitors are opening up the war-chest in an attempt to capture TVL and users.

While some of us won’t participate, incentives are incentives. These protocols are giving out free money, so someone is going to take it.

Maybe it could be you! (Our guide to multi-chain yield farming coming soon).

3. Web3 Social Media

Decentralized Web2 applications were one of the early hypothesized use-cases of Ethereum, before everyone realized it made way more sense to do finance and money-stuff first.

But now that Layer 2’s are here, we can revisit one of the early promises of Web3: Social Media as Ethereum apps.

It’s now an open secret that Aave is working on an Ethereum-based social media platform. We know that there is demand for this from a number of different data points.

  • Everyone is using their Web2 avatars to display their PFP NFTs

  • Personal websites that display one’s NFTs are primitive, yet gaining traction

  • Crypto is getting more and more social every single day

  • Everyone is talking about the Metaverse

‘Community’ is what powers this entire industry, so it’s only logical that a crypto-based social media platform would be hugely successful if it figures out the optimal design.

And, like GameFi and yield farming, it’s going to financially reward its contributors and users. At least, that’s the pattern we see everywhere in crypto these days.

Here’s something Web2 may do in the meanwhile:

4. Tokenized Communities

As the world has globalized, internet communities have come to dominate. More and more people in the world are trading their affiliation with their local, physical communities, and joining digital, internet-based ones.

Communities are the new alpha. They are the next investment phenomenons. Tokens allow for communities to grow larger and more engaged. Having a token has worked so well for Axie Infinity that they have breached the limits of scalability of Web2 platforms.

If you are bullish on the growth of a specific community, they will have a token for you to invest in.

DAO Tokens

DAOs are communities. They are their own social networks. They create their own products and their own value. With the power of tokens, you can now gain financial exposure to the value of the community as a whole.

Listen to Cooper Turley talk about his approach with DAO tokens, from last week’s tl;dr video:

Different communities are going to find different ways to increase the capital behind their organization. One by one, we’re going to see the tokens behind different communities pop-off, as each community learns how to best find and capture value.

Just look at the $FWB token these last few weeks:

Social Tokens

Social tokens represent the intersection between creators and their community members; a single object that both parties focus their attention upon. Social tokens completely change the relationship between the fanbase and the creator.

Social tokens allow communities to use the market to express their desires, and when resonance is struck between a creator and their community, everyone benefits.

What was previously a one-way flow, social tokens can turn the flow of value from being one-way (Creator —> Community) to a two-way channel of artistic expression.

Now, it’s no longer just about the creator and the creations they make, but also what the community does about it. The community can become actualized and engaged to contribute their own value and creations into the ecosystem behind the token.

Last week, Justin 3LAU announced ‘Royal’, a platform that allows artists to tokenized the royalties in their music, and offers a new way for fans to engage with their favorite artists. The tokens that are issued out of Royal will give fans a new place to focus their energies and excitement, and give creators new methods for receiving input from their fans!


📺 Tune in for SotN tomorrow at 2pm EST to learn more about 3LAU’s Royal platform!


The Alpha is in the Overlap

All of the above sectors have the potential to overlap with each other. And all of them are predominantly happening on Ethereum.

If a crypto-powered social media application ever arrives to Ethereum, it would probably have an NFT component, and would probably be operated as a DAO.

Token-powered games are going to have NFTs, and likely an in-game currency that represents the value of the game itself. The game’s token would link the developers and the community in the same way that social tokens would.

The best alpha is not in these specific sectors of Ethereum’s future, but where these sectors overlap and align. If you see two social media apps come to Ethereum, and one is NFT-enabled and the other isn’t, pay attention to the one that uses NFTs first. When the gaming industry integrates tokens into their game experience, play the game that gives its players financial exposure to the success of the game.

So now that you’re done reading this, you can go back to staring at your favorite JPEGs.

Just know that there’s always something on the horizon, and it’s the things that are quiet that have the most upside :)

- David

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Market numbers 📊

  • BED dips -3% to $150 from $156 last week

  • ETH stands still 0.00% to $3,315 from $3,313 last Monday

  • BTC slips -2% to $48,400 from $49,200 last Monday

  • DPI sinks -7% to $393 from $423 last Monday

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  • DAI stability fee on ETH flat at 2.00%

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