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I spent last week at Permissionless, a multi-day event touted as the “world’s largest DeFi conference” (DeFi = decentralized finance). With over 7,000 attendees, the conference focused on crypto-related topics like the metaverse, Web 3.0, NFTs, and the Future of Finance.
What made this event particularly interesting is that it followed on the heels of a near rout in Bitcoin (down 30% in a week) and most every other alt-coin (typically down 50%-60%). This market-wide crash was precipitated by the failure of the world’s largest algorithmically driven stablecoin (Terra/Luna). As the name implies, stablecoins are intended to be largely secure and hold their value against a peg to the US dollar or other reference currency. In this case, a design flaw was its undoing.
Crypto detractors and vested interests in the legacy financial system used this as prima facie evidence that crypto is a dangerous scam that needs to be more heavily regulated if not completely outlawed. These “I told you so” voices failed to remember how George Soros successfully shorted the British pound sterling in 1992. Soros and other traders brought the Bank of England to its knees and forced Her Majesty’s government to pull the pound from the European Exchange Rate Mechanism. But no one then seriously suggested the world should abandon its currencies.
In both cases, it was the unrelenting forces of market competition – exploiting a backdoor weakness in the currencies’ defenses – that broke the pegs, not an inherent flaw in either traditional fiat or novel cyber monies. The pound not only recovered but eventually came back stronger, and the same is likely true for crypto.
In the wake of the crypto-crash, I expected people to be in shock and/or despondent. However, while acknowledging the over $1 trillion of crypto market losses and the repeated use of the term “bear market,” the conference was remarkably upbeat, enthusiastic, and forward-looking. Conference speakers and attendees seemed relieved that the speculators and momentum day-traders have been flushed from the system, and that only true believers remain. A common refrain was, “Now we can focus. Let’s get back to work building cool stuff and stop being distracted by [token] prices.” Indeed, they seemed more convinced than ever that crypto represents a much needed and bloodless revolution.
One reason for this is that the political and economic events of the past year have strongly reinforced some of the original motivations behind crypto, including the need for financial decentralization, anonymity, and transaction immutability, along with the right to ownership of one’s data, online privacy, and individual autonomy:
- Rising inflation around the world has underscored the belief, commonly held in the crypto community, that the fiat currencies and their enabling institutions are doomed, sooner or later, and that digital money or assets not intermediated by the central banking system will form the backbone of an alternative economy.
- Economic sanctions and asset seizures against both plutocratic Russian oligarchs and humble Canadian truck drivers have each confirmed to ordinary people around the globe that their wealth is not safe from arbitrary government confiscation so long as it remains in the traditional financial system.
- The rise of cancel culture and social media censorship have proven the need for data ownership, self-sovereignty, and autonomy away from Big Tech and legacy financial platforms.
- Government sponsored, central bank issued digital coins are nothing more than a tool of the surveillance state that will enable total informational awareness (and control) of every aspect of their citizens’ lives.
Nonetheless, for a crypto renaissance to succeed, wide-spread consumer adoption must be achieved. We’re a long way from this today. However, many of the new products and innovations unveiled at the conference seemed targeted at demystifying crypto and making it more accessible to the “normies” outside the highly technical world it represents today. Just as AOL moved access to the internet from UNIX-programmers to grandma and grandpa, so too will crypto, DeFi and Web 3.0 make their inevitable migration.
It was a rough week, but crypto is far from dead. One reason for this is that these companies are now flush with cash, having successfully raised tens of billions of dollars in capital before the wheels fell off. This massive store of dry powder will continue to attract the best talent away from Wall Street and traditional industries, and will enable the strongest companies and protocols to consolidate their positions through both external acquisitions and internal product development.
We are in the middle of a revolution that is going to transform everything from finance and economics to government and politics, and even democracy itself. I suggest we embrace the inevitable.