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2022 in Review: Our top learnings in Web3, market volatility, and industry insights
Welcome Fintech Futurists —
Today we are looking at our 2022 coverage in the Long Takes, and pulling out the core themes and lessons that have shone through.
It wasn’t pretty, but it was needed, and here we still are. If you enjoy these insights, don’t forget to share with others below. 👇👇👇
Measuring our Attention
You can definitely say that 2022 was all doom and gloom, but it still matters where you look to draw the conclusion. Where you focus your attention will shape the problems that you notice, and the solutions you will find fruitful.
So here are the topics we found most relevant over the year —
It shouldn’t surprise you, dear reader, that a Web3 lens was applied to much of our analysis. Computational blockchains and their potential are the largest innovation and potential platform shift that has hit financial services and economic society at large. We spent time on attaching those ideas to other emerging mega-trends — the development of the Metaverse, however piecemeal, and the explosion in generative AI and creativity.
We also deconstructed the components of Web3 infrastructure to the things that mattered, like the transformation of protocols, application of tokenomics and decentralized finance, growth in NFTs and identity tooling, and associated regulation.
Another group of topics is simply titled “Learning Closely”. We bundled a few types of analysis here, from simply documenting how and why things fell apart, to applying fundamental analysis about particular companies and their financial performance in markets during stressful periods, to going broader and looking at macroeconomics, politics, and large scale strategy.
Whereas our Web3 work is about futurism, looking forward to discovering where the best case *could* go, there is also important space for marking things to market, and understanding what current case *already is*. Getting things wrong, and then understanding why and how to get them right, is part of this skillset. In 2023, everyone had to learn how to become a macro analyst to figure out why the sky fell down. But that doesn’t mean you forever have to lose your optimism and imagination.
In the last category, which we call “Industry Insight”, we dug through the strategic positioning and available vectors of competition for particular players. Why does Stripe expand to all of embedded finance? What should Goldman Sachs do to grow Marcus? How can Twitter become a fintech super-app? What powers does Apple have over market venues and third party applications? While the first two categories are about developing and sharpening our “blueprints”, our mental models, this category is about applying both the current assessment and the forward thinking strategic view to real case studies.
Web3 Top 5 Themes
Tokens & Governance:
DeFi, Dapps, and DAOs:
Realizing the Metaverse:
In addition to drawing your attention to the Long Takes above, we remind you about the weekly Web3 newsletter we publish as well. The topics that really emerge in that corpus are around the promises that blockchain has made coming to fruition on large public network. The biggest development, which is the Ethereum merge, delivered to us a network that can run decentralized software without high electricity consumption. Rollups, like Optimism and Arbtirum, are delivering 800,000 transactions a day at low cost, anchored to mainnet. Chains like Polygon are seeing partnerships with companies like Starbucks to launch loyalty NFT programs. And DAOs are emerging as the small business unit of a Web3 economy, beginning to mirror the development of eCommerce but for digital goods, creating a Web3 GDP.
This is the way. Looking forward to 2023, we would hope to see a lot more commerce coming to market. We want to see NFTs from large brands that are interactive and useful, not simply images highlighting tribal affiliation. We want to see high quality DeFi banking services for Web3 customers, perhaps leveraging the interest rates available in traditional markets. We expect many more on- and off-ramps, like PayPal and Stripe, coming to build embedded finance integrations. And we also expect to see progress away from centralized brokerages and towards onchain identity and increased self-custody.
Learning More Top 5 Themes
Responses to failure:
The way out:
It has been a terrible, no good year if all you care about investment returns. But if you also find value in learning how things work, and how they can go wrong, this year has delivered a PhD in financial contagion to astute watchers.
One can see how a loose interest rate environment led to increasing risk-taking, which led to asset bubbles across early stage technology, which in turn created capital gains to be re-invested into long tail risk assets like DeFi and various protocols, which then led to speculation games that blew up recursive schemes like Terra/Luna. This kicked off a liquidation cascade that blew up 3AC, a levered up asset manager, which defaulted on its loans across Celcius, Voyager, BlockFi and many others, causing them and many others to call in loans and also go bankrupt, leading to various runs on banks, asset price collapse, and ending in the total melt-down of FTX. That’s what we know so far.
The revenue-multiple valuation collapse across Fintech, from 50x to 3x, seems like small potatoes in comparison. But those companies did become much less valuable as interest rates rose, and revenue fell as retail consumers felt inflation and recession coming on. SPACs performed disastrously, despite high quality companies operating well. Financial markets sold off everything, and even the underlying infrastructure providers to those fintechs started to feel revenue pressure. Layoffs ensued across all tech.
For next year, our hope is that there is still high quality capital on the sidelines for leading players. Incumbents could acquire modern technology with poor recent performance, but which can supercharge existing footprints. Investments could be made to roll-up similar players with slightly different niches — Chime, Money Lion, Dave, Aspiration, Acorns — and the many other customer acquisition machines that have not scaled away from their costs. We think 2023 will see a recession as the layoffs and interest rates take their toll, and we hope that in this recession entrepreneurs are forced to build projects that target must-have needs, rather than speculative games. The best will be forged in the fires of economic uncertainty.
Industry Insight Top 5 Themes
Goldman Sachs: What will Goldman Sachs do with Marcus, and Why?
When we look at particular companies, our target is always to find something novel that they could be doing that would shake things up. The large names continue to be the large names, regardless of their shifting, jockeying, and positioning. We see less power in Meta / Facebook, and more power in Apple as time goes on. But the result of their role — as a protector of beautiful walled gardens — is the same. We see top large banks, like GS and JPM, accrue returns to scale to themselves, while others like Deutsche Bank and Wells Fargo struggle with structuring and fines.
There are larger strategic changes afoot. We see Web2 advertising business models become less certain — look at Twitter and Meta — and fintech, Web3, or Metaverse business models emerging as potential alternatives. Goldman’s restructuring to include a technology platform division, and SoFi’s data aggregation revenues teach us about the viability of a financial platform businesses, and the dividing lines between distribution and manufacturing. Lastly, regulatory and legislative changes are constantly happening, as markets push various boundaries and cause reactions from regulatory agencies, and fights through politics and lobbying within Congress. Nothing is static.
For 2023, we expect to see further separation between the winners and the losers. Those that have cash and clients in the year to come will eat up market share, while those that don’t will spend the year re-structuring and cutting losses. The questions about how to invest in innovation have never been more important, and perhaps getting it wrong has never been more expensive (see Zuck, Elon). But the risk of doing nothing most certainly relegates you into the past, which will be erased by robots and their supporting communities.
You can see this thematically also coming up in our Digital Wealth coverage. All projections point to the adoption of alternative asset classes, i.e., PE/VC and crypto, as part of global asset allocations even for retain investors. That suggests that capital — and the rewards from having access to it — will continue to seek modernity and novelty. We expect our money to be smart, digital, transparent, and accessible. Getting there is a collective effort.
Read our Disclaimer here — this newsletter does not provide investment advice and represents solely the views and opinions of FINTECH BLUEPRINT LTD.
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