2021 summary of Web3
TL;DR
Bitcoin continues to be the trojan horse it set out to be with more adoption. Saylor rises, China bans, traders pamp, El Salv apes and we get same ETF different smell.
Satoshi’s children aka degens quit their jobs and stayed up all night trading Bitcoins 2021 bull run, jumping from narrative to narrative to make more money. From defi summer to, alt L1s, dog coins, ultra sound money, metaverse, p2e, (3,3) tribe, VC bros and PsyOpers we saw some of the most exciting experiments in crypto for 2021. As always, remember to respect tha pamp and stay safe in the next bull run.
DAOs make a mainstream return for group purchases but NFTs take the stage. From PFPs, influencers to just words. Gambling has never been more fun.
Bitcoin and Macro
Covid nuked the financial markets at the start of 2020, then The Fed de-nuked it and then some. But the low interest rates on cash bothered Michael Saylor who began buying billions of dollar of bitcoin on his companies balance sheet, then told us there is no “second best” crypto assets. Other companies like Tesla and Block (formally Square) followed suit shortly after, but the list continues to grow!
Institutional money managers such as Paul Tutor Jones, Raul Paul, Stanley Druckenmiller, George Soros also bought some for their portfolios although they are not the HODL-ers that Saylor is. Thankfully, Barry Silbert made a lot of institutions forced HODL-ers because of the Grayscale Bitcoin Trust’s (GBTC) high premiums and infrequent redemptions.
While China banned Bitcoin mining and closed the Central exchanges, El Salvador treated it as equivalent to the US Dollar. Later in the year they announced a Bitcoin backed bond for $500M, which will serve as an experiment for 10 more in the future!
Finally, the long awaited Bitcoin ETF was approved to trade on exchanges across the world, except only the Futures ETF was approved in the US. Bitcoin CME Futures marked the top of 2018 bull run, the Futures ETF marked the 2021 bull run, so we wait a few more years for the Bitcoin Spot ETF to pamp us to $500K market top.
Web3 project narratives
Just before the 2021s bull run there was DeFi summer. Mostly influenced by an ETH OG, Kain from Synthetix (Havven previously) users could lend their token to the project and support the protocol flywheel. The idea of self custody was proven to have practical means in Web3, besides just HODLing BTC in cold storage.
Faster and cheaper Ethereum has always been a value proposition for the Eth killer narrative. The growth of Eth DeFi, NFT and DAO use cases skyrocketed gas fees and priced out a lot of the retail users (<500 ETH). So unlike their past failures the Alternative L1s captured the overflow of Eth users by heavily investing in their ecosystem. These major competitors who continue to aim for the King are Solana, Luna, Avalanche (SoLunAvax), Fantom, Harmony, Cosmos, Near (FOAN), Polkadot, Cardano, and BNB.
Unlike coins from previous cycles Dogecoin and Meme coins had a stellar year. Doge is a fork of bitcoin with a popular internet dog named Doge as its logo, it was to meme the idea of perceived value in Bitcoin. Of course that meme attracted @elonmusk - Twitter’s king of memes. With Satoshi’s children AKA twitter gods supporting it, CT whales and degens leverage trading it, momentum bots fuelling it, and retail holding it they pamped it straight to Saturday Night Live. This meme mutated and created coins like Shibu Inu which out performed Dogecoin - without the help of Elon!
We also became too deaf for “Sound money”/ BTC so we made “Ultra Sound money”/ ETH. ETHs EIP-1559 proposed an interim solution for high gas fees by burning tokens, which raised the gas baseline but capped the peaks. This made the coin even less inflationary than Bitcoin - deflationary! So other projects used this as marketing to get some pamps for their tokens.
ETH version of Institutional adoption was companies re-positioning their business model as opposed to putting in on their balance sheets. Financial companies, Tech companies and brands all adopted a form of the Metaverse this year. But the biggest was Facebook changing their name to “Meta” and setting out a 10 year plan for building a digital world. This lead to Metaverse projects 10x-ing with in a month - with the help of Satoshi’s children of course.
Axie Infinity pushed the frontier on NFTs and DeFi with Play-to-Earn model. Similar to in-game skins in Web2 where you could earn or buy game items to advance the gameplay, but now the financial activity was shared with holders of Axis Token. For a brief period of time players in the Philippines were earning more than their countries average wage (in USD). So the P2E narrative continued and kept Satoshi’s children busy for a few more weeks.
Re-enter DeFi, but the 2.0 version, actually (3.0, 3.0), thanks to Olympus DAO. We saw that there was a problem with DeFi 1.0 where Satoshi’s children would suck up the liquidity rewards and leave the protocol to die. So Ohm provided a bond mechanism and convinced everyone they can become the reserve currency for crypto, IF people staked AND continued to hold the token. This proved extremely successful for the token price and led to a ton of Ohm Forks on Alt L1s, so many that as a classic reminder a fork called SnowDog got rugged - Ohms fate was decided in 2022.
Of course it’s not just Satoshi’s children that had fun but so did their VC cousins. A16z and their colleagues turned on their media engines for their portfolio coins to lock in nice returns with exit liquidity from crypto twitter. Although it’s all with good intent I’m sure as some of these protocols are critical infrastructure for Web3. There was even a “Anti-VC” narrative that happened with Sushi forking Aave, to show community ran protocols are better.
Finally, the big brothers in the Satoshi family had their favourite Alt L1s which they may have PsyOp-ed all of us to get their exit liquidity. FTX partnered with Solana to build Serum, its first major project, and continues to support the ecosystem. 3AC invested significant amounts in the Avalanche ecosystems while abandoning ETH - only return to it a few months later.
Honourable mention to pop culture coins like Squid games (that got rugged), $wagmi and $gm which are getting rugged but just in slow motion.
DAOs and NFT narratives
Profile Picture NFTs like Crypto Punks and Bored Ape Yacht Club (BAYC) kick started the NFT mania, then twitter sent it max viral once the story of “JPEG sold for more than a house” hit the wires. Then, stories of having access to the gated community fuelled it even more.
Art Blocks produced some of the most popular art collections by artists. Some popular ones for example are the Chromie Squiggle (which look like Bitcoin price action, truly close to CT’s hearts), Fidenzas (my favourite), and Ringers, all of which recorded the highest sale prices at the time.
Creators like Gary V. who understand social media, leveraged the community aspect of NFTs by creating collections to provide a richer (literally) interaction for their fans. Many of his social media friends began exploring the space and fuelling the narrative in their youtube videos (consciously and subconsciously).
An open ended NFT project came about when Dom, the creator of Vine, launched a collection called The Loot Project. It was a bunch of words listing items in your “adventure bag”. It enabled the community to build a role playing game around it with their own project extensions.
ENS domains surprised the community with an airdrop and handed over the governance rights to them, reminding us who the OG NFTs are in the space.
Also, a DAO tried to bid for 1 of 12 IRL NFT called the American constitutions. But they were front ran by CEO of Citadel, Ken Griffin. Who, may I remind you, front runs Robinhood investor on a daily basis already! Satoshi’s children - 0, Kenny G - 1. Another DAO bought the Wu Tang Clan album which was previously owned by Martin Shkreli (AKA Pharma bro).
NFTs were the biggest surprises of the bull run, so much so that even Vitalik didn’t see it coming. So there will be a ton of experiments happening especially when combine with DAO!