Variant had its annual investor meeting on Tuesday. I shared the below ideas in my keynote update on the market:
Crypto is exiting what I would describe as a consolidation phase of the industry that has lasted the better part of the last 2 years. During this consolidation, there’s been a lot of optimization, as opposed to 0-to-1 (net-new) innovation.
You can see this consolidation/optimization across 3 dimensions of crypto:
Infrastructure
Use cases
Secular winners
Optimization: Infrastructure in 2024
Infrastructure has matured and is no longer the bottleneck. This is the result of lots of technical optimization (as opposed to groundbreaking new architectures). These optimizations have set us up for perhaps the first “bull market” where:
Blockspace is abundant.
Tooling is mature.
Transaction fees are near to or actually zero for users.
Wallet complexity is abstracted.
Onchain apps can rival web2 consumer experiences.
We are really only about 12-18 months into this chapter of infrastructure abstraction, performance, and reliability. (Ethereum L2s, Solana reliability, and wallet abstraction have only been production-grade for about that long.)
Consolidation: Use Cases and Secular Winners in 2024
Two use cases have hit their stride: speculation and stablecoins.
Both of these use cases have been around, really, from the inception of the industry: Bitcoin (2009) is the original speculative asset in crypto, and stablecoins were one of the first types of token applications (USDT started in 2014). Today, both use cases are coming into their prime—in large part, because of the optimization of infrastructure.
Memecoins are the most distilled form of speculation, and it is now extremely cheap and easy to create and trade them. The same is true of stablecoins. Tooling like Bridge makes issuing and transacting with stablecoins buttery simple.
Downstream of these two use cases, another trend of consolidation is legible: secular winners—which, in many cases, are winners from the recent past—keep winning, and winning bigger. They are blockchains like Solana and Ethereum, wallets like Phantom, DEXs like Uniswap and Raydium. Each of these benefit from the growth in stablecoins and speculation, and they adapt to whichever speculative game is being played on the field (e.g. whether memecoins or NFTs).
Crypto’s Next Phase
With the infrastructure bottleneck fading into the rear-view, there are two other major bottlenecks to nix, both of which have arguably contributed to the consolidation-optimization phase and hindered the industry from more 0-to-1 innovation.
The first bottleneck—an adversarial and uncertain regulatory environment—is (hopefully) on its way out. For the first time, crypto may be on a path to regulatory clarity in the U.S. that enables the industry’s good actors to flourish and flushes out the bad.
Performant infrastructure and regulatory clarity are two tailwinds that have the industry poised for a shift as it relates to the last and most important bottleneck: talent.
Since 2022, there has been a bottleneck of net-new talent entering crypto. This is understandable given the negative headlines and personal risk founders take on in an uncertain regulatory environment. The problem is that downstream of new talent are net-new ideas.
I think that trend will reverse next year, in a two-step process:
First, the secular winners of the consolidation phase will keep winning, and win bigger than anyone expected. Polymarket did that this election cycle, and there will be more to come. This will be the result of more mainstream onchain adoption—both consumer and institutional. Startup companies will go public. More projects will launch tokens. The result may be a reset of expectations on crypto’s impact. This is the first step to inspiring a new generation of builders to learn about crypto, which is what gets us to the next leg up…
A new cohort of entrepreneurs will come in and take it from first principles, unburdened by the baggage of legacy infrastructure and ideas. With clear rules of the road, it will be newly possible to run experiments around building products with ownership as a keystone of new user experiences.
Crypto will continue to be volatile, but with new rules of the road, new talent, and new ideas, our hope is that in the next five years, we will know definitively whether crypto has more to offer than speculation and stablecoins—and whether ownership will be a keystone of new products and networks that grow faster through economic alignment with users. Validation through breakout applications is the path to less volatility over the long run. I’m personally excited to see that through. I think the years to come are our window.
One caveat: the thing that worries me most is that we’ll have another fast, boom/bust price cycle before we get out of consolidation-optimization mode and into innovation mode. If that happens, it may slow things down, but the next five years is still the window.
This piece was originally published on Jesse's blog.
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