EA opportunity: Cryptocurrency and DeFi

post by Samuel Shadrach · 2021-10-07T15:58:55.879Z · EA · GW · 1 comments

Contents

  What is DeFi?
  Earning potential for founders
    capita?
  Earning potential for investors
  Culture
  Hypergrowth
  Is crypto net-good for humanity?
None
1 comment

As someone who has recently taken a break from the "decentralised finance" space, I thought people here might be interested in the tremendous earning potential that exists there. It's significantly higher than your average tech startup imo.

What is DeFi?

I'll link articles cause I'm lazy

https://www.lesswrong.com/posts/nMNi86hgNjaNnh8iu/a-whirlwind-tour-of-ethereum-finance [LW · GW]

https://thedefiant.io/defi-101/

Earning potential for founders

Here's a list of the richest folks in crypto at the moment.

https://news.bitcoin.com/worlds-wealthiest-annual-ranking-now-lists-12-crypto-billionaires/

Here's a list of the top DeFi protocols. 

https://www.coingecko.com/en/categories/decentralized-finance-defi

That's a sum total of over $100 billion in market cap, with the top 50 protocols all above $300 million in market cap each.

Per capita?

Assume on average each protocol has about 25% of tokens allocated to founders. Assume each protocol has a core team of 5-10 people who own the lion's share of these tokens. (Yes, teams are that small, atleast the core team who own most tokens)

Averaging it all out, that's about 500 people generating $100 billion of value, of which they own $25 billion, amounting to $50 million per person. Which is insane.

Even if you take a conservative view that your 10-member team's protocol will only hit $300m market cap, that's $7.5 million per person.

What about failure rates?

coingecko has about 350 DeFi protocols listed, and they list anything that is not a straight-up scam. That means getting into top-50 is a 1-in-a-7 chance. More so if you're smart.

Earning potential for investors

I didn't work on the investment side, although I had some contacts. Investment funds capture tremendous value too - if 25% of tokens belong to founders, 75% belong to investors - both retail and professional. Sam Bankman Fried probably being the most popular example in this forum.

There's high-frequency trading and miner-extractable-value (MEV) capture, market-making, seed stage investments into protocols, and general funds that look for undervalued protocols and assets.

Imo seed stage is most profitable. MEV is probably the most fun.

Culture

Crypto has a highly remote meritocratic culture. If you're smart you can make it. No boring interviews, no university degrees mandatory, geography not critical, no feudalistic insider classes (not yet anyway). 

It's also quite fun in some ways, community on twitter is full of both users and developers and is one of the most interesting I've ever come across. 

I personally was offered the chance to work at Rari protocol - a lending and borrowing protocol run mostly by 17-20 year olds still in high school / university. Compensation I was offered over 4-year term is worth about a million dollars at today's prices. And I was a nobody, a 20-year old from India shitposting on twitter, publishing my insights until I could prove I understood technical concepts well. (I finally denied the compensation for unrelated reasons, but that's a separate matter)

Hypergrowth

Crypto protocols are in hypergrowth, because you just need to ship code and build communities. No legal work, no incorporation, limited server-side infra to maintain, nobody's permission to ask.

Is crypto net-good for humanity?

I honestly don't know, and it's one of the reasons I took a break. You will encounter a lot of scammy behaviour, a lot of retail investors being sold false promises. You may have to stay quiet on some matters to avoid career risk. It's definitely interesting, and is probably a net-positive from an earning-to-give perspective. (i.e. you may be able offset any harms with the profit and how you use it)

Further analysis of benefit versus harms may be worth doing though. Immediate harms are climate impact and being bystander to scams. Climate impact is very easy to offset in dollar terms, although ofcourse offsetting in dollar terms doesn't solve the systemic issue.

1 comments

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comment by --alex-- · 2021-10-08T16:12:09.655Z · EA(p) · GW(p)

Wow! Thank you for this fascinating write-up!!

I've met folks at Complexity Weekend and RadicalxChange working on DAOs, NFTs, blockchain and crypto-related activities. Definitely something for EAs to explore...