A framework for thinking about the future

High level musing about the things that will / may matter

It’s been a little while since I put out a blog. Honestly, it’s just so much harder to find the time and mental space to write when living in London vs. the quietness of the cabin in Norway. Environmental noise is an inhibitor of thought, but the pay-off is the closeness of other humans, which is also important. I guess, like everything, it’s all about balance.

The last piece I wrote (”The importance of staying true to your values” I typed out while literally on the boat back to the UK. Weirdly I often find that travel is one of the best environments for getting deep into it.

This said, there has been a hell of a lot going on the past few weeks:

• neume is going from strength to strength; building out integration to the Lens ecosystem, and we recently ran a very successful Gitcoin funding round (see our monthly update that I just posted).

• Juice, an idea that Vaughn and I have been kicking around for about 18 months now is moving quickly towards being something that we can talk about more publicly (stay tuned for the podcast series that we have started recording to roll this out).

Anyway, with that said, onto the blog…

New cycle inc.?

I’ve written a lot in the past about framing the development of onchain music in cycles across an overall momentum. And this feels more true than ever right now when looking out across the ecosystem.

To all but the most extremely convicted music NFT fanatics, a combination of decreasing demand and increasing gas prices have pretty much called a halt on the L1-based patronage model for the majority. Don’t get me wrong, there’s still some great music being put out there, but the mechanisms that we’ve been utilising feel like they’ve run their course now. Unfortunately, this is often the result of optimisation taking priority of experimentation, paying the debt of a bullrun where it is strategically smart to do the current thing better than anyone else.

And so this piece is an attempt to communicate the different elements that are rattling around my brain at the moment when thinking through “what’s next?”. I’ve written previously about my belief that new hype-cycles are pre-empted by new infrastructure invention and execution (alongside engagement and funding as the drivers of growth), which forms the basis for this framework.

Of course, there is an inherent assumption here that there will be a next thing, and that this whole thing isn’t going to zero as a failed experiment. But that’s one assumption that I personally have full conviction in.

I mean, there certainly appears to be capital waiting on the sidelines, if the recent memecoin bubble or people sending £ms to an account called yougetnothing.eth are anything to go by. We are just in peak boredom cycle now, which unironically is usually the most exciting point for thinking forwards.

Enablers vs. Drivers

I’ve started categorising new infrastructure developments as either an “enabler” or market “driver”. They may seem similar at first but there are subtle but important differences.

Enablers are the things that make new functionality or metas possible.

L2s, for example, are in my opinion an enabler; they make transactions cheaper and more scalable, which in turn unlocks new potential use cases. Enablers can also relate to infrastructure that improves user experience, unlocking more participation in the market. An example being Account Abstraction.

Market drivers are the things that, well, drive market value. Unlike enablers they are usually more simple in concept, but more difficult to benefit fully from - people have worked out that they can make lots of money by doing this thing, but that value is subject to the rules of pvp competition. In the most simple form, market drivers usually involve some class of new tokens coming into the ecosystem and a race to get in early.

There is a third category that also emerges, though less clear upfront, market requirements; i.e. limitations that are surfaced in this new evolving meta. An example from the previous bull-wave here would be the requirement for greater wallet recovery/security driven by new, less crypto-native entrants joining the market. Often-time these requirements can lead towards enablers in a future cycle (in this example, account abstraction).

Putting the framework into action

Ok, so now we have laid out these categories lets run through some of the buzzy things going on right now and think about how they fit. Note: this is just me riffing out loud, it’s extremely likely that I’m totally wrong here!

As previously mentioned, I see Account Abstraction as an enabler. It will enable more users to operate in the market in a way that makes sense for them.

Additionally, it brings in several new actors to the supply chain, paymasters (agents that can take gas costs in any form that wallet has) and bundlers (agents that bundle transactions together for efficiency), which could become a market-driving force if there becomes a significant value opportunity to perform these roles, but I think that most likely this will play out similar to the validator role in PoS. That said, mechanics around lending to paymasters may be a thing, and god knows the degens love an inflated APY opportunity.

L2s (and “L3s”) I would also categorise as an enabler. They allow for cheaper and more scalable transactions on blockchains, which, for example within the NFT market, can facilitate the move towards a sustainable cheaper minting price for tokens (reducing the gas/token price ratio), but is unlikely to kick-start a new meta by itself.

However, the growth of L2s does hint towards a potential market driver for the next wave; forkable L2s. We are already seeing hints towards this from Zora, apparently a Zora L2 is on the way as a fork from Optimism. With a race towards L2s comes the opportunity for a plethora of new L2 tokens. This would previously be limited by token fragmentation, but alongside the paymaster agent within Account Abstraction (or even more immediately, developments like Decent’s recently announced “The Box”), suddenly a user’s activity is less limited by the type of tokens that they hold in their wallet.

Taking it one further step, an explosion of alt-L2s and alt-L2 tokens would bring with it a greater strain on the governance within these new token ecosystems. And so we are potentially looking at greater requirements for the governance controls, transparency, and professionalism tooling that is already in development (shout-out, Butter).

Of course, what I have laid out here is just one thread of categorising and chaining elements of incoming invention together. There are many other areas of active development, for example ZKPs (likely an enabler), non-pegged stable coins (enabler, leading to secondary drivers through defi mechanics), etc.

The wider context

Now that we have laid out a framework for thinking about invention in the development of the new wave of Crypto, I think it’s important to think about the wider environment that this thing is going to live or die in. The world is very different now to what it was in 2020, and different again to 2017.

The impact of high inflation

First up, I am absolutely not an economist and this blog is not going to suddenly turn into a pseudo-economist rant, but the world has rapidly changed over the past year and it will be extremely impactful as to how new ideas are formed and funded.

Much of what we know about the growth trajectory of a tech startup was an outcome of low inflation rates. Money was cheap to acquire and deploy and led to a prioritisation of growth over revenue. VCs could expect a return from the 1 in 10/20 success stories that they bet on early through ballooning valuations and an expectation that the market, and importantly, larger investors, would also believe the hype.

High inflation changes the basics of this equation, investment money is more expensive and harder to find. This leads to less opportunity for investment towards tech startups (which we are very much seeing right now), and thus a greater requirement for bootstrapping and early revenue generation business models for the startups.

This is not an unhealthy development. A cooling down on valuations is probably a natural thing to happen. But it is likely going to cause significant waves towards the “startup playbook” on how to build out a project.

Thin / small apps

One of my and many of my comrade’s favourite pieces of canon is the Joel Monegro series of essay from the first wave of blockchain titled “fat protocols” and later “thin applications”. In it he details the thesis that the composable properties of blockchains means that applications / front-ends will be faster to deploy and ultimately simpler as the data layer will exist at the protocol level. Packy McCormick has recently taken this one step further, positing that AI and no-code building solutions will democratise the development of applications to the point where the lifecycle of platforms will be measured in weeks rather than years, “small apps” (in terms of time, as well as depth).

If this plays out, then it will have a compounding impact on the shifting investing equation as detailed due to high inflation. No longer can an early stage investor look for that 1 in 10/20 shot and expect a payout when investing in applications, as the app itself will be dead way before the expected payout period. The time series for investing will completely change, and once again, revenue will become the priority over hyper-growth.

So where does the Venture Capital go? If their thesis shifts towards the protocol layer then that’s cool, but it’s also a completely different business, in terms of timeframe and effort. A protocol needs to encourage (small) apps to build on top of it, likely bringing them in through incentives. In this world, arguably, the protocols themselves are competing with the traditional venture capital business.

It’s worth taking a juncture here to shout out Lens for its foresight in this regard. We, as neume, have been fortunate to receive a grant from Lens to build indexing into its ecosystem, alongside a multitude of tooling and front-end applications. The beauty of Lens as a front-end developer is that any user can connect their wallet and their data is just there, the protocol-small application thesis in action.

Increasing US regulation

One area that is either kind of underplayed or absolutely in your face depending on your selection of follows on the bird app is how much of a flash point we are at right now with regards to Crypto and regulation in the US. Despite it being still a very minor % of the economy, we as a sector are becoming a major point of disagreement between individuals and parties as they discover their party lines as to whether Crypto is injecting fentanyl into the arms of teenagers or is an act of civil liberty.

Unfortunately, this will inevitably bring blow-back to builders. Sam Bankman-Fried didn’t just risk the market through his financial management recklessness, but by seeking to convert that money into power through donations, he brought our industry into the cross-hairs of Congress.

The most immediate impact appears to be in the world of stablecoins and exchanges. Though, Crypto is counter-culture at its core (despite the attempted VC-rebrand towards a “web3” of rainbows and unicorns); Crypto is punk. And there is nothing more punk than the development of non-$ pegged stable coins to become the internet-native unit of exchange.

We need to be careful though as nefarious attempts to leverage this point of uncertainty into a reduction in privacy norms should be resisted. For fucks sake, don’t let someone collect a database on your eyes, no matter the message of world peace and unity or however they try to spin it.

Risk / reward of coins

In the first wave of blockchain (2015-18), those who got in early and held bitcoin or eth through the rollercoaster suddenly became exceedingly rich. In the second wave of blockchain (2019-21) they became even more rich, though probably sold some in the 2019 winter. Most of the biggest winners in the second wave were those that capitalised on the ‘shit-coin” cycle, and then the defi cycle, and then the NFT cycle. The upside in this past cycle for holding bitcoin was in the double digits, whereas the upside in other areas was 4-5ks x.

See, there is a risk / reward ratio to everything, and no cycle is like the one before. Holding bitcoin for 10 years will have paid off well, taking wins and then capitalising on a winning new-wave narrative would have probably been even more profitable, but each involves risk, in both whether the narrative is the “right” one, and also time.

Going into a third wave (assuming there is one, which in itself is a bet) we may see a continuation of this trend, where the bitcoin/eth risk vs. reward equation looks something like a 10x best-case scenario.

What I’m trying to say is that things may get even more gambley. Bitcoin and Eth continue to become more stable investments (with the institutional buy-in that this brings), and the yoloers seek even more ridiculous opportunities to spin the roulette wheel on. There’s an over-riding vibe that Crypto is becoming more normal-friendly, and that’s probably true in some areas, but I think that there’s a strong argument that things are only gonna get more degenerate.

Data privacy regulation is breaking online media

Focusing on an area closer to the subject matter of this blog, it’s no coincidence that we are seeing legacy media brands fall over like dominos right now. I’ll point you to Ben Thompson for a root-cause analysis of exactly why, but essentially there have been some huge changes in how the online advertising industry can run, which is now starting to kneecap the business model of media websites.

It’s a classic case of regulation being enacted for The Right Reasons, but ultimately accelerating Moloch.

One would hope that this kind of sea-change in an industry would be the kick-up-the-arse that it needs to find a new viable business model, but it seems that media is stuck on advertising, subscription, or some mix of the two. Ultimately I fear that this leads towards aggressive centralisation. I mean, the canary in the coal mine was local media, wasn’t it. The Halifax Courier, our once proud local paper has been reduced to a shell of pre-ai generated click-bait and tits. In the coming years, I guess the click-bait will at least become more tailored to us and cheaper to produce. And the tits will be created by an algorithm.

Who knows what the future holds here. Honestly, even writing this paragraph makes me gigadepressed. I’d like to think that through Crypto we can provide some sanctity and answers.

Creative industries

Moving even closer to home, within music we are starting to see a rejection of “web3” as a narrative. To those that have been here for a while, it was always problematic as a term, VCs overselling to the new cohort of explorers under the guise of “a new model for creators that is better than the old model”, despite few answers other than “because…”.

However, “web3” worked as it stripped out complexity, and gave creators agency. The counter being that it led to an inevitable, relatively low, ceiling, and very insular power dynamic. Much of the growth was driven through VC investment - as an artist, your customer is the VC community, not your fans - with little organic revenue generation and, ultimately, misaligned incentives.

That said, it was a step forward simply by actually involving creators. Learning from this is important moving forwards.

So what?

Hopefully there was a fair warning that this piece was gonna be a core sample into my brain as to what I think actually matters when thinking about the future. I know it may seem somewhat Pepe Silvia in structure, but the point is that shit is crazy and we need to try and build mental models and frameworks through which we can parse this chaos.

Narrowing into our world, Crypto, I think that things will continue to appear both exciting and boring, for some time, while the enablers and drivers are developed and deployed. And then suddenly things will become clear again as the pieces of the next narrative fall into place.

Focussing the spy-glass one stage deeper, in Crypto and Music, I think that NFTs offer such an interesting concept as composable media and a creator-owned channel that this will likely continue to be the meta, but in a far more interesting form. Artists will be at the forefront of this next wave, more than they have been with this past one (which was more than the one before).