Crypto Thesis for 2023 | Ryan Selkis

Ryan Selkis is bringing on his crypto theses for 2023 in today's episode. Fantastic way to end the year and look at the next year. David, what are we talking about today?

Every single year, Ryan Selkis comes with a massive document that is a fantastic way to snapshot the year. It always feels like this uh document that comes out every single year out of Missouri that Ryan Selkis spends weeks producing. It's a great way to tie a bow on one year and look forward into the next. So while this is a snapshot of 2022, it is also Ryan's 2022 crypto thesis. Uh and so this is just for all of the tunnel vision that we've got focusing on SPF and FTX and contagion, this is a nice way to zoom all the way back and talk about just the trends across the industry, which I will remind the bankless listeners, is very broad and wide. So trends in Bitcoin, trends in Ethereum, trends in DeFi, trends in NFTs, trends in C Fi, uh, and gotta unpack, we do have to unpack the regulatory landscape, the the grayscale and DCG landscape, and a number of other different uh topics, such as who to pay attention to in 2023. Uh, if you were on that list, uh that prior list, who to pay attention to in 2021 and 2022, uh, it was either a very good or bad list to be on, depending on who you are. Yeah, exactly.

Okay, David, in addition to uh the theses that we go over with Ryan Selkis, there's also a kind of a bonus section to this episode where uh we ended the episode. We finished, we we hit the stop recording button. But there I there was one question I really wanted to ask him a question about crypto media uh and this news about uh the block, which is a crypto media publication being secretly owned by SBF. So we get into some of that as well in a bonus episode that we'll provide for bankless listeners. But apart from that, what else should folks be uh aware of going into this episode?

Yeah, it's just a a broad trend download. So it moves pretty fast. Ryan's got some very broad takes, and because of how ingrained in this industry he is, he can connect so many different parts of the industry to other parts of the industry. And that's really the way to get a broad snapshot of what the hell is the state of crypto at the end of 2022 and moving forward into 2023. We talk about CZ and Brian as the last and remaining exchange leaders. We talk about Anatoly and the state of the Solana ecosystem. We go through the anatomy of a crypto credit crisis and Selkis calls the grayscale trade crypto's widowmaker. There's just so many topics to pay attention to. And just as you are listening to this, listener, remember that all of these topics in crypto hyper thread with each other. We are one industry. We are this is one spot. And so the trends in C5 relate to the trends in D5 relate to the trends in NFTs. So as you are paying attention to this, make sure to connect all of the dots to all the other dots that we are talking about as we go through this podcast.

Alright guys, we're gonna get right to our episode with Ryan Selkis. But before we do, we want to tell you about these tools to help you go bankless. Bankless Nation, we have Ryan Selkis on the episode today, and we're diving into his crypto theses for 2023. Super excited to get into these topics. I've been reading these since forever, since I've been in crypto. Uh always jam packed full of insight information. How many pages is this one, Ryan?

Uh this one's a beast. I think it's uh one sixty eight, but that includes the you know, the cover and the disclaimers and you know all all the other garbage. So

168 pages of crypto information.

yeah.

Anyway, welcome to Bankless. It's great to have you on again. Okay, a word for the year. David and I were talking about this. But like you got 168 pages, a lot of words. If you were to summarize 2022 and give it a word, what word would you give it? What's something that pops into mind right now?

Well I think that depends if you're looking forward or looking backwards. I think if you're if you're looking at the urine review, it's it's pretty

Backwards, twenty twenty two. What word

pain.

Yeah, okay.

Right? M full full Mr. T mean, right? Pain. Um I think if you're looking forward, um

I don't want to call it relief, but I I I think optimism is is uh pretty good starting point.

And we'll get into that. I think the big thing that happened this year is the core crypto thesis

remains unchanged over the next 10 years. One thing that did slow pretty significantly is the institutionalization or the wall street efication of crypto. And that's got its its benefits and its drawbacks. But I think most of the damage, most of the pain this year was certainly in the latter camp versus the true decentralization and some of those core projects that are going to be the backbone for this economy.

day David, I like that word. We were d debating some words back and forth. Uh contagion, you said, yield was another, hubris, uh shortcuts. But I think pain, that gets right to the point. My god, twenty twenty-two is painful.

It's it's a it's a good word because I think it's you know uh obviously from the economics of it, it's been uh a pretty disastrous year for investors. But um, you know, I remember listening to your your podcast when when this turmoil was really uh hitting its peak, and uh and just listening to David, like I could feel I could feel some of that of like we've been building here for so long, and it's just so fucking disappointing, right? What's going on, right? It's like the pr the the the parent like being you know disappointed, not mad. Uh we were past the anger phase at one point. And um, and I think everybody, you know, had some type of moment like that uh of dejection in the fall. Um and you know, once reality settles in and you realize, okay, this is you know just a another con artist, just like anyone else, uh, the industry is is gonna be just fine and and you know the core remains, then you can you can get to rebuilding and have some optimism for the new year.

Ryan, uh Mr. Selkis, uh, one of the reasons why I like these cryptotheses at the end of the year is that it's such a cohesive and comprehensive snapshot of where we are in time. Uh it's a moment to reflect, it's a moment to look back on 2022, uh, and to take to make informed takes as to what happens in 2022 and how is it going to determine what 2023 is like. Uh and so you've created a number of different overarching themes. Uh, and so looking at the table of contents, I'll just kind of like read out the themes. Uh, the top 10 narratives and investment themes, top 10 people to watch, top 10 trends in CFI, top 10 trends in policy, Bitcoin and crypto dollars, top 10 Ethereum and layer one trends, uh, and then it continues into the second page: top 10 trends in DeFi, top 10 trends in NFTs and decentralized social, top 10 trends in DAOs and web three, and then of course some bonus content as well. Uh, and so uh I I think uh we'll definitely gonna be touching on the SBF contagion and all the content that bankless listeners and everyone in crypto space has uh hammered, gotten hammered into their heads over the last few months. But I think what we also want to do is kind of get back to our roots. Let's talk about the trends in DeFi, let's talk about the trends in NFTs. And so, using the your theses for 2023 and beyond, uh I think we should just get back to some of the basics of to what is at the very root of this industry, using some of the uh the trends that you've identified here. So, to start off this conversation going at the from the top, top 10 narratives and investment themes, there's two sections I wanted to pull out. Uh, you open the section with winter is here, it's time to build, and then also a section crypto is still inevitable. And I actually remember, I think almost every one of your theses documents has a section like this, which is the crypto is inevitable section. Uh and it's just a nice refresher to remind ourselves that yo, this technology is coming to steamroll over the world. It's different now because of what's happened in the last year. So, Ryan, while you were writing this section about why crypto is still inevitable, what was different this year that really bolstered your confidence to be able to once again say that crypto is still inevitable? Why is, after all of 2022, why is crypto still inevitable to you?

Well, I think my favorite slide uh that that we've made as a company is is this one that's in the deck uh or or in the presentation in that section, uh, which really lays it out in full detail. And uh it basically outlines uh three core drivers, um, which is uh you know, generation change. You know, we kind of evolve one year at a time uh to a more digitally native generation. Um the second is just the in the influx of talent that we've seen this cycle, and the level of talent is you know at a significantly higher mark than we've seen in any cycle previous in terms of business talent, legal, technical. And then there's just dry powder, right? Like real dollars that are on these balance sheets for different projects, whether it's infrastructure related companies or whether you're talking about the projects themselves and their treasuries. That wasn't the case last time around, right? Like a lot of these ICOs, they raised an ETH, they crashed an ETH, or they raised and had these big kind of native token treasuries, but they didn't really have much dry powder.

And so uh you know, a bunch of projects, you know, fell by the wayside. Um and then more than anything, you've got um a a number of uh stepwise, you know, uh

You know, upticks in innovation and like zero to one progress in DeFi, in NFTs, in DAOs, layer two kind of scaling, the Ethereum merge, another cycle of Bitcoin kind of proving its bona fides as a very censorship resistant digital commodity that can be a form of money for people that need a store of value that they can secure in their head and move across borders with. And then stable coins, which continue to have record months, month over month, right? So both the kind of derivatives that sit on top of crypto rails and then many of the crypto primitives themselves have just continue to see pr pretty tremendous growth cycle over cycle. And even though the dollar values are down and now some of the volumes are down, it's still a higher low versus the previous cycle, number one. And number two, they're sturdier foundations because of the capital talent and just compounding growth of open source. So

It's um

it's I guess it's like a crypto twist on uh you know Jeff Bezos' quip on the stock market. And I think you know Bezos, Warren Buffett, you know, maybe maybe it's uh uh a few folks you can attribute this to about the the market being, you know, a a voting machine versus a weighing station, right? In the long term versus the short term, they're two different things. And um and we're certainly seeing

A lot of people vote uh for the exit uh right now, but the weight of crypto is still getting heavier and heavier, right? And and I don't think that that that's gonna change. It's gonna be very difficult to displace. Um so that's one thing that I come back to and and for someone that's been through multiple cycles.

It's somewhat easier to feel a little bit of relief right now, uh, because you you almost feel like the air is near fully out of the balloon. And you can kind of get back to, okay, where now that the tide is has kind of washed out, you see you see, you know, not only who's swimming naked, but where all the dead bodies are. And and now you know you know what what was real and and what is going to have some staying power that you can build around for the next cycle. And we've seen that in 2013 and 2014, in 2017 and 2018, and we're gonna see it again in in 21, 22. Um, so I I I think you know, that's you know, glass half full, uh, I think a thing that makes you know crypto um

Pretty powerful.

And on that note of looking backwards as to some of the things that we've said previously in previous market cycles, I just wanted to pull out this quote from the surviving winter redo, redux. Uh, and uh uh you were citing yourself that you had written at the top of the bull market. I just want to pull this out here. In addition to eating big paper or real losses, you'll see people having breakdowns, go bankrupt due to over leverage or poor tax planning, quit otherwise promising projects, turn nasty, depressed, or apathetic, and generally lose sight of the longer-term potential of crypto. At the same time, the grassroots crypto herd will thin out because it's tougher to wage war when you've lost 90% of your savings and need to find a real job. This was actually not a part of your theses document. This was a uh you citing an earlier thing that you wrote at this top of the bull market. And then you continue in your in this theses for 2023 and you ask the reader, do you still believe? If you're reading this report, there's a good chance that you do, but are now wondering how to best navigate a prolonged winter. The answer is as simple as it is challenging and unglamorous build. In many respects, it's easier to build in bear markets than bull markets. There are fewer distractions, real product market fit becomes easier to identify without the noise of a token, and the weak and flaky contributors wash out of the market. Ryan, I could tell from uh this section in this uh in this document and just knowing you, uh, bear markets excite you. Uh and maybe you could uh pass a little bit of that excitement on to the listener. Why should they get excited to build during a bear market? And why is this just another part of the crypto cycles that that uh people that have seen a thing or two like you uh just know what's up?

Well, uh I I would phrase it slightly differently. I'd say the um uh the slope of enlightenment excites me, right? I I don't I don't take any joy uh in seeing my personal net worth go down or seeing people get blown up or you know all the investors. Yeah, exactly. Like I'm not I'm not like some of these Twitter space hosts, right, that are are just like you know, doom porning uh the just shamelessly and and and you know kind of uh capitalizing on the situation. I think um I I I think it's uh it's you know somewhat disgusting uh for for people to get you know some some pleasure out of this. Um so I certainly wouldn't say that like that part of the bear market, the steep decline, right? This this you know catastrophe that we've had this year is enjoyable. But when you do find a bottom.

It's not going to be a V-shaped recovery. And some people are going to get apathetic and they'll wash out. But for the rest of us, that's when it feels like, okay, we're we're on more stable ground.

All of the folks that we didn't really, you know, think were going to be here for the long term have washed out. Um, and yeah, the people that we were, you know, jiving with and and and and that we thought were going to be um long term builders and and contributors and and you know were doing things for the right reasons and really excited about them for the right reasons, they're still here. And by the way, now they're getting a lot more oxygen and attention. Um that's that's I think the exciting part. And um, and and if you kind of come in with that mindset.

There's plenty of problems to solve within the industry. And every single cycle, the biggest problems from the previous cycle tend to be solved. And the solutions providers end up having the next unicorns in the cycle that ensues. So it's a pretty good entrepreneurial feedback loop, actually, if you're looking for ideas and if you're actually committed to the long term.

I think that's worth uh just emphasizing is that this product feedback cycle and being able to build inside of a bear market where you have so much signal is unique. It's a unique opportunity during the parts of uh the cycles uh during the you don't get that in the manic part of the cycle. What you do get in the bear market is uh a lot of signal for product builders to understand that they are actually building something inherently useful and to also take some of the

Idealized features of what made a mania a mania, NFTs, for example, and actually execute on that while shedding some of the uh the short-term uh things that only actually last in the in the peak of a bull market.

All right, so Selkis, um ten people to watch. All right. We're we're in the in the bear market in this build uh season, of course. Um who should we be watching right now? I I noticed uh one of your picks were were two exchange operators, uh CZ and Brian Armstrong, and uh you tied them. They're tied for the number one leaders of the two largest central exchanges left. The central exchanges left. Uh, can you believe SBF would have been on this list a year ago, probably now completely gone. But Coinbase and Binance. So why these two? Why are they two individuals uh to watch, particularly coming out of this year?

Well it's interesting you say that because last year in the report I did refer to Coinbase, Finance, and FTX as the three biggest exchanges to watch, maybe. We were watching. Watching it collapse. Um I think uh, you know, looking backwards, FTX probably had the most hype,

institutional momentum, and and political momentum out of the three.

That's obviously come crashing down and been exposed to be a house of cards. The other two remain, but the other two are front and center for, I would argue, the right reasons, and that's because of their volumes and trading dominance being Binance, and then their custody um uh market share being Coinbase, right? Because you know, Coinbase is a mega custodian in its own right, um, but it also custodies the grayscale uh trust. So, you know, it has 11% um.

Of all the Bitcoin in circulation, you know, 16% of all the ETH, 11% of maybe the other uh camp of cryptos. So it is just a massive uh market participant, which everybody knows. But just to put that in perspective, you know, you are talking about um 10% of the economy uh in crypto essentially is is is safeguarded by Coinbase. So um how those two CEOs you know kind of navigate the next couple of years, I think is going to be you know uh pretty critical. Um and

For CZ, uh, I think the challenges are are really going to be headline risk related and regulatory and legal in nature. Um, I think that there's a lot of uh fear, uncertainty, doubt around Binance right now. We've seen this in the last couple of weeks uh really pick up steam. And my

um

my nuanced take of of whether that's good or bad is um I think it's overblown. I think the FUD is overblown, but I think it's good

if

It reduces that market share. Um and it it uh disperses some of that trading volume because um it is, I think, unhealthy for the industry to have that much reliance on one centralized exchange.

Um and I would actually argue that for Binance, they will be healthier if there are several other, you know, very large competitors that are kind of going back and forth with them in terms of the volume lead. Um with Coinbase, you know, it's somewhat similar, um, but I think their fate and and really their success is gonna hinge um on the U.S. regulatory situation and um and how effectively they're able to uh thread the needle the next couple of years, assuming that we don't get comprehensive legislation. I don't expect that we're gonna get comprehensive oversight uh legislation, you know, basically until we we have a new administration. Um, and we can maybe get into that in the policy section.

The next uh character that we wanted to pull out of this section is that that was number one. Number one tied for first with CZ and Brian Armstrong. I want to skip over to number five, Anatoly Yakovenko. And uh the quote that I really liked here was that I saw firsthand how hard it was to kill Anatoly and his team in the last bear market. In my eyes, that's the leading predictor of long term success in crypto. As such, I'd expect the Solana core team and ecosystem to persevere once again. But can they ascend to new heights?

Ryan Telkis, could you unpack a little bit as to how and and why you put Anatoly and Solana as the number five person to watch in twenty twenty three?

I think that they were the largest Alts, uh, they were or are the largest Alt L1 community that isn't EVM compatible, right? Um so, in terms of other base layer blockchains um that are using a fundamentally different design than Ethereum, um, I think uh Solana has been the project to watch and and it certainly attracted uh you know arguably the second most developer attention outside of Ethereum. Um it had a uh absolutely you know crazy parabolic run in 2021, but there's also been quite a bit of innovation um uh uh around that community. And interestingly, they've made a big um effort in mobile, right? I think what they're doing with the Solana phone and and the Solana mobile stack um is a differentiator and and it is you know uh pretty pretty interesting uh in attracting developer talent if you're excited about you know bringing like crypto um to the masses you know through through uh handheld devices, because you can't necessarily trust Apple and Android are are gonna um

Let those apps through. So I think for those reasons, it is in a league of its own in some respects. You can look at where it stands from a market cap ranking now, and it's obviously slid uh pretty significantly, especially given the um the size of stake that FTX had. Um, a lot of those early investors, um, you know, there could be some overhangs, some sell side pressure that's still kind of embedded in that um in that ecosystem when you're just talking about the token. But when you're talking about the developers and the tech, um, I would say that they are you know the the leading contender for the second crypto operating system, if you will. Um uh Cosmos being you know kind of similarly situated, uh maybe, maybe slightly behind. Um

And traditionally, that's what you've seen in mobile, in the browser wars, in PC operating systems. You've seen two major players and this duopoly, uh, and then a basically a pretty steep order of magnitude drop off for the other players after that. Um, so will they be able to consolidate some of that market ownership around this second Alts L1 stack?

So on this uh people to watch thing, right? Um

What what what's interesting is how quickly people in this industry can go from like hero to villain.

Right? And you know, um, so last year uh on your list, Dokwan actually made number 10.

Uh and these are people to watch, these are not necessarily people that uh I know you are saying like

Yeah, I don't know if people want to be on my I don't know I don't know if people want to be on my

necessarily

yeah. This is like the SI curse or the Madden curse. I think

but also but but but but also um you know Sam was on

two years ago, Barry