“Crypto is just a bunch of millennials speculating on crypto prices”
“DeFi with its lending, decentralised exchanges etc is just tooling to enable speculation and leveraged trading”
This is the feedback we often get when someone hears about DeFi for the first time. Crypto is loud - constant media coverage and constant obsession with Bitcoin and dog coin prices make it hard to look beyond the noise.
There is, however, a lot to look at.
Main Street > Wall Street
If we take a step back into the real world, the challenge we experience is that finance has become the dominant sector of the global economy with value flows drastically exceeding those of the real sector. This leads to instability, inequality etc.
Crypto has certainly started out that way - over the last few years unless you were mining coins (i.e. maintaining the crypto networks existence) or building software, there wasn’t much you could do beyond investing or speculating. This wasn’t a very ‘productive’ flow.
Until it was.
The chart below shows crypto app revenue over the last 90 days.
Axie - a crypto based game we wrote about 9 months ago - and Opensea - an NFT marketplace - are now generating the lion’s share of revenue coming from crypto apps.
Digital Consumption
All of us, no matter our age or profession, are spending more and more time online. During that time we consume and interact with a lot of content - blogs, video games, videos, funny pictures of cats etc. Most of us think of such content as entertainment, some think of it as education etc - basically, it is consumption, which is sometimes monetised directly (e.g. a Netflix subscription) or indirectly (free content where we are monetised via ads).
Such digital consumption has been very different from physical one - buying a movie online has no residual value (unlike buying a car or even a sofa which could be resold later). We couldn’t be owners of digital content and could only function as passive consumer of such digital flow.
This patter is changing at a rapid pace. What started with CryptoKitties has now formed into a serious and rapidly growing industry.
Do you spend a lot of your time on social media and are you more well known in digital communities than in the real world? Then it probably makes sense to spend money on your ‘digital persona’ instead of buying those fancy sneakers.
Here are some profile pictures you can choose from.
Are you one of those kids whose parents are telling you to stop wasting your time playing video games and do something real with your life instead because games won’t pay your bills? Well, as Axie’s case study demonstrates, that time is actually worth something and can be monetised by breeding these lovely creatures.
Want to go one step deeper into the rabbit hole? There are wholesome virtual worlds being built where you can own land and build on top of it to later sell this real estate or lease it out.
Fans of sci-fi will undoubtedly see this as the very dystopian future they were hoping to avoid, but the trend is clear. The power of being able to own digital content we have been insatiably consuming is undeniable. This trend has been years in the making, it is strong and it is accelerating.
And as long as this trend continues, DeFi will be there to serve and facilitate the flows of the new ‘real’ economy.
Author is the Managing Partner of Re7 Capital - a stablecoin centric DeFi fund.