Dispatch #68: Crypto 2021 Wrapped, Part Two

In this patch of your weekly Dispatch:

• Bringing you a look back at the year that was
• The second theme is NFTs, DAOs, and the metaverse
• Check out last week’s part on regulation and institutions

The Big Idea

The Metaverse, Year Zero

In Part Une of Dispatch’s year-end review, we showcased the influx of institutions into the crypto space, as well as the growing focus on the US and global regulatory policy regimes. This week, we’re looking at the loudest and perhaps most surprising theme of crypto in 2021: the emergence of the metaverse.

Of course, you might be rightly noting, no one has a proper definition of what the “metaverse” really is. It happens on the internet and looks to be crypto-powered, that’s for sure. It seems to have something to do with NFTs. DAOs might be its preferred method of organizing. And whatever it is, Zuckerberg wants into it.

What’s certain is that 2022 is going to be absolutely dominated by this new area of focus in the crypto industry and its intersection with DeFi into something we call #MetaFi. Let’s get a sense of what that means.

The Year In…

NFTs

Coming into 2021, NFTs weren’t high on most people’s radars as a potential theme for the crypto markets. Sure, a subset of the community had been exploring the “non-fungible” side of the token space for years. There had even been some early experiments (Rare Pepe’s, CryptoKitties, etc). But it certainly wasn’t a dominant theme.

Indeed, as Dapper Labs (the company behind CryptoKitties) got ready to bring NBA Top Shot to market last fall, they explicitly didn’t use crypto terms like NFTs to describe it, for fear of scaring away normies. Top Shot would go on to become the first breakout NFT project in a year of breakout NFT projects.

Its success was soon followed by a burst of excitement around PFP (profile pic) projects like Crypto Punks – one of the earliest NFT communities. By the end of March, Pete Davidson was rapping “What the Hell’s an NFT” on Saturday Night Live.

A cooling, and then another wave of excitement followed, culminating in August – a month that saw more than $3 billion in NFT volume. Throughout the summer and fall, musicians and athletes released their custom collections, further driving NFTs into the mainstream.

And to bring a level of financialization into the whole thing, we at Nexo dived deep into NFTs, too. Those of you who saw ‘em Crypto Punks and Bored Apes coming and aped in are now among our first clients trying out the Nexo NFT lending desk. FYI, we’re also equipped with an art financing feature, so even if you’re late to the party, we can provide you with additional capital for NFT acquisitions.

As we enter 2022, the focus in NFTs is increasingly shifting to how they will play a role in metaverse worlds. The explosive growth in play-to-earn games like Axie Infinity is a case in point.

The Year In…

Layer 1s

The explosion in popularity of NFTs was one of the major contributors to elevated gas prices on Ethereum throughout the year. Of course, those elevated gas prices created both a narrative and a practical opening for layer 1 smart contract competitors to thrive. Solana, Avalanche have all had explosive years. Solana in particular has made strides as a credible competitor to Ethereum, with a growing network of NFTs, and big increases in developer activity. The questions for next year in the Layer 1 battles will be things like:

• How much the market puts a premium on decentralization?
• How many L1’s can the industry sustain, even in a multichain world?
• Will different use cases drive developers to different chains based on their prioritization of speed or decentralization?

The Year In…

DAOs

Like NFTs, decentralized autonomous organizations, or DAOs, have been a part of the crypto discourse for some time. Also like NFTs, 2021 will be remembered as the year that they started to hit their stride. While nascent, the use cases of DAOs are coming into focus. Two that stand out are community DAOs around NFT holder communities and funding DAOs. The second category has received significant attention around a couple of highlight moments.

One of these came over the summer as a group called PleasrDAO purchased a one-of-a-kind Wu-Tang album from the US Government (who had seized it from ex-pharma exec Martin Shkreli). Then later in the fall, a group called ConstitutionDAO came together in just a week to bid on an original first printing of the US Constitution. The group raised over $40M but was ultimately outbid by Citadel’s Ken Griffin who bought the document for $43.2M in what’s arguably the year’s biggest troll move. Still, the effort showed just how potent a force DAOs can be to organize aligned internet natives, and many are looking with anticipation to DAOs in 2022 – particularly as it relates to the US midterm elections.

The Year In…

Institutions in the Metaverse

Part of why the metaverse is such a theme this year is that it wasn’t just the crypto industry stalwarts who were picking up the banner. First NFTs and then play-to-earn games and then the very idea of the metaverse, in general, found their way into other parts of society. The institutions that had found their way into Bitcoin and Ethereum over the last year weren’t immune. Companies like Visa, Budweiser, and Adidas all made moves into the NFT space, for example.

Still, there is no doubt that the biggest move in this arena was Facebook’s late fall announcement that not only were they going to be investing billions more into the sector but that they were changing their parent company’s name to Meta. For crypto enthusiasts, this is both a validation – Facebook is after all one of the biggest companies in the world – and a challenge: Zuckerberg is not exactly known for his open-source, decentralized philosophy. Still, Facebook…errr…Meta’s move into the space sets 2022 to be something extraordinary.

The Year’s Most Interesting Data Story

The Attention Shift

One of the things that makes the focus on NFTs all the more remarkable is: while other sub-areas of crypto, like DeFi, have tended to just consist of enfranchised insiders, NFTs have been a boon to bringing people into the space. Perhaps it is that they are more accessible or visually interesting or simply in the mainstream thanks to adoption by highly visible celebrities. Whatever the case though, it seems likely that NFTs will become one of the first splinters of the larger crypto industry that has lots and lots of users who don’t even care about the “crypto” stuff happening underneath. As we see from Google search trends, the flippening of interest is already upon us.

Tweet(er) of the Year

The Threads of Punk 6529

The rise of NFTs created an entirely new class of anon avatar thought leaders, whose preferred mediums are Discord, Twitter Spaces, and of course: Twitter threads. Of those, Punk 6529 stands at the very top of the heap.

What to Watch for Next Year:

• Will a new category of NFTs capture the community’s imagination?
• Can play-to-earn games continue their meteoric rise?
• Will we see a SuperPAC DAO during the American elections?