If you spend a lot of time in crypto (like we do here at V1), it can be easy to lose sight of how non-crypto investors and entrepreneurs think about the space. The huge ICO run-up in 2017 brought a lot of attention to the vertical. Since then, many have stopped following the progress or have become downright negative about the space.
But I see three big trends that everyone should be paying attention to right now – these could serve as inflection points for the whole space:
- The economic fall-out from the COVID-19 crisis in emerging markets will drive adoption of digital currencies.
Emerging countries will be hit much harder than developed countries from the economic fall-out of COVID-19. They don’t have the fiscal and monetary power to counter the economic problems which will in many cases result in a currency crisis. Such events will push a lot more people to put their money in easy to buy digital currencies, either native cryptocurrencies (BTC – this might already be happening in Argentina) or digital versions of the USD (like USDC or USDT).
- Ethereum now has a very clear use case and a decentralized finance ecosystem is starting to emerge
Ethereum’s original vision was to be the “world computer”. That vision inspired many people to start building applications on top of Ethereum, but it also very quickly resulted in scalability problems that gave Ethereum a bad rap: too expensive, too slow, not scalable enough.
These complaints were true for many applications that were built for high-frequency, low value transactions. But the Ethereum platform found a sweet spot in the finance area: low-frequency, high value transactions.
In the past two years, the whole decentralized finance space has expanded tremendously. There are now close to 200 products with nearly $1B USD locked in these applications. This new stack of financial services enables stable coins (e.g. Maker), lending (e.g. Compound), derivatives (e.g. Opyn), insurance (e.g. Nexus Mutual) and trading (e.g. Uniswap).
The most exciting part about DeFi is its open source nature and built-in composability: the ability to remix and recombine “money legos” unlocks a tremendous amount of creativity and innovation.
- The accelerated influx of great technical talent into the crypto space
Last but not least, we continue to be impressed by the quality of the technical talent that is flowing into the crypto space. This is certainly much more of a qualitative assessment than anything else, but we’re not alone. We frequently hear the same feedback from other investors in the crypto space. One of the biggest drivers of this talent influx is the increasing perception that traditional tech is seeing an acceleration of zero-sum games while crypto has much more white space to go after.
Crypto is still in the very early innings, but we feel that we might look back at 2020 as the year when an accelerated interest in digital currencies, a concrete and quickly growing use case (DeFI) and the continued influx of talent created the inflection point that many of us have been waiting for.