Traditional corporations benefit from a strict hierarchy with well-defined responsibilities. The corporate structure is the product of hundreds of years of evolution, and does a great job delegating decision-making power to those that are best qualified—those that have risen to the role through a meritocracy and are given the trust and latitude to execute and take risks as they deem appropriate.

And while the CTO or CMO may be given direction by the board or CEO, they have freedom to take risks and follow their intuition, and as a consequence, are held accountable for the consequences of their decisions. A company that required a board vote on everything would likely be too risk-averse or slow moving to enjoy a competitive advantage. And an enterprise in which all decisions were voted on by shareholders would likely enjoy a swift death.

And then we have crypto…

I, and likely many in crypto, view the decentralized voting of DAOs to be inherently inefficient. Every token holder votes on how the DAO’s money should be spent, on how big the grant program should be, on who should be hired or fired, etc.

Others seem to be wearing rose-tinted glasses and believe that decentralized voting will lead to some sort of beneficial societal or cultural reform—that having everyone vote on every feature is a feature, not a bug. To me, this mindset is often reminiscent of a fondness of socialism — but that’s beside the point.

The reality is that neither of these extremes are choices that we have in crypto.

Gaining and maintaining control of resources is hard. Extremely hard.

Paraphrasing Google results, inherited money is lost within a generation 70% of the time. By three generations, 90% of wealth has been lost (to other, better, resource allocators).

In a free market, capital flows towards those that demonstrate the most effective use of it — those that invest it the most wisely. Maximizing this tendency results in the greatest societal benefit as sound investments pay off with new wealth creation.

In closed-source tech, or traditional corporations, the decision-making payoff spectrum looks something like this:

Having individuals who have total responsibility for how resources are allocated in their corporate function, coupled with total accountability for the consequences of those decisions, works much better than having diffuse decision making power in which everyone gets a say… and therefore, nobody has accountability.

Society has evolved toward centralized resource allocation in closed-source technology companies for good reason. Resource allocators compete in a meritocracy to invest both human talent/time and capital as efficiently as possible, and are rewarded or demoted depending on results.

I believe the spectrum is a bit different with open-source technology—with a community of users eager to help shape or evangelize the product.

How can these projects most effectively decide how to use their funds, i.e. on development, growth, research, grants, or investments?

With token ownership in particular, a purely centralized model fails to surface ideas from the periphery or hive mind, and risks losing touch with its engaged base of user-investors.

So perhaps the spectrum looks a bit more like this, with the most efficient (green) somewhere between the two extremes:

An example of a centralized system with delegates is the Arbitrum DAO on Tally. Here you can see that many of the top delegates are individuals like Eric Wall and firms like Wintermute and Gauntlet that have heavily invested in the Arbitrum ecosystem. They have skin-in-the-game and are in unique positions to provide input.

Ultimately the final execution of ideas is still controlled by a multisig, but the signers are expected to honor their soft commitment to execute according to the will of token holders.

I might argue that veto authority by a centralized entity would be better than a soft commitment to honor vote outcomes, but unfortunately we are forced into ignoring this possibility because of legal risk.

Regulatory risk makes it extremely difficult for a crypto project to maintain meritocratic centralized control over resource allocation. In other words, even though the left two points in the above graphic may be preferable from an efficiency perspective, regulatory pressure makes these infeasible.

Even pseudonymous reputation systems, full stack distributed infrastructure, and so on cannot completely solve this problem as long as there is fear of regulatory retribution or abuse. While it’s possible that centralized control could be possible via a small subset of individuals from relatively crypto-friendly jurisdictions, the space needs a global meritocracy, rather than limiting the pool of talent to certain geographies.

So we are stuck, reluctantly having to build on the right side of this spectrum.

Thus, regulatory pressure forcing us to decentralize decision making comes at the cost of suboptimal investments (i.e. moving from left to right).

And so, the question then becomes: “How might we optimize within the inefficient extreme of this spectrum (the orange dotted box below) as restricted by regulatory pressure?”

In summary, despite governance often being pushed as “centralized bad, decentralized (someday) better”, the traditional corporate structure has proven its efficiency in maximizing output. While it has been temporarily hampered in crypto by an antiquated legal system, it’s important to keep in mind that we are attempting to maximize output in an ‘artificially constrained’ environment.

The models we’re building don’t need to replace corporate structure, a product of social evolution. They just need to be efficient enough for now. I’m bullish on improving the flow of information from the hive mind of users and investors to the top of a centralized hierarchy, and I think it’s in this domain where the crypto industry can realistically lead the way on improving the traditional corporate structure in the long-term.

And within our current constraints, many ideas have been tried, adopted, rejected, and proposed on how to potentially push us further left on this spectrum, from splitting ownership in 3-entity systems (the builder / DAO / foundation model) to ways to filter out noise and promote the delegation of decision making.

A great and recent article I enjoyed was Grant Theft DAO: Grant programs are broken, can we fix them?

Am I spot on or losing the plot? Let me know what you think.

Half-baked is a new collection of articles that cover some ideas I’ve thought of, but haven’t fully worked out, or even researched. The majority, or perhaps all of these, will be bad ideas. Many will not be technically viable. But on the very slight chance they inspire better ideas, I figured they were worth publishing.

It’s pretty cool being your own bank, deploying liquidity to various markets and protocols for interest, and swapping funds without intermediaries.

But it would be even cooler if every time I made a trade on Uniswap, the fees I paid went to people I agreed with. Or if every time I routed a Lightning transaction, I was attempting to route through, and reward, friends and family before strangers.

What if I could interact with decentralized finance while only supporting people that signaled that they believe in free market capitalism?

I think this type of in-group preference network, or dare I say marketplace, could result in some pretty interesting use cases.

While critics of Bitcoin’s Lightning network point to the possibility of a tendency towards large network hubs that collect a significant proportion of routing fees, the ability to prioritize routes based on non-economic factors may provide an alternative outcome that favors decentralization.

In a well-connected Lightning network, it is likely that multiple possible routes exist for the average payment. When simply assuming that each payment initiator will seek an optimal route based on a network graph of fees and reliability (past success), a tendency towards fewer large, reliable hubs is likely.

However, when provided with multiple payment routes, it is possible that a user might prefer one route based on non-economic parameters. This may include whether or not the nodes are within the initiator’s personal network, whether the nodes have signaled certain ethical positions such as “taxation is theft” or whether on-chain, the node has signaled a vote for certain network changes.

For simplicity, let’s call the preference to route based on an array of parameters “in-group preference”.

When a multitude of non-economic routing factors are considered, a complex routing economy may emerge, with room to incentivize nodes according to a potentially infinite set of in-group preference sets.

As a routing network becomes well-connected, transaction fees will (in well-connected zones) level out to an efficient market rate. While the competition may only promote reputation-based rewarding of nodes, it may also be a driver for innovation and secondary value propositions. One such value proposition could be in-group preference routing to reward people you want to support or that share a common interest for routing your payments.

Enough for the user to believe there is a meaningful chance of fees going to in-group nodes. However, this could begin hyper-locally. For example, people rallying around a cause, a shared app, or with any other in-group preference could begin prioritizing in-group payments.

One possibility is that larger nodes attempt to differentiate themselves by signaling certain information on-chain. For example, if a node were to signal ‘FreeTaiwan’ on-chain, and had done so for the last two years, the user would be fairly certain of the resolute ethics of the node.

Though a few proposals have been published on how to scale lightning network beyond its current ‘limits’, one possibility is that “in-group preference hubs” arise, or tightly-knit groups of nodes with similar ethics. If this were to ever occur, it would generate a distributed graph of shared ethics partially determined by economic behavior.

1. Would user-driven economic feedback help move the needle towards or away from truth? Are there critical mass tipping points where this might become more clear?

2. Could this lead to a “put your money where your mouth is” economy?

3. Would users ever care about anything but the cheapest, most reliable routing, even if provided with the ability to prioritize other in-group preferences?

4. Could this be a way of bootstrapping new networks? Early signalers might be more likely to become well-networked for their in group preference set?

As with most of my half-baked ideas, I don’t see any great way to monetize this, but perhaps it will inspire some other iteration on the idea, especially given our mutual interest in predictions and helping source facts in an increasingly info-rich world.

We can’t tell the future, and a world where in-group preference and ethics are intertwined by the fabric of every small transaction may be unlikely. However, with a new level of economic interconnectedness, we will for sure see experiments and exploration that incorporate realms of human consciousness into which we have not before been able to easily tap.

The Bitcoin price is on the verge of new highs. People are convinced not just that this is a bull market, but rather, that this is only the beginning.

I can’t find anyone skeptical of this rally on crypto Twitter. Am I the only one left?

Before you conclude I’ve lost my way, here are some reasons I’m skeptical:

• Any new bull market should be led by risky new technologies, not by the 800-lb gorilla. It’s arguable that this happened with the likes of Celestia, Bittensor, and Autonolas. Perhaps. But those tokens are recently underperforming Bitcoin and Ethereum, and that typically doesn’t happen until late in the bull. Higher risk assets like the DeFi names, especially newer ones that didn’t exist in the last cycle, have lagged.

• “Alts” get clumped together into one basket. I prefer to differentiate between those alts that are new technologies with promise, like DeFi was in the last cycle, or the above noted TIA and OLAS vs Memecoins, like SHIB and PEPE. The former rise in the early part of the cycle due to smart money making shrewd bets on the future path of technology, whereas the latter rise in the late part of the cycle as retail piles in. Guess which are rising currently?

• Sentiment is off the charts. Euphoria is at a fever pitch. There are no bears to be found. Family members keep wanting me to give them the green light to buy. Internally, my lizard brain is screaming in FOMO.

I understand where it’s coming from: I embrace cycles as a core part of my investing strategy. But history doesn’t repeat, it merely rhymes. As soon as the crowd believes they have mastered the cycles, the cycles change. It’s simply not possible for the large part of the crowd to play the cycle correctly.

What I see in cryptoland is not that different than what’s going on Tradfi: the big tech companies like NVDA are driving the rally, with some accompanying Memestocks like SMCI. Slap an “AI” label on any company and it takes off.

This is late-cycle behavior.

Throughout early Q1, The Tinkering Society will be sharing four themes it believes will drive freedom of choice and decentralization across 2024.

There’s an old philosophical problem posed by Irish politician William Molyneux in the 1600s. This is the excerpt:

“Suppose a Man born blind, and now adult, and taught by his touch to distinguish between a Cube, and a Sphere of the same metal, and nighly of the same bigness, so as to tell, when he felt one and t’other; which is the Cube, which the Sphere. Suppose then the Cube and Sphere placed on a Table, and the Blind Man to be made to see. Quaere, Whether by his sight, before he touch’d them, he could now distinguish, and tell, which is the Globe, which the Cube.”

We believe that crypto is largely blinkered to the potential of building on Bitcoin.

That it is so ingrained in us to collectively see it as the store of value that we’re missing a much wider DeFi opportunity.

In reality, Bitcoin’s ‘brand’ as the most recognizable digital asset on the planet could actually imbue it with the kind of trust needed for mass adoption. Not to mention, its serious head start in terms of distribution and integrations.

Here’s why we think we’re on the cusp of a DeFi Summer renaissance, but with Bitcoin taking the lead, and where the most novel developments will happen.

Ordinals

As a quick primer on the concept: each Bitcoin network block contains 100 million satoshis (known as Sats) and the Ordinal protocol allows users to inscribe text, images, and other kinds of data onto them. We’ve previously discussed Colored Coins and this is just another way of giving tokens unique value.

Ordinals were a revelation in early 2023. They let Bitcoin users stamp their individuality directly onto the network for the first time, and in a completely different way from NFTs.

Despite waves of dips, Inscriptions have been on a consistent, but very gradual, uptrend across the span of a year. This is a strong indicator now that the dust has settled from the initial frothy hype in a space that is deeply fickle like crypto.

Credit: @dgtl_assets

The BRC-20 standard was born from the concept of Ordinals. While a Bitcoin NFT season looks very unlikely (JPEGs are rekt, sorry) there’s a significant opportunity for RWAs to be built on the network.

Credit: @cryptokoryo

Why Bitcoin and not Ethereum? Well, one of them is getting exponentially harder to attack and the other is locked in a growing struggle with centralization.

Credit: @lindyhan

Rollups

Scalability is not a new problem. Solve the issue and it not only becomes a more efficient way to send and receive, but potentially enables greater functionality (and even privacy?) and new ways to utilize $BTC in DeFi, such as using it for loan collateral.

As with Ethereum, there are several scaling options being built. Perhaps the most intriguing execution here is rollups, which is (broadly) where transactions are bundled up off-chain and then verified on a separate network. The pay-off here is that the computational cost of validation transactions is much lower.

Most importantly, other options like sidechains potentially undermine decentralization due to factors like multi-sigs and team control, and so it only makes sense that Web3 developers gravitate towards lesser risk.

ZK-Rollups in particular are going to be a focus of interest for us over the coming year. Leveraging zero-knowledge proofs, a cryptographic proof that preserves computational integrity while compressing computational on-chain storage, is a natural next evolutionary step for Bitcoin on its path to mass adoption.

Chainway and Kasar Labs are leading development in this area (and both leverage the aforementioned Ordinals project). The fundamental difference here is that Chainway uses its Sovereign Software Development Kit (SDK), while Kasar Labs lets developers utilize the Madara stack to create StarkNet-based rollups.

Stacks

Stacks is a smart contract layer (L2) built “on top of” Bitcoin that enables the deployment of dApps using its Proof of Transfer consensus mechanism. It extends Bitcoin’s functionality by allowing dApps to use the network’s state, in a manner similar to how builders have been using Ethereum so far.

It is by far the most advanced L2 project aiming to develop smart contracts that interface with Bitcoin, and it has a pivotal 2024 ahead of it.

The upcoming Nakamoto upgrade will bring fast blocks and a reduction in Stacks network confirmation times from ~10 minutes down to seconds. This will happen alongside the introduction of sBTC, a 1:1 Bitcoin-backed asset that will allow developers to leverage the security and network effects of the base network.

In conjunction with this, Bitcoin’s underlying infrastructure is undergoing major changes, with new tools like BitVM facilitating a trust-minimized way to transfer between L1 and L2.

Lightning Network

Lightning Network is a second-layer scaling solution that uses off-chain micro-payments to improve Bitcoin’s network performance.

For a long time, the project was pitched as a scaling messiah with its novel approach. That now looks to be changing.

Developer unrest has seen core figures from the community voice opinions on the direction of Lightning Network and potentially serious bugs.

The number of Lightning Network nodes and channels have both been declining across 2023 and into this year. While we know the Bitcoin network has never been stronger, this paints a bearish picture for the Layer 2’s ecosystem.

Credit: Bitcoin Visuals

In addition, Lightning Network integration by centralized exchanges and payment solutions has remained slow, which is clearly hurting the rate of adoption.

However, we’ve seen an interesting product market fit between Lightning Network and the Nostr community. More use cases like this could quickly revive interest and attract new developers and ideas.

Bitcoin Szn Summary

DeFi as a broad concept remains hazy at best for significant portions of the world. But a far bigger number have heard of and used Bitcoin.

As it stands, accessibility is the core issue for Bitcoin-led DeFi growth. If this can be remedied, which many of the signs point to, then we expect an exponential rate of development. In fact, we believe we’re already seeing the very early signs of piqued, frothy interest which preceded DeFi Summer 1.0.

The difference here is that we’re dealing with Bitcoin DeFi and not Ethereum. The outcome could be DeFi that is more readily digestible for masses, and therefore has a much better shot at going global.

Throughout January, The Tinkering Society will be sharing five themes it believes will drive freedom of choice and decentralization across 2024.

‍Genetic memory is a concept in Frank Herbert’s novel Dune. It allows individuals to tap into the experiences of their ancestors that are locked dormant in their cells. Once they are able to remove those inherent restrictions, their capacity for understanding and growth multiplies.

Decentralized social media platforms have emerged as an antidote to increased Big Tech censorship. While there may prove to be long-term benefits of open, modular design, the primary value proposition being tested here is personal sovereignty.

Nostr

Nostr was the first decentralized social experiment to achieve an early product market fit, capturing the attention of many in the Bitcoin community. With a pseudonymous grassroots launch followed by Lightning Network tipping support, it became a natural destination.

However, stats have flatlined and the retention curves speak to a saturated target market.

Source: stats.nostr.band

As we can see above, recent cohorts are performing worse than early ones. When combined with falling new user counts, this paints a bearish picture.

Source: stats.nostr.band

Nostr may need a new use case or new value proposition to broaden the pool of potential users and retain first time users.

Luckily, due to its open source positioning and active developer base, we can’t possibly imagine what it looks like in a decade, or what someone may launch on top of the network tomorrow.

Building Community: Farcaster

Farcaster has come out as a leading microblogging tool for the web3 community. By carefully gating access and cracking down hard on spam, the signal to noise ratio has remained high.

A big theme in new social apps has been to combine Twitter and Reddit. Farcaster channels achieve this, and the numbers show significant usage of the feature.

Credit: @Pixelhacks

While off to a promising start, it remains very uncertain how censorship resistance will play out within a consensus-driven system like Farcaster.

Credit: @Pixelhacks

SocialFi Experiments

Beyond censorship resistance, decentralized social projects are fostering interesting experiments in and around reputation and ranking, decentralized curation, ownership and token gating, interoperability, and more.

Let’s reflect on Lens, DeBank and Friend.Tech as three prominent examples of the above…

Lens

A social platform built by elements of the Aave team was always going to gain industry traction and Lens is perhaps SocialFi’s frontrunner in terms of exposure. This also means that there’s a lower signal-to-noise ratio compared to Farcaster.

The open and modular design has enabled the protocol to weave in features that facilitate community and DAO growth, such as composable token gating and add-on modules.

Despite this, its early success has begun to wane and we now know that the number of new posts created dropped off sharply around February last year and remained low since.

However, we also know that crypto users are fickle, and an uptick in general market interest could quickly turn these stats around.

Credit: @0xMC2

DeBank

Originally a portfolio tracking application, DeBank has recently launched a couple of experiments:

• Stream – a place to post and read content by other web3 users

• Rankings – web3 rankings by TVF (Total Value of Followers), aggregate scoring, and trust scores

• Content Scoring – Credibility, Trust, and Realized Value scores on content

• Boosting – Reward pools to boost post visibility

• Live Chat – Live chat on a portfolio page

• Groups - communities built around assets

While the content is rather shill-y, it is great to see new ways of ranking being explored. 

Redphone posed an interesting question about whether transparency in social media could be a game changer, despite the majority of us expecting big things from privacy-preserving breakthroughs like zk-proofs. DeBank is embracing this angle and we’re keen to see how it develops.

Friend.Tech

The SocialFi app was a rising name of the 2023 bear market. Daily transactions quickly peaked at ~390,000 per day before simmering away as airdrop hype fizzled out.

Credit: @CryptoKoryo

One of the core concerns behind the concept was the intentions of the influencers that it built its reputation around. In a market acutely paranoid about rugpulls and pump-and-dump schemes, it was hard to decipher if this was a meta shill for crypto’s big names to bag bear market gains.

Credit: @CryptoKoryo

Where the platform did excel was making the transition between different social UX types. Friend.Tech was relatively clinical in taking users from Twitter to private groups and, for bonus points, deftly managing to outmaneuver the constraints of Web2 app stores.

DeSoc Summary

Decentralized social remains in its infancy, and while no app has captured even a fraction of mainstream usage, new use cases are emerging and being tested on devoted communities.

These experiments are all vital, but it still feels like a glaring issue to be solved above all else is content permanence. This is something that we’ve been actively tinkering with.

Personal sovereignty is a complex, dual-sided issue. Social users need to be able to both promote personal opinions and change them as freely as they see fit. Even if it’s to just amend a typo, the vast majority of social users have deleted something they’ve posted.

It’s hard to believe that even a smooth and beautifully-designed SocialFi app will ever gain mass market adoption while missing the functionality of having a ‘Delete’ button.

Most successful first generation DeFi products were pool-based.

Aave struggled to get traction with a P2P model (as ‘EthLend’) until they conceptualized their pool-based model with variable rates. The aggregated liquidity and simplicity (along with a confluence of DeFi Summer hype and low interest rates) built Aave into a product currently valued at more than $1B.

Recently, we’ve seen order book DEXs like GMX and dYdX thrive where we once only had pool-based DEXs like Uniswap.

And yet lending continues to be almost fully dominated by pool-based products.

Slow Growth for Fixed Rate DeFi Products

We have yet to see fixed rate lending take off. Notional and other well-funded fixed rate protocols are sitting at <$20m valuations despite strong development, incentives, and marketing. Perhaps the most successful product is Pendle, and yet it is mainly focused on productizing existing yield, not originating new loans.

I think there may be a few reasons why demand for fixed rates is so low:

• Most DeFi users are short-term focused and variable rates are a good fit for farming

• Sophisticated investors and institutions haven’t yet taken the full DeFi dive

• There’s not much liquidity for pure fixed rate products

Here we can see we have a chicken and egg problem. Sophisticated investors require liquidity, and we wont have deep fixed rate liquidity until sophisticated investors generate demand. But there’s another problem that is preventing deep liquidity: fractured liquidity across loan term/maturity.

Fractured Liquidity Problem

Different maturities demand different rates, which is why we have a yield curve. Pool-based fixed rate lending protocols typically have separate pools for each maturity in order to allow supply and demand to work its magic for each maturity.

Available maturities on Notional Finance for USDC

Offering borrowers more choices has unfortunately meant further fragmenting liquidity among each pool, and why we see only three maturities on protocols like Notional despite it being one of the top fixed rate lending protocols.

Size Lending: Unifying Liquidity

The Tinkering Society has helped guide the development of a new fixed rate lending protocol called Size which unifies liquidity across all loan terms/maturities.

Size accomplishes this through a P2P model where lending offers are structured as yield curves.

An example Size offer by a lender in light green, and aggregate market yield curve in dark green

For Borrowers

Borrowers can then pick any due date, and liquidity is aggregated from all offers spanning the chosen date.

Where borrowers were previously forced to choose from a small and suboptimal set of maturities, they can now choose whatever date, or even time, that fits their needs.

For Lenders

Lenders benefit from earning a passive variable rate (currently via Aave) until their custom offers are matched with borrowers.

Lenders may also exit their obligations at any time to other lenders “through the aggregate yield curve”, provided there is sufficient depth for their size.

For Speculators

Having deep liquidity on both sides of the market (offers to lend and bids to borrow) is ultimately what will facilitate speculation on rates.

We hope to see applications like Size eventually increase market efficiency by allowing speculation on rates for any day in the future, resulting in a high resolution DeFi yield curve.

Disclaimer: The Tinkering Society helped ideate and develop Size.

We’re excited to see Size v1 live on Base after over a year of research and development by Size contributors.

As far as we know, it is the first fixed rate lending protocol to unify liquidity across all loan terms/maturities, paving the way for deeper fixed rate liquidity and some innovative use cases.

Let’s take a quick look at how it works and it can make a splash.

Size: a Marketplace for Fixed Rate Loans

Under the surface, Size is built on a novel P2P order book system where every lending offer is structured as a yield curve.

Offers are automatically aggregated by the Size app so that borrowers can access deep liquidity across the order book.

Unified Liquidity

A challenge for fixed rate lending protocols has been fractured liquidity across maturity buckets. For example, lenders (or LPs) might deposit to the March 31 maturity pool, or the Dec 31 pool, but this results in shallow liquidity as funds are siloed across different pools.

Size aggregates all liquidity across the full term/maturity spectrum, allowing for any loan term and deep liquidity.

A Better UX for Borrowers

Borrowers have, until now, had to choose a maturity from a small selection of dates. This means that the loan almost always has a term that doesn’t exactly fit what the borrower is looking for.

With Size, borrowers can pick the exact day (or even hour) that they would like to pay back their loan.

No more random dates. It’s time to let the borrower choose what they want.

More Control for Lenders

When lenders deposit to Size, their funds immediately start earning a variable rate via Aave.

At the same time, the lender defines a custom yield curve that dictates how much they are willing to lend at for every loan term.

When a borrower is matched with the lender, they stop earning the variable rate (for the amount matched) and begin earning their preferred custom rate for the matched term.

What’s Next for Size?

Visit size.cash to check out v1 and let us know what you think. v1 is limited to a $50k borrow cap, and a friendly reminder to only deposit what you’re willing to lose as this is an unaudited beta.

Size v2 is under development with some exciting features, so stay tuned and give Size a follow on X.

Each of our collective, whether developer, growth, or product, is passionate about freedom of choice and decentralization. Throughout January, The Tinkering Society will be sharing six concepts it believes will drive change across 2024.

The term meteoric rise is a clunky phrase. The original Greek word meteōros roughly translates as “high up or suspended from the ground”, but of course we are now critically aware that meteors do indeed fall.

It’s really something that’s been allowed to filter through generations of language without ever being questioned. Fortunately, we’re becoming more in-tune with the notion of challenging the status quo, particularly around our global financial systems.

The next big hurdle will be to remain fixed on the ideals that brought us to this point. A passive attitude towards maintaining fair power distribution and network participation in our decentralized systems could easily see us back at square one, especially as more global entities and investment funds pitch up.

Ethereum Network Participation

Ethereum decentralization is under the microscope. The network’s Shanghai / Shapella upgrade in April last year, which sealed a switch to a proof-of-stake model (POS), has implemented a key alteration that allows validators to withdraw staked $ETH.

A number of protocols began building off the back of this upgrade to introduce liquid staking, further ramping up centralization concerns. Zooming out we can see that staked $ETH has continued to grow across the year while the circulating supply has consistently decreased.

Credit: @hildobby

One protocol - Lido DAO - has led this race to bolster Ethereum staking. A side effect of its prominence in the market is that it has become a risk in itself, with any form of staking dominance meaning that an entity has the potential to affect network finality.

There is also a risk for stakers if Lido’s node operations are slashed for misbehavior - one such incident took place in early October at a cost of ~25 ETH. There is a tightly-wound circle of trust in place that could snap if even a handful of bad actors enter the frame.

Credit: @hildobby

Compliance-Driven Censorship

We’re seeing a clampdown on DeFi activities under the guise of “consumer protection”. The reality is that governments still have not grasped just how to effectively regulate a space which they know so little about, or how to regulate a market that is built on the precepts of personal responsibility and finality.

Downward pressure from official departments has seen the proposal to capture unprecedented levels of data from crypto users, not to mention attempts to force DeFi protocol developers into implementing KYC as a standard. It begs a question around why the US government seems so keen to completely wipe out crypto whilst seemingly also going to great lengths to tax it.

The detention of Tornado Cash devs, Roman Semenov and Roman Storm, highlights an aggressive shift in attitude towards Web3 builders. It’s still not entirely clear whether the intention here is to try and cut the legs off illicit hacking or set a new standard for blockchain protocol development.

DeFi Summer certainly saw protocols play fast and loose with regulations. The current temperament from builders is much more considered in what feels like a game of cat and mouse, with projects like Celestia going to lengths to ensure that the geofence around their airdrop was even able to block VPNs.

OFAC Compliance

The non-inclusion of transactions when there is available block space is a contentious subject. Ethereum, after all, has for some time been considered and promoted as censorship resistant.

A strong metric for measuring this is tracking OFAC-compliant blocks. For background: OFAC (Office of Foreign Assets Control) is an agency of the U.S. Treasury Department that has implemented sanctions on Ethereum addresses. Blocks that include transactions to or from OFAC-restricted addresses and transactions are deemed non-compliant, and vice versa.

Credit: censorship.pics

The crux of this issue is that the more Ethereum becomes OFAC-compliant the less decentralized it is. We can see above that compliance from Block Builders and Relays currently overshadows Validators by a significant margin.

Credit: mevwatch.info

It’s been almost two years since Vitalik shared in-depth research on the state of proposer/builder separation (PBS), and has continued to share developing ideas through to late last year. In that time, the post-merge OFAC-compliance stats haven’t painted an inspiring picture and suggest the network could be approaching a tipping point.

Early compliance, directly after the merge, was particularly high but has since dipped to a fluctuating watermark at around 30-40%. If we looked at this chart through the lens of price action momentum, something that most crypto users understand comfortably, would it signal a long-term bullish trend on censorship resistance?

Throughout history, the greatest advances in technology led to a new wave of startups that went on to build billion dollar companies. The incumbents often fell, unable to adapt their already-successful products to the new paradigm (The Innovator’s Dilemma).

Interestingly, the incumbents seem to be doing pretty well keeping up with the rapid advancements in AI. Google has Bard, and has already incorporated AI into its search, mail, and productivity tools. Microsoft has done the same with Bing Search, Bing Chat, and Microsoft 365 (via a deal with OpenAI of which it owns 49%). Amazon is dedicated to hosting high powered GPUs while experimenting with Amazon Q. Apple is focused on running powerful AI on our devices.

But perhaps most notable is that these companies have amassed a large percent of the top AI talent!

So has Big Tech learned how to approach The Innovator’s Dilemma or is this an illusion, with the next 1000 successful companies quietly growing in front of our eyes?

Incumbents Are Winning on the Demand Side

AI is for obvious reasons leading to greater consumer expectations. I already expect natural language instruction vs learning a new filter or toolbox system every time I use a new product or website. Recommendations and similarity searches should be 10x better than before.

And from what I can tell the incumbents are addressing the incremental demand for greater intelligence in existing products. Just about every day I’m impressed by a new AI feature in my everyday tools.

But consumers don’t know they want what they haven’t yet tried, and this is where we will likely see the biggest surprises.

So… What About the Supply Side?

The supply side is where the uncertainty lies. Novel products will create new demand that did not previously exist, and such a powerful technology is bound to lead to many such inventions!

The most obvious example here is ChatGPT.

ChatGPT: One Chat To Rule Them All

ChatGPT was (or is) a novelty. Most of the world was introduced to LLMs for the first time via an intuitive chat interface that seemed to be able to handle any kind of request users could dream up.

And for a while this seemed like great news for 'GPT Wrappers' - apps that provide niche-focused services with ChatGPT or other models as a backend.

But OpenAI pulled the rug on its third party distributor community by launching plugins, its app store, and 'Create a GPT' product, providing in-chat, customizable services.

Does this still leave space for GPT wrapper products?

A Case for Wrappers

One of the most compelling 'wrappers' that I’ve come across is Consensus, an AI-enabled research engine.

As a personal example, I had heard many times that bilingual kids don’t learn language slower - but could this really be true?

With a quick search, I find this study. All with a key takeaway, stats, and other standardized info.

But surely this “fact" is not just based on a sample size of 60, is it?

From a Google search, I would have never known to discard this conclusion from a 1993 study with a tiny sample size, but Consensus helped me evaluate it in seconds.

I can imagine similar niche products for news (with standardized objectivity scores, cited source scores, credibility and reputation), social media, marketplaces, and more.

Note: Consensus is doing more than just passing requests to ChatGPT. They have a custom model and ranking algorithm and use ChatGPT to generate the key takeaways.

Creativity Supply

I recently came across the following example of a product that aims to help anyone in the world dream up or customize designs and facilitate the creation by quickly sourcing quotes from factories.

Ronak Trivedi @�ℎ��������ℎ�� on X

What about a market where you can not only design and customize, but raise funds for new designs? Could we democratize fashion houses that are traditionally built on networks and surface the best designs in a TikTok fashion?

In this world, fashion houses, Hollywood, record labels, and more will be disrupted and democratized.

Last year, I used DALL·E to illustrate a children’s book for a Christmas gift. Next year, I might be bringing the characters to life with a set of unique plushies!

This will likely drive not only the custom goods markets to explode, as everyone in the world is suddenly a designer of anything, but also the “consumer-to-market” space, with quite a bit of experimentation on the social and financial side.

A Direct Line in the Supply Chain

Another way to look at the above example of custom orders is that the supply chain may look quite different as customization increases.

Marketplaces may not just be match-makers, but communication channels between producers and customers. Might customers be interested in submitting or voting on designs, and getting them first if their chosen designs are most popular? And even sharing some of the revenue?

I, of course, don’t know, but I'm excited to find out.

Polythaism

The above are just a few of many examples of how novel products are emerging from AI. But how many LLMs will there be? Will Microsoft and Google maintain the majority of the market, or will we see a world with millions of interconnected models?

My current take on this is that we will have a polythaist (multi-model) world.

We are already seeing the beginning of delegation models that intelligently route requests to the best and most cost-effective models.

For example, this model saves money by deciding whether to route requests to GPT-3 or GPT-4.

Tomas Hernando Kofman @�����ℎ� on X

We are likely seeing the beginning of an architecture that looks something like this:

From my limited understanding, this will likely manifest as large base models with many fine tuned variation models. And we’ll hopefully see much more creativity than this simple flowchart suggests.

One simple example, that I think highlights the benefits of a multi-model world, is that an old model trained a few years ago may be the best choice for writing a block of code in an old version of the language, while newer models may exclude old legacy code from its training data.

Who Will The Winners Be?

So will incumbent Big Tech retain a significant percentage this market as it shifts towards polythaism?

I would currently bet against it. It is not hard to fine-tune a model to be better if the scope is extremely narrow, and if we assume that intelligent routing improves by an order of magnitude, my conclusion is that the best answers will be sourced from a network of models.

There may be a micropayment and distributed tech (and zkML?) thesis here as well, but I’ll leave that exploration for another day.

The crossover between blockchain and AI seems to inspire more derision than usual from Crypto X/Twitter. I think this is largely due to the void of implemented use cases surrounding them. There’s an air of magical thinking about combining the two technologies that has a multiplying effect on any apprehension.

The overlap feels like blockchain circa 2018, when decentralization was pitched alongside every major industry as a revolutionary ace card without sound explanation or proof.

The reality is that there may be a natural synergy between the two technologies. What’s more - and this will be a bitter pill for the anti-crypto brigade - it’s questionable just how effective AI will ever be without any underlying decentralization.

Innovation like this is impossible to predict. It’s a bit like tectonic plates - shifts can be gradual, or they can explode with chaos. Regardless of how these two moving technological masses eventually connect, here is what the first wave of change is shaping up to bring.

Prediction Engines

Any degen would be forgiven for first trying to use ChatGPT to find the next 100x memecoin. Everyone was looking for any edge in the doldrums of a deflated crypto market in early 2023, and OpenAI’s new supertool felt like that missing link for a short second.

Analyzing today’s TradFi market data is a cumbersome and imperfect process. In what are essentially PvP battlegrounds for profit, the serious players need to continuously invest more than their competition to glean the most accurate information.

At the business end of that process, when the onus is placed on humans to make decisions, there are added risk factors like subjectivity, poor performance, and even malicious behavior.

Merging open-source blockchain data with a network of AI agents brings myriad possibilities for a TradFi space that’s evolved at a crawling pace. AI analysts will be able to continuously scrape, sort, and model information to discover once-hidden insights within the market that lead to profitable moves.

I mentioned the human risk element of this process above; we’ve seen through the likes of SBF just why trust is so low in crypto. The outcome of tech stacks like this is that it won’t be humans who are taking up the majority of block space, but instead AI agents. It will be an intelligent and autonomous swarm capable of identifying opportunities, acting on them, and then learning from those actions all within a set of model specifications.

Finally, the concept of a prediction engine is merely a template. It’s clear to see the implications for other major industry sectors, like insurance and cybersecurity.

On-Demand APIs

APIs are a tricky business to nail. Twitter’s recent shift to paywall-only access for their API irked smaller developers who felt they were being out-priced. One solution that has often been discussed is micropayments; the idea being that payments are made per query at large volumes. The issue here is that this simply hasn’t ever been viable with TradFi transaction fees.

But this is now possible with blockchain and AI. Lightning Labs is building a tech stack for Lightning micropayments. Its LangChainBitcoin suite gives AI agents the capability to hold $BTC, use it to pay for services, and interact with nodes. When combined with LangChainL402 - a Lightning protocol standard - it’s possible to gate real-world services behind Lightning-metered APIs.

The result may be a cost-effective, autonomous payment network that can match the speed and volume of AI agent queries. This will give developers and businesses access to a wider breadth of data that can help to accelerate project development. It also potentially enables new cases to be built on top of it, such as decentralized AI marketplaces and data ownership tools aimed at protecting personal data from AI agents.

Decentralized AI Marketplaces

We’re still exploring the fringes of monetization in DeFi. There has been a lot of positive discussion around the creator economy and content ownership. There were also experiments like FriendTech that gave a glimpse of what’s possible with audiences and influence.

It’s easy to assume that all LLM designs are pretty much the same with a clear market leader like ChatGPT. Check out this short presentation recently held at the University of Princeton and you begin to understand just how complex creating and evaluating LLMs can be under the hood. It also highlights that the development of LLMs is still an emerging field, and one that will be highly personalizable, and therefore highly monetizable.

The sheer speed that AI agents are capable of moving at demands a platform that is capable of working uninterrupted and at scale. Technologies like Fetch AI are creating a framework for AI agents to be created, monetized, and capable of interacting with each other in real-time.

Alongside a focus on scalability and decentralization, Fetch AI also places an emphasis on flexibility when it comes to developing AI agents. It allows the distribution of both public and private agents through its marketplace; and while the private agents are still discoverable on the network, it isn’t possible to view their manifest (which is basically their specs). What this means is that developers can now build and sell proprietary AI agents while having them run at full capacity on an immutable network.

Connected Worlds

2023 will forever be etched in history as the year that AI warped from sci-fi fantasy to reality.

We’ve seen an explosion of experiments in leveraging tools like ChatGPT to build products and fast-track our rate of understanding around new topics. It’s something that we’ve explored extensively here at The Tinkering Society through experiments in AI-created NFTs and tracking spicy DAO governance.

A natural next step in this development, and the ongoing discussion around the topic, is how autonomous AI agents will interact with one another. It’s now inevitable that we will live in a society where AI agents coexist and eventually begin to rub shoulders, and even learn from each other.

This is a powerful idea. Manpower is essential for conceptualizing the things that push society forward, but a workforce that is both constant and actively learning could enable us to make these leaps much, much quicker. 

Having an interwoven network of autonomous AI agents will only truly be effective if they are scalable. And they will only be scalable if they are open and immutable. It only makes sense that decentralization becomes a tenet for this new paradigm.

A new bull market has arrived!

Or has it? Now that SBF has been found guilty on all counts, observers concluded the bad juju from the last bear is behind us. Perhaps it is. I am not so sure.

New bull markets—in general, not just in crypto—are generally led by the speculative part of the market: newer and riskier ideas with potential to grow rather than the established players. Yet this recent rally has been largely led by the 800 pound gorilla of crypto.

[Source: counterplot.io]

My bias is to be skeptical of this rally, just like prior rallies at the beginning of the year and in June/July. Having said that, I do see some increased risk appetite under the surface—for example, brisk moves in RUNE, PENDLE, LINK, and SOL. But this is only in a few names.

Adding to this argument is the continued terrible breadth of the TradFi markets and the yield curve being inverted and close to normalization. The macroeconomic backdrop continues to deteriorate.

Making predictions is hard—especially about the future. Many things could happen to surprise me: crypto decouples from macro, or the first soft landing after yield curve inversion since 1966 appears. Or something out of left field.

But as of now, the gm Portfolio remains largely in cash.

Regulatory concerns and influencer chaos look to be tightening a noose around the industry’s neck. With chilling whispers of Halloween around the corner, it’s time to face fears and talk about decentralized on- and off-ramps (DOORs) and how we onboard the world.

DOORs: The Sequel

UX is front of mind for every builder and we recently covered DOORs, their importance, and why it’s vital that they exist as immutable structures. The position of that article was that we have to fight tooth and nail to split DeFi and CeFi as much as possible.

A status check on our previously covered projects, namely ARX and Joint Protocol, suggest that they’ve bled out. So while a lot is now clearer about our path to realizing a DeFi economy, the process of migrating users is still ominous. And we’ll likely see more victims along the way.

However, it is clear that on-ramps (decentralized or not) are likely the most prolific threat to our shared mission while they still exist in this shapeless, unknown form. Our industry can innovate as much as it wants, but the blood, sweat and tears mean nothing without a safe, secure way to facilitate mass user migration.

Cloak and Dagger

Builders have dissected and stitched ideas back together aiming to solve the DOORs issue. Escrow remains a clunky process and the implications for being recognized as a money exchanger on the fiat side are too severe.

Despite this, nothing has quite yet matched up to the effectiveness of the classic P2P model. LocalBitcoins shutting its doors wasn’t just a nostalgic hit for the crypto OGs, it represented a stumble on the path to success.

Legitimate alternatives have stepped up. But the low volume, especially for products aimed at some of the world’s most densely populated areas, isn’t inspiring. The figures below are from P2PX, India’s first no-KYC, decentralized crypto on-ramp.

P2PX USDT Daily Volume (Source: counterplot.io)

Instead of relentlessly throwing the same solution at the wall and hoping it will stick, we need to reframe the issue. There might yet be a glimmer of hope lying in zero-knowledge proofs, homomorphic encryption or secure multi-party computation. All of which are privacy-focused tech.

Zeroing in on obfuscating transactions at the bridge between CeFi and DeFi may work to disconnect users’ IRL identities with their Web3 alts. Layering this tech over the current P2P orderbook model could give users just enough assurance to venture into Web3.

Of course, this isn’t bulletproof. The approach effectively takes on the guise of a mixer and the obfuscation process isn’t absolute.

There’s also a clear infra problem if any protocol aims to scale beyond the geographical limitations of the P2P model in its basic form.

End Credits

Scope out the space long enough and it’s easy to turn bearish on DOORs as a concept. Fundamental questions remain about the viability of any model while the majority of users are rooted in CeFi. This is reflected in the lack of serious projects trying to tackle it right now.

Looking back at the previously-mentioned privacy concept, we can see that the surface-level functionality could be effective, in that users could break their own CeFi-DeFi connections. Scaling such a model, and elevating it beyond inter-personal transactions, still raises questions about exposure and potentially being penalized by proxy the moment any paper trail is created.

We only need to look at the Tornado Cash fallout for an example of this blunt approach.

Does this now make a bullish case for trusted, crypto-native on-ramps instead? The decentralized entry options for would-be degens are effectively on life support. Players like Coinbase and Uniswap look increasingly like natural safe havens amidst the swathes of horror stories surrounding centralized actors.

Ironically, Central Bank Digital Currencies (CBDCs) could also carve out opportunities for DOORs. Regulatory clarity between DeFi and CeFi entities could further the development of joint UX solutions that are streamlined to support billions of users. Alongside this would be the kind of legitimization and trust that non-degens are accustomed to. But this would only be possible if DeFi is able to loosen its own fierce grip on independence.

Web3 teams vying for growth in a downtrend tend to pull out a playbook that was forged in an up-only market. Airdrops were once seen as a path to hacking progress in the traction game, but as an incentive model they arguably now create more harm than good.

Let it Rain

Airdrops originally added to the elusive charm of DeFi. Early adopters could do something novel with magic internet money and might have been handsomely rewarded for it.

The early days of DeFi szn, where future industry stalwarts like Uniswap showered users with free gold, have created a legacy that leaves degens chasing a fantasy.‍

There was also a lack of expectation. Uniswap launched a token, innovated DeFi and helped herald in a new bull run, and made some risk takers a healthy wedge of profit. Poetry in motion.

Then came the signals groups, threadoooors, and Twitter bots.

Stress Tests

A developing Web3 project (or really any product) eventually relies on authentic user feedback to improve. Teams ship, study, and iterate. Then rinse and repeat this process until they're set to go live.

The positive behind airdrops is really only the numbers. The promise of launching one can pretty much guarantee a steady stream of eager degens keen to check off the product’s core actions and hit minimum usage requirements. Thus, the teams behind them then get an idea around the performance capabilities of what they’ve built.

The natural next rung of this discussion is token price. In a market that is so frequently pitched as being PvP, any early liquidity typically falls prey to dumpers creating outsized sell-side pressure as they aim to cash in on free dollars.

Think back to the Arbitrum airdrop and the furore that surrounded the launch as traders went to extremes in order to secure max profits. The project’s only saving grace was that it is clearly a Top 50 protocol with some semblance of a future.

With token price and market cap a driving measure of success in Web3, it gives fledgling teams the added headache of having to placate early investors and downtrodden community members while liquidity continues to get squeezed. It’s an unfortunate situation, but also a very real one.

Square 100

So, are airdrops worth it on the path to the endgame of product-market fit?

The game Snakes and Ladders began life in India and was known as Moksha Patam. It was a morality-based game where ladders represented virtues, and snakes stood for vices. There were purposefully more snakes than ladders to illustrate how easy it is to fall prey to them.

The same can be said about the Web3 traction playbook. Some leaps take projects backwards.

The core issue with airdrops is that there is a disparity between this type of user’s intention and the kind of critical feedback needed to improve. Airdrop hunters are driven by financial gain and it’s in their best interests for a product to launch as quickly as possible. It’s easy to get stuck in a boiling pot of positive confirmation bias from users where one eye is always set on cashing out on a mainnet launch.

A focus on quality rules in a bear market, with the idea that volume will follow. Knuckling down and working to connect with a handful of informed users who will provide rich insight and critical feedback at the early stages of a build is likely worth a few thousand airdrop hunters.

RWAs have been pitched as one of those ideas to herald in the next bull run. But are they a fix-all and will the future truly be tokenized? With the bera market skimming away hype daily, now is the time to take an honest look at RWAs and understand why world domination shouldn’t be the endgame.

Petrichor describes how humans can smell the onset of rain when a bacteria called geosmin is released into the air. There’s a similar effect in crypto where influencers are sniffing around for ‘narratives’ to champion. A faint scent appears from across the ether and it becomes a driver for hopium.

RWAs are unequivocally on this list.

Bringing as many assets as possible on-chain has long been a prime Web3 goal. The concept is simple: tokenize any IRL asset with value and it enjoys all of the juicy blockchain benefits. Any market propped up around them becomes permissionless, borderless, and composable.

RWAs in Real Time

Ironically, one of the first RWA examples was Digix, a digital representation of gold. The single off-chain asset that Bitcoin is so frequently compared to also provided the foundation for crypto’s pilot run. It was a failure, but that didn’t end development. 

While RWAs face significant challenges, which will be discussed more in a moment, they also represent one of DeFi’s most glittering successes. Combined TVL for the market’s stablecoins sits at a lofty ~$125b at the time of writing (September 18, 2023).

'Securities Token Global Market Cap x Ethereum Market Cap' (chart: Counterplot.io)

Alongside this, we’ve seen substantial growth in projects like Pendle, Goldfinch, Ondo, and Maple. These act more like quasi-RWAs, where the protocols wrap tokenization around concepts around off-chain lending, securities, and yield, instead of physical assets like sneakers, trading cards, and gold.

RWA Faux Pas

As our off- and on-chain spaces increasingly collide, the hurdles now facing RWAs are becoming more and more obvious. Here is where RWAs are lacking and need to be improved.

Management

Looking at something like real estate as an example, tokenization just isn’t a meaningful growth path right now.

Taking the time to understand the infrastructure around token management and the technology is a time-sink for normies. This really shows us that the issue around RWAs isn’t the assets themselves, but how we intend people to use them.

In this light, it makes sense to prioritize another narrative - account abstraction - over everything else. Forward-thinking protocols like Goldfinch understand this and have made it a central part of their mission.

Regulations

This uncertainty around the tech extends into KYC, compliance, and regulation.

While the average degen is willing to skirt the fine line of risk around audits and regulation, bonafide industries outside of crypto aren’t going to play this fast and loose.

Again, we’re asking normies to completely reconfigure their understanding of ownership and the implications of concepts like immutability. Without some form of structure and clarity in place, DeFi won’t shake off its ‘wild west’ reputation.

Liquidity

There’s a fair amount of magical thinking around RWAs - tokenize any asset and the masses will flock. The reality is that DeFi liquidity is already fragmented enough to barely facilitate demand for the average shitcoin longer than a few weeks.

The goal becomes even harder when we compare the typical degen’s dopamine-driven pursuit for the next 100x meme coin against practical, everyday applications like a real estate firm managing its property portfolio on-chain.

Stable and secure liquidity will be a prerequisite for any industry looking to tokenize and integrate off-chain assets. Without it, everything stops.

Final Thoughts

Remove shills and blind decentralization totalitarianism, and the potential for RWAs is still clear. But it’s unlikely that even a fraction of the assets that degens pitch as use cases will ever make it.

And that’s fine.

Look at the evolution of accounting abstraction over time and we can see that each iteration is designed as an adjunct to the technology before it. In modern society, cash and paper ledgers initially sufficed, then plastic cards were introduced, and finally we have mobile banking.

But we still have cash in our pockets.

“Crypto is a use case looking for a problem” - this comment recently popped up in a r/cryptocurrency discussion. It was intended as negative but, in actual fact, it feels like a positive when you frame it around RWAs. The true power of asset tokenization in this sense is its near-infinite capacity for flexibility.

Friend.Tech is divisive.

Some see it as an innovation in the creator economy; others suspect that it’s this quarter’s alpha ponzi.

While it’s clear that influencers are lubing up any poor soul to join their private groups, it might actually be a blessing in disguise for the average degen.

With cash now being a mediator for attention, Friend.Tech essentially becomes a decentralized OnlyFans, and that drastically changes the creator-follower relationship compared to open-access platforms like X/Twitter.

FT Laid Bare

For those playing catch-up, here’s a very quick introduction to Friend.Tech. It’s a SocialFi platform that lets creators and influencers sell access to private groups through tokens. It’s essentially BitClout but without the sneaky launch tactics.

That means if you have a Cobie share (known as a ‘Key’ after a recent rebrand), you get an invite to the inner lair and, presumably, all the alpha.

During this beta test phase, set to last six months, 100,000,000 reward points will be airdropped to users. There’s currently no other information about these beyond speculation.

It’s worth noting that the prices for these Keys are set on an exponential bonding curve. Which is a completely different discussion in terms of economic sustainability, and may have an impact on the rationale behind this article in the future.

The Figures

Influencers wouldn’t be worth their salt if they couldn’t shill Friend.Tech to the far reaches. Since its launch, the platform has bounced off a combination of BASE chain hype and influencer-on-influencer shilling to lay down impressive growth stats.

The first month since launch has seen:

• 145,000+ total users

• $13,500,000+ in fees generated

• $6,500,000+ in fees distributed to creators

Transactions have ebbed and flowed in the first month but cumulative users and trading volume are starting to flatten out. An early assumption could be that this is airdrop farming.

Source: Counterplot

Heavy Bondage

Crypto, degens, and influencers are tightly bound together. Mega accounts have the ability to shift market prices. Many of whom just don’t have the credentials to substantiate that kind of power.

Friend.Tech has shades of being a meta ponzi. Influencers are (understandably) getting excited about the platform, and they’re also the loudest voices in the room. Meaning degens are caught in an endless shill cycle.

It’s easy to forget under the guise of terms like ‘SocialFi’ and ‘creator economy’ that the platform is transactional, both in terms of its product and its trading market. Things can get un-friendly quickly and there’s a solid chance some honest degens will get dumped on.

There’s also a question around output. The growth of OnlyFans is a testament to primordial allure of ahegao girls, BDSM madams, or whatever sexual kink someone ascribes to. When the Friend.Tech hype simmers, it will be interesting to see if anon.eth covertly pumping their bags to Key holders in the form of ‘alpha research’ will remain as meaningful.

The crux of this argument is that, while crypto influencers may well be rubbing their hands now, they could have also opened Pandora’s Box. A converse rationale for Friend.Tech is that it could change the influencer-follower relationship and make it more transparent.

Projects like DeBank have recently been experimenting with social scoring so that every clickable post interaction doesn’t only equal positive sentiment. Having Key prices as a barometer for content quality would help degens navigate a crypto market where post engagement and search algorithms can be so easily gamed.

Owning a social media account right now is a little like selling your soul.

Except it’s not quite a Faustian Bargain. There’s no kicker, magic or superpowers in return.

Instead, you just give up your data, your content, and by extension a part of your identity.

Why You Don’t Own Your Identity

If X or Facebook wants to close you down, they can. And there’s nothing you can do about it.

Those years spent racking up followers or sharing precious memories can disappear in a flash.

There are big brains fortunately working to not only combat that, but combine emerging Web3 tools to give social media creators and consumers more control than ever.

There’s a lot to unpack. Let’s break it down…

Benefits

Decentralized Social (“DeSoc” from here on out) centers on the concept of user-controlled identities, content, and data.

Removing ultimate control from centralized platforms, the likes of LinkedIn and Instagram, would mean users are free to build, discuss, and share content as they choose. They get to create, and keep, what’s theirs.

In one way or another, the current roster of DeSoc protocols aims to tackle a combination of the following.

Censorship Resistance

The big one. Identities and content stored using decentralized tech can’t be erased by centralized actors.

On-chain Reputation

Web3’s move from degen geek-hive to global, open infrastructure will facilitate more transparent and trustworthy reputation.

Interoperability

One identity, any protocol or platform. A unified cryptographic identity available across any supporting platform adds simplicity to sharing content or engaging with new apps.

Portability

One that will ring true with content creators. DeSoc could enable users to create permanent anchors between them and their communities, or audiences, irrespective of the platforms they use.

Open Source

X/Twitter has long irked developers with API restrictions, despite many of the platform’s most prominent features beginning life as third-party add-ons. It’s an understandable monetization pursuit, but one that ultimately holds back innovation.

Terminology

DeSoc works currently in stacks. Protocols provide the specifications for identity storage, management, and communication, and third-party clients and services are developed around them to facilitate social media experiences for end users.

Protocol

A protocol refers to the system and specs that define how a distributed network (or its actors) shares and stores data. An example here would be Lens Protocol.

Client

A third-party app built on top of an existing protocol to provide a front-end for social interaction. To extend our previous example, Lenster would be such a client.

Social Graph

The connections between different users through their interests, interactions, and personal information.

Decentralized Identifiers (DIDs)

Cryptographic passports which allow owners to verify their identity, grant permissions, and control their social or financial accounts.

Protocols

Nostr (“Notes and Other Stuff Transmitted by Relays”)

Nostr was the first DeSoc protocol to establish product market fit. The protocol is designed to be simple to use and censorship resistant, and has been adopted by many in the Bitcoin community.

It operates a (fairly) straightforward client and relay/node structure. Public keys play a pivotal role, with users creating, timestamping, and verifying messages.

Relays act as the storage and distribution means for data across the network. They may charge fees, limit activity to specific users, and share information with other relays. Relays may support additional optional functionality as specified in community-accepted “NIPS” (Nostr Improvement Protocols). An example of a popular NIP is support for Lightning Network tips.

Clients are apps that allow users to interact with the Nostr protocol. These fetch and display the relevant data from specified relays to the end-user.

Think of them like open-source iterations on the Twitter front-end, typically with a specific feature focus, such as simplified UX or better algorithms.

Examples of web-based Nostr clients:

• Damus

• Iris

• Primal

‍Note: it’s important to flag that Nostr doesn’t employ a blockchain, though as mentioned above Lightning Payments are supported and encouraged.

Lens Protocol

Modularity is king here. Lens Protocol has been developed to unlock the siloed Web2 approach to social media data.

Lens primarily focuses on facilitating interoperability by being a user-owned and open social graph for third-party apps to leverage and build on.

Source

Users start by creating a Lens profile, which is minted as an NFT. It then becomes possible for NFT identity holders to access third-party dApps, like Lenster and Lenstube, to create content without having to sign up for new services.

The result is a blockchain-intensive social experience, with NFTs being minted for many on-chain actions, such as following other users or liking their content.

Farcaster

This upstart protocol builds on the concept of being sufficiently decentralized.

That idea being that an appropriate level of decentralization has been reached when two users are able to communicate even if there is a concerted effort by network participants to stop them.

Each user profile is a numeric identifier (such as 04210412) that is controlled by a key pair. Farcaster then uses a Turing-complete blockchain to map identifiers to keys using a smart contract registry.

Users can assign a separate key pair, known as a signer, that allows third-party apps to sign messages on their behalf.

In contrast to a protocol like Nostr, every relayer/node (known as a ‘Hub’) on this network keeps a complete record of the data. To manage storage demands, users are initially given a data limit that trims the oldest messages when capacity is hit.

Bluesky

A protocol inspired by the Fediverse approach. The core motivation behind Bluesky is to develop identity portability and allow users to move seamlessly between apps.

The Authenticated Transfer Protocol (ATP) is the foundational network that works similarly to HTTP. Apps built on top of the protocol are conceptually described as ‘cities’, with each one acting through its own community and governance models.

The Bluesky identity simply acts as a go-between for exploring them. Information is managed on the network using data repos that collect posts, comments, likes, media blobs and so on. The protocol then syncs these repos in a federated network model.

Search algorithms and discoverability are an emerging topic in the Bluesky ecosystem. The recent Custom Feeds feature allows users to create portable feed lists that can be quickly replicated and shared.

Discussion

Is DeSoc proving itself? It can currently offer immutable identities, portability between protocols, and facilitate novel use cases, like on-chain reputation.

Some facets still need to click into place. Aside from scaling, which is applicable to Web3 on the whole, unanswered questions remain around moderation, privacy, and permanence.

Ethics & Moderation

While freedom of speech is absolutely essential, it's also vital for adoption to develop communities where great content is promoted and harmful content and users are demoted.

There’s a fine line between gavel waving and allowing open distribution to ensure that DeSoc isn’t being misused.

Governance and community-based moderation can be a path to these open and customizable social spaces. This could fall on data handlers to mediate or create opportunities for protocols to reward those willing to review content.

Privacy

Web3 is continuously at odds with finding the right balance between transparency and privacy. DeSoc is no different.

While social media is about connecting (and that means sharing), users often afford themselves forms of communication privacy, whether via closed groups or private messaging platforms.

Projects like Sismo are developing tools that allow users to shutter and privately share portions of personal information on-chain. This is paving the way for effective and secure on-chain reputation management and attestations that can strike the needed balance.

Permanence

The privilege to edit or delete a social post is something most users appreciate. Is there space for DeSoc to facilitate this?

This is perhaps the most unexplored question covered here yet. Whatever combination of keys or DIDs a protocol employs typically leaves a data trail attached to each user.

Being able to delete links to content currently leaves Lens Protocol at the top of the stack in terms of content deniability. But, it isn’t an absolute solution, and it’s something that we’re also actively exploring at The Tinkering Society…

Freedom and privacy advocates have been long aware of the growing state influence over news organizations and social media.

It wasn’t until Covid that the issue caught the attention of a significant portion of the world population.

The once-moderate “extremes” were silenced, along with experts spreading “mal-information”, as determined by the intent, not content.

But then there was pushback. Trust in public institutions plummeted, Elon purchased Twitter, promising increased transparency and autonomy with the publishing of the Twitter Files, and despite the continued political divide it feels safer posting controversial takes on the internet.

Borrowed Time

While things may look better temporarily in terms of deplatforming, Twitter users have started to realize that they are effectively shadow banned without getting a blue checkmark as their content and reputation is demoted.

What’s the big issue? Paying with a credit card de-anonymizes users. And while this may not be an issue under a relatively free speech regime, if the tables turn then governments will be able to threaten much greater consequences when you are perceived to have spoken out of line.

What we saw in small doses with Canadian protester bank accounts being suspended could be just the beginning.

Big Contradiction?

Elon’s Twitter “aspires to be the best (or least bad) source of truth on the Internet”.

The success of Community Notes speaks greatly to improvements in decentralizing fact checking. As this develops, I wouldn’t bet against Twitter achieving (or sustaining) this goal for some time.

However, with X’s mission of also becoming like WeChat as the “everything app”, people should start to get concerned.

While Community Notes decentralizes fact checking when working as intended, Twitter still retains ultimate control over what gets fact checked, what doesn’t, and what simply disappears.

Similarly, Twitter has begun sharing revenue with creators, but will this just end up being one more tool to control the narrative like eventually happened with Youtube?

So to sum things up, Twitter seeks to hold ultimate power over not only the de-anonymized social graph but also over payment rails, long-form content distribution, and so on. And, at the same time, they hope that this power doesn’t corrupt.

Let’s just hope that the digital justice system doesn’t then follow suit like with WeChat.

Best Time to Build

As social giants integrate with fiat payment rails and experiment with how to manage disinformation and AI-generated content, new experiments focused on the distribution of power are growing and mutating quickly.

Censorship resistant alternatives like Nostr emerged from the information chaos and users already benefit from more control in customizing content serving algorithms.

‍IPFS and Arweave are gaining traction.

Platforms like Keet and Simplex are redefining private communications.

Creators are even publishing directly to Bitcoin.

We’re seeing social and communication platforms experiment with new models built on microtransactions, paywalls and subscriptions, crowdfunding, digital art collections, and much more.

A new wave of privacy and autonomy-preserving platforms are already being built. 

What More Do We Need?

So with these new microblogging platforms already offering a similar experience to big social, but with increased user ownership and control, is the mainstream about to jump in on the fun?  Unlikely.

However, if these alternative platforms can offer not just a similar but a better value proposition than big social, there may be a decent chance of distributing the immense power that has accrued to Big Tech.

And I believe we are already seeing better value propositions emerge!

‍Bluesky and Primal (a Nostr client) allow users to subscribe to custom feeds. I believe that this is a feature that could potentially increase content relevancy by an order of magnitude, and if so, could be a big driver of success.

Reputation is another greatly unsolved challenge with social media. We’re starting to see rapid experimentation with platforms like DeBank's Stream implementing trust and credibility scores for content, along with TVF (“Total Value of Followers”) in an attempt to provide a better reputation system for the DeFi trading community.

Some Nostr clients are only supporting zaps (Bitcoin Lightning Network tips) in place of likes as a way of giving monetary value to upvotes.

Zero knowledge proofs offer a way to mint badges/certificates that prove participation, on-chain actions (see Sismo), and verify third party attestations (see PolygonID) while preserving privacy.

As AI-generated content proliferates and Big Social attempts to combat it with paid plans and other privacy-reducing features, these features may find a product market fit where Big Social can’t.

This is an exciting time and I expect a lot of turbulence and shake-ups! And hopefully when the dust settles, content creators and end users will share greater ownership and privacy.

Arthur Hayes, in his recent Massa article, touched on the dichotomy between AI taking over the world or freeing humanity to pursue new interests.

But, what if the enslavement was both, and simply compliance through convenience instead?

In Huxley’s Brave New World, there is a subsection of people that are ostracized from ‘civilized’ society. One member, John, grows up only with access to the complete works of Shakespeare. This creates a dominant, and limiting, frame for his worldview.

Leaning on AI to hack productivity is smart, assuming that it doesn’t come at the detriment of basic personal development. Relying on AI as a crutch isn’t progress.

We’ve spoken before about being Bullish on Humanness - and this is reflected in the content quality spewing out on social media, particularly Twitter and LinkedIn. AI-derived production is rife and it's making digital social spaces increasingly hard to navigate.

It’s clear that there’s no escaping the mental sweat.

An area that we’ve been researching heavily in recent weeks is DeSoc and on-chain reputation.

Attestation-based systems, that are driven solely by verification, have the potential to upturn flaws in algorithm-centric approaches. A circular ecosystem where verified content creators battle it out for approval by verified community members could work to refine the quality and relevance of content that we are exposed to. Not to mention, create safer social spaces.

In short: the potential to engineer engagement, game algorithm rankings for exposure, and manipulate audiences could wash away. Leaving scams, shills, and pseudo-influencers scrambling.

I was recently given the choice between two pills.

One green and glowing. The other candy pink.

I chose the side of science in the Barbenheimer saga.

Some three hours later, I left the screening with a new appreciation for the depths of societal conditioning to which we’re exposed.

And feeling more bullish than ever on Web3 and identity ownership.

The Panopticon

In the 18th Century, social theorist Jeremy Bentham developed the idea of a panopticon to illustrate totalitarianism.

Derived from the Greek term for ‘all seeing’, a panopticon is a prison design where a single guard can observe all inmates from a central tower.

Obviously this single guard doesn't have 360° chameleon-like vision. Instead, the positioning of the tower leaves prisoners with the constant disincentive of being observed.

An ever-present, always-unknown fear of retribution pervades, and results in complete compliance.

The introduction of nuclear weapons became a perfect foil for this kind of societal control.

MAD

The initial use of these weapons was an intentional final hammerblow for Japan.

What made it so impactful was that the effects were indiscriminate. Wiping out an entire city also erases a clear portion of a society’s identity.

The aftermath meant that there was little capacity to analyze this in a granular way, and it became easy to dehumanize victims due to the scale.

Of course, other major nations dug deep to combat this new threat and an arms race ensued.

What we’re left with today is not a cautious and remorseful appreciation for the power of science, but instead a lingering threat of mutually assured destruction.

Near Zero

Early in the development of nuclear weapons, the Manhattan Project scientists toyed with the idea that the reaction of their first nuclear test might never end, and eventually vaporize the planet’s atmosphere.

They decided that the chances were ‘near zero’ and went ahead. The risk was worth the reward.

When we outsource our responsibilities we give away our freedoms. Sometimes, that happens before we are even able to make rational decisions.

It’s why Web3 identity solutions are one of the most exciting areas in the space right now. It’s easier to comprehend the things that you have a complete understanding of and control over.

Giving humans the opportunity to create a tangible and transparent graph of personal and social information is empowering. It becomes a natural starting point for making informed decisions that benefit them as individuals, and not just numbers.

I remember at university researching the teachers before enrolling in classes and being surprised by how useless some of their published research was, especially in the Arts.

Titles that almost seemed parody… “An Investigation of Recurring Avian Symbology in Magical Realism in the Mid 20th Century”, and so on.

How could this possibly be worth someone’s time to research and write, when I can’t even think of a situation where it would be worth reading?

Unfortunately, I think the answer is that it is not, and it’s a product of both tenure and the need to avoid important topics that might offend.

Why is this relevant? I see similar arguments made by tradfi and bitcoin maxis about other blockchains, tokens, and DeFi. It’s something like, “Bitcoin is a once in a lifetime opportunity to challenge existing power structures, and spending energy anywhere else is a waste of energy that could be otherwise used for this purpose.” But I think these are very different cases.

While the chances of the professor's (fabricated) research leading to a revolutionary idea are just about zero, I don’t think it is the same in crypto.

Tear Down Your Mental Silos

Technological innovation is not a siloed process, and much of the tech being built across the crypto ecosystem is applicable to sovereignty, privacy, and even the Bitcoin network itself.

Many of the people that complained about Ethereum early on being too centralized (or prone to centralization) are still complaining about it. However, Ethereum opened up a whole world of new tech and social experiments at the cryptography, infra, and app layers.

One recent example is ZeroSync, which is hoping to bring zero knowledge proofs to Bitcoin clients. On their website they acknowledge the origins of some of these ideas:

“While considerable engineering effort is underway in the Ethereum community to apply this technology, no similar investment has yet been made for the Bitcoin network. Therefore, ZeroSync was created to bring these proof systems to Bitcoin for the first time.”

And who’s to say that one of the many new ideas being played with won’t lead to something as big as Bitcoin?

Learning The Hard Way

Something that has always amused me is the soft spot for Litecoin in the Bitcoin community.

It used to be seen as “testing in prod” for features that some day may make their way to Bitcoin, though this has perhaps changed since last cycle.

This idea was never extended to the broader crypto market, despite the fact that Litecoin was only playing with a handful of new concepts comparatively. But the rate of experimentation in “crypto” continues to accelerate.

Most of these will fail. And most are useless in the Bitcoin mission of promoting voluntary and provable-scarce money.

But we don’t know which ideas will spark an entire new field, like zk-STARKs, that will end up giving Bitcoin an even greater chance at success.

Impact Is Hard to Forecast

As someone that believes in the “Bitcoin fixes this” meme, I asked myself a handful of years ago how I could make the biggest impact on spreading Bitcoin and the related ideas.

Despite being non-technical, I even applied to a job at Lightning Labs, one of the only open positions I could find where I thought I may be able to apply myself and spread awareness for the tech.

I debated learning to code just so that I could spend my time building small tools for Bitcoin and Lightning.

However, I was promptly rejected from Lightning Labs and decided my skills could be better applied outside of coding. So I started working outside of Bitcoin and believe I can and will have a greater indirect impact than if I was contributing directly.

Is this just cope? I don’t think so.

There is simply more opportunity to experiment in the broader crypto market. It pays and I believe it will eventually pay Bitcoin back.