Hi Fintech futurists --

Welcome, dear reader, to our 2021 retrospective and a view towards the future. This post is open to all as a baseline for the coming year.

Subscribe now

Visit our carefully curated Sponsors:

Whoever you need to meet in 2022, you’ll find them at Fintech Meetup! With 30,000+ double opt-in online meetings, it’s the easiest way to meet Fintechs, Banks, Credit Unions, Investors, Networks and many others. Create the leads, deals, partnerships and funding your business needs in 2022! Online, March 22-24.

👉 Get your ticket now!

Perpetual Protocol is a decentralized perpetual futures contracts exchange on the cutting edge of finance and technology. Traders use it to permissionlessly trade the most popular products in Web3. Builders create new protocols and projects on top of it. Liquidity providers use it to earn yield on their capital.

👉 Learn more at perp.fi

In Review

Over the last year, we have done a major housekeeping effort of tagging all our content according to thematics. Let us consider those categories here:

Our corpus is now somewhat coherent. You can see the major entries by company, topic, and date. Here’s what we write about by topic:

And here it is by project and company —

For example, here are the pages on Goldman, Robinhood, Amazon, Square, Coinbase, Revolut, Plaid, and Uniswap. That’s the accountant talking, now onto some wrap up!

Fintech Distribution

It has been a titanic year for “traditional” fintech. The last decade of storytelling, hustle, venture investment, and anxiety had finally burst through into billions and billions of enterprise value in the public markets. We saw, for the first time, into essentially every single “democratizing finance” business model imagined by entrepreneurs in standardized, SEC filing format.

We saw the headline Coinbase, Robinhood, and Transferwise IPOs bring to market financial companies that don’t dance like banks, minting fintech billionaires in the process. The PayPal mafia is joined by dozens, if not hundreds, of new fintech super angels, who will fund the next pass at assailing orthodox market structures. Capital will only become more available for the space, despite a mind boggling $30+ billion of venture investment in 2021.

The fintech SPAC wave helped us look inside companies like Payoneer, Apex, SoFi, MoneyLion, eToro, Aspiration, Acorns and many others. The short answer is that they are all quite different, and that some are better than others in both their business models, as well as ethics. Just because this is *digital* finance, does not mean it is more aligned with customers by default — certainly not with just fintech.

We came back to a core distinction on reviewing all that data: (1) money in motion and (2) money at rest. Commercialization based on these strands of DNA leads to very different outcomes, and different financial analyses. Payments and trading companies are cyclical and volatile, but recurring. Their transition from private to public seemed reasonable. Lending and insurance are still poorly understood by private venture (e.g., underwriting is not SaaS revenue), and it seems when those come to the public markets, they are severely punished within a few months. BNPL is caught in between. Savings and investment companies, especially those that are figuring out how to decouple from global macro, are of particular resilience.

Looking forward, the next year or five will churn around a couple of themes. Embedded finance will continue to rotate into view, with API-first services for read *and* write becoming dominant, global, horizontal platforms. Much of this has already been funded and built, but the world doesn’t yet know it. Fundamental economic activity — i.e., commerce — is more powerful than payments, or BNPL, or net interest income. Those who enable it and hide, rather than pushing features, will grow fast.

Big tech seems to be failing out of retail finance for the moment — whether you look at Google, or at the Chinese crack-down on Ant and Tencent. Retail distribution belongs to marketers, not technologists, and those marketers are getting particularly narrow and effective. Maybe that will change later. However, the partnerships between cloud service provision (AWS) and institutional finance tech (GS, JPM) will be the competitive dynamic of the next decade on the higher end of capital markets and wholesale banking. We continue to struggle to see what happens with the middle, regional, and community players — perhaps some saving grace from the regulators combined with piping into better user aggregators.

Lastly, fintech distribution finally sees the new product to distribute. While we tolerate traditional asset classes and traditional rails, more and more footprints — especially those who don’t care about becoming banks, broker/dealers, money transmitters, and the like — will plug into crypto. Not because they want to in some special religious sense, but because of demand from their customers.

Crypto Manufacturing

On this theme, we certainly say enough already. But in some sense, the recap is simple. In the past year, global assets plugged into decentralized financial infrastructure rose from $20 billion, give or take, to $250 billion. Addresses (the equivalent of accounts) on computational crypto networks that can run DeFi software rose from about 100 million to 500 million. Crypto total enterprise value went from about $750 billion to somewhere between $2-3 trillion.

The main drivers are simple — people want *it*, because it provides an alternative based on a divergent set of economic, legal, and social presumptions. Few people liked the first rock song, until everyone did. Few people wanted to believe that the Earth revolved around the Sun, until everyone did. Crypto ideas are revolutionary, both as a fashion of what is cool, and as a scientific fact of software development. Together, they weave a narrative about meaning and social structure that has proven to be incredibly viral and resilient. Capital, talent, and time are being sucked into making everything imagined real. And so much of it *is*, though *not all*.

The stories we notice here rhyme with those from years past. Let’s start with institutions. A new major distinction has materialized, which has allowed pretty massive expansion this year. That distinction is that we transitioned from (1) selling blockchain software to be integrated into existing technology infrastructure in order to save cost within existing manufacturing, to (2) selling access to a new asset class with new sources of return in order to generate revenue for existing distribution. Notice it when you look around. It is powerful stuff.

The regulatory chaos with the SEC, overreaching into everything to stop nothing, and the pushback from Central Banks in relation to stablecoins (systemic!) all points in a similar direction. Large, enterprise projects will continue to amble along. The Chinese digital money project is making broad progress, and is being deployed in eCommerce and payment wallets, for example. But we think that digital assets will reformat our ministries and financial churches, and not the other way around. No amount of older generations telling kids what to do on the Internet works, ever.

When it comes to retail, DeFi yielded in cultural prominence to NFTs and the metaverse, which we will cover below. Suffice to say, DeFi is the banking system of Web3 and it is, somewhat literally, financing the creation of an economic system in which many new, fairly normal people are participating. We are floored by the art, music, and experiences being conceptualized, and hope for such spirit to continue.

Looking forward, DeFi is going to have to process a number of challenges in 2022. As the markets become more efficient through the participation of hedge funds, some of the funding and arbitrage opportunities of the past become increasingly shallow. This means building on the primitives is harder — less runway to deploy uneconomic models. Our primer on DeFi 2.0 highlighted a few directions this could go, and M&A is starting to pick up, but these also may create a strange or consolidated market structure.

A multi-chain world also leads to a more fragile and interdependent computational infrastructure with funds stuck in bridges that can be hard to unwind. Paying attention to the core layers of the technology stack is something finance people will have to learn to do, as well as gain an understanding of how to run Web3 hardware and software, and how that differs from traditional cloud. Getting from $2 trillion to $20 trillion in enterprise value, and from $250 billion to $3 trillion in collateralized value, will be a systemically hard climb. It will happen, but in a shape that is likely different from today’s packaging.

Platform Shifts

Our coverage of the Metaverse and Web3 this year has been a blast to write and experience. Who would expect to see Zuckerberg be an unironic Meta necromancer in a rendered Black Mirror dystopia? Would would expect generative art to become a rebirth of Warhol and Kandinsky in digital, gorgeous, mass produced form? Who would expect Decentralized Autonomous Organizations to proliferate, selling $500,000 art pieces every day for months to create sophisticated syndicate investment funds? It is all a dream in a fog, a riddle, wrapped in a mystery, inside an enigma.

The developments create more questions than answers, and we layed the groundwork for some of those answers. Consider —

If we first look at NFTs, let’s just think of them as digital objects around which one can build commerce. Several different categories have emerged, from profile picture avatars (PFPs), to digital art, to collectibles, to social club tickets, and many other form factors. These different categories have appeared, because there is no one type of *object* in the real world, and similarly there is no one single type of object in the digital world.

Key to the success of any of these objects are communities, and this has led to explosive growth of places like Discord, and DAOs like Friends with Benefits. Communities are the mana for the creation of fashion, and the determining factor for how long fashions last and how valuable they become. Within the same vector of change, digital communities have become both political and financial. The digital objects they yield function as equity, social entry, and war flag.

DAOs can form spontaneously, leveraging open source financial and social infrastructure to raise dozens of millions of dollars from thousands of people, and perform actions, like trying to buy the United States constitution for $40 million, and then issuing fungible tokens worth 10x as much on meme sentiment. Governance and coordination platforms help direct attention, investment, and actual human labor. It is not only the sovereign state that is threatened, but the mercantilism of the corporation. Collectivism is digitally reborn, and is looking for a new home.

This leads us to blockchain based gaming, and pay-to-earn models for things like Axie Infinity. It is incontrovertible that digital objects on blockchains, and digital blockchains in games — which by the way are the main growing multimedia sector — will at some point soon be one and the same. It is quaint to light a candle, instead of a lamp. It will similarly be quaint to play a video game whose assets are not actually owned by the gamer. Such evolution will be brought on not because of technological supremacy, but because NFT commerce models are far, far more profitable to the gaming company than selling downloads on Steam. OpenSea is a tiny, trivial preview of what is to come from digital commerce — and it is moving over $10 billion in volume.

The tech companies know it. This is why Facebook rebranded to Meta, Square rebranded to Block, and Microsoft has a metaverse strategy. It is why Visa bought a Crypto Punk and why Marvel, Adidas, and many other established brands launched their own NFTs. It is turf warfare for the minds of Generation Z, and the things they crypto-hold dear. Media Enterprises will battle it out heavy in 2022, spending for NFTs like finance companies did for digital assets. We think it will all lead to the open Web3 in the end, but there is wood to chop in the meanwhile.

Adjacent to this overarching theme are the development in artificial intelligence that power machine vision and render digital worlds, as well as the functioning of those digital worlds as economies. Places like The Sandbox will emerge as centers of metaverse gravity, and will eventually overshadow Fortnite, Roblox, and Minecraft as those had overshadowed Second Life. We don’t have to imagine anything to say this — just weave the web of platform shifts and generational change into the combined whole.

Sovereignty, markets, and economics

We want to end on the importance of understanding both the micro, and the macro. You have to know both how to (1) play the game — doing the math, launching the product, hiring the team — as well as (2) understand the game that you are choosing to play. Choosing what you play, we think, is *far more important* in the journey, because it is the actual choice of the journey, and whether the journey is fit for you. There are so many different ways to say this. Zoom in, zoom out.

One example is just our dive from global macroeconomics, to crypto macroeconomics, to Web3 markets, and then down into fundamentals (here). The particulars will end up wrong, but the framing is useful, and should be repeated for any topic you pick. This is also why we spend time parsing frameworks for decentralized M&A or the SPAC markets. Those environments define the financial and cultural outcomes of the participants within the environmental constraints. An applied illustration would be Marqeta totally crushing it with $300MM of revenue, because its main clients of Cash App and DoorDash materialized 3 years after its founding as a result of unrelated trends.

Or, check out for example our conversations with Joe Lubin or Sheila Warren or Nicholas of SharkDAO, and you will hear people who can float in a discussion about how the world works and why it turns a particular way, and then get down to the minute detail of any part of their interest. Make the map of reality, and then participate in reality with purpose.

Thankfully, we didn’t do much Covid writing this year. But we did make discoveries about identity, and how it is expanding from signalling abstractions into an actual digital track record. We spent a bit of time mucking about, pulling apart the idea of money as an abstraction that capitalism creates, and how mystical and alchemical that process really feels. It is dimensional collapse for the sake of economy — both as a computational savings, and also as the economy between people who transact.

Our articulation of populism and institutionalism as dimensions in the money war feel quite on the nose and predictive of the next decade, whether you talk about CBDCs or the search for meaning by younger generations in a world that imagines itself on fire. There was even an attempt to marry the pent up energy of money with political bend — maybe money in motion is naturally progressive and money in motion is naturally conservative.

It has been a truly curious year. The global money printing machine caused risk assets to appreciate, and so it was fun to be making and thinking about risk assets. Digital life has penetrated everything, and warped a lot of how people think about the world. There’s going to be, of course, a reset — maybe a bit less Zoom. And yet other things are quite permanent — maybe a lot more authenticity on the Internet.

M.C. Escher on Twitter: "Sky and Water II, 1938 #mcescher #opart https://t.co/RgPXxu0rlZ" / Twitter — MC Escher

More? More!

Subscribe for more Blueprint below:
Subscribe now

Want to discuss? Stop by our Discord or reach out here anytime.

Fintech Blueprint 🤖🏦🧭

2021 in Review: Fintech distribution, Crypto…