ETHDenver Round-Up

I had taken notes during the three days I just spent at ETH Denver and decided to compile them into something a bit more organized. It was a great event — all of the hackers I talked to said it was the best run hackathon they had ever attended. My thoughts are below — I’ve attempted to avoid any overdone memes (eg ‘2019 is the year of buidling’) and focus on takeaways from panels and conversations.

Saturday’s Panel on Decentralized Finance

Crypto investing is getting competitive

Jake Brukhman gave a great overview of generalized mining and how CoinFund is approaching it. A ton of crypto funds have emerged over the past two years and active network participation (eg running nodes, staking) will likely be an area in which funds try to differentiate themselves. CoinFund has been one of the more outspoken funds here, but Placeholder and Multicoin have also been vocal about their work.

I see two main benefits for crypto funds — getting into competitive rounds and improving returns. There are a lot of crypto funds and it seems reasonable that teams would rather take money from firms that actively participate in their networks. Top VC funds generally aim for 20–30% IRR. Staking on networks is obviously not going to return your fund but estimates put yields in the ballpark of 5–10% annually, which is non-trivial in that context.

NFT’s are out, Decentralized Finance is in

Decentralized Finance is currently the dominant meme coming out of the Ethereum community. This tweet thread is a great roundup of the finalists — more than half had some finance/markets functionality and almost none relate to gaming/NFT’s. I talked to a judge who said that last year more than half of the submissions had to do with NFT’s (compared to almost none this year).

I found that the DeFi panels inspired a combination of optimism and frustration. Michael Dunworth gave one of the clearer articulations I’ve heard on the benefits of DeFi by stressing accessibility and enabling competition. Today it’s really hard to set up a Wells Fargo competitor, but if the ‘DeFi stack’ makes it easier to spin up a financial application, you’ll see a lot more competition. There are obviously complicated regulatory questions here but I do believe that the DeFi ‘stack’ is getting better by the day and that this will enable a ton of financial innovation.

That said, I think that much of the community operates in a reality distortion field. While entrepreneurs generally point to developing countries with bad financial infrastructure as a use case for DeFi, the truth is that 90% of products in the space are built for ETH whales. This is frustrating 🙄. I also saw some panelists praise the DeFi UX relative to traditional financial products. I find this laughable — if I told an investor that I was going to build a banking product that required a buggy chrome extension to use and didn’t work on mobile, I would get laughed out of the room.

I am bullish on DeFi long-term but there is a lot to figure out 🤷‍♂.

Business Models are Evolving

A large number of teams (dYdX, 0x, Augur) that are building open source protocols have a business model that relies on other teams building applications on top of their protocol. It’s not obvious to me that any of these protocols currently support a thriving and sustainable ecosystem of applications (although 0x is the furthest along and arguably making a lot of progress). In the meantime, some teams (like dYdX) have decided to launch ‘vertically integrated applications’ — applications built on top of their protocols.

Dharma is now going down this route, having just launched Lever, a vertically integrated lending app built on top of their protocol. It seems that they’re prioritizing this rather than driving other app developers to utilize their protocol. I’m guessing that more teams (especially in the DeFi stack) will choose to go the vertically-integrated route given (1) it’s really hard to attract talented application developers and (2) it’s tough to monetize open-source protocols. I spent some time with the Dharma team this weekend and am really impressed with Lever — they’ve built a sleek product that’s better than the vast majority of applications in the space. I’ll be curious to see how this trend impacts DeFi as a whole.

Ethereum has a lot to figure out

This was the first ETHGlobal event I had attended and I am incredibly impressed with the community that they’ve built — there are a large number of talented people who are really passionate about Ethereum. Over 1000 hackers flew in from around the world to spend three days building (and competing for a relatively small monetary prize). It will be very challenging for any ‘competitors’ (eg EOS, Dfinity, Tezos) to recreate this.

That said, most people still seemed confused about development towards Ethereum 2.0. I spoke to a number of knowledgeable developers from the community and all seemed frustrated with the communication of the plan, the lack of incentives for people building towards Ethereum 2.0, and the pace of progress. Ethereum also remains under-funded compared to its competitors. While the Ethereum Foundation gave out ~$20M in grants last year, Paradigm and a16z alone are deploying more than that each month. The best estimates I’ve heard place the balance sheets of Tezos and EOS at $500M and $4.5B respectively.

I’m bullish on Ethereum and think it has a pretty powerful moat, but it faces incredibly well-funded competition and a lot of internal divisions.

Thanks to ETHGlobal and all of the other organizers for putting on a great event. For other rounds ups from the weekend, I’d check out this piece from Consensys, the interviews that Ryan Selkis livestreamed, and this Twitter thread on the winners.

Thanks to Justin Gregorious for feedback on this post.

Disclosures:

  • These are my personal views and not those of CoinList.
  • Some of the funds listed are investors in CoinList. You can see a full list here.
  • I am not a lawyer and nothing here should be construed as legal or investment advice.

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