I haven’t written much on Seeking Alpha because the most interesting topic to me is Bitcoin and while it was incredibly exciting at $8000, at $30,000, for me, it lost its charm. I sold out at $32000 and pivoted into DeFi.
DeFi is the crypto segment of applications running on the Ethereum blockchain. You may have heard about Ethereum tokens in the ICO craze. That bubble screeched to a halt when the regulators deemed many tokens to be securities and flushed the whole scene around the u-bend with their usual draconian enforcement.
However, the token landscape didn’t die because – in the main – tokens really are securities. By and large they are the share certificates of a new kind of equity in a new kind of enterprise. The Ethereum blockchain allows, via its tokens and its computing platform, a new type of enterprise to be created; one which to the structure of a limited liability company is analogous to the relationship between internet and book.
These enterprises using tokens, Ethereum’s platform and an idea of distributed corporate democracy are opening a genie’s bottle of entrepreneurial endeavour. The good news is, unlike issuing a random token and writing a brochure full of lies to raise money, decentralised finance applications need a cohort of young coding geniuses to bring them into existence and – at least for now – are keeping the legion of investment scammers at bay. The sort of scammers that plagued the ICO landscape (and for that matter plague the stock markets of the world) have yet been able to produce the necessary tech to convince a tech-savvy audience to ‘ape’ into their promotions.
Right now, there is an explosion in the value for these projects and many token prices have gone exponential, often driven by the fact they start out being worth tens of millions or low hundreds of millions of dollars whereas if they were internet companies on the Nasdaq, they’d be worth billions. The idea of how exciting these DeFi apps are is also catching hold and then to cap the excitement you have the fact that great projects like Compound, funded by some of the smartest investors in the valley, are offering you a 14% APY interest rate on your dollars. This is achieved via ‘stable coins’, which are tokens that track – in this case – the dollar. When you see this, you have a simple call to make: is this Bernie Madoff II or is this the biggest news in finance in decades? It has to be one or the other.
To be straight, I have checked and checked and checked because, apart from having a big slug of dollars in these projects, if they are real the very premise and basic mechanisms of these projects will upend the whole financial landscape and disintermediate multiple levels of some of the most reviled ‘doing god’s work’ predators that our society has to put up with. I’ll keep checking because the old cliché of ‘if it is too good to be true it probably is,’ is excellent advice. However, on those rare occasions when it is true, you have to get involved.
Yet now is not the time to get FOMO and ‘ape’ on into DeFi tokens. A few weeks ago, yes, but now no. This is the price vertical and no one can judge how high it will go or how low it will fall once the final crescendo plays out in the coming hours, days, weeks or perhaps even months.
Now is the time to play with it and skill up to be early in on what is going to be a lifetime of opportunity.
Bitcoin and Ethereum are currencies or some such similar instrument. As such equity investors aren’t really cut out to grok them. They are like single stocks; they simply are not the smorgasbord of opportunity of a whole stock market filled with an incredible diversity of investment and trading opportunities. Bitcoin is like buying and holding gold or silver, not like playing the Nasdaq or NYSE at all.
DeFi is completely different to Bitcoin; DeFi is exactly like stock picking because every token represents a different business, or business opportunity, which has a different service offering, team and business plan. They have a progressing narrative of endeavour and build a history of success and failure over time.
A Uniswap or a Compound is an enterprise with a crypto-enabled business and governance model, which is similar to a joint stock company but leveraged by new technology in a development that looks set to take enterprise in general to the next level.
That level is another level of abstraction and if a function can be abstracted into a more efficient system that new form will dominate the older cruder ways. Crypto is unlocking the next level of enterprise and the pioneers are the DeFi companies that are erupting now onto the crypto landscape. Yet it is time to reflect. Is this 1995 or 1999? I think it’s the latter, so it might be better…