Crypto: Heartcore Consumer Technology Trends 2021

Crypto could redefine every consumer category.

The breakthrough of early crypto networks is a new model where users build, operate and own a piece of the products they use everyday. At its core the revolution is fundamentally a consumer revolution.

Consumers are increasingly dissatisfied with Big Tech.

Virtually every centralized consumer network/platform starts off by initially focusing on value creation for their users and stakeholders. Once users/stakeholders are successful and dependent on the platform, they typically leverage that lock-in effect to maximize value extraction.

Many incumbent networks / platforms are now firmly in the "value extraction phase", which makes them ripe for disruption.

User-owned platforms offer better incentives.

The decentralized exchange Uniswap can be seen as alternative to centralized Coinbase. Unlike Coinbase, Uniswap is majority owned by its users who are financially benefitting from using the product and making it better. By design, decentralized applications work together with, not against their users. This is a very powerful flywheel.

Uniswap liquidity pool design

And when incentives are right, sky is the limit.

Networks that treat their users equitably may be easier to grow as early participants are incentivized to drive network effects. Despite having launched years later than Coinbase, and having raised 50x less capital, Uniswap processed $15.3 billion dollars in monthly volume in September, outpacing Coinbase.

In 2020, Crypto found (early) product market-fit in finance.

A buzzword you'll likely hear more in 2021 is DeFi. DeFi is short for Decentralized Finance which refers to decentralized applications aiming to recreate some of the financial services we're used to without centralized intermediaries. The Total Value Logged (TVL) in DeFi went from $680M in January 2020 to $41B in February 2021.

DeFi protocols are going after every segment in finance.

Bitcoin started the decentralized revolution by providing individuals a fixed supply, sovereign digital store of value. However, robust Financial system requires more than a single asset. Users need services and products that enable them to put their capital to work. That's where DeFi comes in.

NFTs in art & gaming were also 2020 crypto hits.

Crypto Art volume ($M)

Non-fungible tokens (NFTs) are unique digital assets tracked on a blockchain. Their primary use cases so far have been in art and gaming. The monthly value of crypto artworks transacted went from $1M in July 2020 to $12M in January 2021 (12x in 6 months). Sorare, a fantasy football game based on NFTs is displaying impressive usage and volume growth.

We’re massively excited about this paradigm shift, but true mass adoption still feels 5 to 10 years away.

Decentralized apps remain hard & way too expensive to use.

Setting up a Metamask wallet, restoring a Ledger via seed phrase: those experiences are still very cumbersome and represent real technical barriers to mass adoption. Additionally, the cost of moving tokens on the Ethereum network ( gas fees) are currently unsustainably high (~$50-100 per transaction). This makes the network unusable for anyone but wealthy price-insensitive crypto aficionados.

“Real world” bridges are still clunky…

In Feb. 2021, an engineer in Australia decided to pay off his mortgage and refinance his home using a DeFi protocol (National Finance). The operation was rather cranky to say the least and saw him forced to "become his own lender".

Noticing there was liquidity slippage , he provided ~$1M worth of collateral to Notional, against which he himself borrowed ~$500K worth of stablecoins.

Most DeFi users are still “crypto whales”.

Total DeFi users over time (M)

While the number of total DeFi users has grown 10x in 12 months to now over 1.4M addresses, one has to remember that most DeFi users own several addresses, so the actual number of unique users is likely 3-4x lower, around 300-400k people. With ~$50B locked in DeFi protocols, back of the envelope calculations would imply that the average DeFi user has ~$140k of assets. And the average is likely hiding a power law distribution underneath.

But speculative frenzies are usually directionally correct!

DeFi and Crypto more generally are undoubtedly in a speculative frenzy. Yet this is typically the case with most of the disruptive innovations that end up making a dent on the world. Speculation allows emerging technologies to go mainstream and finance themselves. We think that Crypto is one of those important emerging technologies.

The 1840s’ Railway mania was directionally correct.

The 1990s’ Doctom mania was directionally correct.

The 2000s’ Cleantech mania was directionally correct.

… there’s a good chance the current Crypto mania will prove to be directionally correct. Ignore at your own risk!