In general, we can say that it has been a crazy year with predictable strong growth in decentralized finance (DeFi) and store of value (SoV) crypto assets. We are beginning to see two parallel economy super highways being built and used.
The economic superhighway will be for the purpose of recognizing your client’s (KYC) compatible “digital currencies” such as corporate-backed digital assets such as central bank digital currencies (CBDC), USDC or diem (formerly libra).
Parallel to this, the other economic superhighway will be the complex adventure of crypto-anarchist currency legos, self-organizing through numerous DAO-like management structures, stacked and duplicated by anonymous teams. It is possible to think that everything could go pretty odd. Diversification appears to be the only consistent path forward in these uncertain times, both in crypto ecosystems and beyond.
A defining narrative of 2020 was mostly the DeFi space within the Ethereum ecosystem. Despite its 1990s-inspired UI, DeFi is dominated by stone-like professionals who run platform-independent “coin mining”. Interestingly, unlike the irrational and outdated maximalism we see among tier 1 enthusiasts, the app layer managed by DeFi seems to be absolutely temporary. The cost of switching between platforms is negligible, and participants track throughput adjusted for risk.
We can say that large companies and central banks have taken the most important steps to date for corporate effective digital currencies. We have also seen the biggest digital currency experiment ever unfold quietly, led by rapidly developing BRIC countries such as Brazil, Russia, India and China. Multiple cities and more than 100 million people have tested China’s CBDC using WeChat and JD.com, making it the most widely used crypto asset ever. Later, Brazil took action on this issue and made instant digital transactions available to hundreds of millions of bank citizens.
In 2021, we will see tier 2 applications for the first time, and not just for entertainment or early experimentation. We will see all micro economies emerging and transforming the lives of thousands of people. In 2021 we will see more anonymous teams led by DAOs emerge and experiment with exotic variants. Real world assets will be transported in chain with NFTs.
Layer 2 will also launch crypto’s own “SoMo” (social + mobile local) moment, so apps will appear native and seamless on most apps that billions of users already have on their home screens: WeChat, Whatsapp, Facebook, etc. This is where institutional cryptos and CBDCs will have a clear advantage and encourage innovation.
Over time, we will see that CBDCs and supporters of institutional cryptos spend generously to seed the ecosystems of Tier 2 application development. We will continue to see consolidation among crypto projects.