With the explosion of tokens over the last month and the launch of new AMMs, we see some exciting use cases for ERC20s outside of existing token frameworks.
For example, last week, multiple Axie Infinity owners fractionalized their Axies (NFTs) into shards (ERC20s) and put up for sale on the Niftex exchange. This event caused the price of Axies to increase as it enabled more liquidity for the Axie.
I think we’ll see this emerge as one of the core features of how NFTs intersect with DeFi:
Owner of a valuable NFT fractionalizes ownership and creates liquidity pool
Users can buy shards of the NFT from the liquidity pool
Owners of the shards can vote on how the NFT is used & sold
This ultimately creates along-tail of tokens that hasn’t existed before: creating community-owned assets that can foster deeper collaboration between multiple members.
What does the next exchange look like?
But DEX aggregators are becoming popular quickly. Their secret sauce is being able to source and aggregate liquidity from multiple sources. But can the party last?
Thanks Richard Chen for this Dune Dashboard
There will reach a point when too many opportunities become available and they won’t be able to list every opportunity, similar to many centralized exchanges today.
And while it may seem like an attractive opportunity to focus on developers to increase network effects, developers won’t want to use the product because they’re busy building their own.
Instadapp and Zapper are two good examples of this. Instadapp has developer smart accounts that make it easy to interact with smart contracts without knowing solidity while Zapper makes it easy to combine multiple smart contract interactions.
So it’s likely that aggregators will want to specialize and curate opportunities that matter the most to their brand. It’s more likely that aggregators look something like Zora and Foundation in five years. New tokens are being listed by curators while using the rails of protocols. Standardization of using protocols instead of custom smart contracts will become the norm as projects/communities fight for discovery. Similar to how ERC20/ERC721 won out, aggregators will want to only list tokens inside of the most used protocols.
TLDR; the end-game of aggregators might look something like a search engine. Users will want to search for the right opportunity that matches their address history to suggest new markets. Curators, living beneath aggregators, will become the most prominent brands as they fight for attention and try to get users to use their markets.
Recommended reading: Aggregation Theory Applied to DeFi - amazing post from Deribit Research, highly recommend!
What does the next CryptoKitties look like?
In December 2017, everyone was talking about making money from digital cats. It grabbed everyone’s attention. Three years later, during quarantine, it takes way more effort to grab attention.
Morgan Housel’s latest post “Lots of Things Happening at Once” is very timely for crypto. With dozens of projects rushing to launch their liquidity mining campaign and the rapid speed of innovation, it’s becoming hard to craft a narrative. Nobody cares about another prediction markets platform, or another NFT collectibles project.
Users just want to make money in the most entertaining way.
Users need to have a compelling reason for why they should raise their eyebrows and be intrigued. It needs to spark the right amount of curiosity while implying a benefit to the user.
A fun question that I’ve been asking myself recently and others is what you would do if you were the CEO of a new smart contract blockchain taking on Ethereum. You would need to build something that doesn’t only compete with Ethereum, but also other speculating apps like Robinhood. It needs to be as fast and cheap as Robinhood but have the same appeal.
You would need to demonstrate that smart contracts & crypto are a better alternative than trading stocks and participating in traditional markets. And you would likely need a way for people to share what they’re doing while making money in the process. But above all, it needs to get outsiders curious and crave wanting to know more.
And so if I were the founder of an ETH killer, I would be spending my time thinking about what would get a lot of attention. It wouldn’t be creating the best user experience DEX. It wouldn’t be creating an alternative social network and spending $30 million on a domain (sorry EOS and Voice.com)
You would need something that gets a lot of people hooked while demonstrating that the blockchain can scale efficiently while having seamless onboarding and a fiat on-ramp. It would look something along the lines of Zora/Foundation but something that makes you tilt your head a little to the side.
I’m convinced that something like this could be built this year. And it could change everything. It could even take the attention away from Ethereum and king make a new protocol to attract even more developers to build on top of it. The narrative would be “we brought the mainstream into crypto” instead of “we are bringing the mainstream into crypto.
I’m currently working on RabbitHole, a platform for new users to learn and earn by using crypto applications. If you’re interested in jamming on topics I mention in my newsletter or on RabbitHole, hit me up on Twitter @flynnjamm.