0/ I'm often asked: how do you keep up with DeFi when it moves so fast? My response: if you focus on learning a handful of core concepts, you'll be 80% there with 20% of the effort. 🧵The first 5 concepts you should learn in DeFi 🧵

We are at peak ignorance of crypto. Inspired by a question I was asked recently, I drew this picture. It's my mental model comparing how crypto progresses through time to how people outside of crypto perceive that progress: The green line is our cumulative progress as we build. The red line is how the rest of the world perceives what crypto is capable of. When the red line is far above the green, we are in peak bull market. Expectations far outpace what is actually possible. When the red line is far below the green, we are in peak bear sentiment. This is when everyone says crypto is dead. Ironically, the green line accelerates in these moments because builders are still building, and they are freed of the distractions of the bull market. Best I can tell, we are in a peak bear moment. Most of the world thinks Ethereum is still melting the planet. Most people have never heard of an L2. They don't know that teams are rebuilding on Solana despite the mess that FTX made. They have no idea we've made huge leaps in ZK tech. They're unaware that DeFi, NFTs, RWAs, and stablecoins are all building the next set of fundamental primitives that are expanding the design space. They don't realize that we're making progress on the regulatory front in the US and around the world. They can't see that tech that was just a bunch of vaporware a few years ago is now shipping in production. All they see are news stories about SBF, Kim K, and Matt Damon. The gap between perception and reality could not be larger. But there's also a warning here. We need to try to close the gap between perception and reality, instead of amplifying it. The greater the overshoot in the bull, the greater the undershoot in the bear. Even if we get to the peak that is 5x-10x of the last, we will cause irreparable damage if we end up with 5x-10x of the blow ups on the other side. Better tokenomics, clearer regulation, self-policing of the community, and UXes that focus on keeping people safe -- all pieces of the puzzle that get us to a healthier place. More on that later. In the mean time, if you need a tldr:

0/ Many successful heists in DeFi and Web3 have nothing to do with bugs in the code. If you want to be safe, you need to understand all the ways in which a protocol can be attacked. 🧵Here are 9 attack patterns in DeFi that everyone should know

I did some more math. ETH has better economic SoV properties that gold. Annual net supply increase is way lower (0.05% vs 1.34%) Annual % consumed is higher (0.63% vs 0.16%) ETH is already better than gold. The people just need to know.

0/ Staying engaged during a DeFi bear market just takes a little perspective. Here's the chart I have in my head that keeps me optimistic. 🧵 Let me explain what it means:

If ETH becomes a digital store of value, it could reach 2T-20T like silver or gold. If ETH becomes oil, it could reach 4T like oil reserves held today. If ETH becomes money, it could reach 20T like USD M1 supply. If ETH becomes all these things at once, then who knows.

Trends in DeFi I'm paying attention to: 1) Convergence of lending markets: @aave, @MorphoLabs, @SiloFinance, @eulerfinance, @kamino, Fraxlend, etc. Feature sets are converging. Looping is everywhere. Going forward its about use cases, partnerships, and ecosystems. 2) Rebalancing vaults: @TokemakXYZ, @cove_fi, @veda_labs, etc. all bringing more yield for users and more efficient liquidity to markets and ecosystems 3) Duration assets: veTokens, @term_labs, @pendle_fi, @hourglasshq, Frax bonds, etc. all building market infrastructure around assets with durations and maturities. 4) Real World Assets: some people think RWAs are boring, but they'll be the backbone of onchain economic activity. Stablecoins, tbills, @re-insurance, etc. Onchain capital wants access to more offchain opportunities. Offchain opportunities want access to cheaper onchain capital and efficient settlement. It's a coincidence of wants that will fuel DeFi growth over many cycles. 5) Restaking: @eigencloud, obviously, but the idea of being able to put any yield bearing asset at risk to provide backstops for any other protocol is a powerful one. I feel the depth of the bear market based on how many times people ask me what I'm excited about in DeFi. AFAICT, teams are still building. And not just copy pasta, but new important pieces of the puzzle. Hard not to be excited tbh.

Bitcoin will eventually be an erc20 on ethereum

0/ If you want to know where DeFi is going, look to the pioneers and trailblazers. 🧵Here are 7 🤯 protocols that are building out the future of DeFi.

2024 crypto narratives: - onchain points - point staking - liquid point derivatives - pointfi - real world points - non fungible points - point availability layers - miner extractable points

0/ Learning DeFi? @CurveFinance is one of the most important protocols to understand. It tops the TVL charts and is so central that protocols are engaging in “Curve Wars” to control it. 🧵 A breakdown of Curve Wars and a peek into the future of tokenomics battles 🧵

People talking like Ethereum died or something but really not sure what they're freaked out about. Since the cycle bottom, Eth has picked up ~50B in TVL which is three entire Solanas of TVL and 14 Bases. Ethereum also dominates in stablecoin issuance. Yes maybe the EF can improve in a bunch of ways but lets not forget the sense of scale here.

0/ @ElectricCapital just raised $1B, and we have the exciting opportunity to support many more projects across Web3 and crypto. 🧵Here are five ideas in the DeFi space that we're particularly excited to support 👇

0/ The Curve Wars are not just about piling up veCRV and maximizing CRV yields. The meta-game is an epic battle for stablecoin liquidity. 🧵 Here are the 4 core ideas you need to understand this one-of-a-kind DeFi phenomenon 🧵

Some simple math: Bitcoin earned ~$922m in tx fees last year. At a 20x multiple that would be a ~20B asset. But it is a 1.5T asset. It has a 75x premium because of it's acceptance as a store-of-value asset. Ethereum earned $2.5b in tx fees last year. At 20x, that's a 50B asset. Today it's worth ~180B, so a 3.6x premium. This is not a knock on Bitcoin, but an opportunity for Ethereum.

Your periodic reminder that your cryptospeak isn't convincing anyone. We all like to throw around words like decentralized, permissionless, immutable, smart contracts, etc. Maybe we all do this to show that we are in the know or part of the group. But to normies, these words are foreign, confusing, and make it harder to understand why crypto is valuable. Behind each of these words, there are real values and value propositions that speak to things that everyone cares about. Instead of being "permissionless", talk about enabling open access, regardless of who you are, what country you live in, or whatever a small group of people in some country deemed safe for you. Talk about being able to freely build on others work. To be able to combine multiple services with a little bit of code if you're so inclined. Talk about all the times which you said, I wish my bank and this other company could just figure it out and work together, and how open systems enable that kind of innovation. Talk about how billions of people around the world don't have access to basic, reliable financial services that DeFi can provide. Instead of being "decentralized", talk about resilience and reliability. Talk about how no single party can cancel you or take away your assets. Talk about how even if other people decide to stop running the service, in the worst case you can still pick it up and run it yourself. Talk about all the annoying times that Google or Apple or Facebook shut off your favorite feature, and how terrible it is that you can be financially deplatformed. Instead of being "immutable", talk about predictability and reliability. Talk about how the tech behind these services makes it so that literally nobody can take them down or change them. Instead of saying "smart contracts", talk about automation and taking humans out of the loop. Point out how email and messaging made the mailman irrelevant. Talk about how a new kind of code is doing the same thing to a lot of what bankers, and some lawyers, and some courts do. Talk about how the code spells out exactly what can and can't happen, for everyone to see, and how there's no more humans involved. Humans that can arbitrarily try to lie to you and steal your money. Humans that subjectively interpret ambiguous laws to create outcomes that you didn't expect. For better or worse, the main stream narrative around crypto is one of fear, uncertainty, and doubt. Throwing a bunch of abstract jargon on top will not help cut through the noise. But tell someone who trusts you how a DeFi lending protocol can be more reliable and predictable than a bank? That is much more likely to trigger interest, questions, and real understanding.

0/ Crypto is held back by too much horizontal thinking. We glorify platforms, instead of highlighting products and use cases. But time and again, its the products that lead to the platforms -- not the other way around. Lets look at the biggest examples from history: 🧵

I love reading original whitepapers because they describe groundbreaking ideas in a world where there were no easy comparisons. True first principles thinking. Understand these 5 concepts and you'll see most of DeFi is forking, remixing, and iterating on these ideas.

0/ With $220B of TVL on the line, bugs in smart contracts are one of the biggest challenges in DeFi. Some projects are way more prepared than others when it comes to protecting their users. 🧵 Here are 5 security practices you should look for when sizing up a project.

0/ Come closer, DeFi padawan. As a wise anon once said: "to understand DeFi, understand @CurveFinance you must" 🧵 Let's travel up the learning curve and see what all the fuss around CRV, veCRV, and the Curve Wars is all about. 🧵

I have a zero knowledge joke that I can prove is funny without telling you what it is.

NFTs are the ICOs of 2021

Decentralized exchanges have been core to DeFi since the very beginning. But why are there so many? and how are different from each other? If you're looking for innovation of in DeFi, look no further than the evolution of DEXes. 🧵 Here's your map of the Cambrian DEXplosion

Ethereum is freedom.

1/ The @fraxfinance team just launched the Borrow AMM (the BAMM) Just another forked lending market? Nope. There’s way more going on here than most realize. The BAMM allows borrowing, but doesn't liquidate borrowers based on price changes. How does that even make sense? 🧵

Ethereum is: #1 in total value secured (see @ultrasoundmoney) #1 in stablecoins (see @stablepulse) #1 in DeFi TVL (see @DefiLlama) #1 in NFT issuance and royalty revenue (see @nftpulseorg) #1 in RWAs (see @RWA_xyz) Now imagine what would happen if the ecosystem and community actually leaned into its strengths.

Ethereum is the obvious choice is issuing multi-billion dollar assets. Even the LLMs get it.

Check out a preview release of our @ElectricCapital Crypto Market Map, where we map out hundreds of projects and companies in the crypto ecosystem: electriccapital.com/crypto_m… We want this to be a shared resource for the community, so feedback is welcome!

1/ I'm excited to share a brand new version of our Crypto Market Map, now including over 700 projects and companies! We've added over 200 entries, mostly in the Applications, Dev Infrastructure, and Financial Services categories. Download here: electriccapital.com/crypto_m…

DeFi learners, ICYMI, my 3-part series on @CurveFinance and the Curve Wars is now complete. Part 1: Understanding Curve nitter.app/puntium/status/1501374… Part 2: veCRV and the Curve Wars nitter.app/puntium/status/1503859… Part 3: The Curve Stablecoin Wars

1/ Standardized Tokens The ERC20 standard defines how shadowy super coders can invent new types of tokens that are compatible with DeFi apps. Read the original Ethereum Improvement Proposal from 2015: eips.ethereum.org/EIPS/eip-2… This API standard powers the entire token ecosystem.

BTC is for people who want to exit the system. ETH is for people who want to upgrade the system.

Defi code is launched into the most adversarial of environments. Non-stop attacks from financially motivated actors. It's damn hard to get right. But what comes out the other side will also be the most resilient and valuable code ever written.

Despite working with DeFi teams for the last 5 years, I think onchain finance is a better name for whats happening. Decentralization is an important substrate, the real pull is the increase in utility and value when an asset comes onchain turns into a money lego. Whether an asset is blockchain-native or a real-world asset will matter less and less. Eventually most ledgers will move onto blockchains, but that will take time and there is tons of value to be created in the meantime.

ETH 2x'ing from here would make me so much happier than BTC 2x'ing from here. Both are real things, but Ethereum really needs to exist for the future good of the world. And it'll show that there is more than one coin that matters -- which opens the door for everyone else.

First it was NoSQL, then it was NoCode, and now it's NoOffice

5/ Automated Investment Strategies @yearn showed how to create automated investment strategies that simplify DeFi investing down to a simple deposit @AndreCronjeTech's medium post describing yearn v2 "vaults" medium.com/iearn/yearn-finan…

This is one of the most fascinating graphics in DeFi right now. The portfolio breakdown of bluechip USD yield (@TokemakXYZ's autoUSD) that auto-rebalances and optimizes multiple times a day. Interesting to see @CurveFinance taking up the top spots.

If you're one of the world's largest asset issuers, and you want to issue ~$3B of assets, which chain do you do it on? The answer is Ethereum. And not only that, the answer is increasingly Ethereum over time.

0/ So many people getting into DeFi — almost a million people have seen my starter thread over the last 6 weeks. But DeFi is way bigger than one thread. So let’s go deeper. 🧵 Here are the next 5 concepts you should learn in DeFI 🧵

Eth people don't talk about this much, but every time tokenomics have been upgraded, disinflation has actually accelerated. Eth has the lowest annual inflation of any major chain. Yes it can be changed but the last 10 years shows that this is a good thing.

ETH has been compared to: 1. a SoV like gold or silver 2. a commodity like oil 3. a nation with its own economy and currency 4. a global settlement layer for global finance So which is it? New tech blurs old categories. ETH can be all of these at the same time.

The real innovation of crypto isn't tokenization -- it's assetization. Assets have been always expensive to create. They either need to be physical goods, or have complex ownership, accounting, and payment structures to make them trustworthy and useful. Crypto makes the costs of creating an asset go to zero. Ownership, transfers, accounting, payments are all built into the platform. It means you can create an asset like bitcoin which rises to challenge conventional monetary theory. It means anyone can create a memecoin which captures a cultural moment and forms communities at internet speed. The arc of technology shows us that when the cost of something goes to zero, it unlocks a long tail of new possibilities that forces us to rethink everything that came before. I'm more excited than ever to see what kind of weird assets we create next.

Everybody likes to say that adoption will come when the UX gets better. But there are tons of examples of world-changing products that had terrible UXs to start. Let's go down memory lane to find some examples: #1 Dial Up Internet - To connect to the internet, you had to launch a specific program to engage your modem. - The modem took 30-60 seconds to connect. - It took over the one shared land line you had in your house. If someone accidentally picked up, it was game over. - Speeds were painfully slow: the best modems had about 7 KBps down and 3.5 KBps up. Images took 10-30 seconds to download. A single song took 30-45 minutes. - Everyone suffered through it because they wanted to be online. #2 Text-based email - When I was in college, this is how everyone used email. - You walk up to an internet kiosk, log into the email server through telnet, and run pine. - Only the super savvy knew how to send images or attachments. - Only pine editing pros knew how to do seemingly basic things like properly flow text in the emails. - But everyone muddled through because being able to send messages instantly was so novel and valuable. #3 T9 SMS - Early cellphones had only number pads as input. - Users had to press digits repeatedly for each character of input, or deal with a terrible prediction system. - It was so clunky that it gave rise 2 abrvtd sms speak 2 save chars - And yet millions of people learned how to use it because instant mobile messaging was so useful. #4 MS-DOS and First PCs - Early PCs were so primitive that all you got after boot was a text prompt. - Everyone had to learn arcane commands to get anything done. - Configuration was done through editing cryptic files like autoexec.bat and config.sys - And yet a computing device that you could bring home was so useful that millions of people learned these clunky commands. --- Of course, better UX allows more and more people to access a technology and grow adoption. But time and time again, the most useful technologies often see widespread adoption despite extremely clunky interfaces. If you don't have PMF, then even the best UX will not save you. If you do have PMF then even terrible early UXs can be overcome. So beware and think hard the next time you hear someone say "oh we just need better UX"

2/ Synthetic stablecoins @MakerDAO showed how to create stable, dollar-pegged, synthetic tokens using volatile assets as backing collateral. The original whitepaper from 2017: makerdao.com/whitepaper/Dai-…

Last cycle's token designs rewarded short-term thinking and attracted short-term thinkers. It’s no surprise that most communities did not survive. This cycle, protocols can do better. Here are three core ideas that almost every protocol can implement : 1. Reward long-term commitment. Create ways for users to express their loyalty. Let the most loyal members participate in important decisions. You don’t get real community without real commitment. 2. Adopt a fast iteration model. As markets shift and more data emerges, adjust incentives accordingly. Incentive seasons and point systems can offer the flexibility for iteration. 3. Empower the community. Ask the community to decide partnerships and direct incentives. Gauges are only the beginning; more innovative designs are yet to come. Devs have been in goblin mode, heads down and building for the last 18 months. But as we head into launch season, beware of copy pasta tokenomics from the last cycle. Turning new users into dedicated, engaged community members is the only way we graduate from the 4 year cycle into the supercycle.

3.1/ @CurveFinance showed that if you focus on automated market making for like-priced assets, then you can realize both pricing and capital efficiency. Curve's whitepaper from 2019, describing "StableSwaps": curve.fi/files/stableswap-pa…

3/ Automated markets @Uniswap showed how to create always-on, 24/7 trading markets based on a simple pricing algorithm and user-provided market-making capital. The original Uniswap whitepaper: hackmd.io/@HaydenAdams/HJ9jL…

A lot of founders I meet seem bummed that defi and is no longer the meta like it was in defi summer. Sure, it's not the shiny new thing anymore, but this sells defi way too short. This cycle defi will underlie ALL the metas. So far we've seen restaking, ethena-like structured products, and memecoins. All these metas (metae?) drive TVL and volume in the defi protocols that support them. Defi has matured to become the defacto financial infra for crypto-native activity and so it benefits from the growth of the whole ecosystem in much the same way the base layer tokens do. You don't win real game by trying to constantly be the shiny new object. You win by becoming essential and irreplaceable for the entire industry.

4/ Automated Lending @compoundfinance and @AaveAave show how similar automated markets can let anyone be a borrower or lender. Compound whitepaper from 2019: compound.finance/documents/C… Aave whitepaper from 2020: github.com/aave/aave-protoco…

0/ Now that all the TVL and liquidity mining games have exited the scene, it's time to talk about DeFi tokenomics that actually work. 🧵 Read on below to learn about PCV, and why it's the one concept that will help you understand the future of sustainable tokenomics.

0/ On-chain data gives us unprecedented visibility into the inner workings of DeFi. If you learn to look in the right places, you will see market shifts unfolding in real time. 🧵 Here are 5 charts of Curve pools that tell the recent story around stablecoins 👇

Ethereum is about to turn 10 years old. 10 years in, bitcoin's annual inflation rate was ~4%. In the 2.5 years since the merge, Ethereum's annualized inflation rate is 0.06%

0/ New to web3 and feeling overwhelmed? Everyone telling you DO YOUR OWN RESEARCH, but don't know where to start? A 🧵 on strategies I use every day as an investor to cut through the noise and find the best projects 👇

Status check. Since the Merge (Sep 15 2022): ETH supply: 120.52M > 120.81M. 0.24% total growth. +0.09% annualized. BTC supply: 19.15M > 19.87M. 3.75% total growth. +1.38% annualized. The merge+burn works. Fight FUD with data.

RWAs are the new meta in DeFi, but not all RWAs are the same. The real question you should ask: who is going to hold these new assets and why? RWAs that want to access cheap DeFi capital face an adverse selection problem. If they were easy assets to fund, then tradfi would have funded them. Will DeFi holders really want to hold these RWAs that tradfi has deemed as too risky? For many potential holders, accessing high quality RWAs through tradfi rails is simpler and less risky. Especially if the KYC and tax requirements are effectively the same. Why hold an onchain t-bill when you can redeem your USDC and go buy a t-bill from your broker? Someday, DeFi will offer a broad toolset of services to plug RWA assets into. In this world, a tokenized RWA will have higher utility than the off-chain version. I am excited for that day as much as anyone, but we have much to build before that day comes. Today, the biggest potential buyers of RWAs are entities that hold value onchain, but have no easy way to access off-chain yield. Maybe they are protocols that hold dollars but don't have an easy to buy tradfi assets. Or maybe these are individuals that don't have easy access to off-chain yield opportunities in their jurisdictions. There are likely billions of dollars onchain held by these entities, but their requirements and risk appetites are going to be very specific. In the near term, only the RWAs that enable access to these holders and offer the appropriate risk profiles will have natural buyers in the market. Who is holding value that is stuck onchain? And what will they want to buy?

ETH becomes more valuable => Ethereum becomes more secure => More assets are secured by Ethereum => ETH becomes more valuable

Ethereans need to get better at retweeting. The only way we win is to show everyone every day that the community is here and going strong. @ethereum starting to retweet projects is a huge start. But it can't be just one central account. If a bunch of people in a dark forest come to strong social consensus but never say a word about it, does the consensus exist at all?

We need to talk more about this Ethereum Pectra upgrade. No more token approvals mean actions will take less than half as long to complete, and no more confusing dialogs. For many users, this will be much greater gain than reducing block times. UX is also part of "scaling".

1/ #DeFi's true superpower is atomic transactions, not decentralization. Want to borrow money, do a series of trades, net a profit, and return what you borrowed with the guarantee that prices don't move underneath you during the process? #DeFi is the only place you can do this.

Without major upgrades to DeFi, RWAs will fail. RWAs are shaking up the token landscape but creating new types of assets that go beyond today's ERC20's or ERC721's. These assets have yield, durations, maturities, possibility of default, kyc restrictions, and more. They won't be able to just plug into today's DeFi. For RWA's to thrive on chain, we need new DeFi protocols that can handle these new types of tokens. I've been thinking about open design questions in four different areas: 1. Spot Markets - How do you build a marketplace that cleanly handles many different asset types with different properties? - How do you handle liquidity fragmentation across these assets? - Can you even have a unified market place interface, or will each vertical require custom experiences? - Can this trading happen on L1's or will we need to use L2's / zk rollups / higher throughput chains? - Can effective AMMs be built around these assets, or do we need more intent/order book-style approaches. 2. Lending - How do we build oracles around these assets? or will we need to use oracle-less designs? - How do liquidations work, especially if not everyone can take ownership of the asset due to kyc restrictions. - How are off-chain defaults handled when RWA's are used for lending collateral? How do lending market risk models need to account for possibility of underlying assets suddenly going to zero? - How do protocols underwrite LTV ratios? - If borrowers are KYC'ed, does that open up possibilities for un-secured or under-secured credit? 3. Indexes - Will more users maintain exposure to RWAs directly, or through portfolio products? - Maintaining a portfolio of RWAs is much more involved than holding a basket of ERC20s. What kind of execution primitives do we need to maintain these portfolios? - Will L1's be too expensive to maintain these portfolios? - How will the baskets be defined, and who curates the assets? 4. Derivatives - Will we see the same types of derivatives that we see off-chain? MBS's? CDO's? credit swaps? - What does the "liquid staking token" of RWAs look like? - What do futures/options markets on RWAs look like? Will these have more PMF as they might enable more conventional TradFi hedging functions? -- Lots of open questions means lots of opportunity and lots to build. It may seem daunting, but this is how we bring the world's assets onchain.

If you believe in Ethereum and what it stands for, then you have to own ETH. It is the only enshrined asset in what will be the world's largest digital economy. If you own ETH then you get to decide what Ethereum becomes.

0/ @a16z's crypto team just put out an amazing State of Crypto 2022 report. 🧵👇 3 highlights for me as someone focused on DeFi

Products don't win by having the best tech. They win by having good enough tech and unlocking network effects first.

Saying NFTs have no value because you can copy the jpeg is like saying BTC has no value because I can fork the blockchain. Both have value because they capture social consensus.

In the physical realm, we resolve conflicts through force. In the digital realm, we resolve conflicts through forks.

Ethereum’s real moat isn’t “first-mover tech.” It’s a $100B+ pool of permissionless capital that only decentralization can unlock. DeFi’s breakthrough wasn’t lower fees; it was borderless capital. New projects, yield vaults, and tokenized RWAs plug in because that capital is already on-chain. Capital chases security. The more decentralized the chain, the smaller the trust assumption—and the deeper the capital stack willing to settle there. High-TPS chains that dial down decentralization may win transactions, but they surrender the balance sheet. Throughput can be copied; Lindy capital cannot.

When it comes to rebuilding global finance, Ethereum is still the only choice. Serious finance is all about pricing risk. In the modern era, the United States, with its strong regulations, strong property rights, and strong rule-of-law became the best platform for conducting global finance. The US built mechanisms that reduced key risks and made it more efficient to do business. The only reason blockchains matter in finance is because they reduce or eliminate risk, even beyond our current system. Cryptographic custody reduces the risk of someone running off with your money. Immutable and transparent contracts reduce the risk of someone doing something with your assets that’s not what you signed up for. Scaled consensus means that it is prohibitively expensive to change the core rules of the system. Decentralized networks reduce the risk of a platform you depend on going offline. When viewed from this perspective, Ethereum is the only chain that leads in all these properties that matter. 1) it has proven cryptography that has never been broken 2) it has an established culture of transparent and open source contracts and the deepest stack of security tooling 3) it has the largest validator set and prioritizes decentralization 4) it has the longest track record of successful operation with zero downtime while securing the most assets 5) it has survived multiple market downturns with serious pressures on liquidation systems and unwinding 6) it has the most established, distributed governance structure with many competing interests pushing the network in different directions Other chains may have compromised on some of these dimensions to make it easier to trade memecoins or move quickly. Many of those chains have also shown that things can be better on other dimensions – community support, developer support, advocacy, UX, and those are things that Ethereum can and should incorporate as well. But no other chain so far has built the proven foundations of a system that can be credibly positioned as better than the existing US-centric system. And as long as other chains do not focus and prioritize on these fundamentals, this will continue to be the case.

0/ Vote locking is a key advance in tokenomic design on par with liquidity mining. "ve-mechanics" will be adopted by all protocols with a governance token. 🧵What is vote locking? read on to get ahead of the curve🧵

The big lesson with Ethereum is that it was never really about the fees. EIP1559 was a way to counteract the inflation caused by the switch to PoS. A way to address the future issue of an ongoing security budget (that even Bitcoin has no answer for). Instead it got misconstrued as a revenue metric. A basis for fundamental valuation as if ETH were a company. No SoV is valued this way. Any established SoV has a valuation that is many times beyond what any reasonable price-to-revenue model would expect. Thankfully, this doesn't mean that ETH is now a bad SoV. We just have to collectively acknowledge that ETH as an SoV is not just about how much we tax transactions to fund a security budget. It's about growing the community, adoption, developers, and use cases. It is as much of a social phenomenon than it is an economic one.

DeFi moves fast. A summary of recent observations, for those new to the space or looking to catch up. (A thread, mostly focused on lending). ⬇️

0/ As I've watched DeFi over the last 5 years, it's become clear that Gauges are one of the foundational governance innovations to emerge from the last market cycle. Here's a primer on Gauges: how they improve governance and drive real economic value 🧵

us: check out this bitcoin thing. it's a perfect sov asset with a perfectly predictable disinflation curve them: but wait, how can it have value if it doesn't have any real use case? even gold has some real use cases. us: no no, that doesn't matter, as long as the supply is predictable and everything else is inflationary them: what about this ethereum thing? looks like it has a lower inflation rate, and people spent $2.5B of it last year to do stuff. us: no no, that's not good enough. 🙃

8/ It will take decades to rebuild financial infra that has been around for centuries. As the hype fades, what wins in the market will be real utility, real economics, and real communities. If you're looking to build something real, this is the ideal market to build into.

Is going back to FAANG after working in crypto like choosing to re-enter the matrix?

Did you know the maximum annual issuance rate for ETH is ~1.52 %? And it keeps falling: when the supply reaches 130M, the it will drop to ~1.45 %. After fee burn, the issuance is even lower. For comparison, BTC at the same age inflated at 3.6%. We’re way ahead of schedule.

1/ As the DeFi pot grows, so too will attacks. DeFi needs better risk management to avoid catastrophic setbacks. We drafted an idea called Guarded Launches: a set of best practices to get to mainnet quickly while keeping control of risk and scale. medium.com/electric-capital/… 👇

DeFi does to the financial industry what Open Source did to the software industry.

Today is a reminder that each dollar in your bank account is basically a stablecoin issued by that bank.

Like threads like this? Follow me at @puntium to keep learning about DeFi and web3. In a future installment, I'll go through newer projects that are building a new set of essential money legos.

At some point I'll write about the crazy ride that has been the last 4.5 years. For now, just a huge 🙏🙇🏻‍♂️🙏 to my @ElectricCapital family, and all the founders and teams I have the rare privilege of working with. It's their collective effort that makes any of this possible.

One thing that annoys me is when crypto people complain about everyone else in crypto being so short-term minded. The vast majority of tokenomics we see in the market reward short-term players. Deposit to earn X%. Stake to earn Y%. Withdraw whenever you want with no restrictions to farm the next thing. If we only build short-term games, then only short-term players will show up. We need to build more ways for long-term players to express their long-term views and earn long-term rewards. Mechanics like vote escrow are the first step to this future. We can upgrade from communities from everyone just yelling HODL! at each other to people actually putting their money where their mouth is through onchain commitments. I recently shared this drawing with founders that I work with. One of the more fascinating aspects of the crypto ecosystem is how the ratio of long-term and short-term thinkers shift depending on the part of the market cycle. In the depths of the bear, the % of long-term thinkers are at the highest. Anyone who has attended both bull and bear market conferences can feel this viscerally. Right now, there are long-term thinkers around us everywhere. To everyone working on tokenomics: make sure you're designing to attract the long-term players. They will be your strongest community members through all the ups and downs. A large community of long-term aligned participants is one of the strongest moats. And make sure they are rewarded for their commitment. It might seem obvious, but if you don't, then you are essentially saying short-term and long-term people are the same to your community. Why would any long-term player join and support such a community?

ETH will always be the most censorship-resistant asset on Ethereum. Dollars will have their place (especially in a dollar-dominated global trade world), but they will never achieve the same status and guarantees as ETH.

Is it inevitable that all major dapps will have their own chains?

ETH is ultra sound money. DOGE is ultra hound money.

1/ Interesting times ahead in #defi land with the Maker stability fee dropping to 5.5%. As of today borrowing either USDC or DAI on @compoundfinance is more expensive than minting it yourself directly with a CDP. Two interesting trends to keep an eye on:

With @TokemakXYZ passing 25M TVL in its first week, let's discuss why rebalancing vaults matter for DeFi's future. Rebalancing vaults solve problems for both LPs and market users. Optimal LPing is increasingly difficult DeFi teams have continued building during the bear market. We now have a vast array of vaults and pools for asset deposits. Back then, LPs only had to check a few protocols like Aave or Compound for deposits. Today, there are dozens of options with rates changing every block. Yield optimization is now complex, involving historical rates, gas fees, slippage, and pool sizes. Rebalancing vaults simplify this. They build on ideas from protocols like @yearnfi, but spread liquidity across DeFi using fancy optimization math. This means better yield for LPs. But here's the cool part: better allocation also helps DeFi service users. Misallocated LP hurts users Traders and borrowers need liquidity. High demand for an asset usually means a liquidity premium, often expressed as LP yield in DeFi. Until now, LPs allocated assets inefficiently. With thousands of LPs acting independently with varying levels of sophistication, this isn't surprising. I've heard estimates of 20-50% of onchain TVL being misallocated. Misallocation means poor liquidity for for the actions that users want to take most, and ultimately, bad experiences. Automating liquidity is key Rebalancing vaults help both LPs and users by moving TVL where it's needed. As an example, this is why Tokemak built the balETH vault. For @Balancer, ETH that moves quickly to the pools where it is most in demand is much more valuable than slow, manually managed ETH. In the future, most AMM LP will likely be managed this way. This could also extend to lending and other yield opportunities, and possibly even entire chain ecosystems. If successful, this automation could make existing TVL 25-100% more effective. LPs want rebalancing vaults for higher yields. Apps, protocols, and ecosystems want them for efficient liquidity and better user experiences. Win-win.

Here's a question: what does the "stable" in stablecoin mean? What if you could create a medium of account that was even more stable than USD? @fraxfinance's FPI will be one of the most fascinating DeFi experiments yet. A more stable stablecoin.

0/ In the last cycle, we showed that DeFi was possible. In the coming cycle, we will show that DeFi is useable and valuable. But we're not there yet. Here are 7 open questions that we need to answer before DeFi can reach mass adoption 🧵

The 2022 Developer Report is out! This is a MASSIVE effort every year to put this together, and this year it's especially amazing to also see so many community contributors. Read on to see how development activity has evolved through the 2022 crypto cycle 👇

Have friends who are just getting into DeFi and should read this? Go back to the top and like+retweet to make sure they'll see it.

Congrats to the @TokemakXYZ team for hitting 10m deposits in autoUSD in the first 5 days. Truly one-of-a-kind, set-it-and-forget-it bluechip dollar yield product right now.

DeFi products need to do two things to succeed: 1) Create markets or access to new kinds of risk 2) Minimize the friction to earn from funding that risk The @term_labs team has built the most successful fixed rate lending protocol to date with over 230M in loans originated to date, so they have #1 in the bag. But no one will disagree that the Term market requires a lot of know-how to access. Fixed term lending markets represent more layers of risk than the variable rate ones, and Term's auction structure means you have to routinely take actions in the protocol to maintain exposure. That all changes with this announcement. With strategy vaults, anyone can now get exposure to this new market in the same way that you can deposit into any other yield strategy on chain. The growth of the Term market has been constrained on the lender side since the beginning. Cumulatively, there have been 33% more bids (requests to borrow) than offers (requests to lend). And this is an under-representation because borrowers will not bid in the market where they do not see enough lending liquidity. Vaults allow Term to complete the picture and access the growing pool of onchain, passive, yield-seeking capital. Super excited to see this in the wild!

They’re the ones that actually challenge the current system.

1/ What happens when one bank is lending to you and charging ~9% (@compoundfinance) and suddenly another bank (@MakerDAO) will lend you the same stuff for 5.5%? You pay back your loan and switch. You can see below a bunch of repayments of Compound loans...

If you have to use "crypto" or "blockchain" to explain your product, then you've already lost 90% of your potential audience.

6/ PCV-raising bonds Despite all the controversy, @OlympusDAO showed us that new PCV-building mechanisms were possible. It inspired an entire generation of clones as well as the ubiquitous (3,3) meme. olympusdao.medium.com/introd…

Being at the bitcoin conference made me realize that Bitcoin vibes are 85% memetic and 15% builder. Most Ethereum conferences I've been to are 15% memetic and 85% builder. Both communities have something to learn from each other.

My gut reaction to @VitalikButerin's comment is: "doesn't that describe all of finance?" Most of finance is about people expressing their views of the future through various instruments and then a ton of mechanisms to move that around and create markets for people who want to take opposing views. In terms of structural advantages, I'd argue that DeFi, through blockchains, has a major one: trustlessness allows more capital in the world to participate in financial opportunities that they couldn't access until now. The kind of passive capital you see in DeFi proving market liquidity or lending liquidity -- I'd wager that for many DeFi users, these types of opportunities are difficult to access outside of blockchains, whereas automated markets make it almost trivial. As more RWAs come onboard, these opportunities are going to overlap more and more with tradfi does today. Yes, in 2020, the food token thing was ultimately not super productive in terms of the tokens themselves, but there were tons of secondary effects -- testing spot markets, testing liquidation systems, testing what happens when the chain gets congested, validating demand for the explosion of blockspace we see today, among other positive effects. New platforms often reach the mainstream through what many see initially as toy use cases. These platforms get enough traction to derisk the new technology at play, which opens the way for mainstream adoption. It's hard not to see DeFi today as going through this same process.

bitcoiners: everything else is a scam ethereans: lol bitcoin maxis. everything else is a scam rest of crypto: lol bitcoin maxis and ethereum maxis. rest of world: a smart what?