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I won’t be buying ETH again. My investment thesis has changed.

*EVM (Ethereum Virtual Machine)*

So my investment opinions have changed. Up to the present time, it’s been ETH and little else regarding my crypto accumulation. That’s changed. I’ve taken a holistic view of the EVM after expertly learning my way around DeFi. I’ve realized its blue chip dapps—Maker, UniSwap, etcetera—which make up its system, are not only undervalued by many multiples for their future prospects, but are very much like decentralized versions of the 90s companies jockeying for position during that era’s tech boom. Consider for example, the power composability will impregnate the system with. Let’s case study Uber!

Uber has a piece of core code. They get the location information of a driver through *Google Maps*. They send the information to the driver through *Twilio*. They pay the driver through *Stripe*.

If these companies didn’t exist, then Uber wouldn’t exist. Because they’d have to create a geolocation company, then a telecom messaging company, then a global payments system. That would’ve been too hard, taken too long, and been too expensive.

This is seemingly a recurring theme for most new companies. I realize this type of *composability* is where the EVM is likely to savage the traditional financial system, along with savaging other [crypto] protocols—and these are only the first victims this apex predator is following its nose to. Because I won’t even bother considering what oracle’s will do for smart contracts by bringing off-chain data *onto* the blockchain.

I’ve also been following mining dynamics closely since the Chinese mining crackdown in Xinjiang Province last month, which has seen as much FUD as it has miners fleeing to Borat’s homeland of Kazakstan (and tax-friendly countries with cheap electricity too). I say that to say this: *The Flippening* might come much sooner than people think as a result of mining, and none of this has to do with CO2. Let me explain:

Bitcoin’s mining rewards are based on its spot price. As its price action currently trembles along a $30k flatline, it’s just inflating away as miners dump their rewards to pay mining costs. Meanwhile, fiat inflation (not just a US phenomenon) is exacerbating these costs, along with the supply chain disruptions we see pretty much everywhere. If Ethereum moves up slightly (even 10%) like I expect, mining Ethereum becomes profitable enough that many mining operations will turn from mining BTC to ETH. On that last point, it’s already starting to happen slowly, and it’s not difficult for a mining operation to switch over, and absorb the costs of the switch.

*”But ETH 2.0—it’s essentially a mining killswitch, isn’t it?”*

Yes, it is.

And the business model of running Ethereum PoS nodes instead of Bitcoin PoW nodes is more profitable, not to mention the LP and Yield Farming that ETH’s staking rewards can be allocated to, or how these tokens can be borrowed against, or how these rewards can be used before they’re actually awarded (yeah, there’s a group working on that dapp)—more on all this later. So most miners won’t be investing in new equipment, or fighting politics, they don’t want to keep their boots laced in case the BTC mining economy of scale (access to capital and cheap electricity) turns on them suddenly. The ones still mining BTC will dump their BTC rewards not just to pay their bills, but for ETH as well. The mining profitability dynamic we talked about above is starting to happen from the data I’m looking at, and I believe ETH will outperform BTC from now until October, by which time the mining dynamics will heavily favor ETH and the BTC/ETH ratio might get to 0.84 or so (we’re at 0.625 right now). From here the gap is close enough that the flip becomes a trending self-fulfilling prophecy. Any attempts by BTC to separate itself from ETH further in price will fail, and ultimately will only benefit altcoins, especially the EVM. Speaking of self-fulfilling prophecies, or at least what was once one, the infamous S2F (stock to flow) model for BTC which was conceived by the much respected PlanB, is in dire straights right now, only weeks from breaking. I believe it will break. We all know Bitcoin has a long history making fools of doubters though, so don’t think I haven’t considered such a shadow. If BTC spikes and reclaims certain levels, S2F can turn into an incredible $100k self-fulfilling prophecy this year. There’s a historic amount in stablecoins and fiat waiting idle on global exchanges too. So a tidal wave of buying pressure can come crashing in if the right gang sign gets flashed. Unfortunately, I believe those colors will flash syndicate Buterin, not Satoshi, and that’s where the money crashes in.

I’m also watching the wrapped supply of BTC (WBTC) closely, because 1.1% of the total BTC supply is currently wrapped on the EVM—that’s predatory AF. After the October flip, USDC will put a sustained move on USDT, and this will jack ERC tokens up the top token list even more, where they already dominate the mid-range. 4 ERC tokens in the top 10 list isn’t crazy by late 2022, and by that point, I hope people invested in other protocols can see the linear inevitability of what’s happening, which has been happening in slo-mo for years—EVM hegemony. Then we might see some of the tenets of *fat protocol thesis* actually take hold:

Fat Protocols

It just never ends with the EVM does it? Its ecosystem and innovation moves so quickly it’s difficult to keep up.

There’s one more thing, a seed I’d like to plant in people’s heads. This seed grows questions far more important than the weed: *Wen Lambo?* And far too many people are not prepared for its answers, which in turn breeds hostility and fear:

**CBDC’s** (Central Bank Digital Currency)

Do not fear these. They’ll make you millionaires. Let’s assume ETH 2.0 is implemented successfully. Here’s how you get the One ring of power:

There are three matches that will set off DeFi and burn the traditional financial system anew. Let’s reimagine them as the three rings of power from *Lord of the Rings:*

– Vilya: CBDC’s
– Narya: Composability
– Nenya: Friction

Many crypto advocates on and off this sub hold a terrible belief. They’ve been shilled into believing decentralized cryptocurrencies (like BTC and ETH) will replace fiat.

THEY. WILL. NOT.

At least not for any transactional activities in the real [non-digital] world, like buying a coffee or car. That’s ridiculous. Won’t happen this decade. Only digital fiat (CBDC’s) can replace paper fiat. Trust me, this is how you want it. So let’s briefly review the US financial system in a dumbed down white heat. We won’t get into fractional reserve banking or the creation of money by purchasing financial assets:

– 1—The US Central Bank sets the USD interest rate. This rate is currently 0.25%.

– 2—Chartered banks (Chase, PNC, etc) borrow money at this interest rate.

– 3—Through these chartered banks, money is loaned to consumers, businesses, etcetera, at considerably higher interest rates than it’s borrowed for.

– 4—The money is then loaned into existence by the US Central Bank and added to the books.

*Yes, #3 happens before #4. And here’s the Bank of England’s version:*

https://www.forbes.com/sites/francescoppola/2017/10/31/how-bank-lending-really-creates-money-and-why-the-magic-money-tree-is-not-cost-free/

Continuing on:

So if global CBDC’s are plugged directly into decentralized finance, what purpose do banks have besides being middlemen, whom’s job we know is to make themselves a necessary evil? None. They serve no purpose but to make everything more expensive and inefficient. When the gas station and Starbucks accept the digital USD at their counter terminal, things become seamless (they lose friction), and banks serve no role, not even as custody solutions anymore, unless of course they want to provide insurance, or offer spectacular incentives. This also extends to stablecoins, which have ZERO future. Fiat-backed stablecoins are overpriced custody solutions which cost way too much to borrow (12% on average) for consumers. More middlemen. Lots of rich people have exited deposit banking services and opted for holding stablecoins because the interest rates are huge (8.8% on Celsius, and DeFi protocols much higher). Expect these to become even more popular as money moves from all-time-high stocks to cash, waiting for opportunities, and finding a well-paying limbo in stablecoin deposits. Eventually though, these fiat-backed stablecoins will visit the Smithsonian’s Fossil Hall of dinosaurs, and the EVM ecosystem will lose nothing with their passing, in fact benefiting from their replacement: CBDC’s. Bitcoin however, will not benefit in any way contending. Neither will every other *one-trick-pony* cryptocurrency protocol outside the EVM (Nano anyone?) with the exception of Monero, which would survive a global crypto ban wearing a smile.

*”But Central Banks will never plug their CBDC’s into DeFi you moron.”*

They have to. They have no choice. If they don’t, competitors will, and they’ll wreck havoc metastasizing and gaining trust inside a rapidly growing system. China can plug their digital Yuan into DeFi (they already let this slip a few months ago), and call it USDxi, Dollar1, or anything. Why would I borrow USDC at 12% when I can borrow USDxi for 2% and swap it for whatever tokens or coins I want? China is just an example. As an aside, if I were Germany, I’d exit the EU in this storming fashion. Anyway, all this reminds me of what happened when NFT’s exploded on the scene earlier this year. Maybe I can capture what I mean there:

Some skilled independent artists started putting out Batman NFT’s selling them for $100,000 and much much more. DC Comics came out condemning their actions but, they were powerless to stop the sales. So they [DC Comics] were left with no choice: they had to join the network and start releasing their own official NFT’s—which they did—and it killed the market for unofficial Batman.

That’s another power the EVM has dear reader:

It will challenge the notion of whether or not intellectual property (IP) is a function of the free market.

This is a fascinating argument within libertarian circles, but put me down for: *Let’s make this work*, because if it can’t be stopped, then fighting is wasteful. Let’s get this NFT programming wizardry going (like what Zed.Run is doing) and make it work.

Speaking of fighting, if governments try using drug war tactics to fight down crypto, they’ll find themselves surrounded by a cartel of voters, strengthened enemies, and economic devastation. Places like Singapore and El Salvador (LOL but I’m serious), could syphon a whole number percentage of the world’s wealth.

Right. So CBDC’s get the plug-n-play treatment and you become the bank, capturing the margins (profits) that traditionally belonged to them. This allows you to play global CBDC interest rates off one another for borrowing. You see, you never actually have to sell your crypto *per se.* You simply borrow against it if you want to spend. The staking rewards you’re earning on it (or the LP yield), will offset the loan’s interest rate by several percentage points. You’re left holding the deflationary, censorship resistant, permissionless asset—the hard money. And this is where what I talked about above (about mining) comes into play. Lot’s of cool things you can do with a system like this. This will also have the effect of strengthening the reckless behavior of global Central Banks, otherwise they won’t be able to participate, or I guess *”compete”* would be a better word. For all the flak the US Treasury gets for printing the USD into an inflationary hell, we print far less fiat than most other countries. There’s a relativity here: everybody is printing, but we happen to print the world’s reserve currency, and we issue bonds in that same currency. A lucky Bretton Woods bunch we are. This is how we [the United States] are able to keep interest rates so low without any major problems. So it’s this sort-of distributed check-and-balance system. I always had this saying before the EVM’s ecosystem came together a couple years ago:

*”The biggest threat to Bitcoin is sound money.”*

But there is no such thing as centralized sound money, so the threat was always going to come from inside the decentralized world. It’s arrived.

Volatility remains a question, but I believe volatility will be more than halved by the end of 2023 for ETH and its top EVM tokens. The new regime of profit making will be YIELD, along with the margin capture we talked about. Speculation will be reserved for the newest dapp tokens looking to leverage composability, or solve some new problem, there’s entertainment too, etcetera.

We talked about CBDC’s a little bit, and composability in a bunch of different places. The last ring is friction. Let’s define friction like this: *the number of steps required to complete a task*, or just: *technical difficulty*.

DeFi’s friction is WAY too high.

The difficulty curve of learning and executing transactions in DeFi is unreasonable for most people. The US average IQ is 98. That ranks 27th amongst world countries. Most here on this sub can do that stuff because you’re here so early in the cryptotech revolution, you’re smart, and motivated to capitalize on what equates to about 1996 in the 90s tech explosion. But don’t expect your mom, many of your friends, or your neighbor to understand what you know. For the masses to use DeFi, it will require a UI/UX with a difficulty equivalent of TikTok or CashApp. This will come eventually. Absolutely. Consider the absurd number of steps and friction required to stream video in 1996. Fast forward today, and everyone has at least three video streaming options in their pocket. 2-year-old kids know how to use it talking to mom on a business trip, or watching cartoons on Netflix.

But…knowing how to operate on the level beneath the pretty UI/UX that the masses are familiar with…well, my thoughts are simple: there are enormous opportunities waiting for those willing to learn DeFi now and stay current with it. If you want to be your own bank, own One ring, and control your own assets with 100% independence, then you need to learn this shit at an expert level, and learn how to protect your assets. I won’t get into it, but meta wallets are coming, and because these are like your own personal high-powered Dapp, knowing this stuff now will really help. This also goes for all the individuals running and securing the network(s), wether that’s operating a node/validator, aggregating data for an oracle, doing the manual duties required of a DAO, etcetera. Learn and don’t stop learning.

I’d like to apologize for the absurd length of this rant. But before I let you go, here’s my new EVM investment thesis:

Keep ETH at 25% of portfolio max. Anything more than this should be sold/swapped and used to buy all the blue-chips at the top of their respective utility. So the oracle might be ChainLink, and the borrowing/lending might be Maker, and the DEX might be UniSwap, and the derivatives Synthetix, and the L2 solution Polygon, etcetera.

I would like opinions on this before Bitcoin loses its dominance, Tether gets kneecapped, and Litecoin embarrasses itself further. 😌

What do you think?

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40 Comments

  1. I’ll just hold ETH and benefit from everything built in DeFi and on top of Ethereum. In fact ETH very well might outperform them due to better tokenomics. Many DeFi projects have a small circulating supply relative to max supply due to liquidity mining or dev funds etc. ETH on the other hand is going to be going deflationary post-merge. People are still really sleeping on what this will do to ETH.

  2. OP,

    This was an incredible read, thanks for the write up, I thought I have a good grip on the crypto verse, but this really blew my mind and think this will make a bunch of us future millionaires (I hope) lol. This was like a sneak peek into the future.

    What resources do you recommend to go deeper in EVM/ETH/DEFI. I know how it all works, but how do I become an ‘expert’ …any good videos or books to read?

    Thanks.

  3. I use Reddit for news and threads like this. I wouldn’t mind a new article written by you on a weekly basis. Maybe just recap the overall condition of the market (including traditional financial systems), EVM updates, your outlooks on this new technology etc. Please consider.

    Thank you OP

  4. You are effing awesome. A brittanica level article with excellent clarity. Written for the simple but full of complex concepts. You should get this posted in the FT and Wall Street Journal.!!!

  5. Excellent write up. I have been meaning to learn more about defi than just swing trading it on the exchanges. I’m excited for what the future holds in this space

  6. Thanks, very interesting post! However, I disagree with some conclusions.
    The analogy of early Internet does not hold.
    1) you can easily copypaste almost everything in crypto. Large IT corporations put a lot of effort to secure intellectual property rights. However, it will not work for dApps, their transparency is their main advantage.
    It means that every successful dApp can be copypasted, just go on Github, do a fork, change name and logo.
    However, it is harder (but still possible) to do something with the whole ETH ecosystem because of netwotk effect.
    2) ETH token is intensively involved in most ethereum operations, that keep demand for ETH tied with its dApps.

  7. I’m gonna overdose on hopium after reading this XD jokes aside it was a very interesting read thanks, definitely food for thought. I think i’ll do some thinking about my current portfolio allocation and whether or not to adjust it, currently sitting at around 70% ETH. I do have some other tokens like AAVE, COMP, UNI and LINK but not a high total of my portfolio.

  8. I started investing in crypto when the pandemic first hit. ( I’m 20 years old btw.) I currently have a little over 1 staked ETH and roughly $150 of Agora d, Tezos, Dai, Cosmos, and AMP. I am currently trying to research staking DAI on its own website to earn something like 9% interest.

    So I have a question:

    1) How do people actually research crypto, the only information I’ve managed to find is on a coins website (which I’m sure they could just lie about). Is there a useful place to go (other than reddit) to research accurate information about crypto that is understandable to someone that doesn’t have time to get an economics degree?

    2) I’ve heard stable coins thrown around a lot and various people staying stable coins are good while others are saying they’re bad. The coins that I picked (other than AMP) I believe to have some sort of future but but I’m really not sure.

    Are there any stable coins that you would suggest? Can you explain why (in terms that a retard would understand)

    3) I’ve been using CoinBase and their associated wallet for crypto but I’m confused as to why someone should put their coins in a wallet or even cold storage. Wouldn’t that mean you no longer earn interest? I get putting ETH in a wallet by what’s the point for other alt/stable coins?

    4) I’ve seen people trading/borrowing ETH to turn ridiculous profits. How is that possible?

    5) If I were to stake DAI on its own website and then earn a profit would I still be required to pay tax? I live in the USA (not NY thank God haha)

    Edit: Sorry if this isn’t the right place to post this and thank you for any help I get!

  9. I’ve looking at more Ethereum in the short term, but my ‘disposable/won’t effect me if I lose it’ money is tight. I’m looking at Polygon, but being so new to crypto and the fact that I managed to barely follow along to the article (due to my own limited knowledge) I feel a little out of my depth.

    What are the thoughts on ADA, XRP, VET, SOL in regards to alternatives to ETH in building a diversified portfolio? ETH is what I’m most interested in, but in the sense of divisification..

    I dont want to bank heavy, just a little to grow long term, have a little nest egg as I have no family, so I need to remain self sufficient financially.

  10. If I had 3k rn, how should I buget between the 5 cryptos you just mentioned? 1 ETH and small percents of Maker, Uni etc., or all into the smaller ones and skip Maker and ETH?

  11. Damn man, I really enjoyed your insight and perspective on the matter. Definitely got me thinking about my investment strategies. Thanks for that absurdly long post…lol

  12. Jesus. Crypto has strayed so far from its original ideas that some people are celebrating CBDCs. About the most dystopian thing I can possibly imagine. 🤮. As long as we get rich right?

  13. While I agree that EVM > ETH, and CDBCs will replace most DeFi, you are dead wrong about the first part where you talk about mining. Switching costs between ETH and BTC mining are enormous and every big miner I know is going in the other direction – they’ve been switching from mining ETH to mining BTC, because ETH mining has an expiration date. And they have exactly zero interest in staking.

    Beyond that, it’s only a matter of time before enough educated people enter DeFi to realize that most DeFi tokens are just governance shitcoins that shouldn’t have even remotely as much value as they already do, even if usage increases 100X. Voting rights to make changes to a dex are not worth billions, sorry.

    So good call to take a step back from ETH as you’ve correctly identified that an expanding EVM ecosystem will eat it alive – but it’s going to eat all the shitcoins alive too. Switching costs between protocols are near non-existent – see what happened to uniswap when sushiswap came out. Any protocol that’s able to extract economic rent for any amount of time is going to be undercut by a competitor that can copypasta the code and steal marketshare away by printing a worthless shitcoin for yield farming…until people realize they’re as worthless as most utility tokens. Maybe another good year at best.

    Then it’s pretty much all downhill from there unless people can come up with another buzzword once DeFi and NFTs are out of style, just like ICOs.

  14. Switching from Bitcoin mining hardware to ethereum mining hardware means replacing all your mining hardware. The ASICs used to mine bitcoin cannot be used to mine ethereum, which is primarily GPU mining.

  15. Honest question: How worried should we be about tether? The fact that it has never been properly audited and that some iffy people are behind it make me very nervous that it could cause a giant collapse of the crypto markets in general someday. Tether being printed out of thin air is the same reason I’m trying not to hold too much USD because the goverment prints them out of thin air, right? If tether is being used to prop up the markets and suddenly they are found to be fraudulent, what then?

  16. Wow Insane write up. I think hodling ETH only is smart too (for now) as the flipping will rile up the hype to train for a lot of newbies and retail traders to jump on ETH before it explodes. Creating, like you said, a self fulfilling prophecy.

Moves like this will help Cryptocurrency become the future

The Crypto Governance Manifesto. Loosely Coupled Governance and Its… | by BlockChannel | BlockChannel