The Generalist - What to Watch in Crypto Now

Hey friends,

One of The Generalist's most popular series also happens to be one of my favorites. Late last year, I decided to ask some of the smartest crypto investors and builders I knew what projects and themes they thought were worth watching. My hope was to discover new ideas, provoke discussion, spotlight impressive teams, and direct readers to projects that they would find valuable. I also hoped to learn a lot in the process, myself.

That formula proved to be a hit.

Today, I'm glad to introduce our third edition of "What to Watch in Crypto," roughly eight months after our previous installment. Those that follow the space will know that a great deal has changed in that time. Our piece today features fascinating ideas and novel projects — many of which I had never heard of. You'll learn which lenders are winning institutional clients, which ecosystem is gathering momentum, and which decentralized social media platform is attracting attention. Jump in to get started.

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WHAT TO WATCH IN CRYPTO

Actionable insights

If you only have a couple of minutes to spare, here's what investors, operators, and founders should know about the most exciting crypto trends right now.

• Cosmos picks up momentum. Though it receives much less attention than other ecosystems, investors see opportunities in Cosmos. “The internet of blockchains” offers tooling to launch interoperable blockchains and may be more decentralized, resilient, and customizable than larger alternatives. Trading platform dYdX’s move from Ethereum to Cosmos indicates the latter’s advantages.
• Institutional lending takes off. Individuals may have adopted DeFi’s first lending products, but recent offerings target corporate customers. Projects like Maple Finance provide institutional-grade lending pools with the necessary information and compliance safeguards.
• Rethinking user authentication. Using web3 applications remains difficult. Consumers sign in with crypto wallets that don’t link to other forms of identity. Not only does that complicate consumer usage, it impedes developers from speaking with their customers. Notifi and Portabl are tackling the issue from different angles.
• Crypto breaches need addressing. This year has demonstrated crypto’s vulnerabilities, featuring rampant fraud, outages, and breaches. Investors are aware of the space’s failings and are backing projects seeking to improve the status quo. Blowfish, which makes complicated transactions readable, is one example.
• Web3’s social moment may be coming. For some time, prognosticators have suggested crypto will disrupt social media. So far, there has been little to bolster such a prediction. That may be changing. Investors see promise in projects like Farcaster, along with other tailwinds.

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No sector moves at the pace of crypto. Nor does any other space match its volatility. Projects that seem invulnerable one month are beaten down the next. Technologies that appear underbaked one moment can suddenly flourish.

Because of these dynamics, predicting the sector’s progress is tricky, requiring significant knowledge, immaculate timing, and no little boldness. Last year, The Generalist kicked off a series designed to give our readers a headstart in spotting the path ahead. “What to Watch in Crypto” asks some of the sharpest investors in the world what they think is worth keeping an eye on over the next six months. Previous contributors highlighted Solana, Ceramic, THORchain, Uniswap, Helium, and others before meaningful momentum. They also shared provocative thoughts on wallets, collateralizing NFTs, and crypto’s multi-chain future.

It is an apposite time for our third edition. In a month, Ethereum is expected to transition to a more energy-efficient “proof of stake” consensus mechanism – an event referred to as “the merge.” If successful, it will represent a meaningful and impactful moment in crypto’s history. Already, positive advance tests have breathed life into the downtrodden markets, improving the price of ether by 66% over the last thirty days. Further down the food chain, entrepreneurial interest in crypto continues, with new projects attracting talent and funding.
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Perhaps because of those dynamics, I think today’s entry is our best. It features fifteen ideas from many of the sector’s most thoughtful voices spanning social media, lending, privacy, NFTs, and beyond. If you’d like to read our earlier editions, you can find Part 1 and Part 2 here.

Trend: Regenerative Finance

Web3 gives us powerful new tools to coordinate economic activity. One of the most important problems we can target with this new power is the climate crisis.

​Toucan Protocol is one of the founding projects in the so-called Regenerative Finance (ReFi) space, which aims to harness the power of crypto and DeFi to finance environmentally restorative efforts. (USV is an investor in Toucan's DAO.) The first area where Toucan and other ReFi projects have focused is bringing carbon credits on-chain. This simple first step unlocks new use cases, such as using carbon as collateral in DeFi protocols and representing carbon sequestration as NFTs and in the metaverse.

The composable nature of tokenized natural assets means that climate action can be embedded into other protocols and applications. This can unlock more use cases and channels of demand. Looking ahead, new sources of on-chain demand for carbon tokens can help support a robust financing ecosystem for environmental project development in the real world.

It’s a pivotal moment for the ReFi movement. Ethereum’s impending switch from proof-of-work to proof-of-stake — and its resulting ~99% drop in energy consumption — has the potential to vastly broaden the appeal of crypto and web3 to mainstream audiences. At the same time, web3 infrastructure has matured to the point where it can better onboard more mainstream users. Toucan and the ReFi movement are poised to take advantage of the moment.
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- Nick Grossman, General Partner at Union Square Ventures​

Farcaster

Social and crypto has been attempted since 2013, but no one has stuck the landing. We think that’s about to change. Why now?

One reason is that crypto wallet penetration has tipped in user quantity and usage quality. Millions of individuals not only have crypto wallets but use them frequently and for various purposes. For the first time, crypto wallets are a viable form of identity and method of sign-on for social products. On top of that, each wallet brings an on-chain “event feed” with it that can serve as conversation fodder (or, as we suits call it, “an engagement hook”) within a social network. For example, your participation in an NFT mint could appear on your feed.

Another important reason crypto-powered social can work is the path dependence of user growth within a social network. Social networks that win start with the right early-adopter cohort. Think of good early adopters as time travelers from the future who instinctively behave in a way that the masses of tomorrow will. A social network that attracts and engages the right early user cohort is well on its way to success. We think the crypto community is as compelling an early adopter segment as we’ve encountered. Crypto-powered social networks, naturally, have an advantage in cultivating this native community.

Building a crypto social network is entrepreneurship on the “expert” difficulty setting. It requires a great product, a thoughtful underlying protocol, and a knack for community building. We believe Farcaster shows all the early signs of getting it right. To join, message founder Dan Romero on Twitter for an invite.
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- Alok Vasudev, co-founder and partner at Standard Crypto​

IN A MEME

​​​​For the pictorially inclined, here's the whole piece — all 5,100 words of it — in a single meme.

PUZZLER
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​​​All guesses are welcome and clues are given to anyone that would like one. Just respond to this email for a hint.

Tord N dons the yellow jersey this week after squeaking ahead of Jonathan D and Neil P. All three provided the correct answer to our previous puzzler.

The answer? Your friend held a glass of water above their head for ten minutes. As many noticed, there are several other viable ways to finagle this riddle. My two favorite alternatives as follows:

• Your friend is in a submarine
• Your friend blows up a balloon which they then submerge in water

Clever work and well done to all that played. Wishing you a lovely week, wherever you are in the world.
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Until next time,
Mario