Cryptoland Economics 🌍
Trust me, its funkier than you think
Today I want to write to you about the economic impacts of crypto. If you’ve missed my last piece, you can read that here. Join me as I go deeper and deeper into this crypto rabbit hole 🐇 .
Writing these pieces allows me to take a step back, reflect on my thoughts, and get you up to speed. As a reminder, I’m breaking down my learnings into four main buckets. This is not an exhaustive list, but the goal is to provide you a starting point to begin thinking about space. Here are the four:
Last month we touched on sociological impacts, and today we’ll be speaking about the economic impacts of how crypto will change the world. The buckets I have outlined above will have aspects that bleed into each other.
Economics is the social science that studies how people interact with value, particularly the production, distribution, and consumption of goods and services. Economics focuses on the behavior and interactions of economic agents and how economies work. Let’s discuss these interactions and how they’ll adapt to crypto and blockchain technologies. We’ll specifically focus on the following high-level topics:
Defi & the Metaverse
The Future of Work
Development Aid Innovations
Let’s get going 🚀
Defi & the Metaverse ✨
Defi is short for “decentralized finance,” an umbrella term for various financial applications in cryptocurrency or blockchain geared toward disrupting financial intermediaries.
Decentralized finance applications (dApps) have gone from <$1B to >$60B in market cap over the past year. Many of these are built on top of the Ethereum blockchain. To measure their market cap, the Defi community tracks a metric called Total Value Locked (TVL).
TVL references the total amount of assets locked into smart contracts. The larger the TVL, the more financial use cases like lending and borrowing can exist. For example, if you’re using the Defi money market platform Compound, you can deposit Ethereum (ETH) and use that as collateral to borrow more ETH (or any other cryptocurrency). This is similar to how mortgages work; homeowners can use their homes as collateral to borrow money.
In other words, the higher the TVL, the more the ecosystem grows, driving more financing to build better products and services, which increases awareness of the space, leading to even higher TVL in these smart contracts; and on and on the flywheel goes. You can read more about this concept here.
Decentralized exchanges have been taking off in popularity. DEX’s such as Uniswap comprise one corner of the Defi space. DEXs differ from centralized exchanges (such as Coinbase and Binance) by eliminating the need for users to give up custody of their tokens. Whereas centralized exchanges store tokens to help facilitate exchanges, decentralized exchanges allow people to trade directly with one another.
Uniswap is a protocol on Ethereum for exchanging tokens. Unlike most exchanges, which are designed to take fees (e.g., Coinbase), Uniswap is designed to function as a public good—a tool for the community to trade tokens without platform fees or intermediaries. Also, unlike most exchanges, which match buyers and sellers to determine prices and execute trades, Uniswap uses a simple math equation and pools of tokens and ETH to do the same job.
As a result, the price of tokens on Uniswap can only change if trades occur. Uniswap is essentially balancing out the value of tokens and swapping them based on how much people want to buy and sell them. It’s like a modern-day bartering system where we no longer need a medium exchange (e.g., USD, gold, etc.) to make a trade.
Uniswap's weekly trading volume passed $10B a week for the first time in late April for context on scale. Coinbase averaged $7.4B in trade volume in Q4.
We’ll touch on this more in the "technical” section next month, but what Uniswap has produced is mindblowing for the following reasons:
It runs without a company managing it
It exchanges currencies without a medium of exchange
It’s all open-source, so any developer can copy the source code of the project and apply how they would like
To use applications like Uniswap, you need something called an ETH wallet. I use Rainbow because of its slick design, plus the fact that they’ve plugged Uniswap into their backend. This is important because I can hold my tokens and make trades within the app (!!!). That’s nearly impossible to do in web2 companies because tech companies would prefer to keep that code base private to them. That is not necessarily a bad thing because providing your data to any 3rd party company can lead to unintended consequences. Still, it does limit random creative output that could lead to something big.
For those looking to put money into an ETH wallet, here’s the process I followed:
If you’re having any issues with this process, shoot me an email, and we can chat!
Here’s where things get even funkier. People may begin to live a large portion of their lives in a Metaverse. One popular such universe is called Decentaland. Decentraland exists as a decentralized autonomous organization implemented on a blockchain. In this world, you can create art, trade your currency for digital assets, buy land, and meet people.
The currency that folks use in Decentraland is called Mana. Mana can be bought on centralized exchanges (Coinbase, Binance, etc.) as well as through decentralized exchanges (Uniswap, Pancakeswap, etc.). Some of the other popular developments in how folks are using Mana in Decentraland are:
Art galleries where owners showcase and sell their digital NFT art, including Cryptokitties and other types of NFT collectibles
Casinos, where players can win Mana
Game sites, such as whac-a-mole
Brand-sponsored content, such as the recently announced Atari arcade, which will feature games that can be played within Decentraland
Music venues where DJs and musicians play music and hold concerts
People are starting to live their lives fully in this internet world. Considering most of our existence over the past year due to Covid has been sitting behind a computer screen interacting with people, building businesses, and buying things, this future reality doesn’t seem too far-fetched.
If you’ve read or watched Ready Player One, this seems like a step towards that direction which is equally fascinating and terrifying. You can read more about this crazy world here and watch this A16Z talk for potential use cases in this space.
Thought experiment: The year is 2045. Technology has progressed to the stage where all five feelings work in high fidelity in the Metaverse (e.g. sight, sound, touch, taste, hearing). Your 23 y/o daughter comes to you and tells you she wants to plug completely into Decentraland. She’s fallen in love in this world. They now want to buy a house in subsection 231 in an up-and-coming neighborhood in Decentraland using the Mana they’ve earned from running their virtual pre-school. If she does this, you will only ever be able to see her in this Metaverse; never again IRL. What would you do?
The future of work 💼
This one is near and dear to me. I’ve been working at LinkedIn for the past three years. Today I sit on our product partnerships team working on ways to help hiring managers and recruiters source, manage, and hire the right candidates. Creating economic opportunities for each member of the global workforce is LinkedIn’s vision, and it’s been something that I hold myself strongly.
The future of work was already on a path to change every industry, and now it seems to be increasing at an even more rapid rate. One of the reasons is the shared infrastructure that crypto can use that internet incumbents have built.
Andrew Wilkinson @awilkinsonTwo things I believe: 1. Crypto/defi/tokens/etc are totally disruptive and transformational 🔮🧐 2. The winners are impossible to predict and there's no rush to invest now. Nothing wrong with waiting to see how it plays out 💰😴 These things take time. This is AMZN stock ⬇️ https://t.co/lpiqPKmjYx
It’s interesting to see how new jobs are created with new industries. One of those jobs in the internet industry, also known as “web2”, that didn’t exist before was the Product Manager role.
Their role is to liaison between engineering, design, data science, and the GTM team (e.g., sales) to understand what customers want and build it. This role was created in earnest over the past few decades to fill a need in companies that were not met in the previous era of businesses.
New ways for people to make money are occurring in crypto. People are paying off their student loans by minting NFTs. You can earn commission selling property in Decantraland by becoming a real estate agent. You can earn crypto by taking courses on the currency itself.
Chris Dixon, a GP at A16Z, has even gone as far as stating that the novel ways people can make money in the crypto economy can counterbalance the upcoming technological trends that may automate many jobs. If you believe this to be true, then we have an onus to learn how to create in this space. It’s on us to determine what these technologies enable and determine where the jobs and career paths of the future may be.
One thing we do on our internal teams at LinkedIn to determine where the future of our industry is going is to analyze company job postings to see where they are thinking of going next as a business. In other words, if Apple is hiring a “Head of Self Driving,” then you can assume that they are about to invest in self-driving vehicles. Taking a look at these jobs today helps you to understand where we’re going in the future. Here are a couple of jobs I found interesting…
Meme Artist / Shitposter + Community Manager @ Gitcoin (link)
This job literally has “shitposter” in the title! I posted this job as a joke on my Instagram stories a few weeks ago, and people’s reactions were hilarious. They were shocked that this role currently exists and were even more surprised when they found that the compensation was anywhere between $80-$120K. In the job description, they speak about looking for someone who “memes for social good.” At first glance, you may write this off but think critically about it.
Memes are the medium of exchange for the internet. They are a way to package a message in a witty picture, hit a social nerve of the time, and piggyback off the internet's virality to spread. The better the meme, the easier it is to share your message. Future PR agencies will hire young people to create memes for them. The best meme-making business may become the best business. We already see this with memes like Dogecoin going to the moon.
Smart Contract Developer: Solidity @ OpenDAO (link)
This role is for my developer friends. Solidity is the new programming language that helps you build apps on top of the Ethereum blockchain. This language is closest to Java, which, again, I know minimal about. What Bitcoin is to gold, Ethereum is to the Apple app store. As the value of the apps on the app store increases, the value of the app store itself increases. Learning Solidity is similar to learning how to be an iOS app developer. To create an app, you need an iOS app developer. To create a dApp, you need to learn solidity.
Curious to see what other jobs live in crypto land today? Here’s a great list of those job boards. Ping me if you find anything cool.
Thought experiment: You’ve always struggled to tell your parents what you do, and you know they’re going to be confused with this new role you’re applying for. You’re hesitant yourself. You’ve been studying to become a lawyer for years, your parents are lawyers, and it’s something you’ve wanted to do your entire life. But the law market is rough, and you have an offer to become a shitposter making >$150K a year. Your job description includes commenting on famous people’s tweets, making memes, and running Discord channels all day. Would you do it?
Development Aid 💴
What’s occurring today in India is tragic. I’m writing this in May 2021, and the death tolls are nearing ~3K a day, and the country has seen ~400k cases a day. They’ve had over a quarter of a million people die and have had 27.2M cases to date. The scene is sad. Oxygen tanks are in short supply, hospitals are overworked, and the funding in the larger cities is drying up, not to mention the smaller villages.
Donors have been doing their best to support India by donating money to a variety of different organizations. Although sending money to India from Western countries takes days, as with any non-profit org you’re confused about where all of the money is going, and with a corrupt government, it’s hard to say that someone on the other side isn’t getting their own cut.
As he always does, Balaji championed a novel idea to donate money directly into the hands of the people that required it. He went through the effort to validate BTC, ETH, and DOGE addresses (e.g., a public bank account number) and started to share it on Twitter. By the end of the week, tens of thousands of people had sent money to the address.
Vitalik Buterin, the Founder of Etheruem, also donated $1.5b worth of cryptocurrency to non-profit organizations, including $1b donations to the India Covid Relief Fund. He generated this profit through a meme coin called Shiba Inu ($SHIB), where this 💩 coin's creators alloted a large portion of the $SHIB in circulation to Vitalik’s ETH address. They expected that he would not sell the coin, only pushing the prices higher. Vitalik had other plans, converting the SHIB into ETH (maybe on Uniswap 🤔), which eventually dropped the coin's price.
Let’s pause for one moment and realize that a 💩 coin’s appreciation allowed someone to send $1b to the India Covid Relief Fund. What. Is. Going. On.
It’s to be determined how effective this distribution of capital was to support the people on the ground in India (especially if the country continues its ban on cryptocurrencies). Still, if it works, this may fundamentally change emerging country economics.
In a recent conversation with a few friends, we discussed the idea of creating a smart contract where every time he gets an % increase in the assets of one of the tokens he owns, someone in a developing country can get a smaller % of that appreciation. The gains that people have seen in the crypto space have been ridiculous. Sending even $10 to someone in a developing world could change the course of their life. It would be interesting to partner up with organizations that distribute money directly to people on the ground.
There would be a lot of work to identify who these people are, set them up with ETH wallets (like Rainbow), and figure out the mechanism to allow this to happen, but the technology to do this already exists. Mirror has been working on a way to distribute funds to ETH addresses repeatedly automatically. This can all be written in the smart contract that powers the application.
The use cases here are crazy. This is just one idea of how this new technology can support developing countries. We need to think through these emerging countries because, like many times before, most of the wealth today in crypto is going to the same folks.
Thought experiment: The technology now exists to send money to one another without any delay. The way these funds get distributed is pre-written into a smart contract and can be sent automatically. Development aid becomes much easier. What are the unintended consequences of this newfound technology?
We’ve discussed a lot today! Here’s a summary:
Defi and the MetaVerse will change the economy of the future; institutions like the IRS will be trying to capture surplus capital gains
The jobs of the future are changing; start learning about them now or be left behind
Development aid is changing as we speak. The onus is now on countries to accept this aid and interconnect it with their economies
I’ve linked out to a gazillion different sources above, but here they are again for your convenience.
Tune in next month or subscribe below for future thoughts on this topic. Whenever I get around to it, I’ll be discussing the technical aspects of crypto (wish me luck)!