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Today’s “Markets Daily” starts with a minute of markets updates, followed by two deep dives into crypto sectors listeners might not be as familiar with. First, RedStone Cofounder Marcin Kaźmierczak explains what’s trending in the world of DeFi, including real-world assets (RWAs) and liquid staking and yield generation, also known as LSD-Fi. Next, CoinFund Chief Investment Officer Alex Felix dives into the Web3 corner of crypto, recapping key infrastructure improvements that might propel the adoption of Web3 technologies in 2024.
Note: At 0:58, “Below $38k” was mistakenly read instead of “Below $39k.”
This episode was hosted by Jennifer Sanasie. “Markets Daily” is executive produced by Jared Schwartz and produced and edited by Eleanor Pahl, alongside Senior Booking Producer Melissa Montañez. All original music by Doc Blust and Colin Mealey.
Audio Transcript: This transcript has not been edited and may contain errors.
JENNIFER SANASIE:
According to CoinDesk Indices, at 8 a.m. Eastern time, bitcoin was trading down over 4% in the past 24 hours, dropping below $39,000 for the first time in two months. Bitcoin has since regained slightly, sitting at $39,011. Ether has fared a little worse, falling nearly six and a half % over the same time period, to $2221, returning to its price levels prior to the spot bitcoin ETF approvals. It was certainly a red day for crypto assets: Other major tokens continued to slide, including Solana and Avalanche’s AVAX, both down 9%, while Cardano, Dogecoin, PolkaDot and ChainLink all fell around 7%. Today’s ‘Mover’ in the CoinDesk Market Index is Merit Circle, ticker MC, down 19% on the day. In traditional markets, both the NASDAQ and the S&P 500 rose slightly in Monday’s trading session, with the S&P 500 reaching a record high for the second consecutive day. And in commodities, the Brent crude oil benchmark was trading at 79 dollars and 42 cents a barrel. Meanwhile, gold was trading at $2026 dollars an ounce.
MARCIN KAŹMIERCZAK:
Hi, everyone, I’m Marcin. I’m cofounder of RedStone Oracles and Warp Contracts I come from Poland and been in crypto since 2017. My expertise lies in DeFi and everything that is degen-oriented as we build oracles. So our clients are usually DeFi protocols. So the biggest questions our clients have been asking us in 2023 is whether RWA is going to be taking by the storm DeFi in 2024, especially if the interest rate go down. And if LSD-Fi is going to be one of the breakthrough for the next summer of the industry. In 2023 we’ve seen low interest on DeFi applications such as other compound, therefore, people looking into traditional finance assets to generate the yield. That’s the reason real world assets or RWA has been such a big thing in 2023. Going into 2024, if the bull market returns and the DeFi yield goes up, for sure these assets backed by RWAs are going to be not as hot as before. But what’s important, they are going to be always present. Because before 2023, we haven’t haven’t had them available. One thing I hear our clients talk more and more is the combination of the DeFi applications and yield and the real world assets and then TradFi exposure. So one application I envision that is going to emerge in 2024 is like an automated protocol or strategy that balances your asset between DeFi strategies and TradFri strategies in a permissioned way. So far, we’ve been usually choosing between either, what I envision in 2024 is an automated pool that goes to their most performance strategy based on for example, the last week yield that has more performance. Ethereum has proved to be the layer for computation, also with all layer 2s building on top of it. So the demand for ETH, and the overall trend for the network is going to keep upwards. The fact that ETH is going to appreciate and be as a king for DeFi and blockchains doesn’t mean that Solana doesn’t have to keep up the pace. Solana is a very interesting concept with its performance execution and different value proposition for material. But it’s Ethereum that is the home ground for majority of the TVL, so total value locked, and the liquidity in the space. In my opinion, Solana will keep increasing its value of the whole network. But the Ethereum narrative with all the other tools such as Scroll, Arbitrum, Optimism, Polygon that will drive the value for that ecosystem. There is no secret that if bitcoin goes up, the whole market goes up as well. The thing is, Ethereum usually appreciates faster than bitcoin because it’s at the lower bar at the moment. If both of these assets go quickly up, then people look for another strategy. So go to altcoins. And then it spreads out to ever smaller market cap tokens. However, with the lower cap comes bigger risk. So in my view, the biggest winner, at least for the beginning of the next bull market is going to be ETH and Ethereum because of the whole LSD-Fi space, altos they’re building on top, and the eigen layer and risk taking that has been a big narrative at the end of 2023, and is going to be in 2024. But once the bull market hits, then the altcoins are going to be the ultimate winners.
ALEX FELIX:
Just to introduce myself quickly, I’m Alex Felix, managing partner and chief investment officer at CoinFund. CoinFund was founded in 2015, focused on investing solely in the Web3 and blockchain-adjacent markets. To touch on some of the infrastructure improvements over the past year and to think about what we see going forward, we’ve made a lot of progress. When we rewind, just a couple years ago, we really had blockchains, which are great state machines. We had oracles which help inject data into blockchains. But what do we not have? We didn’t have databases, we didn’t have sophisticated data availability, which is very helpful for scaling use cases and blockchains. And over the past couple of years, we’ve started to see those layers be developed. More specifically, mutable but immutable data, you know, we need dynamic Web3 data that’s also decentralized. And in that layer is really just coming together that looks similar to Amazon Web Services and ways that people can use data storage in more useful applications. We also see more at the middleware layer as it relates to user experience. And this has been a big challenge throughout the years is, how do I start to take control of my wallet my bearer identity, my bearer assets and my data in order to control them and provision them in Web3 products and services. And this year, we finally see improvements that allow people to onboard seamlessly and that user experience improvement should lead to more consumer adoption, as we look forward in a safer way that people can use the infrastructure. So you know, thinking about what’s next, you know, what we’ve seen a lot of improvements in, or the early inklings of, is modularity. This is breaking apart consensus, settlement, execution and data availability into different layers, so that people can start to offload some of the infrastructural requirements of trying to run an application and what that also requires on the infrastructure side, but choose and be customized in what their needs are for those specific applications. So we see kind of those three competing approaches out there now. We have the monolithic blockchains, the Ethereum and Solana architecture, we have the verticalization and vertical scaling, you know what we’re seeing in layer 2s and rollups on top of Ethereum. And then we have more modular approaches that we’re seeing from ecosystems like Cosmos, new entrants, like Celestia and others that are helping to route different things. And both interoperability of assets and data has improved dramatically. So as the ecosystem grows, it’s also becoming more cohesive, a little less tribal, even though that tribalism does exist beneath the surface in terms of you know, which layer one you might be starting on, or which you know, trading infrastructure, you want to base your liquidity on. To talk about the more technically specific real world use cases, as well as some of the more general use cases that we foresee going forward, we tend to have a couple irons in the fire there. And it’s hard to know exactly what’s going to work and why. So we really like to stay smart and stay on top of where application developers are taking us and starting to look at the data. The data has been slow this past year, you know, not a whole lot of engagement. But I think things are picking up as you see more of these prizes and airdrops for testing and trying out new applications and infrastructure. So we will start to get some more durable data. What does retention look like? What is ARPU look like? What does engagement, monthly active users, start to look like for some of these use cases. And to focus on you know, sort of the more technical area of real world adoption, we see a couple different avenues. One is tokenization, you know, big theme, how do we get more assets into the Web3 economy, it’s a microcosm. It has its own GDP, you know, we need more asset value to make applications more useful. And for people to spend more money within the Web3 economy, we think about the intersection of Web3 and AI. This is a very important topic. I know a lot of people have thought, well, AI is gonna be huge, but what is you know, crypto or Web3 matter for AI to be big. And it’s really the governor, it’s really the counterweight or thing that actually makes AI safe and AI verifiable. So we’ve been doing a lot of work in that intersection, whether it’s vector database embeddings, whether it’s, you know, decentralized marketplaces. It’s about the data pipeline, and you know, can we dissect that they are AI generated versus non AI generated, stock market went down, you know, $500 billion when someone released an image of the Pentagon on fire, but it happened to come from AI. So I think we’re just at the beginning of, you know, why crypto and Web3 will help to verify AI. Things like, zero knowledge proofs are extremely important, you know, in solving that use case, and crypto has really pulled forward the advancements in zero knowledge proof technology over the past decade. When we look forward and we think about the correlation of the broader crypto markets to these underlying use cases and the ability for developers to deliver on some of these more real world use cases. It’s hard to say, price is really a signal for active involvement. As I mentioned, one big learning from this recent downturn has been that crypto has its own economy, its own GDP, and the more value you have on top of blockchains, the more commerce that can be done. So we do see price as a procyclical catalyst to activity. However, I think there’ll be a lot more dispersion. So everything that we’ve seen in the reason I believe rising tides have lifted all boats is more due to the fact that the differentiation is is quite narrow from project to project right now. And so that dispersion will come from real clear evidence and data and quantifiable ways that we’re seeing just massive differentiation in utilization of the infrastructure. Right now you see, you know, Solana and Ethereum and a bunch of alternative layer ones or layer 2s, kind of vying for leadership in that category. But when you really break it down, no one has such a tremendous lead that you can kind of label them a fang or, you know, kind of take a 10 year bet and stick it away and close your eyes because cryptos history is very short. Outside of some of the more well known projects, Bitcoin, Ethereum, and Coinbase, everything’s less than six years old.
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