I’ve alluded to this topic before when people ask me about certain protocols like Solana and Cardano. We now have a great time for me to discuss it with you all in the backdrop of the current drop in prices, as well as fresh news and events that can better showcase the points I would like to make.
As usual, the link to my Definition list for the abbreviations, words, and terms that I use is here for you to refer to.
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Table of Contents
Introduction
Speculator Mindset
User Mindset
The Blockchain Trilemma
General Crypto Macro and Conclusion
1. Introduction
As previously discussed by me there is a bit of a schism in the crypto space. And it boils down to these two facts.
Credibly, maybe only 3-4% of the world population is regularly engaging in DeFi. You are still really early.
And from my Comparison Guide
Estimates that only 16% of Americans currently own crypto (2 years ago, that number was 4%), and the portion of Americans savvy enough to have taken custody of crypto is probably much smaller with 10 million monthly active users on Metamask in August 2021 worldwide.
Do you see the Schism? About 16-20% of Americans own crypto. However maybe only 3-4% regularly use crypto. These two groups have different beliefs, goals and experiences in regards to crypto. Beyond that, these two groups can be exploited in different ways by different groups of people unless they are aware of how the other group thinks. Users want low gas fees that can make their transactions profitable, while speculators just want the price to go up so that they can sell back into US Dollars at a higher price.
Users also want a significant universe of dApps to use, low transaction fees on a chain with no dApps is irrelevant to users, and high transaction fees on a chain with lots of dApps can be justified, and successful chains generate high transaction fees in general. One must think of each chain as its own nation launching. You buy citizenship when you buy the tokens, and whatever the price is when you join is your actual cost of interacting in the nation. The future appreciation is irrelevant to you. Those that bought into ETH prior to 2017 maybe paid between $7-$40 per token. Their cost for interacting with dApps now (from their perspective) may be less than a dollar, due to the value of ETH when they bought in. As a nation, with its own national currency, it has successfully launched, and the current adopters are likely already wealthy as anyone buying in later is respectively paying hundreds of dollars in gas fees per transaction. From a users perspective, nothing has changed except for their net worth in US Dollars. From the outside perspective, the chain has become more and more unaffordable for those that do not already have a high net worth to join.
This is of course driving adoption of ETH competitors, some of which were being called “ETH killers,” in 2020. This narrative was being sold to speculators that didn’t understand that none of the users on ETH cared about gas fees. And speculators ended up buying into assets like Cardano and just sitting in it for the entirety of DeFi summer, and then the entirety of 2021. To a speculator there was no difference between sitting in Cardano or sitting in anything else. But to a user, 2020 and 2021 were horrible if you were sitting in Cardano, there was nothing to do with the token except stake it for meager returns.
The speculators do get something right though. If you want to join the next successful financial nation to launch within this space, you have to buy into it early so that your cost of usage from your perspective is always low. The speculators having done that on Cardano were rewarded with a speculative gain, not with a gain of utility… yet. The reality of their current inability to develop dApps and the centralization of their development is a significant roadblock to the actualization of this reality, but its not insurmountable.
The other items we are going to discuss is the ongoing market dip, some of the relevant macro factors, as well as how you should be treating this time and maintaining your patience. I have been preaching an avoidance of your urge to over-buy the dips, because there are more coming and there will be time. I truly do intend to do my best to call the bottom, but we’re not there yet.
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