Here Comes the Open Lending Era

In 2020 we finally saw some of the nearly decade-long blockchain hype fulfilled and the legitimate building blocks of a next-generation banking system emerge. 

Open finance, and specifically open lending, has exploded to well over $10 billion this year. This growth has catalyzed a new source of funding for market participants ranging from individuals to corporates to hedge funds. It has also created a new source of liquid “digital yield” for investors, corporates and savers starving for an alternative to the perpetual 0% offered in legacy systems.

This post is part of CoinDesk’s 2020 Year in Review – a collection of op-eds, essays and interviews about the year in crypto and beyond. Alex McDougall is co-founder and chief investment officer of Bicameral Ventures.

The open lending landscape is formed by decentralized and centralized platforms that pool fiat assets and lend them out against collateral posted as digital assets. 

A hallmark of this space is extreme flexibility to lend and borrow at any term, in any currency, at any size, with any level of direct collateral, for any period of time (even on a block by block basis). This ability to customize at low scale opens up an entire “yield-as-service” or capital-as-a-service industry of bespoke solutions tailored for anyone looking for yield or flexible borrowing. 

There is one burning question: Is this real? In 2020, the entire digital asset market took a meaningful step forward in maturity. As part of this ongoing evolution, institutional grade financial infrastructure needs to be developed. In 2020, through an influx of capital and talent, open lending stepped up its game and grew from a fringe use case to a burgeoning engine powering the next phase of the digital economy. 

The fundamentals

Think about an open lending platform as a super simple, super transparent bank. Banks take in deposits, keep a tiny amount on hand for liquidity and lend the rest out in a complicated and opaque quest to find a spread. 

Banks will undertake all sorts of strategies in the great quest for yield including derivatives and esoteric combinations of loan products. Depositors generally don’t think too hard about what the bank is up to with their capital given their deposits are mostly insured by the FDIC. Banks themselves don’t think too hard about it either as governments have proven extremely willing to bail them out if they get the math and modelling wrong. 

Open lending, on the other hand, is built from the fundamentals of blockchain: transparent, open and in real time. At their core, open lending platforms are performing similar functions in that they are taking in funds from lenders, retaining a certain amount for liquidity (usually closer to 20%) and lending the rest out. 

The key differences between open lending and traditional banking lending products:

  • Loans are generally collateralized between 100%-300% by liquid digital assets versus collateralized by illiquid or no assets at all.
  • The net interest margin is mostly transparent and passed on to the actual lender versus kept as profits by the bank.
  • The majority of transactions, balances and liquidity can be seen in real time on the blockchain versus reported months later on financial statement.

The comparison on its surface boils down to:

  • Traditional Banks: 0% return, tiny liquidity reserves with limited transparency, poor governance fundamentals and very closely guarded underwriting practices but balances are insured.
  • Open lending platforms: 8%-10% return, greater and transparent reserves, better governance fundamentals, simple underwriting practice founded on highly liquid collateral but balances are not insured.

Open lending may be relatively basic today, but at its best it offers the building blocks of an entirely re-shaped financial system built on transparent, liquid and open fundamentals. 

Decentralized fundamentals

Within decentralized finance (DeFi) there are four key segments, open lending (~45% of the market), decentralized exchanges (~30%), derivatives (~10%) and the rest is miscellaneous. As is expected when you create platforms that are fully transparent, borderless and entirely automated, when you release them into the wild weird stuff happens, especially when these markets interact with each other. 

Where there are no frictions and easily accessible short-term leverage, there is nowhere to hide bad code, bad logic or bad risk management. The majority of “hacks” that we’ve seen in the DeFi space have been, quite frankly, ingenious manipulations of this decentralized, automated logic to arbitrage gaps in either the internal logic of platforms or between rules of two or more automated platforms. 

While this may sound intimidating, it is not meant to be. It means that suboptimal platforms fail almost immediately as hundreds of thousands of users try to poke and prod at their infrastructure for their own gain on a 24-hour cycle. 

In 2020, the entire digital asset market took a meaningful step forward in maturity.

See also: DeFi Startup Brings Corporate Lending Terms to Miners, Traders and Market Makers

This is as compared to the “traditional” world where rules, regulations and frictions ensure safety, but also that often opportunities are only able to be exploited by those with the biggest accounts, fastest connection speeds or best relationships. This isn’t even touching the “too big to fail” problem where governments have frequently bailed out banks that have proven to be poor stewards of capital and by doing so removed the majority of market discipline. 

This has a very profound implication: If an open-sourced, transparent and decentralized finance protocol has a meaningful wall-clock time, it is very likely “fair.”

Fair establishes excellent fundamentals, but it doesn’t mean perfect. In the open lending space there are meaningful gaps in what the technology can enable in a true purely automated fashion. Key among the limitations of decentralized open lending platforms are:

  • Risk-based collateralization: In the DeFi world, your collateral is the platform’s underwriting. Anyone who shows up to Compound with $100 of ETH can borrow exactly $75 of USDC as calculated by the protocol, not a penny more or less. This is both wildly refreshing from an inclusion perspective but also inefficient and exclusive in its own way as it limits access to capital to only those who have collateral to post. There is enormous potential as we build tools that allow more discretion in autonomously underwriting specific borrower risks based on provable, on-chain risk factors.
  • Across-chain and off-chain integrations:  No decentralized platform can currently allow me to borrow fiat against BTC collateral. I can borrow a U.S. dollar stablecoin against an Ethereum wrapped version of BTC (or soon native BTC) as a proxy. But every wrapper or abstraction layer adds risk and complexity and is never as functional as the underlying asset. There again is enormous value in mixing and matching what assets function as collateral and what assets I can remove from the platform against that collateral.
  • Direct posting of collateral: This is a nuanced point, but in on-chain lending pools lenders do not have a direct claim over any of the collateral posted by the borrowers. You have a claim to a certain amount of assets from within the pool but you are relying on the automated interest rate, margin call and liquidation mechanics to ensure that borrower risk is being managed and that there will be sufficient funds for you to withdraw when you need to. This is extremely efficient as all collateral is automatically rehypothecated (when deposit institutions re-lend or reuse customer collateral) and redeployed within the pools to fund loans and withdrawals leading to higher yields and lower borrow costs, but it is a very different paradigm than many institutional lenders are used to operating in. 

See also: What Crypto Lender Celsius Isn’t Telling Its Depositors

Best of both?

Into this decentralized functionality gap step the centralized open lending players. At their best, these players are taking the “fair” best practices from decentralized platforms of transparency and algorithmic risk management and leveraging their centralized authority to fill in the limitations outlined above. 

At their worst, though, centralized lending platforms can recreate the worst pieces of our existing financial infrastructure by creating opaque, over-risky, relationship-based, unauditable systems that cannot withstand the stress of a volatile market. There are illuminating examples of every flavor ranging from the reassuring (BlockFI and other platforms having zero losses despite a ~55% reduction in collateral value in March) to the unnerving (Cred’s murky bankruptcy proceedings in November). 

The best in the business follow a few best practices:

  • Algorithmic underwriting: All collateralization and underwriting methodologies should be as algorithmic and transparent as possible with clear data-driven risk ratings that do not have exceptions. 
  • Transparent rehypothecation: Rehypothecation is the act of utilizing assets that are pledged as collateral either for re-lending or to fund withdrawals. All rehypothecation practices should be transparent, traceable and rigidly enforced (ideally with the borrower receiving direct interest credit for their collateral like on decentralized platforms). 
  • Automated unhealthy loan procedures: Margin call and liquidation practices should be automated and without exceptions as digital assets never stop trading.
  • Automatic pool sizing mechanics: Utilization rates (i.e. the amount of borrowed funds that are lent onwards, effectively the reserve ratio) should be transparent, targeted and adhered to and interest rates changed algorithmically to ensure that the pool to fund withdrawals stays sufficient (ideally with interest rate algorithm being disclosed publicly as on decentralized platforms like Compound). 
  • Transparent Pool Balances: Pool sizes should be visible on-chain and wallets should be disclosed to leading Block Explorers to allow real-time external auditing, although it is acknowledged that privacy of individual lenders and borrowers does need to be considered. Celsius’ recent partnership with Horizen to explore zero-knowledge proof of reserves is an evolution in this vein.
  • Isolation of risk: Funds loaned into the pool should avoid being commingled with funds for other pieces of the business. Further, the terms and conditions or master loan agreement should specifically state that all lent funds will be used for pooled lending purposes.

See also: NLW – Why Bitcoin and Rehypothecation Don’t Mix

Where do we stand?

There are several key factors that need to be understood to properly evaluate centralized platforms:

Rehypothecation is frequent and necessary

Given the high liquidity and high fungibility of the collateral posted, rehypothecation is somewhat more straightforward than in the more-bespoke, less-liquid collateral scenarios seen in traditional prime brokerage situations. Also given the extreme overcollateralization prevalent in the industry, rehypothecation is a critical piece of the business model and necessary to maximize returns, minimize borrow cost and maintain the “open term” liquidity of the platforms. 

Collateral practices do vary by platform and by borrower

Most platforms have an institutional desk that will have a more flexible collateralization policy than the two to three times overcollateralization that is the industry standard. This is because the institutional desk is doing additional diligence and risk rating these borrowers. In a vacuum there is nothing wrong with this, but it does enhance the counterparty risk given it is additional, non-transparent discretion given to the platform operator and these practices need to be well understood. 

Characterization of relationship is not consistent

The relationship between a “lender” and the centralized company running the lending pool can either be terms of service based more akin to a technology platform, or master loan agreement based and more akin to a traditional financial instrument. There are important distinctions between the two, and properly characterizing your relationship with the party governing the platform is critical to proper evaluation of risk.

There is fluctuating willingness to post collateral directly to a lender.

There is willingness by centralized platforms to post collateral from the pool directly in the name of the borrower in exchange for a reduction on yield. This yield spread is a function of what the collateral is and the opportunity cost of that asset within the platform and varies by platform. However, there are certain platforms that, as a rule, do not post collateral and maintain it exclusively within the pool. As a rule of thumb, it generally costs between 2%-6% to fully collateralize a stablecoin loan with BTC collateral.

See also: Haseeb Qureshi – The DeFi ‘Flash Loan’ Attack That Changed Everything

Maturing market

In all, our takeaway from the open lending industry is that in 2020 it started growing up. There is a ton of work to do on transparency, messaging and optimizing risk controls, but there is legitimate business activity happening in this open lending space. 

From trading, to hedging, to working capital, to treasury, tax and capital call management there are serious teams running serious operations, particularly at the institutional grade lending platforms. Decentralized platforms have shown the way and created “counterparty risk free” lending pools with total transparency, now it’s time for their centralized counterparts to leverage these fundamentals and continue picking up the slack to create the institutional grade money market industry and new generation banks we all need. To be clear, it’s happening, and rapidly. 

The building blocks of the next generation of financial services are in view. With careful, thoughtful analysis of the right factors and with careful diversification across technology and counterparty, forward thinking investors and borrowers can meaningfully improve their bottom line and risk-adjusted returns without sacrificing liquidity in a way completely inaccessible to those not willing to lift up the hood and dig in. 



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Author Ben Mezrich on Capturing the Winklevii and Plans for a ‘Bitcoin Billionaires’ Movie

What do you know about Mark Zuckerberg? What about the origins of Facebook? Or the Winklevoss twins? Odds are you first learned about them from “The Social Network.” And that film was based on the book “The Accidental Billionaires,” written by Ben Mezrich, who – in a remarkable bit of savvy – sold the movie rights before he even finished the book.

This is Mezrich’s specialty: sniffing out the big stories that seep into the zeitgeist. He pulled the same trick with blackjack (“Bringing Down the House,” later adapted into the movie “21”), UFOs, wooly mammoths and, most recently, bitcoin.

This post is part of CoinDesk’s 2020 Year in Review – a collection of op-eds, essays and interviews about the year in crypto and beyond. This interview with Ben Mezrich, author of “Bitcoin Billionaires,” has been condensed and lightly edited for clarity. 

Mezrich returned to the world of the Winklevii with “Bitcoin Billionaires,” the book that introduced the story of the Bitcoin system (through the prism of the Winklevoss twins) to a new mainstream audience. And as 2020 draws to a close, Mezrich seems to have caught a bit of crypto fever, relishing his role as a Bitcoin Bull. “Bitcoin 20K! Now everyone who ever bought bitcoin and held has made money,” he tweets, noting that “Ain’t nobody talkin’ bout tulips anymore.”  

The author’s influence goes beyond Twitter. In early 2020, in what feels like 37 years ago, Mezrich worked as a writer on Season 5 of “Billions,” helping the show nail its crypto arc and nudging the storyline further to the mainstream. From the way Mezrich gushes online about bitcoin, you’d assume a good chunk of his assets are pegged to BTC and that he’s on the cusp of buying Lambos. 

The exact amount of his holdings? 

“I don’t own any bitcoin,” Mezrich tells me in our wide-ranging conversation. “I’m sure my book inspired a lot of people to buy it. And a lot of people are going to get a lot richer than I am because they read my book. And I’m happy for them.” 

Mezrich is not into bitcoin to get rich but to help tell its story. And this he does well. From his pandemic-getaway home in Vermont, he explains how the Winklevoss twins are misunderstood, why “mining is one massive mind-f**k,” shares some behind-the-scenes nuggets from the writing room of “Billions,” teases that Armie Hammer might reprise his role in a movie or TV adaptation of “Bitcoin Billionaires,” and floats the possibility of a sequel to “The Social Network.”

Let’s start with the twins. 

How’d you first get involved in the world of crypto?

Ben Mezrich: So when I wrote “Accidental Billionaires,” that started as a random email in the middle of the night, from a friend of Eduardo Saverin’s. It was just: ‘My best friend founded Facebook, and no one’s ever heard of him.’ And when I started writing that book, I reached out to the Winklevoss twins. When I first met them, they were the bad guys, or at least that’s how I viewed them. They were the big jocks, dressed up in skeleton costumes, chasing the Karate Kid around the gym. But the Winklevoss twins were incredible sources, and I stayed in touch with them.

A lot of people are going to get a lot richer than I am because they read my book. And I’m happy for them.

They actually came to the movie premiere. Even though they didn’t love everything about their portrayal, at least their story was being told. So we got along very well. I thought they were very honest people, but I really only saw them in one light. I knew nothing about Bitcoin [the blockchain]. People over the years have said, “You should write about Bitcoin,” but I’d never been interested in writing about it because, honestly, it just sounded like math. I hate that word “blockchain.” And I didn’t really know the story. Then, years later, my wife saw a headline that the Winklevoss twins are the first bitcoin billionaires. [In an article from The New York Times’ Nathaniel Popper.]

And that’s a total curveball, right? 

Mezrich: I thought, “Wow, that’s strange.” Because I assumed you’d never hear from these guys again. And then I see them as billionaires suddenly in their own right. And I thought, “Okay, now that makes bitcoin interesting to me.” 

How have your thoughts on the Winklevoss twins changed?

Mezrich: It was sort of looking at them again in a totally different light. Not that they aren’t these big Olympic athletes who were the cool kids on campus. All of that is still true. But they’re not one-sided. These are guys who definitely understood something about revolutions, and understood something about starting a business and entrepreneurship and building something. 

And it wasn’t an accident that they had stumbled into bitcoin. Because a lot of people stumbled into bitcoin. Every one of us had heard about bitcoin, but we’re not all billionaires. What’s crazy about bitcoin is that every one of us could be a billionaire right now, because we all could have once afforded 200,000 bitcoin when it was just [worth] pennies.

What were your first impressions of the crypto space?

Mezrich: The first thing you kind of have to get through is the question of whether this is a scam. Whether this is a scheme. Or tulips. Or a bubble. And when I first got into the story, bitcoin had fallen from its height of $20,000 down to $3,000.

And then the second thing, of course, is the Silk Road stuff, and where Bitcoin came from. The people who were into Bitcoin originally were outsiders … fringe people. The people who understood it first were not mainstream people. So one of the things when I started researching was, “What is Bitcoin? What is it supposed to be? And the people who were into it at first, are they going to be the people who will take it to that next place?” 

What was intriguing about the Winklevoss twins is that they came into it from a very different perspective from the people who started it – the Roger Vers of the world. They had a very different perception of what Bitcoin is supposed to be. And that conflict feeds the whole book. 

You seem like quite the bitcoin bull. You’re optimistic about the space?

Mezrich: I don’t own bitcoin. I have missed out again and again and again. If I had taken my book advance in bitcoin I would be retired right now. [Laughs.] I would have had made six times my money. And I kick myself every day because I don’t have any bitcoin. 

I never would have guessed that!

Mezrich: As a writer, my goal is not to make money on bitcoin, my goal is to tell the story of bitcoin. And I think, at first, that really was something I did purposefully. I am a big believer in where bitcoin is going, and I love the fact that people are going to get wealthy off of it. And I think that we should be happy when people take a risk and succeed because it’s inspiring. People were willing to take a risk, and they were smart enough to look at it the way other people didn’t. And everyone was telling them they were wrong. I love that. I love that Silicon Valley didn’t get it. And I love that the mainstream economic world just didn’t understand it. 

I didn’t buy any Facebook stock either, and I was in on that story before the IPO. I’ve written a lot of stories that have made a lot of other people rich while I stay in Vermont and watch them get rich. If some hedge fund was smart enough to just hire me, I could sit in a room and tell them what they should invest in.

Ben Mezrich with the Winklevoss twins.
(Russ Mezikofsky)

They should totally hire you!

Mezrich: They should! You should tell them that. Tell them in your article I’m available. Just put me up in an office and I’ll give you a couple of ideas. 

You’re kind of like the “anti-quant,” you’re like the “qualt” for extremely qualitative analysis. 

Mezrich: Exactly.

The qualts are the guys who come in, think of book ideas, and that’s where you put your money.

Mezrich: It’s really true. I mean, listen, I was in on DraftKings before DraftKings appeared. I wrote a book called “Straight Flush” about the online gambling world. I wrote a book called “Woolly” about the woolly mammoth coming back to life, and it’s all about genetic engineering. I mean, I’ve been on the verge of a lot of these stories because I’m looking for revolutions every time. It’s cool to see these things happen. And it’s neat that with bitcoin, I’m actually able to watch in real time. Right now it appears to be finding this mainstream voice, which is amazing.

What’s your process for finding story ideas?

Mezrich: Most of my main stories have come to me just luckily and randomly. Someone calling or emailing or messaging me on Twitter, just finding me and pitching me a story. That’s where a good three-quarters of my stories have come from. I’m also always on the lookout. But it’s really tricky. I can’t just write a good story. It needs to be big enough that everyone in the world is going to want to read it, that Hollywood is going to want to make a big movie about it. 

They were the big jocks, dressed up in skeleton costumes, chasing The Karate Kid around the gym. But the Winklevoss twins were incredible sources, and I stayed in touch with them.

Every book I’ve ever written, I’ve sold the movie rights before I sold the book rights. For every project I do, I write a treatment, I sell the Hollywood rights and then I write the book. And I won’t write a book if I don’t think it can be this huge international movie or whatever. So the stories have to be big. They have to be woolly mammoth big. 

See also: Jeff Wilser – Addicted to Crypto?

What stories have you tried to get but it didn’t quite work out?

Mezrich: I’ve tried to get to [Tesla CEO] Elon Musk because I’m fascinated by someone who breaks all the rules and changes everything. I think that’s a story that I would obviously want to write, and I think I’d be the right person to write it. But I haven’t heard back from him.

I don’t know what the next thing will be but I always have my eyes open. When someone pitches me a story, I have a checklist in my head of what I’m looking for. And one of the important things is having access. So when people just tell me, “Oh, you should write about this, or you write about that,” that’s kind of useless, because I’m not going to throw my hat in the ring with 100 other journalists and chase someone down the street. 

What do you mean exactly?

Mezrich: That’s not the kind of writer I am. I have to have specific, unique access to the story. Like Eduardo coming to me to tell the Facebook story, or the Winklevoss twins willing to tell me their story. I need that because I’m not a journalist. I’m not a newspaperman. I have friends who are very good newspapermen, and what they do is something I can’t do. I can’t track things down. I can’t chase people down. It’s not what I do. I’m the person who translates someone’s story into a book and a movie.

I love that self-awareness. What else is on that checklist of yours when you’re looking for a good story?

Mezrich: The first thing is the elevator pitch. With “Bringing Down the House,” it was the perfect one-sentence: “Six MIT kids who took Vegas for millions.” You can’t get better than that. It literally was a true story about six brilliant math kids, who took down Las Vegas. Beautiful. And so for every book, I’m looking for that. I need to have that one-sentence. It’s got to be that simple. 

Second, it has to be big. Vegas. Wooly Mammoth. Facebook. Bitcoin. It has to be something that everyone in the world has heard of, but they don’t already know the story. 

And the next thing is you have to have access to the story that no one else can have. Those are the main things. 

What are some stories that you almost wrote, but it didn’t work out for whatever reason?

Mezrich:  I’ve been pitched so many amazing stories over the years. I’m trying to think of the famous ones. [Pauses. Thinks.] Charlie Sheen’s people came to me. And I thought about that. And then my wife was like, “You can’t spend a year with Charlie Sheen.”

Smart lady. Let’s talk about “Billions” and its crypto arc. How’d you get involved? 

Mezrich: It was over Twitter, to be honest with you. So I knew Brian Koppelman and David Levine, who make the show. Not personally. We had kind of known about each other, but never really met. And then Brian called me up to talk about “Bitcoin Billionaires.” He was intrigued and wanted to know what the movie situation was, all that kind of stuff. So we were just chatting about that, and he asked if I’d ever written for television before. And I was a huge “Billions” fan. 

Charlie Sheen’s people came to me. And I thought about that. And then my wife was like, ‘You can’t spend a year with Charlie Sheen.’

Amazing. What was it like working in the writer’s room?

Mezrich: It’s really cool. Part of what I think I was there for  – and why it worked so well  – was that I live with these people. I’m not just a writer from LA. I know billionaires. I know private jets. I know that world because that’s what I’ve been writing about, and been involved with, for the past 20 years.

The show did a good job translating some blockchain and mining concepts. How’d you crack that?

Mezrich: I had some great connections to real people [in the blockchain space] that I met through the twins and others. So we were able to work with consultants who really knew what they were doing to try and put together a mining rig, or a multi-mining rig. It needed to look as real as we can make it. “Billions” is an incredible show in that it works so hard to get the details right. 

What were some of the toughest crypto concepts to translate to a broad audience? 

Mezrich: Well, it’s the mining. Mining is one massive mindf**k. I mean, we all know that. To try and explain mining to my mother is physically impossible. It’s just not gonna happen, right?

Mezrich: Like, I’m too old to understand mining. If you’re over the age of 40, it’s very hard to understand what the hell is going on, right?


Mezrich: And no matter how many times you explain it, it still doesn’t really translate. And so that was tricky. And also the word “blockchain.” What is “the blockchain?” Good God. I mean, that word is thrown about in every industry now. And I guarantee you, 80% of people are using it incorrectly. It’s just not an easy concept, and it never will be. 

And there’s another reason why I am so impressed by people who are into Bitcoin, and into it early. They were understanding very complicated things. The way I understand Bitcoin is actually quite simple: peer-to-peer, electronic money, nobody in between. It’s a simple, simple concept. But then as I did my book tour, people would be asking me questions that just had nothing to do with that. About nodes, right? Nodes. What the hell is a node? All of these things that, obviously, I should understand, but that’s not part of my story.

That must be a constant dilemma, how technical to get in stories?

Mezrich: When I wrote the Facebook story, it was very similar. You could get very complicated in writing that story. That’s never been my goal. I never wanted to have Mark Zuckerberg sitting in front of a computer, other than looking at a simple screen and coding. Similarly, I never wanted to have the Winklevoss twins or Charlie Shrem or Roger Ver or anyone talking about nodes, because it’s going to kill your audience. 

Any plans to return to “Billions”?

Mezrich: So, Season Five got split in half. It got interrupted by COVID-19. I don’t know when that’s going to start filming again, but I think I’m technically a consulting producer on the second half as well, because those episodes were already written. But I’d be happy to write for the show any time Brian and David wanted me to. I just had such a wonderful experience. 

What are you working on now?

Mezrich: I wrote a serialized novella in the Boston Globe in May, it was like a “Da Vinci Code”-style thriller.

This is “The Mechanic,” right?

Mezrich: Yeah. And it was very successful; we had hundreds of thousands of readers. It was an incredible experience where I literally wrote a chapter, handed it in and it was in the newspaper the next day. I wrote the book in basically two weeks. It was a really crazy experience and I ended up selling the book. It’s actually going to be two books: one coming out next fall and one the following year. And then I sold the movie to Spielberg, to Amblin [Amblin Entertainment], and I’m writing the screenplay.

Not a bad gig!

Mezrich: Oh, no pressure at all, writing a screenplay to Steven Spielberg! It’s a little terrifying, but I’m working on the screenplay for Amblin. The goal is for it to be a big feature movie and a big franchise book. And if it does what I hope it does, I hope to be writing a lot of these. I’m really fascinated by it – reinterpreting history in ways that people don’t realize “this is how things actually happened.” 

What can you tell us about a possible “Bitcoin Billionaires” TV or movie?

Mezrich: It’s at

Is there any talk of getting Armie Hammer to reprise his role as the Winklevoss twins? That would be incredible.

Mezrich:  I would love to get Armie. I think the twins would love to see Armie do it. I think Armie is just a phenomenal actor, and he’s become iconic and that’s a part he was born to play. So I’d love to see it, and there’s not that many actors who can play the Winklevoss twins. You could get Thor, right? [Chris] Hemsworth? There are some guys who could maybe handle it, but Armie was phenomenal and I’d love to see that. 

And if you get Armie, then it could be like the MCU [Marvel Cinematic Universe], where “The Social Network” and the “Bitcoin Billionaires” live in the same connected cinematic universe, right?

Mezrich:  Yeah. That’s the way I’ve always seen this: That Facebook was the Avengers, and we could do a sequel to Facebook, which is kind of the “Avengers 2,” but meanwhile you tell the origin stories. We have the Winklevii. And then we do Sean Parker. I would love to do a Sean Parker story. Or a Sheryl Sandberg story. 

[Beat.] I don’t know if Mark will let me do his story. He doesn’t like me so much. But there’s definitely a lot of stories to be told in that world. And I think there will be a sequel to “The Social Network.” I really do.


Mezrich: I know Aaron Sorkin wants to write it, I know Scott Rudin is interested in producing it. If they could get [David] Fincher into it, I think it would really happen. 

You’re someone who helped bring the backstory of Facebook into the public eye, and now – especially in the wake of all the lawsuits and potential regulation Facebook is seen very, very differently by the world. What has that been like for you?

Mezrich: I always say, I think we got Mark Zuckerberg exactly right and the Winklevoss twins exactly wrong. I really do think that this [the 2020 reality] is the Zuckerberg from “The Social Network.” This is what he was always going to be. He was a bit megalomaniacal, brilliant, but he wants Facebook to be in his image and how he believes the world should be, and everyone else can go screw themselves. And I think that he really and truly created the company in a way that he has that control and he has that power.  

Sheryl Sandberg [Facebook chief operating officer] is supposed to be the adult in the room, and to some extent that’s what she was attempting to be, but I think they just got caught in thing after thing after thing and now they’re in a tricky situation. And I understand this is much more complicated than people want it to be. The idea of, Are you a publishing company? Do you have to edit content? Should you be editing content?

Right. There aren’t easy answers here.

Mezrich: But I definitely think that this is where Zuckerberg was always going to take the company. His goal was to dominate the world with it and to put us all on Facebook. And we’ve gotten there to some extent. So yeah, I’m not surprised by any of it.

Predictions on how this all shakes out?

Mezrich: I don’t believe you can break up a social network. I think social networks have to be monopolies. Because if everyone you know isn’t on Facebook, then you’re not going to go on Facebook. There’s no point to it if everyone’s not doing it. So if it’s not a monopoly, it’s just a failure. And similar with Twitter. If everyone shifts to Parler or whatever, then everyone’s on that one.

Right, right.

Mezrich: But I do think there needs to be some self-policing, if not outward policing. I really think that these places just become cesspools. They become something like out of “Mad Max,” especially Twitter.  It’s just complete craziness and it brings out the absolute worst in people. 

“Cesspool” is a good word. On a more positive note, for your next project, maybe something involving AI?

Mezrich:  You know what? I agree with you. That would be cool. It’s the question of what story to tell that hasn’t been told. But if something happened in AI that I found out about … Like, if someone really made one [an AI person] and nobody realized it …

Exactly, like if we find out there’s some kind of public personality or celebrity that’s actually an AI bot?

Mezrich: That would be perfect. If you hear about that, send it my way. 

Will do. Thanks again.


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Public Blockchains Are Set to Reshape Global Commerce (2020 Was the Start)

Ronald Coase, an economist, came up with the idea that the cost and complexity of doing business in enterprises is the key factor in driving up (or down) the size of an efficient enterprise. Companies can keep getting bigger and more profitable so long as the cost and complexity of managing a process internally is lower than the cost of assembling the same pieces on the open market from multiple different suppliers.

The transaction costs that Coase talks about are not the simple matter of swiping a credit card. They involve the true cost of negotiating agreements and implementing them, tying together business rules, payments and covering the terms of an exchange between parties. Cutting a check or sending a wire transfer costs just pennies. Negotiating and implementing business agreements costs thousands of dollars. Blockchain champions who think the future is just about low-cost money transfers are missing a big part of the vision and transformative power of this technology. 

This post is part of CoinDesk’s 2020 Year in Review – a collection of op-eds, essays and interviews about the year in crypto and beyond. Paul Brody is EY’s global innovation leader for blockchain and a CoinDesk columnist.

For more than a century, information technology has made companies more efficient and better organizations. And consequently much bigger. At nearly every turn, from telegraphs to mainframes, manufacturing planning (MRP), enterprise planning (ERP) and finally the web have made it possible for companies to operate efficiently at ever larger scale.  

Industries that used to have dozens or even hundreds of companies today have only two to four dominant players worldwide. There used to be dozens of companies that made telecom equipment, for example. Nearly every European country had its own national champion, not to mention Nortel in Canada and AT&T in the U.S. Today, that same market is dominated by just a handful of global firms including Huawei, Ericsson, Nokia and Samsung. That pattern repeats itself across nearly all the world’s biggest industries.

In every case, IT has made it possible to organize companies on a larger scale and to replace individual variability in implementing processes with a systematic approach to shared information across geographic boundaries. It has also made it possible to gather and aggregate demand and flows of money into vast centralized funding pools that support enormous capital expenditures. 

The installed base of the industrialized world’s electricity and transport infrastructure alone is worth trillions of dollars, and it was all funded by taking just a few cents from each consumer’s electricity bill or gas tank at a time.

Two public blockchains, Bitcoin and Ethereum, have each, in their own way, become the dominant architectures.

Information technology was essential in managing that river of pennies to fund industrial development because within an organization, under centralized control, the cost of transactions could be kept very low. 

The New York Central Railroad, struggling under the weight of four million annual logistics invoices, became the second commercial customer for a Hollerith Punch Card Tabulating machine from the company that would, in time, become known as IBM. Customer Information and Control System (CICS) was the first large-scale mainframe transaction processing system, and it was developed by IBM to help electric utility companies manage their customer billing.  

Blockchains will transform global commerce because they are going to change the cost of transactions between firms. When that happens, firms and finance will unbundle themselves. In 2020, all the paths towards this future suddenly accelerated. I count five particularly important milestones in acceptance and development this year:

Digital assets

The first has been a ramp-up in mainstream comfort with digital assets. From China’s Digital Currency Electronic Payment (DCEP) program to capital allocation decisions by Square and MicroStrategy, governments, enterprises and capital markets all took big steps forward this year. It’s estimated that PayPal and Square alone, in choosing to offer bitcoin to their users, are buying up more bitcoin than the entire mining process is producing this year. Expect the range of those assets to rapidly expand in 2021, both in the number of companies and governments engaged as well as the type of assets.

Regulatory frameworks

Secondly, regulatory frameworks are maturing in a way that further supports rapid acceleration. The European Crypto Framework, released in September, is a strong positive step.  The Bank of England’s decision to build a regulatory framework around digital tokens based on fiat currencies is likely to be especially impactful because these fiat-based/fiat-backed stable-coins are now the most popular digital assets in use by both individuals and enterprises.

Most importantly, the industry’s ecosystems and technology choices are starting to converge. In particular, it’s increasingly clear that two public blockchains, Bitcoin, and Ethereum, have each, in their own way, become the dominant architectures. Bitcoin has a market cap that exceeds the next twenty combined. Ethereum has more developers and users than all the others combined.

This is a completely normal and expected development, at least if you are a student of the history of technology. The internet itself followed this path, with early users preferring the comfortable walled gardens of AOL and Compuserve or private enterprise networks.  

Dominant architectures

As usage widened and security tools matured, the power and value of the public internet overwhelmed the world of walled gardens and private networks. Bitcoin and Ethereum both have tens of millions of users, thousands of nodes, and millions of developers. The largest private blockchains have dozens of nodes, at best.

In the last few years alone, thousands of startups focused on those ecosystems have been funded.  These are orders of magnitude more diverse and vibrant ecosystems than any private blockchain environment. With the arrival of enterprise-grade privacy tools like Baseline Protocol (which uses Nightfall privacy technology that EY developed and donated into the public domain) enterprises can now use the public Ethereum blockchain and do so for a fraction of the cost of building a private network. 

I often compare this to the choice companies had between software-based Virtual Private Networks that ran over the internet or actually building a private leased-line network. The cost- and time-to value differentials are staggering.

Private blockchains and their related companies and services are not going to disappear overnight. Netscape arrived in 1994 and the future of the web was immediately visible, but not everyone got on board right away. The AOL user base didn’t peak until 2002. Technology decisions have powerful inertia and take years to adjust, particularly in the enterprise, even if the endgame looks very clear.


The final big milestone of 2020 has been the acceleration and expansion of decentralized finance (DeFi). As novel as DeFi seems to be, it is, in fact, just the logical extension of how blockchains are supposed to work.  Blockchains like Ethereum are designed for the creation of programmable digital assets.  Until recently, the level of maturity in these smart contracts was very low.  The smart, in smart contracts, often consisted of little more than managing the supply of tokens and list of owners.

With DeFi, suddenly, there was real programmability. Smart Contracts could execute functions like loans and insurance, holding assets for others and actually doing things with them and being linked through oracles like Chainlink to the outside world.   The total value of assets being used in the programmable frameworks has risen by factor of more than 20 this year, and while it is still a drop in the overall financial ocean, this is now a large enough amount of money to start attracting serious engineering talent into this space.  

Rainstorms over rivers

Transaction costs between companies have always been much higher than those within companies. Common information systems, common leadership, and a degree of internal trust make it possible for large enterprises to assemble solutions internally at scale.  Externally, things get harder because not only is there a lack of trust, but there is also no continuity of information systems, business process and rules across company boundaries.  The result is a loosely coupled environment with lots of redundant (and expensive) verification.

Blockchains change this model because they hold out the potential for transactions between companies to converge closely in cost and speed with those internally.  This kind of as-close-as-being-in-the-same-company integration already exists without blockchains, but it is very costly and is only done on a bespoke basis between enterprises that already have long standing and deep ties, often in cases with a big power imbalance as well (big company tells weaker supplier to join its network).  That’s a very small minority of business relationships.

Blockchains drive standardization and interoperability: Tokenization will turn just about every form of asset transfer and data transfer into an inter-operable standard. Smart contracts will do the same for business process and logic.  Companies will have the ability to add or subtract suppliers easily and even small businesses will be able to move in sync with enormous global networks because they are all linked into a common set of tools and processes.  

See also: Paul Brody – Enterprises Need Third Parties for Oracles to Work

This year is seeing the very first small steps of this approach taking shape, with the arrival of DeFi and business applications on the public Ethereum blockchain.  At first, you can expect much of this to be a re-creation of traditional enterprise processes, but now faster and cheaper on the blockchain. EY and Microsoft managed to cut cycle time for contract management using a blockchain by 99%, so there’s lots of fat to cut. 

Inevitably, however, innovators will move on from recreating to re-arranging the lego blocks of finance and operations and, in so doing, they will start to unpack the traditional model of the enterprise.  If working with external partners is just as easy as internal ones, the minimum economic scale of many companies starts to drop a great deal. This is not a new pattern either: In my time at IBM, we found that digital manufacturing technologies like 3D printing were already starting to cut the minimum economic scale for manufacturing in some industries by as much as 90%.

If you can use a blockchain to get a 1,000 small suppliers to work as efficiently as a 100 big machines in a centralized factory, do you need to aggregate revenue from millions of customers into a massive, centralized store of capital to fund a huge factory? Probably not.  

Won’t decentralized financing go nicely with decentralized infrastructure? A shower of pennies across a wide range of small companies that are linked on the blockchain may be just as useful as aggregating them into a river of capital.  What does the model of the firm look like when the corner store can compete with the biggest hypermarket on price?

The past is not our future

As disruptive as this year has been, and as transformational as blockchain technology is set to be, the future is not the same as the past. The immense diversity of local and regional enterprises in the past existed in part because information systems did not support global operations, not simply because it was nice to have local companies serving local clients. In the future, much of that business ecosystem diversity will revive, but it will not simply be replication of what came before, because it will be possible to serve small market segments globally without needing an enormous production scale. Whatever the future model looks like, we will look back on 2020 and see it as the starting point.



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You Say You Want a Bitcoin Revolution

Before The Beatles became the most popular band of all time, they were mainstays at a hole-in-the-wall club in Liverpool called The Cavern. Between 1961 and 1963, the boys would play rock-n-roll nightly to a small but dedicated audience of fans. Those lucky enough to see The Beatles during this period understood they were witnessing something special and spread word of the band to their friends. Over time, the crowds grew bigger, and The Beatles eventually became too popular for their hometown venue. Not six months after playing their last show at the Cavern, they had a number one record and were playing to millions on the Ed Sullivan show. That’s hyper-Beatlization for you.

This post is part of CoinDesk’s 2020 Year in Review – a collection of op-eds, essays and interviews about the year in crypto and beyond. Justin Wales is a lawyer and the co-chair of Carlton Fields’ national blockchain and virtual currency practice. He is the author of “Bitcoin is Speech Notes Toward Developing the Conceptual Contours of Its Protection Under the First Amendment.”

I assure you this article is about Bitcoin. 

For those lucky enough to see The Beatles in Liverpool, watching them go on to become “bigger than Jesus” must have been a mixed bag. Seeing something you loved first become accepted by the entire world is validating, but it also means that thing is no longer just for you. You now have to share it with the world and that risks it losing the qualities that attracted you to it in the first place. Before you know it, your favorite band is just a corporate brand used to sell socks. 

Thinking about what it was like to watch The Beatles play some grimy bar is a good analogy to what many Bitcoiners are going through at this very moment. In the last few months, it feels like the venue has gotten crowded and that it’s time for Bitcoin to leave to conquer the world. 

New voices have entered the space and have changed the way we talk about Bitcoin. The conversation is dominated by those speculating about bitcoin’s use as an investment vehicle for the already wealthy. Fewer and fewer people preach its role as a tool for democratizing finance. It is essential that throughout this bull run, as we celebrate the rewards that come with being at the right place at the right time, that we remember what makes Bitcoin unique and fight like hell to keep it that way. 

Bitcoin is a network. That’s its magic. It isn’t like a stock or a bond or even like gold. It is just a powerful system that allows people all over the world to privately interact with one another in a manner that is wholly unconcerned with whether any institution or government likes it or not. 

That is the revolution. 

Bitcoin is not large PayMent [trademarked] processors allowing its customers to purchase, but never hold, bitcoin directly or the marginal efficiencies available to those wishing to transfer millions of dollars between corporate treasuries. Those types of things, and the general influx of institutional investors looking for a hedge against the dollar are fine and maybe even necessary for hyper-Bitcoinization to occur, but it’s not what makes Bitcoin special.

The ability to directly and discreetly transact with one another is what makes Bitcoin special. It is imperative on all of us lucky fools who got to see Bitcoin when it was still playing at the Cavern to remind people why that was, and is still, so important.

See also: Justin Wales – Why Bitcoin Is Protected by the First Amendment

The next year will be a lot of fun, but also a time when many new voices will be given a space to propose ways to take Bitcoin mainstream. In the goal of attracting institutional investors, many will cheer on regulations that undercut our ability to transact with Bitcoin without institutional or governmental approval. In other words, regulations that aim to change the fundamental characteristic that made Bitcoin special in the first place. 

We already see this happening with rumors of impending regulations on the ability to send funds to self-hosted wallets from money service businesses and exchanges. Such restrictions are bad for Bitcoin and privacy generally and will require a lot more than retweets to be stopped. With your newfound gains, I recommend donating money to groups like Coin Center that fund research and advocacy focused on upholding the principles of liberty and privacy that were so vital to Bitcoin’s founding. 

As bitcoin becomes corporatized, it is imperative that its first objective of democratizing finance through disintermediation endures.

One last thing about the Beatles: I do genuinely love them. There is no better music made as far as I am concerned. Because being a Beatles fan is so core to my identity, I have been gifted a lot of Beatles merchandise over the years. Last year, someone bought me a collection of officially licensed Beatles dress socks back before virus regulations shuttered my law office. Not 10 minutes after I put on a pair of these socks, I felt a tear, and sure enough, I tore a hole in the sock. I sat there looking down at my big toe popping out of John Lennon’s torso under the words “REVOLUTION.” I realized right then that these socks had nothing to do with The Beatles. It was just a product created to make a buck without offering me anything that made The Beatles special other than its branding. 

It was a product masquerading as something revolutionary. How pathetic. 

My bet is Bitcoin will be around for a long, long time. As large institutions and the CNBC crowd continue to recognize it as an investment opportunity, there will be an increasing number of ways for people to interact with “Bitcoin.” But at some point, we’re going to need to ask ourselves whether the things we brand as bitcoin are so centralized and overregulated that they no longer work toward achieving Bitcoin’s original goal of spurring a financial revolution.

As these “bitcoins” become corporatized and regulated into the mainstream, it is imperative that Bitcoin’s first objective of democratizing finance through disintermediation endures. The alternative is Bitcoin loses the very innovative principles that allowed it to grow in the first place and becomes just another product masquerading as something revolutionary. How pathetic would that be?

Year in Review is a collection of op-eds, essays and interviews about the year in crypto and beyond. 



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Where Peer-to-Peer Finance Grabbed Hold This Year

This past year will forever be marked, as the global pandemic took hold of everything, from our health and safety to financial security. It was a year of mass economic devastation, of ineptitude at the highest level and agitation for change growing from the bottom up.

It was also a year that crypto came into its own – perhaps because it is the people’s money, unfettered by dysfunction at the top. Despite a minor scare in mid-March – when Bitcoin collapsed 55% in one day, bottoming at $3,782 – it quickly bounced back, and even (perhaps ironically) gained recognition as a safe haven asset. Hedge funds, billionaires and publicly-traded corporations have allocated treasuries to Bitcoin, to say nothing of the little guys.

This post is part of CoinDesk’s 2020 Year in Review – a collection of op-eds, essays and interviews about the year in crypto and beyond. Ray Youssef is CEO and co-founder of Paxful.

This year, the on-ramps got bigger and easier to use, and more people than ever have begun holding and trading cryptocurrencies. And, as online wallets and apps continue to improve, we will likely see more people enter the fold in the coming years.

Bitcoin shines

Nearing the end of 2020, several headlines rocked the cryptocurrency world. The biggest, perhaps, was news that PayPal partnered with Paxos to bring crypto functionality to its 300 million plus users. While the service was limited to a few large-cap coins – bitcoin, ether, litecoin and bitcoin cash – it drove a new bitcoin rally and reignited a conversation over the mass adoption of digital assets. This renewed confidence will only continue to gain momentum as we cross the threshold into 2021. 

Then there were the institutional high fliers who changed their outlook on bitcoin. Legendary hedge fund manager Paul Tudor Jones committed to storing a percentage of his net worth in bitcoin, while a leaked internal document from Citibank revealed that a senior analyst predicts Bitcoin could reach $318,000 by December 2021. 

See also: Byrne Hobart – PTJ on BTC: Bitcoin Is Now the Macro Big Bet

As participation from the largest names in traditional finance continues to expand, 2021 will see limitless possibilities and further news of high-net worth individuals betting on bitcoin. And, while bitcoin trading has not reached a volume where it is stable enough to be considered a true safe asset like gold, it has and will continue to show more and more inflation-resistant characteristics. 

It’s likely that bitcoin and other cryptocurrencies will start decoupling from traditional assets, which may drive more institutions to add BTC to their treasuries. While additional fiscal stimulus was paused by a divided U.S. government, this only resulted in pressure on the Federal Reserve to expand its balance sheet and pump trillions of dollars into the global economy.

Bitcoin is the undisputed king of cryptocurrencies

It’s for all these reasons and more, Bitcoin has a chance to continue to take market share from gold. With a current market cap of $300 billion, and gold’s at $10 trillion, it will only require a fraction of these assets to shift in order to change the dynamic of “inflation hedges.” 

Stablecoins find a stable home

Though bitcoin is the undisputed king of cryptocurrencies and has proven its ability to empower people through its decentralized, uncensorable monetary system, stablecoins have emerged as a necessary tool to further these economic and social aims. 

In the emerging world, stablecoins have proved to be a hedge against volatility and inflation. This was seen by growing use in Nigeria, South Africa and Turkey, as the naira, rand and lira faltered. 

Stablecoins pegged against stronger currencies like the U.S. dollar or euro will continue to help preserve the wealth of everyday people who do not want to expose themselves to the volatility of purer cryptocurrencies like Bitcoin or Ether. It’s a trend I expect to continue to unfold. 

See also: Bitcoin Dissidents: Those Who Need It Most

The explosive growth of stablecoin volumes will remain an agitator for central banks across the world to continue the research and development of creating central bank digital currencies (CBDCs).

Location, location, location

Nigeria, China, India, the U.S. and Vietnam have become the main markets for peer-to-peer finance and have the potential to be leaders across the ecosystem. 

These countries have managed to implement their own use cases for remittances, a major market in which Bitcoin is unrivaled. For instance, Paxful’s global volume increased by nearly 31% this year. As more and more people adopt digital remittances, traditional remittance methods will be forced to take a backseat to bitcoin’s ease of use, lower fees and global availability. 

The rise of price across cryptocurrencies is the result of growing societal and governmental dysfunction. The mainstream is awakening to a future of digital assets. And even if the bull market peters out, in the aftermath of the COVID-19 crisis and conjoined economic meltdown has already brought crypto into the well-deserved spotlight.

Year in Review is a collection of op-eds, essays and interviews about the year in crypto and beyond. 



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COVID and Big Tech Burnout Are Pushing Social Tokens Mainstream

In 2020, COVID-19 forced creators, brands and artists to rethink their fan monetization and engagement strategies. Many turned to virtual engagements and live streaming. Others experimented with platforms like Patreon or tried to double down on monetizing their social media platforms like YouTube and Twitch. In our industry, it was social tokens that made the rare leap from crypto circles to consumer audiences. 

Before this year, social tokens were an intriguing but mostly hypothetical alternative or additive way for creators, artists and brands to connect with their fan communities. 

This post is part of CoinDesk’s 2020 Year in Review – a collection of op-eds, essays and interviews about the year in crypto and beyond. Kevin Chou is Founder of Rally, an open platform that allows creators, celebrities and brands to launch their own currency.

It didn’t take long for influential celebrities to see the value once the foundational tech was actually built. Akon, Ja Rule and Lil Yachty all announced tokens this year. The NBA’s Spencer Dinwiddie and Japanese superstar soccer player Keisuke Honda launched tokens too with esports and gaming seemingly on deck next. 

Recently, Esports Insider noted, “esports is prime real estate for custom currency.” The diverse array of use cases that each of these social tokens offers is a testament to how far crypto has progressed when it comes to producing real-world usage and value instead of offering a solution for a problem that doesn’t exist. 

The last few years have really taken their toll on creators who feel burned and burned out by big tech social platforms. It’s no secret that platforms rake in huge profits and often give creators the raw end of the deal. The rules are constantly changing and no matter how neutral a platform claims to be, there are always inherent biases behind their decisions to censor content. Creators can be deplatformed through unilateral decisions made by the platform, over which creators can exercise little or no control.

See also: Rapper Lil Yachty Sells Out Social Token in 21 Minutes

Instead of building a large platform’s revenue while only getting a small piece of it, creators are excited by the idea of using their own token to build their own economies and interact with fans on their terms, instead of on the whims of the platform. Blockchain takes the decision-making process out of the hands of large platforms and into the hands of creators and their fans and community members. It’s up to the creators and their communities to decide how the creator’s social token will be used and valued.

ICO 2.0?

In some sense, celebrities have given crypto a bad name. In 2017, there were several influencers who hyped dubious token projects. Traders piled money into initial coin offerings with unclear roadmaps and ultimately little intrinsic value. 

This year saw a shift towards actual value creation and control. Instead of just advertising an ICO, influencers are plugging social tokens into their existing community-building efforts. Some have deployed personal tokens on apps like Discord to enable token-permissioned chats and channels. By integrating tokens into their existing communities, rather than duping their fans into investing in third party token projects, these creators are adding value to their brands and proving the useability of cryptonomics. 

It’s up to the creators and their communities to decide how the creator’s social token will be used and valued.

Perhaps if bitcoin’s bull run continues, we’ll see celebrities like Logic and Maisie Williams create their own currencies. But one thing is certain, the conversation will shift from what creators are launching tokens to what they are doing with their tokens, grading social tokens on their usability and utility.

Creators, artists and brands and their fans will need to keep their guard up against crypto projects offering pump-and-dump mechanisms for short-term gains that will ultimately be a detriment to their relationships with their fans. Instead, they will need to focus on the long term and partner with crypto projects that aim to build richer solutions to community management and monetization. 

The coming year will be one of experimentation where influencers will tap crypto to engage their fan bases with token-permissioned chat, voice and video functionality. We’ll likely see a ton of new activity. Discord community servers will launch their own social tokens as well. Artists will explore tokenized meet-ups, crowdfunding, and we’ll likely see social tokens plugged into the decentralized finance (DeFi) community as collateral for lending/borrowing. 

As more developers get in on the action, DeFi enthusiasts build out the financial infrastructure, and celebrities bring their fan bases into crypto, social tokens will go down in history as a bright spot of 2020.

Year in Review is a collection of op-eds, essays and interviews about the year in crypto and beyond. 



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What This Digital Asset Investment Firm Missed and Capitalized on in 2020

At the onset of the year, we (Arca) released our annual digital assets predictions which focused on a few themes that we believed would ultimately drive the majority of digital asset investment gains in 2020. We obviously did not anticipate COVID-19, a 35% jump in the M1 money supply, or the accompanying acceleration of an already ongoing shift from a physical world to a digital world, but our predictions proved fairly accurate nonetheless.  

This post is part of CoinDesk’s 2020 Year in Review – a collection of op-eds, essays and interviews about the year in crypto and beyond. Jeff Dorman, a CoinDesk columnist, is chief investment officer at Arca where he leads the investment committee and is responsible for portfolio sizing and risk management.

With 2020 concluding, it’s time to look back at how these predictions fared, and touch on a few important drivers of returns in 2020 that we did not foresee. The shift to digital is only getting started, and it is therefore highly unlikely that anything will change once the world re-opens.

Post Mortem of 2020 Predictions

Prediction #1: Thematic investing will drive digital asset performance, specifically in the following areas: Rewards, Structured Tokens, Staking, and DeFi.

Thematic investing has unequivocally driven returns in 2020, and three of the four themes we identified have proven accurate. The outlier was the staking theme, which was not a large driver of YTD returns. In fact, most of the tokens that operate under “proof of stake” consensus have underperformed the market this year. 

However, the reason for this underperformance can largely be attributed to the success of our other three identified themes. The growth of decentralized or open finance (DeFi) and the newfound focus on structuring tokens with real value accrual mechanisms and yields, driven primarily by user rewards, has made staking for yield somewhat obsolete from an attractive investment standpoint. 

See also: Jeff Dorman – Digital Assets Are More Recession-Proof Than You Might Think

Let’s start with DeFi.  This sector of the market has been hands down the runaway leader in digital assets, from both a growth perspective and a returns perspective. Our prediction was quite simple:

Decentralized Finance is still tiny, but it is growing quickly and will likely be a major growth engine in 2020. Conversely, a ton of value has already accrued to centralized finance (CeFi) companies – Coinbase, Binance, Celsius, Deribit and BitMEX – and this market is getting very saturated. We believe DeFi will be the “growth sector” of 2020, while CeFi will be a “value sector.” As such, a blind basket of DeFi tokens will likely do very well regardless of which tokens you own, whereas in CeFi only one or two companies will win out and grow at the expense of others.

Digging deeper, decentralized trading exchanges (DEXs) have been one of the most impressive sub-sectors, posting all-time record high volumes, but we’ve also seen strength and growth coming from asset management protocols, synthetic assets, lending/borrowing platforms, and insurance. A basket of diversified DeFi tokens across insurance (NXM), asset management (YFI, MLN), DEXs (KNC, RUNE, SUSHI, UNI), lending/borrowing (AAVE), and derivatives (SNX) created the strongest subset of returns across any other sector of digital assets.  

YTD Returns from the DeFi Sector (as of 12/16/2020)

Source: Messari

YTD Returns from the DeFi Sector (as of 12/16/2020)

Source: Dune Analytics

Moreover, the strong DeFi returns did not stem purely from platform growth. Much of it can be attributed to our other prediction, “structured tokens and enhanced tokenomics.” The flexibility of token structures has allowed token issuers to change the rules and enhance the features that come with owning a token and participating in the network. While this can be scary from a legal standpoint since you don’t always know exactly what you are getting at the time of investment, it’s also invigorating from an investing standpoint because it allows good teams who issue tokens to continue to tweak the value accrual model until they get it right.  

And boy are they ever. From Compound (COMP) and the liquidity mining revolution, to Synthetix (SNX) and its velocity sink, to Uniswap (UNI) and its fair decentralized launch, to revamped incentive structures rewarding governance at Kyber (KNC) and Aave (AAVE)…  token issuers are scrambling to introduce new models that enhance the value for both users and investors. We applaud this evolution.

Prediction #2: Sports and other live events will play a huge part in blockchain’s success as the “live, in game experience” will be enhanced via digital tickets, voting rights, and player engagement.

We had no idea that sports would be shut down in 2020, but I’m not sure it would have changed the outcome. Our thesis regarding the “digitization of the fan experience” was taking form with or without the ensuing lockdown. The in-game experience was already dying at the hands of interactive, at-home engaged fan experiences, and COVID-19 was simply the nail in the coffin.

We went into great detail discussing “Fan Engagement Tokens” (FTOs) from Socios (CHZ) earlier this year, and the successful issuance of digital assets tied to voting rights and decisions affecting major sports clubs. We’re also seeing a rise in digital baseball cards and digital collectibles as well as tokens backed by the salaries of athletes.

See also: The Inevitable Marriage of Yield Farming and NFTs, Explained

Additionally, the “digitization of the fan experience” is extending beyond sports into other areas like music and entertainment. While there are not a lot of pure play ways to express this theme yet today, we continue to expect more opportunities to come in the near future.

Prediction #3: More M&A, the Bitcoin halving matters, and existing non “crypto-native” companies will issue tokens.

Let’s check in one-by-one to see how we did:

More mergers between pick & shovel companies, often at distressed levels.  

From Coinbase assuming Tagomi, to Binance going on a spending spree, to Voyageur acquiring LGO, M&A is in full force as the leading service providers take advantage of the oversaturation of smaller platforms that never achieved solo success.  Several of these transactions were more takeunders than takeovers given the lack of progress or success of the acquirees. We did not anticipate the recent wave of DeFi “fake-quisitions,” but are encouraged by the idea of combining user bases and developers to build DeFi conglomerates.

The Bitcoin halving, while telegraphed and understood, will still be a huge driver of digital asset growth.

While the halving itself, as expected, did basically nothing for Bitcoin’s price in real-time, the consistent monetary policy and limited fixed supply has attracted new players, and once that happened, we are now witnessing a supply shortage. From Paul Tudor Jones to Jim Simons, and more recently MicroStrategy, Square, Stan Drukenmiller and more, the cavalry is clearly coming and they are fighting over a small pie.

Existing non-crypto native companies will utilize tokens.

While this is being held back by a lack of regulatory clarity and a lack of investment bankers, it’s happening, slowly. For example, both Reddit and Atari issued tokens. While these are just small examples, the world is beginning to recognize that tokens can be utilized in a company’s capital structure as complements to debt and equity.  

We expect more of this in 2021 and beyond, as every company with a subscription model (Netflix, ESPN, gym memberships) or a consumer customer model (restaurants, airlines, internet shopping) will recognize that tokens are the greatest capital formation and customer bootstrapping incentive mechanism we’ve ever seen. 

What did we miss in 2020?

We’ll be out soon with our 2021 predictions, many of which stem from budding 2020 events that we either did not foresee, or grew faster than anticipated. A few things that we have our eye on:

  • Bitcoin has graduated from “digital assets playground” to “mainstream global investment.” Investors now have the knowledge and means to buy Bitcoin themselves, and we are seeing it in real-time, which happened quicker than we anticipated. Very soon, investors will specifically seek out digital asset hedge fund strategies that don’t own any Bitcoin, as they want fund managers to give them exposure to assets that they can’t buy themselves, or don’t know exist. As a result, there is a good chance that actively managed hedge funds and passive indexes built around high allocations to Bitcoin have a very short shelf-life.
  • Banks and broker/dealers are scrambling right now to “cover Bitcoin” – meaning research on publicly traded securities like GBTC, MSTR, Hut 8, SQ, GLXY and pretty soon the anticipated IPOs of Coinbase and Digital Currency Group (CoinDesk’s parent). Soon, these banks and BDs will realize the real opportunity is investment banking fees from underwriting new tokens issued by traditional companies rather than trying to extract a piece of the Bitcoin trading pie.
  • We anticipated a rise in DeFi, but not to the extent and degree with which it occurred. Decentralized governance is now less about ideology or risk transfer, and more about capitalism. Historically, there has been nothing in digital assets worth governing, but now DeFi protocols are generating real revenues, and that is worth fighting over. While 2017 tokens were about fundraising a dream, 2020 and beyond tokens are about aligning incentives amongst stakeholders (founders, developers, customers), and tokens are proving to be the best instrument for fostering this growth.
  • Community issued tokens (LINK, CEL, SUSHI, YFI) are growing faster than VC-backed tokens (COMP, ATOM, FIL, UNI). This not only suggests that the reliance on VCs may be reduced, but it also may have structural consequences.  To date, “show me” stories with high upside but low probability of success have dominated the digital assets landscape, but as VC-backed pipe dreams dissipate, we may see a resurgence of value – those tokens issued by projects and companies that are already having success rather than those that might one day grow into success. 

After a whirlwind 2020, we look forward to seeing what 2021 holds.



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The Pandemic Turbocharged Online Privacy Concerns

In recent years, concerns about digital threats to individual privacy have been growing more acute. From high-profile data breaches to hijacked doorbell cameras, we’ve seen a steady increase in the scale and volume of privacy-related incidents. But 2020, driven by a global pandemic and worldwide protests calling into question the surveillance powers of governments, was a turning point. 

In 2021, battles over the future of online privacy – and therefore the nature of the internet itself – will come to head. They will be contested in the spheres of law and programming, and they will center on the two essential components of a robust, resilient privacy solution: end-to-end encryption and decentralization.

This post is part of CoinDesk’s 2020 Year in Review – a collection of op-eds, essays and interviews about the year in crypto and beyond. Steven Waterhouse is the CEO and co-founder of Orchid, a privacy tool built on Ethereum designed to let people explore the internet freely.

Privacy and the pandemic

The emergence of the COVID-19 pandemic early this year immediately turbocharged concerns around digital privacy. Millions around the world suddenly found themselves working from home, reliant on digital tools like the Zoom video conferencing app. 

Mishaps began almost immediately, ranging from the comical to the frightening. For many people, the dangers of the internet became real for the first time. For someone like me who has spent a career focused on issues of digital privacy, these were charged days. At Orchid, we even provided free VPN service to journalists to help ensure they were able to safely report on the unfolding crisis no matter where in the world they might be.

For systems to be private they should be end-to-end encrypted and decentralized.

While millions of individuals were learning firsthand the internet’s privacy pitfalls, governments scrambled to identify ways to track and stop the spread of the virus. Policy recommendations included mass-scale tracking and tracing of people and their whereabouts, and even “immunity passports” for those who had recovered or – in the future – been vaccinated against the disease. I wrote earlier this year arguing that the coronavirus presented a golden, maybe irresistible, opportunity for governments to enhance their powers of surveillance and coercion. 

An uncertain future

Discussions around and threats to online privacy lie at the intersection of law and technology. Demand for privacy is surging: People around the world in 2020 flocked to privacy tools such as VPNs and encrypted messaging services. It’s no surprise that tech companies from Apple to Venmo to Telegram increasingly tout “encryption” as a key benefit for their users. 

This year saw important developments in privacy law as well. Around the world, regulations aimed at strengthening privacy protections for individuals were adopted, most notably California’s Proposition 24. The law, passed by statewide ballot measure, strengthens provisions in the state’s California Consumer Privacy Act (CCPA) regulating the data collection practices of online businesses.

See also: California’s Prop. 24 Could Be a ‘Silver Lining’ for Crypto Exchanges Looking to Comply With GDPR

In spite of public sentiment toward strengthening online data protections, there are important counter currents that threaten the technological foundations of privacy altogether. In 2020, governments around the world intensified efforts to hobble end-to-end encryption by requiring technology companies to provide authorities with “back door” keys that would allow them to decipher any content they asked for. 

Decentralization plays its part

In 2021, these debates surrounding digital privacy will intensify. And decentralization, in the form of blockchains and the digital assets they enable, must play a key role in supporting end-to-end encrypted privacy solutions.

End-to-end encryption is absolutely essential for true digital privacy. Once an ISP or a web server can see the content of our communications, that information is out there forever, no matter what other safeguards are in place. But systems with strong encryption can still be vulnerable to a single point of failure. If you use a VPN that suffers a leak, or gets hacked or secretly logs your activity, your privacy can evaporate in a second. 

That’s why for systems to be private, they should be end-to-end encrypted and decentralized. By distributing processes across many different nodes, they reduce the risk to the user should one, or even several, fail or be compromised. Networks that are end-to-end encrypted but centralized remain subject to the risk that they will be compromised or even shut down in the future.

See also: Cryptocurrencies Have ‘No Way’ to Comply With US Anti-Encryption Bills

In 2021, decentralization’s role in supporting end-to-end encryption will become more important than ever. While end-to-end encryption will remain the sine qua non of digital privacy, decentralization will play a crucial role in ensuring its resilience and making sure that privacy systems are not only effective but resilient.

Year in Review is a collection of op-eds, essays and interviews about the year in crypto and beyond. 



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Akon: Crypto Can Give Africa Financial Freedom

Africa is waking up. For many years, the potential of the continent’s youth has been growing. Now, as this talent pool blooms across Africa, the world is starting to take note. Combined with the revolutionary power blockchain provides, we are entering a golden age of African development.

With 226 million people aged between 15-24, Africa has the youngest population in the world, and, by 2045, the African workforce is predicted to be the world’s largest, giving the continent an enviable and deep spread of talent which is soon set to be thrust onto the world stage.

This post is part of CoinDesk’s Year in Review 2020 – a collection of op-eds, essays and interviews about the year in crypto and beyond. Akon is the co-founder of the Akoin initiative, Jon Karas is president and co-founder of Akoin and Lynn Liss is chief operating officer and co-founder of Akoin.

To this generation of young, up-and-coming entrepreneurs, the idea of having to rely on systems of finance, government and technology built on the crumbling edifice of tradition belongs with the dinosaurs. They want to build their own destinies and future relying on their own skill and resources. 

The growth of crypto on the continent means they have the opportunity to do just that. Research from Arcane found that Google Trend data showed African countries repeatedly rank in the top 10 on searches for the term ‘cryptocurrency’.

In sub-Saharan Africa alone, there are about 350 million unbanked adults, which accounts for 17 percent of the global unbanked population of two billion people.

For many Africans, being able to transact on an immutable, censorship-resistant and permissionless blockchain, that cannot be affected by the hyperinflation often seen in African economies, is the first step towards achieving self-sovereignty over their finances.

Through blockchain people are able to build and access systems not previously available to them, for example micro lending platforms that can help new businesses to establish themselves.

The technology also has the potential to solve real-world practical issues such as identity management and land titling. Indeed the Global Partnership for Financial Inclusion (GPFI) wrote in its G20 submission on digital identity:

This technology is being trialed for various financial sector applications including funds transfers, payment settlement and regulatory oversight, and due to its decentralized and transparent nature also increasingly in identity management as well. The immutable nature of the ledger ensures that dispute resolution is embedded and enforced by computer protocol. Moreover, the transparency, resilience and replication at each node offered by the shared ledger is a useful tool for tracking and maintaining the integrity of the information.

Blockchain technology can give those who are unbanked access to services that may have been unavailable to them. For example, through a decentralized app marketplace built on blockchain people will have access to new ways to save money, pay bills and other people, request loans, sell their own goods and services, and build their own tools to serve other niches in their community.

Rather than their finances being at risk of fluctuations in a hyper-inflated fiat currency, use of a stable digital asset means people can gain greater control of their finances and even complete custody over them, allowing them to opt out of a system that provides them with no benefits or security, into one that does.

Leading the charge

Africans innovating with mobile technology long before  the West, for example making mobile phone minutes as currency. This characteristic of taking leaps forward in technology is what will drive the growth and success of digital assets on the continent, and we believe as Africa leads in this area, the rest of the world will be watching closely to see the developments it makes.

See also: Love It or Hate It, Akon’s ‘Crypto Wakanda’ Is Coming

While western countries and the rest of the world wrestle at unpicking years of tradition, red tape and regulation to make digital assets fit, African countries – if their leaders choose – are able to embrace change and foster implementation much more quickly.

Africa is one of the only places in the world that can start from zero and really implement and utilize every single new development and invention that’s existing today without breaking down existing infrastructure. When you look at all the major countries, from the United States  to European countries to China, all of these nations are in a position where they can’t conform as quickly to the latest technologies without having to rebuild everything that’s already built, whereas African nations can start from the beginning and lead that charge forward.

Digital future

The future of finance lies in digital currency and digital transactions. You can see how many countries are working on developing digital versions of their currencies. It is only a matter of time before all transactions are digitized and paper money is consigned to the history books. The countries that grasp this reality before anyone else will be the ones at an advantage.

Blockchain and digital assets will act as a key to help unlock the potential of the huge talent pool in Africa

We believe the future of the world is going to be digital. It’s going to all be computerized and moved in and controlled by apps and developers. Even with music, while everyone was selling CDs and and vinyl from little specialty shops and singles, I was more focused on ringtones, which was the digital aspect of the music business.


It has happened in the music industry with the evolution from vinyl to cassette tapes to CDs and now to digital music. And it will happen with money too.

Africa is already at the point where mobile phones and mobile phone minutes are used for transactions, it is only a few steps away from moving into an economy based on cryptocurrencies, instead of ageing and devalued fiat.

This is why we are getting in front of the curve now and embracing what we believe is going to represent the dominant model young business leaders and entrepreneurs in Africa, and eventually, the whole continent embrace. 

It represents a method for them to create and earn value determined by themselves and which doesn’t rely on an outdated system powered by a countries fiat currency which Africans have no control over.


We have more than 1.34 billion people in Africa, and within the next five years, it will be close to two billion people. The working population is booming, and the youth population is expected to grow by more than 40 percent in the next 10 years. We want Africans who have amazing entrepreneurial ideas, to finesse these into something tangible they are able to create a service from, and grow their own businesses, but also help their regions to grow too.

Unfortunately, often the perception of Africa from those living outside it is of a scary and dangerous place. For example, the way they depict Africa in the United States is just so sad because it makes it unattractive and plays on all of its problems, without touching on the positives.

I really want to change that perception and get people seeing it as a viable place to vacation, work and do business. 

See also: Leigh Cuen – Why Binance and Akon Are Betting on Africa for Crypto Adoption

But ultimately, we have to shape a vision of something that is going to attract people, something you want to be closer to and want to be a part of. 

Our hope and expectation is that the technology of blockchain and digital assets will act as a key to help unlock the potential of the huge talent pool in Africa, and contribute towards helping it grow, develop and prosper far into the 21st century, by taking back control of their finances, their skills and their talents.



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The Good, the Bad and the DAOs Only a Founder Could Love in 2020

Every year the industry optimistically announces that 2018 or 2019 or 2020 will be “the year of the DAO.” Just watch, any minute now someone will tell you that about 2021. 

While, personally, my favorite theme is how DAOs (or decentralized autonomous organizations, a way to organize capital without a centralized corporate structure) fall short, when judged on their own promises and merits, in fact, we’ve seen lots of DAO action this year. And much of it is in the right direction. So let’s take a look at this year’s good, bad and ugly in the world of DAO.

This post is part of CoinDesk’s 2020 Year in Review – a collection of op-eds, essays and interviews about the year in crypto and beyond. Grace (Rebecca) Rachmany is the founder of DAO Leadership management training and is the co-author of “So You’ve Got a DAO: Leadership for the 21st Century.” 

The good: Use cases, new developments, better proposals

Real DAO use

The most positive development in the space is that DAO is being used for more than just random funding. While the technology is still far away from a full governance solution, the following use cases indicate that the range of applications is expanding beyond stablecoins and exchanges to include other DeFi apps and even some decentralized art collectives.

In terms of decentralized exchanges, dxDAO, Curve and Nectar all saw notable appreciation, while MakerDAO, mStable and Bancor continued to make their presence known in the world of decentralized finance (DeFi). The launch of the LAO, a law focused DAO, had notable experiments with governance while Trojan DAO and attempted to gain a foothold in the burgeoning crypto art scene.

New developments

Aragon is the only DAO technology platform to date that is anywhere close to developing its own self-governance. In fact, it’s the only one even talking about it. This is a huge step towards the vision of DAO tech, which is to provide truly self-governing distributed software. 

Aragon has continued to demonstrate outstanding leadership in developing a portfolio of improvements, both in governance – moving into phase 3 to launch a full DAO for its own governance and updates to the Aragon Court System – and technologically (OS Upgrade, ANT token upgrade, off-chain polling). The DAO Governance module was a particularly bold transition. 

See also: DAO Platform Aragon Begins Recruiting Jurors for Tokenized ‘Court’

However, the Aragon Foundation has been a bottleneck in the proposals process. It found that the more time it invested in guiding and filtering proposals, the less time it had to develop the governance it wanted in the long term. With the approval of ANT holders in an open vote, phase 2 of governance was closed and on-chain governance is frozen until the release of the DAO Governance module, which should be some time in Q1 2021. 

Meanwhile, the Hypha Earth DHO (Distributed Human Organization) became active in 2020, representing a break with the industry direction in defining what a DAO is. Hypha is built on the Telos network and is associated with the SEEDS cryptocurrency project. 

The DHO is much more like a freelancing platform and is significantly more decentralized. The framework in Hypha is that teams within a project can define the work they want done, review and accept proposals for that work, hire people, hold money in escrow and pay upon the delivery of said work. 

Given that this is how freelance platforms have been working for a decade, why reinvent the wheel? The Hypha team comes from the DigiLife collective and have thought deeply about the problem. Rather than copying from the existing DAOs, they’ve come up with an elegant solution that would circumvent complex configurations such as those faced with BrightIDs multi-tiered DAOs-within-a-DAO setup.

Pre-vote improvements

The concept of “anyone can propose anything” sounds fair, but the flaws are so deep that, this year, major DAO technologies have created additional layers beyond reputation and staking to combat potential issues.  

Most notably is Holographic Consensus, which is a way to signal the best proposals to voters by having members stake tokens on the likelihood of a proposal’s passing. Unfortunately, there’s never been a direct correlation between the popularity of an idea and its quality. At the Genesis DAO, a popularity contest led to such a divisive culture that professional community organizers threw up their hands in despair.  

In 2020, there’s been a wide-scale (though tacit) admission that just throwing proposals around isn’t the ideal form of democracy. The recent release of Cardano network’s Voltaire system recognizes the importance of maintaining and rewarding a panel of reviewers prior to the vote. The reviewers give a ranking to each proposal, so voters are still free to vote for any proposal, but the rankings reduce overwhelm and give voters a solid starting point. 

See also: Cardano to Launch Hard Fork Before Next Major Development Phase

Another extremely welcome development with Voltaire is that Cardano is developing positive relationships with other chains and DAOs, taking advice from Dash, the longest-running and arguably most successful DAO in the industry. Setting the tone for collaborative relationships is a tremendous relief after the unspoken but visible tension among other DAO platforms that we’ve seen historically.

Given all of these advancements in the technology and its adoption, the outlook is optimistic for building on this success.

The Bad: The death of a colony

Ethereum transaction fees continue to be a major issue for distributed governance. Paying to vote, even if it’s a small amount, is anathema to any democratic process. DAOs may have multiple votes every quarter, or even daily votes. People simply can’t put up with significant transaction fees. 

Under the weight of this issue, Colony has officially closed its alpha version while it upgrades to xDAI, and Ethereum sidechain. To be honest, this is worse news for Ethereum than for DAO technology itself. Colony recently announced it expects the new version to be out in early 2021. High transaction fees do speak to the fact that most of the active and successful DAOs, particularly on DAOstack, are in the decentralized finance (DeFi) space. 

Low transaction fees on Ethereum are too far away for any other apps to consider using decentralized apps (dapps) on Ethereum for other types of voting. It may be good news for smart contract interoperability, blockchains such as Cosmos and Cardano and for Ethereum virtual machine-based blockchains.  

The Ugly: Lawsuits and active users

Lawsuits are ugly

Ironically, the one project with a court (Aragon) this year found itself resorting to the traditional legal system to resolve a conflict. It is with glee that I can officially avoid labelling this as ugly, because the project hashed it out itself. Everything was settled out of court, which again attests to the industry’s evolving maturity, but here’s the tweet in case you missed it. 

Active users?

In a recent presentation about DAOs, a representative of DAOstack announced the goal of a DAO is to create a kind of organization that is so resilient it can be distributed around the globe and even the strongest national government in the world cannot destroy it. 

He then went on to announce such an organization now exists and has 400 participants! It’s the dxDAO. It’s not even mildly ironic the speaker was speaking in Hebrew, the language of 12.5 million people who belong to an “organization” that has survived repeated annihilation attempts by the strongest governments of the world. Hey, this is the “ugly” section. You knew it was going to get ugly.

This technology isn’t yet being used the way it was intended

So, 445 participants. That sounds, um, well … small. It is, by the way, according to the information I could find through Scout, 10 times larger than the active DAOs running on Aragon, so, yes, it’s relatively large in terms of membership. It’s larger than NectarDAO (128 users), the result of one of the best DAO implementations to date by DeversiFy. 

The ugly truth, unfortunately, is uglier. In researching the top DAOs on both DAOstack and Aragon, the actual number of users is lower – much, much lower. The largest number of votes on a proposal I found was 12 votes, which somehow represented 19% of the reputation in a DAO of 128 people. Most proposals passed with one or two votes. Yes, you could generally propose something and just pass it on your own. In dxDAO, BrightID and the other DAOs, voting turnout was similar. 

So while on the surface the numbers look promising, a bit of scratching finds that somehow this technology isn’t yet being used the way it was intended.

And then there’s this…

‘Nuff said.

Jury’s out

Not everything is good, bad or ugly yet. I’m still not completely sure what to make of Commons Stack, a team that started out talking about commons governance that now says it is working on token engineering infrastructure. It is trying out “praise” tokens that give weighted voting rights in a “conviction voting” system where they provide some kind of matching funding on Gitcoin grants.

Even though I have, and stake, these praise tokens, I can’t say I completely understand how it works. It’s an important project to mention in the context of distributed governance, but it’s not exactly a DAO and it’s not yet clear exactly where it’s headed.

See also: Jill Carlson – Experiments in Crypto’s Governance Lab

Commons Stack seems to have bottomless quantities of energy, good will and persistence, and it draws a fantastic crowd of intelligent and insightful people. The recent Commons Stack collaboration with the Token Engineering Commons has generated a tremendous amount of activity, with more than 160 people participating actively in one way or another.


All in all, 2020 has been an amazing year for advances in DAO technology and there’s every reason to believe 2021 will be even better. While I remain skeptical about the potential of this technology to address the most pressing issues in governance today, when judged for what it is, DAO tech is making tremendous progress. 



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