The Next Narrative Bubble

Spend enough time in crypto and you’ll hear a common refrain: “in De-Fi, we are speed running the history of finance.” These days, I wonder if it’s the history of finance that we are speed running… but we’ll get back to that. For now, let’s focus on the “speed-running” part.

One of the more engaging aspects of crypto is the explosive growth; explosive both in the sense that it is extremely rapid and full of energy, but also in the sense that it is incredibly unstable and leaves a lot of destruction. But once the rubble has cleared, we find ourselves on even better footing and we immediately begin building towards the next explosion. And while the history of all businesses (especially tech-based businesses) follow this cycle, what’s truly remarkable is just how quickly it happens in crypto.

The Pattern

For example, take NFTs. In the beginning, there were just 0s and 1s, and then Kevin McCoy gave us Quantum and the world was forever changed. Next came Rare Pepes, then CryptoPunks, then CryptoKitties and then suddenly Bored Apes were being sold for 7 figures and Sky Mavis ruled a billion dollar NFT economy. I’ll call the peak when Three Arrows Capital wow’ed the industry with a planned $100MM NFT portfolio with the Starry Night Fund.

And then, just a few short months later, the tide went out. While the entire market reeled — crypto was struck particularly hard and NFTs even more so. And so, as the destructive aspects of explosive growth took their horrible toll, the limitless promise of NFTs took their most devastating blow yet.

But remember, this is just the nature of crypto. For whatever reason, the process of booting up the world computer is a volatile one. During this process, the end of one explosion does not signify the end; it signifies the beginning of a new cycle.

Let’s take stock of what’s left over in the rubble of the NFT bubble. We have ERC-721 and ERC-1155. We have permissionless systems able to value and collateralize exotic illiquid tokens. We have innovative new business models that are able to support creative professional much more robustly than the way things worked before.

In the popping of each narrative bubble, we lose a lot of manic ambition for what the technology is for, but we gain a suite of incredibly versatile and battle tested primitives that we can use to build the technology that will ultimately go on to fuel the next bubble. Each cycle takes us 100x higher and then plummets us 90% down, and though many of us under up battered and bruised, we end the cycle 10x more than we were before.

The De-Fi Bubble

So, you might ask, what is the next narrative bubble? Well before we get there we need to discuss the larger narrative bubble that provided the context in which NFTs were possible. A narrative bubble that I believe has already popped, and like all of the others before it, one I believe is not coming back: De-Fi.

Full disclosure: I entered this space believing that the point of crypto was decentralized finance. I had a corporate treasury and FP&A background, it was clear to me that crypto was going to transform finance. To this day I believe that to be true, but the deeper I dove into De-Fi the more convinced I am that De-Fi is not the solution.

There are a ton of specific examples and data points I can point to in order to support my thesis, but instead of pessimism let me approach this with a sense of practicality. We already know that banks and other major financial institutions are deeply interested in this space. JPMorgan is settling billions of dollars of repo transactions per day with Oynx. The Bank of International Settlements is kicking around a system that looks suspiciously similar to Curve Finance. There are countless examples, and more every day.

The biggest reason I think that De-Fi isn’t going to be a particularly important part of the World Computer long term is because I think that when the institutions are legally allowed to come, we won’t be able to compete. Our whole economy breaks down if we need to compete against Virtu chain who offers free financial services (or maybe even rebates) like swaps or CDPs?

Like I said, I think these explosive bubbles come and go, and while the reality of our ATH plans may never pan out, when we begin again we have a massive head start. We built De-Fi with stone tools, we’re going to build the next one with power tools.

Zero-Knowledge Cryptography

So what is the next narrative bubble? At least for me, every day it becomes more and more obvious: the next narrative bubble is Zero-Knowledge Cryptography.

Now we don’t need to pick apart ZK right now, let’s just frame this in terms of problems and solutions. Problem: by their very nature, blockchain computing environments are valuable because they exit in a trustless space, but they are extremely limited. While we could technically run any computation we wanted within a blockchain virtual machine, it would be incredibly slow and expensive.

Instead of running the computation within the blockchain virtual machine, we could run all the difficult parts on a much faster computer and just inject the result. Problem: you’re now explicitly trusting the fast computer and thereby losing most of the benefits of the trustless blockchain.

The solution is ZK, a technology that allows us to quickly and easily verify that a specific result came from the execution a specific program. Using ZK, a blockchain can take in the result of a computer program and a proof and verify that the result is valid. If the proof validates, we can treat that result like it was computed within the trustless environment.

And so, ZK allows us to project the world’s most modern, powerful computing directly into trustless but resource limited blockchain virtual machines. Yes, ZK will play an important role in scaling blockchain computers with technologies like ZK roll ups, but that’s just the beginning — ANY compute can now be projected on-chain!

The Fuse Is Lit

The technology has been baking for years, but we’ve reached the moment for ZK to have its moment. Just like Uniswap kicked off the De-Fi narrative cycle, we saw EigenLayer light this cycles fuse. Building on many of the primitives passed down from De-Fi, restaking has bridged the gap between the promise of technology and the demands of capital.

And we are already seeing the momentum beginning to form, following the same patterns as the previous cycles. Every week a new ZK-based company is funded to build the contemporary Aave, dYdX or Convex Finance. Every day a zk systems engineer combines a De-Fi primitive and a ZK mechanism to supercharge a system barely conceivable a couple years ago.

And just like the NFTs, De-Fi, ICOs and all the cycles before it, ZK will propel us to ambitions that would make Icarus blush…

…and will also bring us crashing back down. Hopefully a little wiser, and a lot smarter, than where we are starting from now.

Speed Running Computer Science

Spend enough time in crypto and you’ll hear a common refrain: “in De-Fi, we are speed running the history of finance.” These days, I’m starting to wonder… maybe we aren’t speed running the history of finance, maybe we are speed running the history of computer science.

The history of computation has always been entwined with the history of finance — in many ways computers were developed largely to support ever more sophisticated evolutions of finance. But here in 2023 it would be crazy to say the point of computers is finance. We use computers for everything… communication, entertainment, medicine, art, literally everything. Once you begin to think of blockchain as the technology of distributed computing, you start wondering what that means for the world computer.

I entered crypto thinking we are coming for JPMorgan, but the deeper down the rabbit hole I fall, the more I believe we are here to challenge AWS.