Sleep better at night with the Bankless BED index—an equal weight index of BTC, ETH, DPI
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?
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.
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.
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.
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.
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:
Every Layer 2 or DeFi app will have a token
That token will need to get distributed
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.
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 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 :)
P.S. Need to get caught on Bankless from last week? Tune into our new TL;DR video summary and get downloaded on the week in 10 mins or less. 📺
Scan this section and dig into anything interesting
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
TVL drops -4% to $82.5B from $86B last Monday
DAI stability fee on ETH flat at 2.00%
Market opportunities 🤑
Lend your BED on Rari Capital (borrowing enabled too!)
Receive ETH payments to your website domain (how to guide coming tmrw)
Margin ETH on dYdX Layer 2 (10% off fees with link)
Prepare for Arbitrum’s launch (gates open on August 31st)
This week’s market opportunities are free! Subscribe to get access every week.
Alpha Leaks & Yield Farming 🌾
What’s new 🗞️, what’s hot 🔥, & money reads 📚
WHAT I’M & WHAT YOU’RE DOING
Extra Credit Learning
Some recent tweets…
You can’t ignore innovation forever…
Job opportunities 🧑💼
Browse more roles (or add your own) at the Bankless Jobs Board
Execute any good market opportunities you saw
Listen to The Greatest Trade | Raoul Paul
🙏Thanks to our sponsor
Balancer is an automated portfolio manager and liquidity protocol allowing you to deposit capital and earn a passive income on your portfolio. With Asset Managers, Balancer V2 takes this idea to a new level by leveraging smart investing strategies to maximizes your APY at all times. Welcome to the future of programmable liquidity—earn, trade, and build new applications on Balancer V2. Check it out here.
Sponsorship paid for by Balancer Labs🚀
Want to get featured on Bankless? Send your article to email@example.com
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.