12-09-2022 - on crypto markets

If you think crypto doesn’t make sense, you’re not completely wrong. Lot of our “fundamentals” don’t rely on real math. Up to this point, I’d say most crypto valuations model some sort of hard-to-accurately-measure intrinsic value that use relative market caps as a baseline + a large, unknown speculative premium. *checks DOGE market cap*

I think one reason is crypto was born in a broader tech market that wasn’t really thinking about real math either. Another reason is crypto markets are incredibly noisy and also present entirely new economies and financial protocols that traditional methods can’t compute yet. (And of course, we’re still waiting on regulations).

To the first point, it's obvious most tech is returning to normalcy, and funds will start to think more critically about how many $s they’ll earn for every $ invested. And the same thing is happening in crypto, which leads into addressing the second point…

Now that crypto is less noisy and ETH went PoS, funds can actually model ETH and make accurate projections on issuance, block demand, and therefore staking rewards—all of which are reasons to own the asset. We've basically reached year #1 in thinking more critically about sustainable token models and economies.

All this is to say, new financial protocols mean new financial models. And as the underlying chain proves more resilient during this widespread bear market, the on-chain financial networks, from L2s to MEV to specific areas of the application layer, will continue to mature, increasingly utilize real math, and thus lead to more capital efficient markets. Knowing where to look is more important than ever.