Killing Crypto: Outlier Ventures’ 2019 PredictionsJanuary 2019
Foreword Jamie Burke & Lawrence Lundy-Bryan
This time last year we predicted there needed to be a crypto winter, something we hoped to happen sooner rather than later. As painful as it has been for everyone we believe it was the medicine the industry needed to professionalise. There was too much hype with too little value in the public market, something we had been talking about since early 2017.
In 2019, we propose to kill the ‘crypto’ narrative and leave behind the baggage of crypto twitter, ICOs, shitcoins, scams and crypto-pools. We think this year is primarily going to be about ‘crossing the chasm’ as enterprise and institutional capital become the dominant financiers bringing more rigour and discipline to the industry. Initiatives that raised millions from retail investors last year won’t make it past the first stage of institutional diligence in 2019. As a consequence projects will raise more private money and stay private for longer to build out their networks. This will remove a lot of the execution risk inherent in early-stage venture from public markets but it will also force the focus from ideals and visions to code and shipping.
As regulatory activity increases, exchanges are already cleaning up their act and integrating into the existing financial system. This will remove wash trading and other bad behaviours and see markets stabilise. Serious projects that didn’t ICO last year will launch networks with real users rather than as a rushed crowdfunding campaign.
So we think there is a bullish case to be made for 2019. Not because there will be a full market recovery but because there will be green shoots that emerge (some of which we list here in our 2018 end of year report) which will drive sustainable growth as market fundamentals finally emerge.
11 Predictions from Outlier Ventures
We have curated 11 predictions from the Outlier Ventures partnership, let us know what you think on Twitter @OVioHQ
1/ Killing Crypto – Following the narrative ‘the crypto only fund’ is dead. Money will increasingly go to strategic, professional investors placing tokens and blockchain within a broader emerging technology landscape.
Prediction: There will be less than 50 VC funds with over $30m USD AUM referring to themselves as a ‘crypto fund’ globally by EOY
2/ DeFi / Open Finance Narrative Falls Short – This is a dominant narrative out of the US at the moment. Projects like Dharma, Set Protocol, WalletConnect, DYDX, Wyre, and others are shipping at a rate of knots, but it’s hard to see who the customer is for these products beyond the very early pioneers and innovators deep in the crypto space. Expect to see lots of interesting products around leverage, margin, and lending, but it’s hard to see real users participating en mass especially ‘the so-called un-banked’. Whilst it’s something we believe is a worthy cause actually getting these things to market and iterating, through all the regulatory hurdles and in a way a consumer can understand is a multi-year project. However, traction may be made in emerging markets like Africa.
Prediction: DeFi will lead in transaction count this year, however, there will be no more than 10m users of both consumer-facing and institution-facing DeFi in the West in 2019
3/ Security Tokens – Lots of infrastructure being built but no real market yet. Due to the high regulatory hurdles and costs associated with scaling internationally, we expect to see a few players like Harbour, Abacus and Republic build out a full integrated suite of services across issuance, secondary markets, and trading. Expect to hear more about the ‘Coinbase for STOs’ as the year ends.
Prediction: STO daily volumes won’t go above $50m USD at any point in 2019.
4/ On-chain governance – We will begin to move away from the idea of fully ‘on-chain governance’ as the trade-offs around technical risk and speed of decision-making become painfully obvious. The motivation behind engaging a broader set of network participants to shape the direction of the network is a noble one and indeed should be a guiding principle for every public network. But it should be a vision to achieve, but in the meantime, the network needs to be built, shipped and grown. With VC money we expect lean startup thinking and therefore off-chain governance to dominate 2019.
Prediction: There is no on-chain governance protocol in top 25 by market capitalization by EOY
5/ Mo data , mo (real world) problems. Big (unusable) data is the problem most companies have today. Protocols that speak to the Data and AI narrative will dominate and achieve the most traction. Look at our Convergence Stack, it’s no coincidence.
Prediction: 1 tokenised data marketplace protocol enters top 10 by market capitalization by EOY
6/ Beyond wallets. Staking goes retail as Coinbase, Circle, and maybe even Revolut offer staking accounts to customers. Wallet providers are the gateway to the digital asset economy and will increasingly look for ways to drive engagement in the bear market. Expect more assets to be available including NFTs, but the concept of ‘income-generating assets’ by participating in the network will enter public consciousness and lead to positive discussions of value in tokens ‘beyond speculation’.
Prediction: Coinbase, Circle, or Revolut offer ‘staking’ or another name for income-generating assets directly in-wallet
7/ Crossing the chasm with Web 2.5 not Web 3.0 – The blockchain industry took a big ambitious moon shot at realising a highly decentralised and automated Web 3.0 over the last few years. A lot of great stuff was built and lessons learnt but it’s safe to say we overshot and failed to deliver something that could be adopted beyond a few narrow use-cases. 2019 is going to see much more pragmatism to deliver performance requirements of millions and billions of customers leading to significant concessions to the level of decentralisation for consensus formation.
Prediction: This is a tough one. We have been trying to quantify this ‘significant concessions to decentralisation’ point in some way. Is there a canonical End of Year ‘Top Stories’ list, if so, we would want to say “50% of that list will make some significant concession on decentralisation”. We welcome ideas on how to quantify this.
8/ The interoperability story – We are likely to see a movement away from traditional virtual machine architecture in favour of the open standard WebAssembly (WASM). As a universal compile target that enables developers to write smart contracts in a variety of languages, including C/C++, Go, Rust and Typescript, among others. WASM also allows for running untrusted high-performance code in a browser. Use of the standard will make blockchains more inter- and intra-operable, improve performance, allow for stronger claims about security and potentially enable users to run nodes in-browser.
It is already possible to deploy WASM contracts on the Ethereum Kovan Testnet. Support for WebAssembly in the blockchain industry is being spearheaded by Ethereum 2.0’s EWASM project and Parity, and may prove one of the most significant steps in attracting developers to the blockchain space.
Prediction: Ethereum 2 Phase 1 is WASM compile target OR 3 of top 10 by market capitalization using WASM by EOY
9/ Enterprise adoption needs enterprise chains – We will see some emerging chains offer a compelling proposition to enterprises that have identified use cases for which DLT makes sense but have no intention of running their own nodes or hiring a team to integrate into public ledgers. Blockchain-as-a-service (Baas) providers Interstellar, Kaleido, and Amazon’s QLDB spring to mind, but there will be others that bring the performance, scalability, reliability and availability required for production-scale workloads.
Prediction: $1bn USD BaaS market by revenues by EOY
10/ Bluechip emerges – Venture capital investments have begun concentrating increasingly in equity follow-on rounds. A total of over $550 million was raised through 147 deals in the last quarter of 2018, but roughly 70% of it was captured by just 20 deals. An emergent trend has been to invest large sums into late stage ventures that have demonstrated traction and some sort of product-market fit. We expect to see more money consolidating around a few clear winners in different segments of the market.
Prediction: Combined value of private top 5 crypto ‘blue-chip’ companies is $25 billion USD by EOY
11/ Year of the BATs FAANG – Let’s go out on a big one. There is going to be increasing innovation and adoption across the blue chip tech stock of the US and Asia.
Prediction: 1bn new users onboarded into ‘crypto’ via one of Whatsapp, Facebook Messenger, or WeChat despite Telegram