【英語学習　NFT】エンジニアによるWeb3（とその可能性）の無茶振り考察

Web3のエコシステムは、集団的な幻覚、大規模な不正行為、環境災害、分散型ルネッサンス、インターネットの未来など、さまざまな言葉で表現されています。

このように、Web3は様々な意味をもっています。

ここPSL Studioでは、ベテランのエンジニアチーム（こんにちは、よろしくお願いします！）が、楽しい新しいWeb3プロジェクトを構築しています。その過程で、私たちは学んだこと、基礎となる技術が何を可能にするか（あるいはしないか）、そして将来的にどのような可能性があるかについて、メモを取ってきました。

私たちは、この考察のリストを抽出し、ここで公開することに意義があると考えました。

警告：これはエコシステムの現状についての長い分析です。現実的なビルダーの視点からの意見集です。経済学やチェーン自体の金融メカニズムから離れたところに焦点が当てられています。多くのノイズとチャーンがある中で、カードがどこに着地するのかを予測することは不可能です。しかし、この投稿では、典型的なWeb3のツイートストームで見られるような泡沫的なレトリックは50％少なく、ねずみ講は100％少ないことを約束します :)

🙃 まず、ウェブは再び楽しく奇妙なものになった（イェーイ！）。

Web3の文化は若く、活気に満ちています。小さなコミュニティ、奇妙な新技術、青空実験、文化的な動き、発見の興奮、自己表現の新しい方法など、Webの初期や90年代のインターネットを楽しくさせたものの多くを彷彿とさせるものです。

デザインは再び冒険しています。テクノトロニック、ブリリアント、ブルータリスト、2021年頃のスペースジャムなど。お金がすべての中心でありながら、テンプレート化、企業化、無菌化とは程遠い。これは、クールな友人があなたに教えてくれた、クラブの中のヒップなバーなのです。

Web3は、まるで記号論専攻の学生たちが書いたような新しい文章や批評の本拠地である。Web の初期と同様、暗号のユートピア的な可能性についての高尚な誇張がたくさんある。新しいソーシャルクラブは、自分たちのトークンの市場価値と同じくらい、パリでアンダーグランドレイブを開くことに熱心なようだ。

サイトもまた、見事に混乱している。誰も自分たちが何を作っているのか、ましてやそれをどう説明すればいいのか、よく分かっていない。しかし、十分にクリックすれば（そして多分MetaMaskとつながれば）、面白い、あるいは啓示的な新しい体験と同様に、混乱で終わる可能性がある。

Web3に関する技術的な詳細や宗教戦争は無視しても、新しい実験的なコミュニティがオンラインで形成されるのを見るのはいつも楽しいものです。しかし…議論すべき技術的な詳細がいくつかある。まずは、そのあたりからお話ししましょう。

⛓ Web3はブロックチェーンや暗号通貨と切っても切れない関係にある

「Web3」とは、ブロックチェーンや分散ファイルシステム（IPFSなど）など、最新の「分散型アプリ」（dApps）を構築するために使用されるピアツーピア技術群に付けられた名前です（※）。

ブロックチェーンは、3つの部分から構成されるデータベースです。

改ざん不可能な履歴ログ（「チェーン」そのもの）
信頼できる分散型コンセンサスプロトコル
参加者に報酬を与え、公平にプレーさせるためのインセンティブシステム
参加するにはお金がかかる。インセンティブは必然的に金銭的なものになる。同時に、ブロックチェーンは信頼できる台帳を管理するための理想的なデータ構造である。このように、暗号通貨とブロックチェーンは切っても切れない関係にあり、同じコインの裏表のようなものなのです。(すみません)。

* セマンティックウェブは、過去に「Web 3.0」とも呼ばれていました。今日のWeb3は、「暗号」とは無関係のリブランディングである。

🌎 ブロックチェーンはインターネットプロトコル開発の脚本をひっくり返す

インターネットの歴史は、広範なコミュニティによる分散型プロトコルの誕生、採用、管理の歴史でもある。ブロックチェーンはこの伝統を踏襲しつつも、そこから根本的に脱却し、アセットクラスを伴って登場した最初のプロトコルである。

SMTP（1981年、電子メール）、TCP（1983年、信頼できるパケット伝送）、HTTP（1991年、ウェブ）、XMPP（1999年、チャット）などのプロトコルはいずれも、発明者にはほとんど還元されないまま巨大な価値を生み出しました。ブロックチェーンはこれを覆し、発明者自身が大きな価値を獲得することを可能にする。(さらなる考察：ジョエル・マネグロ著「ファット・プロトコル」)

歴史的に成功したインターネットプロトコルは、通常、初期の採用が遅く、10年以上かけて勢いを増し、長期的に安定して使用されるようになるにつれて価値が高まる。ブロックチェーン、そしてその上に構築されるサービスは、この型を破り、脱出速度を達成するためにほとんど先行投資（または乱暴な投機！）を必要とします。このことは、合法的なプロジェクトがねずみ講やマルチレベルマーケティングのような多くの構造的特徴を共有しているという、問題のある力学をもたらす。これらのスキームは最終的に崩壊する可能性は十分にあり、多くの初期段階のブロックチェーン・プロジェクトはおそらくそうなるでしょう。しかし、それは確実なことではありません。プロトコルの基礎となる経済性が健全で、製品への需要がある場合、最初はねずみ講のように見えても、長期的な価値を生み出すネットワークのための「市場参入戦略」になる可能性があります。

ブロックチェーンを利用したプロジェクトの背後にある巨額の資本が、その長寿と成長にどのような影響を与えるかは、まだわからない。また、それらが相当な時価総額（全体で2Tドル以上）に見合った価値を生み出すことができるのか、あるいはできるようになるのかについても、まだわからないままです。

💫 ブロックチェーンは平等ではない、プログラマブルなブロックチェーンは豊かで奇妙だ

ビットコイン（2009年発売、時価総額10億ドル）は、世界に最新の分散型コンセンサスを導入し、その後のすべての基礎を築いたが、ビットコイン自体は極めて限定的で、第一近似的には、ビットコインの所有権を追跡する単なる台帳である。このシステムには、心地よい循環的な単純さがある。

イーサリアム（2015年、4億ドル）は全く別のもので、単純な台帳を維持するのではなく、イーサリアムのブロックチェーンは仮想マシン（インターネット上の誰もが共有する、完全にプログラム可能な単一のコンピュータ）の状態を維持するために使用されています。開発者は、イーサリアムの仮想マシン（EVM）上で動作するように意図されたコードである「スマートコントラクト」を記述して展開することで、システムの将来の進化を導くことができます。これにより、NFTやDAOといった新たなデジタルコンストラクトが誕生しています。

Solana（2018年、$50B）は、Ethereumの後に続いたいくつかのプログラマブルチェーンの1つである。ソラナの焦点は、現在のイーサリアムネットワークの2つの不自由な弱点である高スループット低コストのトランザクションを可能にすることである。分散型コンセンサス設計におけるいくつかの革新的な技術が、Solanaの性能を可能にしています。A16zは最近のSolana Labsのトークンセールで3億1,400万ドルの投資を主導しています。

🤨 オンチェーンに属するデータのカテゴリーは非常に少ない

ブロックチェーンはあなたのデータに適しているのでしょうか？おそらくそうではないでしょう。以下のような多くの考慮事項があります。

信頼。データが信頼できる仲介者によって管理できる、あるいは管理すべきものである場合、それはブロックチェーンにはふさわしくありません。トークン化された不動産は未来的に聞こえますが、現実世界では何の利益も生まないと私たちは考えています。
プライバシー。オンチェーンデータは完全に公開されます。プライベートな情報、あるいは信頼できる関係者だけがアクセスすべき情報は、オンチェーンに載せてはいけません。医療記録はその限りではありません。
コスト。チェーンストレージとコンピュートは、クラウドやオンプレミスの同等品よりもはるかに高価です。(今日の価格では、イーサリアムのブロックチェーンに256ビットの整数を1つ保存するのに、およそ7.50ドルかかります)。これはおそらく、チェーンが今日よりも桁違いに安価になったとしても、常にそうであろう。
価値の獲得と創造。データがオンチェーンかオフチェーンかによって、そのバランスは大きく変化する。また、データの性質や、そのデータを取り巻くトークンスキームの設計によっても変化します。
長寿命。オンチェーンに保存されたデータは、チェーンのネットワークが死ぬと消滅する。それはどのくらい先のことなのでしょうか？誰にもわからない。
不変性。オンチェーンに保存されたデータは、決して変更されたり削除されたりしない。削除する権利は多くの領域で重要な考慮事項であり、特に個人情報を含む。
複雑さ。ブロックチェーンのプログラミングは新しい魔術である：ツールは若くて壊れやすく、運用とセキュリティに関する考慮事項は多く、ベストプラクティスはまだ存在しない。
検閲。極端な話、もしあなたのデータが簡単に取り壊すことができない家を必要としているなら、ブロックチェーンを検討するのは妥当かもしれません。
経験則から言うと、(1)Aという行動がT時に行われたと世界に叫ぶ必要があり、(2)世界が十分な注意を払う必要がなければ、ブロックチェーン*は必要ないでしょう。金融台帳の更新はその好例です。10年間、熱狂的なファンが楽観視していたにもかかわらず、広く採用されたものは他にほとんど見当たりません。

* ブロックチェーンが必要ないからといって、そのユースケースのためにブロックチェーン上に構築されたアプリケーションに大きな成功がないとは限りません。以下の「Xをするためにブロックチェーンは必要ない」を参照してください。

台帳、コイン、トークンは、すべての暗号が構築される抽象的な要素である。

前述したように、ブロックチェーンは、誰が何を所有しているかの単純なリストである台帳を管理するのに適しています。

この「誰が」というのがアカウントです。プログラム可能なブロックチェーンの場合、秘密鍵を持つ人物か、スマートコントラクトがこれにあたる。

何を」は、コインまたはトークンです。この区別は境界がややあいまいですが、大まかに言えば、コインはブロックチェーンに内在する通貨で、Ether、Bitcoin、Sol、Dogecoinなどの通貨です。トークンは、柴犬やCryptoPunk #1772のように、プログラム可能なブロックチェーンの上に定義された資産です。(実装上はトークンに近い「ステイブルコイン」は命名上の例外となる)。

暗号エコシステムの他のすべては、これらの中心的な抽象化の上にレイヤー化されています。

ブロックチェーンは、誰もが新しいデジタル資産の存在を主張することを可能にする。

プログラム可能なブロックチェーンは、誰でも「魔法の杖」を振って、新しいデジタル資産を作ることができるようにします。

トークンは抽象的な資産であり、2つの種類がある。Fungibleトークンは、コードによって供給が制御される交換媒体である。非可溶性トークンはユニークな資産であり、関連する資産のクラスから引き出される可能性がある。ブロックチェーンのユーザーは、これらのトークンを尊重しなければなりません。

もちろん、暗号の「魔法の杖」を振るだけでは、価値は生まれません。重要なのは、トークンの周りにあるものすべてなのです。初期のころ、コミュニティはパンクや猿の写真をトークンに貼り付けて実験していました。その後、NFTのゲームキャラクターなど、複雑な構造のメタデータをトークンに貼り付けることを試みました。今日、トークンに巻き付ける洗練されたコードを見かけるようになりました。パーミッションやアクセス権を付与するコード、動作を定義して強制するコード、トークンと暗号の新しい決済レールとのやり取りを記述するコードなどがあります。これは広大なデザインスペースです。暗号経済に生産的な目的があるとすれば、最終的にはここに集約されるに違いありません。

暗号の “魔法の杖 “が届く範囲については、コメントする価値があります。トークンはブロックチェーン上に存在します。他のソフトウェアがそれらのチェーンと相互運用する場合にのみ、トークンが重要になります。暗号のエコシステム全体は、こうした奇妙なデータベースの抽象化を尊重するという合意の集合的な行為です。全世界がこれに同意しなければならない根本的な理由はありません。また、人々が新しいデジタル資産の存在を宣言するために、潜在的なチェーンの数に制限はない。これがどこにつながるかは誰にもわからない。一部の人が想像しているような、デジタル資産の完全相互運用可能な普遍的エコシステムにはなりそうもない。今日、ソラナとイーサリアムの両方のエコシステムでDeFiで遊んでいる人は、それを証明することができます。

😳 Today’s smart contract programming models are deeply flawed

Modern programmable blockchains like Ethereum and Solana are impressive technical achievements. At the same time, smart contracts have some deeply problematic constraints:

Smart contracts can’t reference the “real-world”. They can only reference the blockchain itself. This is known as the “oracle problem” and it makes blockchains a necessarily closed system. This may sound like a trivial problem, but it is actually profound. For instance, it forces smart contract developers to jump through hoops to build “price oracles” when they want their on-chain code to reference real-world asset prices. Companies like Chainlink act as oracles, writing the most profitable set of useful real-world data onto blockchains. Fundamentally, however, blockchain storage is wildly expensive; storage of real-world data, particularly data that needs regular updates, is prohibitive. As a simple question of counting alone, the vast majority of the real-world will always remain inaccessible to smart contracts. Beyond this: to use data provided by oracles, you must trust it. The question of trust in the Web3 world strikes us as equal parts technical and philosophical.
Smart contracts can’t be upgraded. Smart contracts are deployed once and run forever; their code cannot be changed. The software development industry has vanishingly little experience with such a deployment model. Instead, it has decades of experience with bugs and security vulnerabilities that suggests that “immutable code” is fundamentally unworkable. Engineers have found workarounds. For instance, the EVM’s design makes it possible to forward arbitrary invocations from one contract to another, leading to the Ethereum proxy pattern. Maintaining proxy contracts is incredibly difficult! Other blockchains, like Tezos, were designed from day one with the thought that code will need to be upgraded; to manage this, Tezos introduces governance mechanisms directly into its core protocol.
Smart contracts require complex distributed systems to run, effectively, forever. It’s impossible to guess how long any given blockchain will live or what its forward evolution will look like. Not only do the blockchain networks need to be maintained in perpetuity, but the smart contracts of today will need to run without alteration to their behavior indefinitely into the future. The industry has zero experience with the “forever maintenance” of distributed systems and running code.
These are serious issues that will need to be addressed. They are potentially interesting opportunities for dev and infra tooling. We expect to see substantial innovation going forward as a result of these nontrivial problems. (We have some guesses about how each of these might shake out over time; drop us a line if you’re thinking about solutions in this space — [email protected].)

🧮 Distributed consensus technology could change radically in the next decade

As described above, today’s blockchains allow users to “shout things to the world”. To achieve this, the entire history of the chain must be replicated by each full participating node in the network. This is expensive and slow even today for six-year-old Ethereum. Worse: it doesn’t match the real-world. Even when people need to “shout” things to one another, they often don’t need to shout them to the world. In theory, a private party transaction should just involve the two parties; today on the blockchain, it needs to involve the entire world.

New classes of zero knowledge proof systems under study at the Stanford Center for Blockchain Research (amongst several other academic institutions) may make it possible for private parties to share just the necessary bits of economic history and fact with one another, without the need to consult a central blockchain ledger. If practical, these new approaches could radically alter crypto’s technology landscape and fundamentally upend current valuations. While these new approaches are promising, at the moment they’re firmly in the realm of theory, not practice.

🌌 We should expect to live in a multiple-blockchain world, with all its complexities

Quite a few blockchains have $10B+ market caps today (over 20!); it is hard to imagine that most of them will go away tomorrow. Each blockchain defines its own unique ledgers, and therefore its own unique digital assets.

Like anything distributed on the Internet, there is likely to be some amount of federation between blockchains and some amount of true disconnect between them. The decision to connect two blockchains, or to keep them disconnected, has strategic, economic, and technical components.

There are several instances of connection today. Take for example the Solana-to-Ethereum wormhole, which allows tokens to be created on the Ethereum blockchain that represent assets on the Solana chain, and vice versa. It is a technically sophisticated construction: the smart contract deployed at one side of the wormhole needs to “own” the assets transported to the other side; the smart contract on the other needs to mint new “wrapped” tokens that act like remote proxies for the real things. It’s also a rickety construction: some code that sits outside of the wormhole contracts needs to transit data between both ends since, of course, smart contracts can’t reference smart contracts on different blockchains!

😬 Blockchains are regularly credited with powers they do not, in fact, have

We’d like to take this moment to politely disagree with several common bits of rhetoric we feel we regularly see about blockchains:

“Blockchains allow us to build reusable legos”. This seems to misunderstand code itself; code is and always has been reusable legos. The entire open source ecosystem is a collection of community-built reusable legos. Heck, from 2007-2012, the whole internet shifted to API-first, open, interconnected applications in a stark shift away from the monoliths of old. Blockchains, and the smart contracts deployed to them, are not special in this regard.
“Blockchains let us re-use assets across services”. At the moment, people are excited about the re-use of digital assets in the context of NFTs and blockchain games. Broadly, they’re excited about it in the context of “the metaverse”. But there’s a catch. Yes, an asset may be stored in whole or in part on the blockchain, but the addressability and behavior of the asset still needs to be specified. You can’t re-use an Axie unless you know (1) which smart contract on the blockchain controls it, and (2) what properties an Axie has. In other words, interoperability requires groups to come together and agree on common specifications, or to reverse-engineer the work that other groups have done. This is the way the world has always worked! Nothing about crypto fundamentally changes this story, nor does it particularly alter incentives to cooperation: some groups will have reasons to cooperate and make interoperable assets; others will want to go their own route. Blockchains are not special in this regard.
“Blockchains ‘solve’ identity”. This is a confusing statement that we’ve run across several times. If “identity” means “who you are,” then the statement seems to misunderstand basic cryptography. In the crypto ecosystem, an identity is simply a private key. These private keys never find their way to the blockchain: after all, they’re private, and everything on the blockchain is public! Moreover, private keys have been used for identity since… well, since private keys were invented. On the other hand, if identity means “what you are authorized to do” then, yes, blockchains can be used for this — but so can many other non-blockchain schemes. Blockchains are not special in this regard.
“Blockchains usher in a new era of open access to data”. Cost-effective and growing access to public data is great. And it is exciting that blockchains provide a potential new place to store data. That said: blockchain storage is wildly expensive, and accessing data on blockchains — particularly in aggregate — is never easy. More directly: to think that blockchains fundamentally “solve” data openness, just because they provide data storage as a public good, seems to misunderstand the countless institutional incentives and dysfunctions that make up the landscape of open data today. Those don’t vanish just because blockchains exist.
“Blockchains usher in a new era of decentralization”. This is lofty, but not very specific. The Internet is fundamentally decentralized; we use protocols like SMTP, TCP, and HTTP all day every day without stopping to think about them. Nothing prevents the development of further non-crypto decentralization. In fact, major groups like the W3C, the WHATWG, and the IndieWeb are thinking quite hard about this. Decentralized non-crypto social networks of considerable scale exist today; see, for instance, Mastodon. Also, while it’s true that blockchains are interesting distributed systems, it’s a bit odd to say that they are harbingers of decentralization when the effect of their distributed system is to create a single global database that all other software must refer to! Blockchains do not appear special in this regard, although the statement is squishy enough that it remains open to further interpretations.

🏘 One way to think of tokens is as pure abstractions of potential rights

Chris Dixon claimed in a recent tweetstorm that “tokens give users property rights: the ability to own a piece of the internet”.

While this sounds like it might be true… today, they absolutely do not. But, squinting a bit, there’s no reason they couldn’t tomorrow: a reasonable future framing of (non-fungible) tokens might be that they are pure digital abstractions to which a bundle of property rights can be attached.

Of course, to arrive at this very theoretical future, we’d need public/private partnerships to bridge the world of crypto with the normal legal and regulatory world. This road to this potential future is long and winding. Whether it is at all desirable to follow this road is left as an exercise for the reader.

🔮 “You don’t need a blockchain to do X,” even when true, might miss the bigger picture

A common retort amongst Web3 skeptics (and by ourselves, earlier in this piece!) is that, for a given use case, blockchains are “databases but worse”. And… the skeptics are often right!

However: just because you don’t need a blockchain to do something doesn’t mean the industry won’t settle on using blockchains to do it anyway. The technology industry is immensely path dependent. Particularly when buckets of money appear, feedback loops can form whose outcomes seem all but inevitable. Speculators and venture capitalists alike have inundated crypto with cash. Blockchains may become the future — including for use cases where they are not natural fits — only because their story was told, speculated on, invested in, and told some more.

This isn’t inevitable, of course. No amount of investment will lead to a technology’s rise if it’s entirely the wrong technology. This said, our on-the-ground observation today is that even for fairly awkward use cases, blockchains appear to be “just usable enough” that they are being hired by engineers to do the job. The pendulum may yet swing in the other direction; we simply don’t see that happening today.

📈 But crypto’s current prices are… big numbers!

Plenty of ink has been spilled on crypto’s outsized valuations.

There is no doubt that we’re living in a speculative bubble of immense scale. If you invested $1,000 in Shiba Inu tokens on March 1, 2021, you’d have had $2.815M in early October; the pups would have barely grown! This same story repeats itself throughout the ecosystem: that 300% APY you get from staking SUSHI tokens in a yield farm contract is a mirage that can only last so long.

One observation that we’ll offer on crypto’s gigantic market caps: while valuations of traditional corporations (especially technology companies) have skyrocketed in recent years, they are still ultimately grounded by well-understood, time-tested business fundamentals. Even if a business is worth twice the revenue multiple you would have assigned it 3 years ago, there is still some way to tie it to a well-understood metric. In crypto, the systems work differently. Value accrues to different parts of the ecosystem, like the users or the community. Often there isn’t even a company at all! Adoption can happen so quickly (especially since users are incentivized to adopt) that it further encourages speculation. The lack of standardization on how to derive valuation, coupled with the Wild West of new mechanics, creates the perfect conditions for crypto’s crazy high valuations to seemingly emerge overnight.

☠️ “But crypto is used for illicit stuff!”

There are even more problematic use cases for crypto than rampant speculation. In many ways, the world of crypto contains aspects of an unregulated casino. Big-time punters, grifters, money launderers, and ransomware bandits are no doubt hard at work inside this casino. This may change over time, but not without considerable regulatory oversight.

Nobody who spends time or builds in this ecosystem should ignore this raw truth; those who build best will constantly consider it.

🚜 Crypto is a (well-funded!) random walk towards discovering productive economic ends

Ultimately, a healthy economy needs productive ends. It remains to be seen whether crypto, with all its capabilities and limitations, has productive ends. Luckily, the ecosystem is awash in capital and has a culture of rapid experimentation; it may well uncover a pot of gold.

If anything, crypto’s productive ends will have to be found in the tokens it creates: it’s the digital assets themselves that must be the underlying source of value.

As mentioned above, the design space for tokens is vast and largely unexplored as of today. The space covers how tokens intersect with access, ownership, and intellectual property rights. It includes how tokens align incentives between disparate parties. It spans the decentralized reinvention of, seemingly, all of modern finance.

🚷 Onboarding to crypto is easy; going deep is walking on fire

The typical user’s first foray into the crypto ecosystem is through fiat on-ramps like Coinbase. Coinbase maintains a wallet* on behalf of its users. The experience for users is much like the typical web: log in with a username and password, get access to your investments.

To wade deeper into the web3 world, users need to install noncustodial wallets like MetaMask: software tools that are functionally “1Password but for your crypto private keys”. Unlike 1Password, however, MetaMask is a user experience disaster from its introduction (the website does an impressively poor job of describing what MetaMask is, or why you might need it) to its daily use (strange layout of common controls, lots of weird technical stuff like hex addresses very much front-and-center, no understanding or presentation of NFT ownership, etc). If 1Password’s users make a mistake, they might reset their passwords via email. If MetaMask’s users make a mistake, they might lose their investments forever. And MetaMask isn’t all: sophisticated users need multiple crypto wallets (Phantom, etc.) since they work on multiple blockchains.

Plenty of opportunity exists to make better wallets. It is a remarkable testament to the demand for noncustodial wallets and the use cases they unlock that, despite all this, MetaMask has over 10 million monthly active users!

Companies like Brave have taken a different approach to integration with crypto, making it a top-level feature of their web browser. While still a small user base by browser standards (still under 1% of global market share), Brave has demonstrated impressive traction, with over 40 million monthly active users.

Beyond wallets and browsers: the typical user-facing Web3 service is built for those “in the know”. Visit OpenSea and you won’t see much by way of explanation about what’s going on; visit Mirror.xyz and you’ll see even less. And yet these are interesting, deep services for those who know what they do and how to use them.

* (Coinbase’s wallet is really several wallets, since Coinbase interacts with multiple blockchains. This is entirely hidden from Coinbase’s users — a good thing for gaining the most mainstream usage, but also a true stumbling block for going deeper.)

💰 Coinbase and Robinhood could quickly centralize that which isn’t

As of October 2021, Robinhood appears to have ~10M active crypto users; Coinbase appears to have ~50M users. MetaMask claims to have just surpassed 10M MAUs, so it’s about 1/6th the size of the crypto trading ecosystem. All of these services are growing rapidly, but our read of the (admittedly sketchy) available data points is that the number of crypto users with custodial (cloud-based and centralized) wallets is growing meaningfully faster than that of noncustodial wallets; growth in the former isn’t necessarily translating to conversion to the latter.

Access to NFT purchases and more obscure DeFi products seems to be the primary driver behind MetaMask’s growth. With the introduction of Coinbase NFT, it’s clear that Coinbase wants to own this growth directly. Perhaps it won’t be long before Coinbase builds direct interfaces to the more popular DeFi projects.

Further: Coinbase already offers its own custom API that developers can use in addition to — or instead of — interfacing with noncustodial wallets. It hasn’t seen immense adoption, but there’s plenty of opportunity for future growth. For example, Coinbase could offer the ability for developers to build subscription billing services in a way that’s simply not possible with the blockchain itself (because every transaction must be separately signed).

The promise of decentralization on the internet was empty the first time around. Somehow, what started as a decentralized network of servers and open protocols became a concentrated powerful set of a few trillion-dollar companies. Web3 may be different, but the question remains open. Stepping back: economic power always concentrates; power laws are the norm. Web3 may mint new winners, but the distribution of returns may well stay the same.

🗺 DAOs explode of the idea of “company” into infinite forms

There are two roughly equivalent ways to describe Decentralized Autonomous Organizations. First, they’re smart contracts that interact with and coordinate people at some level. Second, they’re groups of people in crypto-land working towards a common goal, whose actions are partially (or fully) mediated by code.

Nearly all DAOs share two things in common: (1) a governance token, which grants voting rights to its holders, and (2) a system for proposing actions and voting them up or down.

Beyond this, however, the “goals of groups of people” covers an impressively wide range. Some DAOs have multiple token classes; some only one. Some DAOs tie their votes directly to action via smart contract code; most don’t. There’s a huge taxonomy of DAOs emerging in the wild, all different:

Protocol DAOs control updates to the economic parameters of smart contracts; here, voting is typically on a very narrow set of proposals (tweak parameter X; update contract Y) and the results of votes are typically executed by smart contract code. (MakerDAO, Uniswap, Compound Finance)
Investment DAOs pool resources to make further arbitrary crypto investments. (theLAO, Komorebi)
Collector DAOs are investment DAOs that focus primarily on NFTs (PleasrDAO, Flamingo, SquiggleDAO)
Grants DAOs are investment DAOs that focus on issuing grants to other DAOs, typically DAOs that seek to build further crypto infrastructure. (MetaCartel, MolochDAO, Uniswap Grants)
Social DAOs are real-world communities typically interested in the creation of new literature, art, and economic thought relevant to the crypto world. ($FWB, SongCamp, CabinDAO)
Agency DAOs organize typical real-world agency work, like graphic design and smart contract development (Raid Guild, MetaFactory)
Service DAOs provide miscellaneous group services to the crypto ecosystem (PartyDAO, TheGraph)
Media DAOs align groups of journalists, filmmakers, and educators typically around growing the crypto ecosystem. (BanklessDAO, REKT)
With so many DAOs in the world, we’ve also seen the genesis of a modular ecosystem of services designed to help people build and manage yet more DAOs. It’s still very early; aside from tools for managing voting (like snapshot.org) and an increasing collection of common smart contract code (see OpenZeppelin’s Governance contracts), there simply isn’t a clear locus of activity here yet. The ambiguous legal and tax status of DAOs probably further hinders adoption.

💸 Decentralized Finance (DeFi) is an explosive corner of the crypto world

In a telegram thread in August 2018, “DeFi” was coined. It quickly became the umbrella term for a rapidly-emerging set of peer-to-peer financial services on public blockchains. DeFi enthusiasts will take anything that a centralized bank can do — lend, borrow, trade assets, trade derivatives, etc. — and enable the same sort of interactions in a peer-to-peer system with no single point of failure.

Ethereum, with its fully programmable underpinnings, proved to be the blockchain in the perfect place at the perfect time for early DeFi projects to flourish. This led to a flywheel effect: Ethereum enabled the proliferation of early DeFi services, and DeFi massively increased the usage, market cap, and (unfortunately!) gas fees of the Ethereum network.

Over time, Ethereum has proven to be sub-optimal for the incredible demand DeFi services have seen. The network has diseconomies of scale and, given its low throughput capability, gas fees (the cost of executing a transaction on the Ethereum network) have recently been over $150. This makes executing simple low-value transactions, such as swaps on Uniswap, prohibitively expensive! Since the emergence of DeFi, there are several other L1 chains (like Solana and Avalanche) that have become a popular place for DeFi developers to build with transaction fees. Ethereum itself is also in the midst of the infamous “ETH2” transition, which aims to solve this problem on the Ethereum network itself.

🧠 DeFi services marry economic insights with clever code

Even if today they’re only good for speculation (and boy are they ever used for speculation today… often with an incredible amount of leverage), there’s quite a lot to learn from the design and implementation of decentralized financial services like MakerDAO, Uniswap, and Compound Finance.

MakerDAO is a DeFi building block that attempts to create a “stablecoin” — a token (DAI) pegged 1:1 to the US Dollar — through collateralization. The basic approach is straightforward and starts with the realization that, while the prices of Ether and of popular tokens in the Ethereum network are quite volatile, there’s a likely limit to that volatility. ETH is worth ~$4,000 USD today; it might be worth $2,000 tomorrow but it’s probably never going to go so low as (say) $1,000 in the future. By putting up 4 ETH, MakerDAO can manufacture 1 DAI and have reasonable confidence that it can maintain par value. The DAO itself, through membership with the MKR token, votes and regularly updates the underlying economic parameters: the set of tokens accepted as collateral, the required ratios, and payouts when underlying asset prices rise.

Uniswap is an automated market maker (AMM) that implements a decentralized exchange (DEX). Users can swap one type of token for another at some economically sensible ratio. The fundamental job of a traditional exchange is to maintain an order book that matches buyers to sellers. In the decentralized world, there’s no third party to maintain that book. Instead, Uniswap incentivises participants to contribute to “liquidity pools” — pairs of tokens (like, for example, SHIB and SUSHI) that other users may want to exchange. Liquidity providers receive payments for the tokens they’ve staked (via “LP tokens”); users can get the specific tokens they desire by exchanging the tokens they have. Each liquidity pool has an associated exchange curve (the “constant function” curve); the curve is parameterized based in part on the ratio of tokens on either side of the pool. Uniswap v3 substantially increases the flexibility of the service, allowing liquidity providers to stake at “concentrated” positions along the exchange curve. Tie all this in with a protocol DAO (via the UNI token) that manages economic parameters, and you have a truly innovative bit of code and finance.‍

Compound Finance bills itself as a decentralized “interest rate market”; it was the first such in the crypto world. The economic realization is that there’s an opportunity to fill the gap between people with surplus assets they can’t use, and people who could use those assets today; Compound effectively allows trades on the time value of those assets. Somewhat like a traditional bank, lenders contribute tokens to the system, and borrowers can decide whether to borrow at current rates. The underlying economic parameters of the system are managed by the holders of the COMP governance token.

💵 There’s infinitely more to say about the financial side of things (that we won’t delve into here)

If you’re an ambitious quant hanging out at a high frequency trading firm, crypto has got to be nearly irresistible. It’s an alternate universe with immense cash inflows (let’s use the amount of stablecoin issued today as an absolute lower bound, so maybe $150B… or we could use Sam Bankman-Fried’s recent estimate of $400-500B) and demand, coupled with a weird and very young new settlement layer. Clearly there’s gold in these hills — perhaps it’s a gold rush that will peter out, or perhaps it’s a once-in-a-lifetime opportunity to rebuild the financial system from the ground up.

On this point, Sam Bankman-Fried has a pragmatic and clear-eyed take on how the financial world wants to build in crypto-land. He’s pretty clear that smart traders who understand market structure and dynamics are quite excited to sit on the other side of retail activity in the space — and he’s built FTX with that in mind. (See, for instance, this episode of the “Invest Like the Best” Podcast.)

As an aside, it’s worth noting that SBF built Serum on top of Solana. He did it for the simple reason that transaction throughput, latency, and cost really matter to his customers — they come from the world of traditional finance, where systems operate much faster.

👩🏻‍💻 Blockchains are the kinds of databases that frustrate developers‍

Blockchains are databases, yes, but they’re not databases designed for traditional online analytics processing: they’re not designed to be easily queryable.

An entire cottage industry has emerged around building blockchain ETL systems: specialized code extracts relevant information from the target blockchain, and then loads it into either a SQL database, or into a data warehouse that offers some kind of rapid query functionality. A number of open source tools exist, including the young but still-quite-useful ethereumetl project.

Extracting usable data from blockchains is hard. It’s hard because there’s a lot of data; extracting the data rapidly, at-scale, and at-cost is by itself a nontrivial challenge. It’s hard because there’s always new data: a great blockchain data system will need to both batch and stream data. But more than that: it’s hard because the data on programmable blockchains, in particular, requires interpretation based on the actual smart contracts deployed, and on the ecosystem surrounding those smart contracts.

A few early businesses have emerged around working with blockchain data. For us, the two most notable are dune.xyz and nansen.ai. They’re notable because they are (in our opinion) the two most technically advanced projects, and they have found very different go-to-market routes.

Broadly: there are many more developer tools that are worth mentioning here. The developer tools space is very nascent. The industry is ripe with opportunities to improve the developer experience, including but by no means limited to blockchain data.

💘⚰️💘 Some parting shots

A tokenomic future is a truly strange future. Crypto’s true believers seem to envision a future in which users manage ownership of myriad tokens in order to navigate their digital lives. Tokens will provide payment, incentive, participation, and access rights to a cornucopia of services. And, of course, tokens can trade on the open market. This strikes us as an abstract, illegible, and difficult-to-navigate future that few normal people will want. Perhaps future innovations in user experience and technology will tilt the playing field. Perhaps not.
All of this crypto stuff is too hard for the average user. There’s a wide-open opportunity to make creative (rather than speculative) participation easy and fun. MetaMask is too hard. Simply understanding what’s happening is too hard. If crypto is going to find another billion users, services — from wallets to storefronts — are going to need to radically rethink how they approach their users. The day a major browser maker (Google, Apple, Microsoft) integrates a crypto wallet is the day we’ll believe that this particular future is inevitable.
Did we mention the speculation, grift, and criminality that swirls throughout crypto? It’s easy to ignore or discount it; those who do well and do good in this ecosystem will grapple with it head-on. Or perhaps, after further consideration, they’ll dismiss crypto entirely.
If you have any thoughts on this piece, or are building in this area and would like to talk with us, drop us a line! [email protected]

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