Crypto's product-market fit
Current areas.
Crypto has found product-market fit in:
- Alternate stores of value. Bitcoin is being proposed to be added to Microsoft’s corporate treasury. You can measure the correlation of an asset with other asset categories. Diversification is your free lunch. And bitcoin serves useful purpose as being sufficienly uncorrelated, among other properties (seizure resistant, fixed monetary policy).
- Leaders: BTC, ETH, Microstrategy.
- Stablecoins. Stablecoins export the USD to the world, enabling anyone to pay contractors instantly and store wealth.
- Leaders: USDT, USDC.
- DeFi. Decentralised finance is programmable, open, and interoperable, unlike centralized finance. DeFi includes all normal financial instruments - orderbooks/market makers, lending, derivatives, perpetuals, options, etc.
- Leaders: Aave.
- ZK proofs.
Aspirational.
The areas crypto aspires to be with PMF:
- Cryptonetworks. This is hard to describe, but imagine anything (Facebook, Youtube), and instead of it being controlled by one party, it’s controlled by a worldwide network of operators, who run the infra, and generally speaking charge tokens to use the network. This optimizes for censorship-resistance and liveness - you cannot take down BitTorrent or Ethereum. Generally speaking this is pretty hard - decentralization has a cost that centralization always beats.
- DAO’s. DAO’s are companies that are internet-native, where equity is a token. Imagine the original Dutch East Indies company, but everything is open-source, global, and internet-based (forums to communicate, etc.). This is what DAO’s are about. So far - there have been few productive DAO’s of any substance. Aave, which is the biggest lending protocol, has a good DAO - they are responsible for risk management of assets listed on their platform, and vote on changing economic parameters to mitigate risks like market manipulation, liquidity collapse and so on.
Developing.
Future areas for PMF:
- Blockchain-based stock markets, real world assets.
- ZK proofs. Just as Google is getting done for manipulating their ad exchanges (which is an automated market maker), ZK proofs will show the integrity of digital systems operating, by proving it cryptographically.
- MPC/FHE. MPC and FHE are technologies that allow for computation on data to be private. Imagine a CPU that was encrypted, no-one could read, but anyone could upload a program and get results.
- In 6yrs, we will have full private encrypted finance. No-one is ready for that.
- In 15yrs, we may have a solution to the prisoner’s dilemma. Recall that prisoner’s dilemma means that two parties cannot co-operate without risk of the other party screwing them over (defect). FHE (private computation) allows them to share and compute on information without revealing it. The problem is - what do we need to calculate in order to co-operate? LLM’s are one powerful solution here - an LLM can generally figure out how to solve a problem. What if we ran an LLM inside an encrypted computer?
- Memecoins. Memecoins are basically cryptocurrencies that are forward and honest about being backed by nothing. The memecoin market mechanism (what give it a price) is computing the most competitive meme in a marketplace, which according to the players is usually a function of very superficial signals - whether the dev worked at some big company or whatever, how hot the meme is.
- I think these are funny and shouldn’t be taken seriously. But a lot of people play/invest in them.
- And memes are fundamentally mainstream communication now.
- 60% of Gen Z uses TikTok.
- The US president posts memes. Every brand account out there now optimizes for mimetic effect.
- Bitcoin, in essence, is the first crypto meme. Being backed by nothing, except some burnt electricity and properties anyone could replicate.