B2C0038: Closing Out Another Year of Digitization (w/ Jeff Dorman)
Jeff Dorman once again joins Peter on this week's Between2Chains to reflect on the Digital Asset Industry over the past year. They also discuss what could happen in the Digital Asset Industry in the final week of 2022.
Jeff Dorman once again joins Peter on this week's Between2Chains to reflect on the Digital Asset Industry over the past year. They also discuss what could happen in the Digital Asset Industry in the final week of 2022.
IN THIS EPISODE:
NOTE: Following transcript is generated using AI. Minor errors might be present.
REAL VISION 00:00
Welcome to the real vision Podcast Network.
REAL VISION 00:08
Before we get going, we want to remind you that Jeff Dorman is the co founder and chief investment officer of ARCA funds. And Peter Hans is ARCA funds managing director. The commentary and opinions expressed in this podcast are solely those of the podcast participants and do not necessarily reflect the opinions of our funds or its affiliates and are subject to change for any reason without notice. Any discussion of investments or investment strategies within this podcast are for informational purposes only and not to be construed as a recommendation to buy or sell any particular investment security, digital asset or strategy. Investing in digital assets involves a high degree of risk and volatility including the risk of the total loss of principal and now enjoy the show with your host Peter Hans.
PETER HANS 01:04
All right, it is December 23. Jeff, how are you? Welcome to between 2 chains. Sounds Scary.
JEFF DORMAN 01:13
Yes back in action because you and I to and the year strong.
PETER HANS 01:18
I am. I feel great. My voice sounds horrible. So I apologize. My kids have been home from school. So there's been a lot of screaming going on. No, joking. That's not why I lost my voice it just swollen lymph nodes. I think from my booster shot.
JEFF DORMAN 01:36
I think I can speak I think I can speak for all the listeners here were after a banner year in digital assets. We could all you know, be happy to take it in at the end of the year here into the holidays with your sexy raspy voice. So I think I think everyone's appreciative of what you've done this year and how you sound right now. So bring us on.
PETER HANS 01:55
I certainly was not expecting you to call my voice sexy. Okay. I'll take it. Take it. Maybe I'll break out into song towards the end of this. I could be like the guy from boys to managers talks.
JEFF DORMAN 02:05
Yeah, I think everybody under 57 definitely understand your voice within reference.
PETER HANS 02:12
It's a classic man. All right, let's, you know, we're coming up on year. And this is our last episode of the calendar year. And maybe of season one, although that seems somewhat arbitrary to me. Let's go with the last episode of season one. So let's bring us home. It's been a great year. You know, not without its drama, and volatility, of course. But that's what makes it makes it fun. Let's let's just recap a little bit. You know, what, in your mind, you know, were some of the big things that surprised you to the, you know, both the upside and the downside this year?
JEFF DORMAN 02:47
Sure. Yeah. You know, I think you know, you and everyone else knows we're very big on thematic investing, we're very big on, you know, trying to pinpoint exactly why things work, not just that they did work right in. And you know, I think last year, we talked about our 2022 predictions. But if you go back a year ago, you know, when we first went out in January 2021, with some of our predictions, we identified a couple of them. You know, one of them was a big rise in NFT's and gaming. Another was a big rise of the digitization of the fan experience, which has now become you know, it's more like social tokens, but it's definitely a big driver, you know, as well as the growth of certain areas of web 3.0, especially around data storage, like our we've and around you know, certain other areas, like for instance, helium, and, you know, live here with media and telecom. So we're always looking for those themes. What I think is interesting now that we've had the whole year behind us, and we look back as you can actually see, the scoreboard right, the price of these tokens largely being the scoreboard so when you sort you know, I use my sorry, for my screener, but when you sort your to date returns, you know, of the top 10 or 20 tokens have the highest returns, and these are not small returns, you're talking, you know, the 10th best return this year was up 9,000% And the best return was up 46,000%. Right. So these are some big movements. But it's largely came from two themes. It came from gaming and NFT's, you know, golla sandbox Axie inifiniti being some of the biggest drivers of returns in the gaming space. And it came from, you know, layer ones and to some extent layer twos, you know, the biggest winners there being polygon or Matic for those looking at the ticker, Terra Luna, phantom, Solana, you know, neither of these are entirely surprising. You know, those were the two themes that a lot of people identified a year ago as being real strength, right for gaming, NFT's it's the most natural use case of blockchain and a lot of people's opinions. And also obviously, Axie inifiniti coming out with the play to earn model. And then, you know, for layer ones blockchains I mean, this is this goes back to kind of the core thesis of a lot of people digital assets, which is that, you know, Bitcoin was an awesome starting point for how to have a blockchain based asset but it was very, you know, limited in its use case, ethereum came along next, which kind of opened the door to what smart contracts and you know, what could be built upon a blockchain application. And then the theme coming into this year was, it's probably not going to end just there, there's, we're going to head towards a multi chain world. And to get to a multi chain world, you have to build out these different chains and these ecosystems, and that's exactly what's happened. So it's, it's, again, it's, there's always going to be a few surprises here and there. Like, for instance, I have no idea why Dogecoin was up as much as it was this year, you know, I don't follow, it's actually funny, I'm looking at the list right now, as we're talking, there's, there's, you know, 10, or 20 tokens in the biggest winners of this year, that I've never even heard of. So it's not like, you know, everything can be fully explained by themes or by adoption. But, you know, a lot of it can be, and, you know, I think that is a, you know, a really important takeaway heading into next year, is if you can identify these themes, and you can withstand some of the volatility, there's a lot of money to be made as an investor.
PETER HANS 05:57
Well, let's stay on the, you know, the theme topic. And obviously, there's, you know, different names that were winners, you know, and obviously, you know, losers, whether outright or on on a relative basis, you know, but one of the things that always really interests me is, is, you know, what are the various use cases for blockchain or digital assets are? Or what are tangible ways in which it's impacting, or, you know, really having an effect on on, you know, different sectors of the economy, right. So, you know, gaming and NFTs was certainly a big one this year, you know, what, what are some of the ones that, you know, kind of, you look at the dramatically, that, you know, you were, you were either impressed by, or really kind of took you by surprise, at least in magnitude.
JEFF DORMAN 06:44
Sure. So, you know, in a very simple way, there's really only been three successful applications of blockchain to date. The first has been decentralized finance, you know, there's pockets of DeFi, that are doing more than others, of course, you know, defy sort of a broad term, you know, in my world, I break down defy into asset management, insurance, lending, and borrowing, and decentralized trading. But there'll be more parts of DeFi as well, you know, pretty soon there'll be on chain, a real world loans, there'll be structured products, etc. But for the most part, you know, DeFi as a whole was the first real successful application on blockchain. And I think we haven't even scratched the surface of where that can be headed. In fact, I was actually reading reading an interesting report written by a third party recently on curve. And the whole premise of curve had, it was trying to figure out what curve was worth. But what it really boiled down to is, everything's worth a lot more, if you believe in that defy is going to take over every other asset class, meaning, you know, we're talking about a couple 100 billion of TVL in all of DeFi as if that's really exciting. And of course, it is because it's up from you know, we went from like 10 billion of TVL to 200 plus billion to TV on a year, that's pretty impressive. But if you actually look at the just sheer amount of daily transactions that go through money markets, they go through the FX markets, they go through equity and fiAxied income markets, it's an insane amount of transactions that go through the traditional finance world that only make a dip or two, you know, basis point or two here and there in terms of fees. But the sheer volume of these transactions is enormous, like we haven't seen that yet, right? Either because of high eath gas fees, or because of just you know, lack of adoption, you know, we've seen TVL grow, we haven't seen the transactions really grow yet. So going back to curve, and when I was reading this report, the whole point of the report was, you know, curve is doing a couple 100 billion of volume today, they're going to be doing in the 10s of trillions at some point when this really takes off. And that growth potential alone, you don't have to have high fee generation or high revenue generation when you have just enormous volume growth. So I think DeFi from a theme, you know, it's been huge as an application, but we haven't even scratched the surface yet in terms of how big this can be when every you know, every trade eventually goes through a Dex back end protocol. And every you know, banking application eventually goes through a lending, borrowing decentralized protocol, and every insurance is basically just reinsurance on top of some sort of a decentralized protocol. So the volumes are just going to skyrocket and whether or not that translates into a price action in DeFi coins remains to be seen, right? You know, DeFi has been largely in a bear market for the last 10 months, even though the adoption has gone up at some point that reverses in fact, you're starting to see it a little bit already in the last couple of weeks here with with some big winners here in sushi and other and some others and curve as well. I think the second application has been obviously gaming and NFT's gaming entities as we said the most natural use case of blockchain it just it's very easy to identify why you'd want to turn your sweat equity and your time from playing games into actual equity by owning the end game assets. That one's been a little more interesting, right? Because there's a lot of hype now. But there's not a lot of games, right? There's a lot of games being built. There's not a lot of live games, right? Actually inifiniti is still dominating in terms of actual gameplay. Everything else is you know, largely, you know, 30 admitted are 30 You know 32nd hype video about a game that is coming or about an NFT project that is coming. But you know you can see the groundwork being laid right you can anything from NFT transaction volumes to the growth of opensea to you know how fast Axie inifiniti got to 2 million monthly active users, etc. This is going to continue to be big. And it's pretty obvious at this point, you know, whether it's Facebook, changing its name to meta and getting involved in Metaverse or, you know, a land sales on alluvium or, or, you know, some of the ecosystem built on sandbox like it's coming and it's going to be a big usage of blockchain. And then the third and probably the most underappreciated is just a growth in stable coins. Right. Obviously, Bitcoin was built to be a medium of exchange and a store of value, but it's not really used that way, right are certainly not used as a medium of exchange. But stable coins are stable coins went from a couple billion to I think 150 billion now outstanding between tether USDC. Now UST as part of the Terra Luna ecosystem, even dow, you know, as part of the maker Dow system, this has been a massive growth of transactions and a shift from everything being Bitcoin based to now being stable coin base. And that is a huge, huge, huge win for blockchain, right and shout out to guys like masari and the block who have written really extensive reports, I suggest everybody reach out to those companies or get a hand on those report if you can. But some of the graphs and charts that they've put in there showing the growth of stable coins and the growth of transactions, it's mind blowing. And again, we're not even close to what this will look like when you actually start to get real adoption from banks and brokerages and individuals around the world. So those three alone have been just huge wins for anybody who's been betting on the growth of blockchain. And then you sit back and say, Well, you know, where do you go from here? And that's where, you know, the fun starts from an investor is thinking about, you know, what's next, you had three major somatic wins in terms of those applications, and there could be hundreds more over the next decade.
PETER HANS 11:54
Yeah, and I don't want to get too much into to predictions, because we've already we've already tackled that. You know, one thing one thing I know that anecdotally that I've noticed a little bit and I don't know if this is just kind of my own perspective, or if it actually is actually true. But um, it seems like this year, there's been less of a, you know, very hard dichotomy between kind of the Bitcoin of Bitcoin maxis, and, you know, and everyone else, and I don't know if that's, you know, just because the mute function on Twitter or because it's, you know, it's actually now kind of widely adopted, that there are real use cases. I mean, I think you even responded to Meltem and Twitter the other day that, you know, she's kind of come around now. And I certainly remember the debate you had with her at, I think, or fo 256 conference a year or so ago. But, you know, and then you also got the Jack Dorsey comments. So what do you what are your thoughts there?
JEFF DORMAN 12:57
So, you know, it's, it's encouraging, when you've been on the right side of something, and others come along, you know, not a victory lap per se, in terms of like trying to go find every tweet or everything we've written that suggests that we were ahead of this, but it's just encouraging that we were right, because us being right was really important for the ecosystem. And what I mean by that was, we've been saying for years, that Bitcoin is a great asset, it is just not the market, it is not all encompassing, it just doesn't matter that much relative to the growth of the market, we've said things like, you know, Bitcoin dominance, by definition has to go down. And that doesn't mean Bitcoin will go down, Bitcoin could end up being a $10 trillion asset one day, and Bitcoin dominance will still go down, because the growth of every other type of digital asset is going to be bigger. And, you know, for a long time, there was a lot of opposition to that idea for a variety of reasons, right? One is that there's a lot of people who have made a lot of money on Bitcoin, and they just, you know, have tunnel vision. And that's all they care about, too, is there's a lot of businesses that were built specifically around the growth of Bitcoin, you know, you mentioned Meltem, but you know, coinshares up until recently, all of their money came from Bitcoin, right? You know, New York, Digg, or they literally have a single product, which is Bitcoin. So, you know, you take people like Anthony Pompliano, Anthony Pompliano has done an amazing job for himself. I think he's a very talented, smart person, but you know, everything he's done has been based on Bitcoin. So there was a real, you know, religious kind of fervor around ensuring that this narrative that Bitcoin is the only important digital asset continued right? Over time, you know, it was obvious that these attitudes would change, right? Because one, some of these companies will realize that they need to introduce other products, some of these people will realize that there's a lot of money and other benefits to being involved in other assets. It was just sort of a natural transition, and we're happy to see it right. There's no sour grapes, there's no you know, I told you, so it's just like, This had to happen. It doesn't if this entire industry was just Bitcoin, this would be the most boring industry in the world. The fact that this has become such a huge thriving industry that is now touching so many different people around the globe and so many different asset classes. Like that's all That's a win for everyone who has been involved in this space and it opens up a lot of doors for more investment opportunities, it involved opens up a lot of doors for more retail participation, you know, in terms of like, think about rewards, for example, right? The richest people in digital assets, if you were not passive or active investors, it was passive. And it was active community members, it was the people who were testing DY DX before it was popular, and all of a sudden got a massive AirDrop, or the people who were playing Axie inifiniti before they even launched a token. And then were gifted all these tokens, you know, the people who were using these DeFi protocols and ended up farming, you know, these rewards? That's awesome, right? And none of that would have happened if bitcoin became the dominant asset. So, you know, sure, there's some saltiness in the sense that there's still some people out there, I guess, who are, you know, just completely tethered to Bitcoin? And you know, Bitcoin said, Okay, a year it's up 60%. But it certainly hasn't kept pace at all with, you know, other assets in this ecosystem. But so I can see why there'd be some saltiness and some people who are, you know, bitter are kind of holding on to the past, but but like I said, independent of price independent, anything else, like it is really important for this industry, that other areas work that we're seeing other, you know, chains work, that we're seeing defy work, that we're seeing gaming entities work, that we're seeing stable coins work, that's huge. And that opens the door up to so many employment opportunities, wealth opportunities, you know, advisory opportunities, like it's just huge, right? We're just you can't put it back in the box at this point, right. This is, this is now a massive, massive industry. And it's exciting to be a part of it.
PETER HANS 16:30
Yeah, and, I totally agree. And look, frankly, I think a lot of it is just, you know, comes down to, you know, it's almost like two sides who just don't hear what the other one is saying, you know, because because we're talking about very, very different things. Right. And, you know, I always remember, you know, when I, when I first started, at least professionally, in this in this asset class with with ARCA, you know, someone talked about, you know, Bitcoin being the best invention, or most most meaningful invention of all time. And my response was, Well, like, Wouldn't it be blockchain? Because, you know, Bitcoin was not a new concept, but blockchain made it possible. And and, you know, and the the other side of the argument to that would be, you know, yes, that's true, but the only reason why blockchain exists is Bitcoin. So there's this, there's this, you know, that that side of the world looks at it is like blockchain exists solely for a completely decentralized currency, right? Something that completely untethered you from any centralized entity, which is why, you know, Jack Dorsey, or whoever's argument is always like, you know, this is not truly decentralized, or web three is not truly decentralized. And, you know, I think you praise it really well, we're like, Well, I think it's binary, right? And, and at the end of the day, like, who really cares, you know, whether what, you know, like, not everything needs to be fully decentralized. You know, I mean, Jack Dorsey started square square is not decentralized. Twitter is not decentralized. Apple is not dissent, like, very few things in the world are descentralised. I mean, I could argue that, you know, Bitcoin is not fully decentralized. I mean, there's public Bitcoin miners, that are centralized entities that have boards, right. So like, it's kind of a slippery slope here. And at the end of the day, you know, we fast forward right when Starbucks tokenizes their rewards program like to look at Bitcoin dominance, relative to the outstanding Starbucks Rewards, like it just seems ridiculous.
JEFF DORMAN 18:26
Yeah, I think I think it's human nature for people to kind of anchor to past beliefs, right. It's very hard. You know, I was actually telling a story to some of the people who work with me here at ARCA, who, you know, don't have necessarily the same kind of background as I have in traditional finance. And like, you know, I'll give you an example like I you know, I was a market maker for a long time in the bond and equity market where, you know, let's say you're completely neutral, you just making a market you're like, you know, I'm gonna, you know, I'm gonna bid for Bitcoin at 49,000 I'm gonna offer Bitcoin at 50,000 I'm completely indifferent. I'm just making a market to earn my spread. If you hit me, I'll be a better seller. If you lift me I'll be a better buyer. You start in different and then what happens you get hit a few times almost when you bought Bitcoin of 49,000 Okay, so I lower my market now I'm 48 and 48 and a half 49 and a half, I get hit again all of a sudden, I know and all of a sudden I'm long Bitcoin Well, I didn't start with any there's no reason for me to be long Bitcoin other than making markets. Now all of a sudden I own it and what happens all of a sudden I'm like, You know what, I kind of like Bitcoin, maybe I should, maybe I should buy more of this. It's pretty good. It's like, Well, that makes no sense right? I started neutral, but all of a sudden, because I started owning it, it changed my psychological perception all of a sudden I started making excuses or making rationales for why I want to own it just because I happen to own and the same thing is true you know, these cognitive biases I know you have a psychology background from from from school as well but like these cognitive biases start to happen. So even if you start completely impartial or you start in, you know, this, this open minded educational front, inevitably where your path heads will start to dictate how you feel about things. And I think a lot of people kind of just went down that Bitcoin rabbit hole and just haven't been able to get out. You know, in some ways, I admire some of these people who are so who believes so strongly in one thing, because like I sometimes joke I wish I was, I wish I felt as strongly about anything as some of these people feel about Bigfoot. But on the other hand, it's like, just open your eyes, right? There's just so much happening going on. And it's it's just seems to me to be so much more beneficial right now to be open minded. Now, that doesn't mean you have to agree with everything. There's tons of things that I don't agree with another instance of things you don't agree with. But it's very rare that I'll ever be like, that is dumb, or that doesn't make sense. Or, you know, no way will that work. Because I've just learned over, you know, two decades of doing this, that there's a lot of people I went out there that are way smarter than me who know way more than me. And just because I don't see it right away, doesn't mean it won't work. And I think, you know, again, hats off to people that you mentioned, like a, you know, like a Meltem, or like, some others who are starting to now come around to what else is out there. I think the ability to change your mind is super powerful, and super important. And I think that's great. And I think, you know, most people in digital assets are starting to come around to them.
PETER HANS 20:55
Yeah, the phenomenon you're talking about, which I've mentioned, you know, many times on this podcast, and really any venue is cognitive dissonance, right? It's, it's the, your body feels, physical and mental anguish, when evidence is presented to the contrary of something that you've hold firm in your beliefs. And your human nature is to is not to internalize that evidence and rethink your, your own cognition, but it's to combat it, as well. You know, I constantly, you know, I've told people throughout my career professionally as I've studied this more and more and learned, like, you know, that people always talk about like, sales and, and overcoming objectives. And you know, and answering, and I'm always like, well, you can do that. But that shit doesn't work, because no one cares about your response to their objections, right? Like, the more you give, the more evidence you give someone as to why they're wrong, the more they just get combative and fight you on it, right? It's extremely difficult for someone to to overcome that. Yeah. And I so I, you know, I say the same thing you know, about that, you know, I read that about Meltem. And, you know, my first reaction was not like, wow, she come around, it was, that's really impressive, like, frankly, intellectually, to have that, you know, level of, I don't know, taught intellectual confidence, I don't even know what you would call it, to just kind of like, overcome that. Cognitive dissonance, it's hats off to her really impressive. And again, not to say any Well, I will say objectively that like the Bitcoin maximalist stance is just wrong. Like, it's just not again, and not that Bitcoin doesn't have a place. I totally think it does. And like, I pay my kids allowance and get going, but it's not, it's not the be all and end all that there is applications for blockchain beyond and to say, otherwise. It's just like, honestly, it's just wrong. But that's it?
JEFF DORMAN 22:55
Well, I think I think it actually works in a positive way as well, though, so so, you know, I often, one of the things I love about digital assets is the alignment, you know, we've spoken many times about how you know, and you can even tap into the fight that's going on between, you know, Jack from Twitter and Square versus, you know, Jack Dorsey compared to versus like, you know, ASICs to the big VCs have funded a lot of web three, for those not familiar six. And yeah, for those not familiar, there's just a big public fight going on about whether or not you know, web three is actually a real thing. And whether or not decentralization actually matters and all that. So regardless, though, what I think is really so powerful about digital assets, though, is that you are empowering people at the beginning of a project or the beginning of a company or in and because they can actually earn some wealth along the way, in some ways, it does turn them into a little bit of a maximalist. And that's not always a bad thing. What I mean by that, so this is the example I like to use a lot. You know, DoorDash is one of my favorite examples, right? DoorDash is now a public company that was heavily VC funded. They aren't, you know, for those who know, DoorDash, right, it's a company that would not exist if it wasn't for regular people, right? Regular people who like to eat food, regular people who like to cook food, regular people who ride bikes to deliver food,you know, this
PETER HANS 24:11
regular people who would like to eat food,
JEFF DORMAN 24:13
or use it, because that's because of how simple it is, right? It's the it's the most all encompassing business in the world, and now has a market cap of $51 billion. Most of that money went to early stage investors and the founders, right, none of the people who contributed to that ecosystem made any money because of the success of DoorDash. Right, it was a very small handful of people who funded that business and made all the money. Others benefited, right, I'm sure they opened up some jobs and it opened up some income and things like that, but nobody got wealthy because of the success of DoorDash. Even though you know, hundreds of millions of people were the reason for the success of DoorDash. Now you go the other way, and I like to use Iluvien is my favorite example. Iluvien is has a token that is meant to be the token for a game that isn't even built yet. Right? It is being built right now. But it's not like oh, no, no, it's this is this is this is I mean, it doesn't, it doesn't even exist yet, right. But a lot of people believed in the founder, a lot of people believe in what the game will be. And they bought the tokens. And they made generational wealth. I mean, Iluvien I mentioned earlier, you know, some of the top 10 or 20 tokens year to date lluvium is up, I'm gonna say Luving token, the IOV token is up 1600% This year, that's massive, right people who just believe in what this is going to be have made 1600%. Obviously, regardless of how good this game ultimately is going to be, they now have a whole user base of people who are going to defend this project and are going to be evangelizing for this project and are going to help get people into it. It's almost a self fulfilling prophecy. In some ways. Iluvien can't fail, because they have all these people who have made money and have been a part of this ecosystem before it was even built. If you start to think even if you really think about what that means, it's like you're just empowering people from day one to be involved in something and they become power users and evangelizers for life. And if you were able to do that same kind of thing with a DoorDash, or with an Airbnb, were the people who made this possible, also became wealthy along the way, you could argue these companies would have been even more successful than they are. So I just think that's so important. And like I said, in some ways, maximalism isn't bad in that case, in the sense that you do get this, you know, kind of religious experience with something that you were an early believer in, it's not a bad thing, it's just a bad thing, when that's the only thing you see and can't acknowledge that anything else around, you could also work in the same way, you know, digital assets in a large way can just boil down to, you are creating a mechanism to coordinate and align everybody from day one. And it works really well. And I think, you know, it's like I said, there's just no way to put this back in the box. Now, this is the future of company formation. This is the future of, you know, creative involvement, where people are going to be, you know, sort of having one job, they're gonna have 50 jobs and just work on projects and be a part of the community. It's, it's, it's, it's hard for me to contain my excitement right now, I guess, about where we're headed, in terms of how many different use cases are going to be are going to come about?
PETER HANS 27:04
Yeah, that's interesting. And, you know, the Iluvien example is very interesting. Because, yes, there are a lot of people who've made a lot of money, insane amount of money, right, whether that be paper gains, or realized gains. You know, and then there's going to be a lot of copycat, right, you know, Axie inifiniti success, VM success. You know, one of the things I find really interesting is, you know, kind of, within this ecosystem, and because of what blockchain enables one to do creatively, you know, you improve upon, I guess, you know, existing ways of doing business, right, you know, you look at it, you know, and they have funny names, right, for, you know, kind of the traditional person, like yield farming is essentially just, you know, looking for your highest API on deposits or CDs across banks, right. It's just digital and decentralized. You know, and then also, you have the, you know, concept of like, airdrops and rewards tokens, which I think is really interesting and fascinating as well with, you know, just again, a, quote unquote, business, you know, recognizing its, its, its early customers and, and, and supporters and offering them some some value. I mean, how would you think about that?
JEFF DORMAN 28:22
Yeah, I mean, rewards to me is probably the most important theme going into next year. I think, you know, in concept, it's actually kind of simple, you know, it can be applied to anything, not just a digital asset, or a blockchain based a company, obviously, you know, any restaurant could do the same thing, they can say, we're going to give away all the food for free, and we'll give you discounts if you're early, but you know, eventually, then they have to grow into that and have something that people are worth paying for. And the same thing is true of the digital asset world, right. So I'll give you a great example of how this can kind of feed on itself. You know, Axie inifiniti, very successful project. We talked about that a couple times, it's, you know, it's now a $5 billion token on access alone. But that's just one game of the broader sky Mavis ecosystem and skyMavis at the equity level has a $3 billion valuation, after a big round, they have more, they have more games coming down the pike. There's a lot going on with the AXIE ecosystem. But also, you know, Axie was originally built on ethereum. And they decided that they needed a faster Sidechain. So they built the ronin layer to sidechain. You know, what's happening now with the AXIE ecosystem is just fascinating, right? So it started with a game that didn't even have any digital assets or any or any tokens, they introduced the tokens later to bootstrap the growth. It worked tremendously. You know, this is the fastest growing gaming company probably ever in terms of going from zero to $2 million, 2 million monthly active users in less than a year. And then they realize, okay, well now we also have this really valuable sidechain that we built called Ronin, and what do we do with it? Well, they built a Dex called Katana, that is basically all of the transactions within the sky Mavis Axie ecosystem. Go through this decentralized exchange that is built on Ronin and they don't have any token for that yet. So what are they doing? They introduced a ronin token. And if you look at you know how layer twos tokens have traded anything from, you know, the recently launched boba tokens, you know, things like poly chain and Matic, you know, you can make an argument here that Ronin is going to be at least a billion dollars, and probably more in terms of value and market cap, if you just look at things, you know, like simple ratios, like market cap, the TVL, the market cap, the TVL, of most of these kind of layer ones, and layer twos, averages around two and a half times, meaning, you know, if you have a couple 100 million of, let's say, a 200 million TVL, you're probably never market cap close to four or 500 million. Well, the TVL of Ronin is, you know, right now, like a billion and a half, you know, which means that if you think that that's gonna hold, this could be a $3 or $4 billion asset, and they're not letting anybody buy it, they're only letting people who own parts of the AXIE ecosystem farm for it. So the way you actually earn Ronin is, they started this about a month and a month and a half ago, it's going until mid February, if you take your excess tokens, your AXIE governance tokens, or you take your SLP tokens, which is the in game currency of the AXIE infiniti game, and you create a pool, you can farm for Ronin. And there's about a billion of Ronin tokens that are ultimately gonna be outstanding, the first 100 million are going to be outstanding after three months, the only people who are going to own this are the people who were part of the AXIE inifiniti ecosystem and have basically farmed and earned this. So it's really cool, right? I mean, you just think about how many different ways can you just give back to your community you already gave back to them originally, because you ever dropped a bunch of AXIE tokens them for being early adopters, then the game took off on its own merit. Now you're about to do the same thing with Ronin, that's going to evangelize and get people excited about Ronin, and start to think about different games within the sky Mavis AXIE ecosystem that they're going to be playing and ultimately use the katana decks and the Ronin side chain, you know, just you just continue to kind of build upon that success and reward the people who were with you from day one. So I just think this is, you know, such a powerful example of where we're headed. And you can also even extrapolate that to you know, there's there's a very healthy AXIE and SLP derivatives market, you know, whether you're on FTX, or Binance, you can trade futures. But that's not the same thing as owning the physical token, you need the physical tokens to farm for Ronin, you can't replicate that by having a synthetic version of that through a derivative like a futures contract. So the point is actual ownership, and learning how to custody your own tokens and learning how to use these tokens to be productive to earn rewards. This is just, you know, one example of many, that is what's happening in the market today and where we're headed. You know, it is, like I said, the most successful people in 2021 are not the investors, it was the people who were active participants of these ecosystems, and they are just continuously being rewarded, and you're not going to see the stop. So everybody listening to this, you know, literally drop what you're doing, and go figure out how to, you know, get a Metamask wallet, how to get a phantom wallet, how to, you know, get a
JEFF DORMAN 33:00
blinking on the on the Ronind, wallet, you know, go find out how to get these wallets go find out how to buy some assets on a Dex and how to put them to work and be productive, you know, not investment advice, right? Some of these things won't work, and you will lose a little money here and there. But you have to learn how to do it, you have to learn how to turn your time and your energy of learning and educating into generation into generational wealth. And you know, you can start with $500, you can start with $5 million, it doesn't matter. It's not. There's no discrimination based on what you start with. You have the ability to earn as you help to bootstrap the growth of these projects and companies.
PETER HANS 33:34
So let me just make sure I understand because, you know, I'm certainly aware of Ronin, and you know, how it can be acquired now and that it'll be available for public trading. But if you didn't farm it, why would someone buy Ronin? What would they use it for? Just help me understand that.
JEFF DORMAN 33:56
Yeah, so So you know, the the terms we're using here is you know, there's there's there's layer zero protocols, you know, that that would be things like polka dot and an atom, the dot token or the atom token, which is spoken out in Cosmos, layer zero is almost like a way that bridges other blockchains together, right, it's like the interoperability layer. Layer One is your actual blockchains where the applications are being built on right, that's your ethereum your Solana, your avalanche, you know, these are, you have your layer twos layer twos are effectively side chains, right? These are things that speed up, or enhance the the layer one protocol without getting too technical. Each of them have value for different reasons. You know, layers, zeroes, for example, often have value simply because of all of the throughput that goes through it. Some have tokens that are better part of the ecosystem. Others like the dot token, you physically have to use and lock up or rent the dot tokens in order to plug in to the polka dot ecosystem. For Adam for Cosmos, for example. They're still working on it right? There's a ton of transactions going through this new IBC ecosystem. We actually think Adam is one of the cheapest Just tokens on the planet right now because it is so undervalued on on TVL, the market cap ratio, it's like point one market cap, the TVL versus everything else, it's like two and a half times. So I think Adam token is going to start becoming more valuable over time, as people recognize how much throughput and how much transactions are happening there. And as the project kind of revamps how the atom token is valid, but then you go to Layer ones, layer ones are much easier to understand. On day one, they have no value, right? The analogy I like to use is, you know, if you found an island in the middle of the Pacific, and you bought it, right, it has value just because it's land, but there's no economic activity happening on there until you build the schools and the roads and the shops and the, you know, the businesses and eventually, how does that island actually make money, it makes money through tax collection, right, as these revenues and profits come in from these businesses, they pay taAxies to the island or to the government. That's effectively what a layer one is, right? Ethereum had no value on day one, other than people were like, Wow, a lot was gonna be built on here. And then eventually, what happens is you have all these transactions and all these projects built on it. And now there's, you know, I think it's the last it's like, if you go to crypto fees.com I don't have it in front of me right now. But it's something like, you know, every day, a theorem is generating, you know, $30 to $50 million of revenue every single day, just in transactions that are happening on the Ethereum network. And you can say the same thing will happen eventually with your avalanche Solana your, your other layer ones, layer two, can do a variety of different things, right one, it can be the transaction fees that happen because all these activities are happening on the layer two, that bridge to the layer one. But also, you know, in the case of Ronin, for example, Ronin built a Dex right, that Dex is called Katana, it only runs on the running side chain. If you look at the success of sushi swap, or pancakes, Whopper uniswap. You know, Dex is create a ton of value as well, if there's an actual Dex token, then the value accrues to the dex, if there's not a Dex token, then that value accrues to the layer two Sidechain. So for us, you know, we're looking at Ronin and thinking about, Okay, this is already one of the largest layer twos out there, right, it's already, you know, almost the size of polygon. And it's bigger than anything else out there. There's a ton of transactions already happening because of how successful AXIE is inifiniti has been the parent company sky mat is already has an enormous war chest of money now to build out other games within the ecosystem. If you're a big believer in gaming and NFT's and overall transactions within that, this is one of the most pure play bets you can make, right? Whether you own the AXIE governance token, because you believe in the game or you own the ronin token, because you believe in the ecosystem, or you own the sky map is equity, because you believe in ultimately there, there's not a more pure play way right now to just play the growth of gaming and NFT's. So we that's why we're excited about rolling, we think the collection of the decks transactions, the amount of transactions within the AXIE ecosystem, the other future games are going to be built. It's pretty exciting. And like I said, it's more exciting because you can't buy it, you have to earn it. And and it's you know, like I said, if this is successful, if this is as successful as we think it is going to be in full disclosure, Arca has been, you know, earning Ronin tokens through our investments. And actually, you know, if this is as successful as we think it is, again, it just there's going to be copycat every other ecosystems that had that had success is going to say, well, I don't want to sell this to investors who are going to be passive. I want to give this away to the people who are going to be passionate users, and, you know, a evangelists of what we're built. So keep an eye on that. You know, again, this is just one example. But there's hundreds of examples like this where you are being rewarded for, for being an early participant.
PETER HANS 38:24
Yeah, I mean, you know, I think the fact that so much of this, excuse me, gosh, my voice is brutal, is, you know, traceable from a blockchain standpoint, but also anonymized agent makes the tracking of that very easy. So it makes, you know, administering these rewards to, you know, to a loyal user base, very simple. And it's in this compelling proposition, Leu, you know, it leads to a lot of brand loyalty, which is incredibly, incredibly powerful. Yeah, look, Jeff, you know, we got week left in the year, there's a layer I would imagine on Monday, I mean, what day that is 27th What do you think happens last week of the year?
JEFF DORMAN 39:07
I mean, like it the the ability to predict weekly moves is it's certainly not the easiest thing in the world. But here's what I'll say. Most of you know that this was another really interesting year right? We had six times throughout the year we had a 20% sell off or more sometimes it was completely dismissed as just you know, technical the market sold off for no reason and nobody really cared right January in February be a good example that right though the first four months of the year, were just straight up and yet a couple of violent moves down but everyone bought the dip without even thinking twice. Then you had a couple other times where those dips were harder to buy, there was a lot more fear in the market, right? May June was a good example that between the China ban and a lot of other macro factors, people thought the world was ending and of course that turned out not to be true. And then this last big sell off, you know, starting in thanksgiving and into December 3. You know, same thing everyone all of a sudden became a macro economist and started looking at To the dollar and interest rates in the Fed and you know, things that most digital asset investors didn't even know the FM of the FOMC meets every six weeks. And now all of a sudden, they have a complete view on what the rate curve is going to look like. But, you know, again, it was a harder dip to buy, because there were a lot of other factors going on. But you know, it did in fact, get bought, and it's a healthier market going forward. If you look at the first week in December, it was very unhealthy, right, everything went straight down. If you look at the second and third week of December, it's it's been dispersion, you've seen pockets of strength, pockets of weakness, we've seen a lot of bounce back. So sushi, for example, is going higher, right now Wi Fi on token economics was going higher. Things that were you know, left for dead are starting to rally on the the layer one rotation near near protocol is ripping Aluna. So anyway, in terms of what I actually think the next week of the year, the only real negative in the market right now has been what the equity market has done? Well, the equity market is largely going to be closed from the time we stop this podcast on Thursday, December 23. So basically January 2, which means you're just not going to have any activity or any drivers coming from the equity market. So if you just look at just digital assets alone, and you look at the growth and the strength and the adoption, there's just not a lot standing in its way. And if you believe in self fulfilling prophecies, you know, the last four years have had incredibly big moves higher in the last two weeks of the year. I don't see anything standing in the way of that, you know, I think whether it's Bitcoin or ethereum, or things that are already up, you know, 1,000,000,000% this year, you're probably looking at a pretty strong end of the year. And I would imagine a lot of cash and a lot of money coming into this asset class heading into January as new investors start to reallocate. So pretty bullish. As I'm staring you right now it's a bitcoin is at 49,900. And the etherem is at 4028. I would imagine each of those is probably 5% to 10%, higher by the end of the year, and some other tokens probably 20 to 40% higher.
PETER HANS 41:49
very specific, someone who doesn't want to make a weekly call.
JEFF DORMAN 41:52
Well, I'm probably going to be wrong, but that's the that would be
PETER HANS 41:55
certainly almost certainly be wrong. Yeah. That's okay. That's all right. Well, good, Jeff. Before I still have a voice left. Yeah, thanks for being a guest so much this year and have a great new year. And we'll connect again soon.
JEFF DORMAN 42:13
You too. It's been fun doing this with you. Best of luck on your quest to get Zach Galifianakis on the show at some point to combine Between 2 Firms with Between 2 Chains invest to your family over the holidays as well.
PETER HANS 42:24
Same do better. Right. Take care
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