All you need to know about everything that matters | Week #50, 2020
This has been a relatively quiet week for the dapp space. The holiday season is here, and while asset prices continue to do the candlestick dance, analysts have started to look back at the year that has been in preparation for the one to come.
Still, launches and announcements continue to flow in, as the industry sees the fruits of the hard work developers have put in over the past months. Some of these offer a glimpse into the exciting future that appears to be right around the corner.
As exciting as it has been to watch the beta-tests-in-production iterate in real market conditions, the question of sustainability still hangs over the industry. The warm feeling of community support does not take away the cold reality of day-to-day operations. Developers need to be hired, bills need to be paid. Some communities have started to take steps to doing that in a decentralized manner.
For instance, the recent proposals in the Compound and Uniswap communities would enable the ecosystems to issue grants and pay contributors using governance tokens. This would be a key step for two of the key projects in the Ethereum DeFi ecosystem on the road to decentralization. Both projects have been managed in a centralized manner prior to the summer of 2020. As the original stewards slowly take a step back the communities needs to be able to have means to financially support and manage further development of the platform.
The concept of fully decentralized operations is not new and has been championed by both layer 1 protocol communities such as those of Decred and Dash, and dapp ones as well. However, the transitioning processes of Compound and Uniswap may provide a blueprint for projects originally developed in a centralized manner, that wish to move to a DAO format.
The Yearn community has recently shown that you don’t need to be centralized to provide financial reporting. Such a report was prepared by the members of its community. Despite not being audited, it shows an attempt to adhere to broader financial industry best practices. It may also serve as a template for other DAO-based projects.
Some may argue that the industry needs more internal standards and self-regulation. Regular, standardized, financial reporting may do a great deal to improve quality standards. With DeFi applications generating significant revenue, it will be interesting to see if any tax agencies attempt to impose a tax on the DAOs.
Ethereum challengers are moving forward
Ethereum maintains its enormous lead as the main dapp platform in the industry, but rivals refuse to give up. Naturally, the more successful dapps Ethereum has, the more defined and more lucrative the market becomes. As such, when Ethereum struggles competitors rejoice, but when it succeeds they are also excited.
For instance, IOHK announced Project Catalyst for Cordano, with perhaps the ecosystem’s first DeFi project, Liqwid, among the list of candidates for a grant. Cardano is yet to deploy smart contracts, but as a top 10 project based on market capitalization, according to CoinGecko, it is still considered a serious competitor.
Blockstacks 2.0 upgrade, may provide a map for complaint tokenization. The project anticipates that with the new upgrade, the system will become decentralized to the point where its token may no longer be classified as a security. If this proves to be true, it may open the door for traditional companies to participate in the industry in a much bigger way.
Solana has partnered with Arweave on the SOLAR Bridge in order to be able to store transaction history using the decentralized storage project. With dapp activity ramping up throughout 2020 the question of decentralized storage has become more relevant. With a relatively recent mainent launch of Filecoin the competition in this sector may also increase.
This could be a sign that “decentralized hardware markets” as Messari calls them in its Crypto Theses for 2021 report, will get more attention. In fact Messari identifies them as one of the top 10 trends it is following. As practical decentralization gains in importance, the need for decentralization of Layer 0 may come into focus.
Still, while rivals work on delivering a suitable alternative to Ethereum, more ETH gets staked on Ethereum 2.0, serving as a quiet reminder that the window of opportunity may not open forever.
Art and collectibles space continues to mature
For much of 2020, art and collectibles as well as the gaming spaces have been spared the burden of expectations. The negative impact of high gas fees and the tremendous growth of DeFi have enabled this sector to grow quietly in the shadows. However, more and more the market is hearing about exciting developments, as the sector begins to step into the spotlight.
Recently, a CryptoKitties cat was accepted as collateral for a $25,000 loan on NFtfi. With NFT art and collectibles attracting impressive sums at auctions, it is not unexpected for the assets to start to be integrated into the DeFi ecosystem. However, with the high value items potentially lacking liquidity, projects facilitating credit markets need to be careful in their risk assessment. A high value loan for a CryptoKitties cat is a sign that the industry may be working through those hurdles.
In another interesting development, digital artist Beeple is selling NFT art pieces that will be accompanied by digital frames displaying them. Art is meant to be viewed, and this link between the digital and the physical world may be an important step to having crypto art accepted by a broader audience.
While crypto art has been displayed in various virtual spaces on platforms such as Cryptovoxels, the opportunities for traditional display venues have been limited. Linking digital art back to the physical world may eventually lead to more exhibits in traditional museum and gallery settings.
The information provided here is for informational purposes only. This is not investment advice and should not be treated as such. Strategic Round Capital and/or the author of this report holds a position in BTC, ETH, YFI.