Is the Ethereum protocol exhibiting predatory behavior? A Wednesday morning hype thread.

It’s 1996. Google is two years from founding. Amazon is reselling books. Video streaming is possible, if you own a 56k modem, live in a major city, are rich, and possess the technical know how to complete the several steps. President Clinton is “[B]uilding that bridge to the year two-thasand.”

Good old ‘96, Tupac has been shot dead and the three largest companies listed on any US stock exchange (by market cap) are car manufacturers: GM, Ford, and Chrysler, respectively. Yeah, that’s hard to believe.

We’ve talked about fat protocol thesis on this sub previously. So for those that know what it is, bear with me again while I briefly explain it for those that don’t:

*The internet is a protocol. Value flows from its protocol to its applications. Google, Amazon, etcetera are its applications. Over time, they’ve become valuable. In cryptocurrency protocols however, value flows in the opposite direction, from the application layer to the protocol. Thus the name: fat protocol theory. Yes it’s just a theory, but so is gravity. It’s easy then, to imagine why Ethereum is uniquely positioned amongst its competition to capture so much value, because of all that’s built on it, its ecosystem.

What’s interesting about the internet and its applications capturing value, is that we didn’t see that really begin until the late 90s. In the early-mid 90s, things were only arranging or jockeying themselves to an unknown future, so obvious to us now. And remember the ferocious competition? Anyone? That’s a book itself. Most of the companies went bankrupt, some merged, others were bought out. The ones that survived are global household names.

It’s difficult to avoid then, comparing Ethereum and cryptocurrencies to this time period, because it’s mirroring it in lockstep. Ah the 90s. Remember its tech rockstars? Of course you do, they’re still around imposing their will in various ways. In crypto we have one living rockstar (unless Satoshi is alive): Vitalik Buterin. And that’s…not insignificant either folks, not in the culture we live in, not for Ethereum’s early days. For the younger people out there, what’s happening in crypto now is basically your chance to live, in some telling, the 90s tech boom, from which half of the top 10 wealthiest US people come:

• Bezos
• Gates
• Page
• Ellison
• Brin

So don’t squander it watching on the sidelines. It’s still so new. Yolo in.

Let’s consider the last crypto bull cycle. Question: What crypto’s that were top ten in 2017, are top ten now? Only two: BTC and ETH (LTC is in and out of the top ten on any given week, having fallen 6 places from what was historically an unshakeable #3 position). But here’s the curious thing: if we expand that list to say the top 50, how many are ERC tokens? 33 are. The Ethereum network is starting to arrange and position itself. They [ERC tokens] now dominate the mid-tier of that list and are moving relentlessly upwards. USDC and ChainLink for example (both ERC), could break into the top ten soon. That would put three ERC tokens (ETH, LINK, USDC) in the top ten, and that is much more substantial than people think. How about visualizing the data in a different way: if we use the total crypto mkt cap which is approximately $2T, we see the entire Ethereum ecosystem makes up $500B or 25% of it. That’s more than a double percentage gain (almost triple actually) what it was in 2017. Bitcoin and Tether have a top ten relationship too. But USDC now has a mkt cap ~28% of Tether’s and gaining fast. Why is this happening? That was unthinkable just two years ago. And about BTC, the wrapped version (WBTC, an ERC token) is top 20 and moving up. That’s predatory, because the Ethereum Network is finding solutions to chew on things not natively built on it. Now, Ethereum will never eat Bitcoin anymore than Bing will eat Google (but Bing only exists because of antitrust laws), so a better analogy might be what email did to the USPS—didn’t kill it, but syphoned its small cost efficient property. I won’t even bother getting into the NFT market because it’s too nascent, but again, Ethereum is positioned to add this predatory wrinkle better than any other. Our century is young, and in these early days of crypto, unless you’re named BTC, innovation lag will kill you.

What’s my point? My point is that like the internet and its value flow, the Ethereum protocol isn’t past 1996 yet. I don’t believe we’re seeing fat protocol thesis at work…not yet. And that’s a subject to ponder, because heretofore, there’s been a belief that it is. It’s important to add, that many scholars believe the thesis to be wrong and unprovable, including my economics professor. They’re right too, but only because the timeline data is too small, the thesis hasn’t had time to develop (as opposed to grow), because Amazon is still reselling books, AWS (Amazon Web Services Cloud) hasn’t democratized starting a small online business, Google doesn’t exist, ruthless competition is still killing things before they begin because the young galaxy is still full of space rocks, and global users are a small landlocked lake, not oceans yet…there’s less than 1M active Ethereum wallets.

My other point is that one has to wonder with trends so linear, wether holding anything besides Bitcoin, ERC, or privacy coin is worth it. I’m unconvinced, which is why I don’t. I’d also be concerned about how many potential major ETF’s are now considering structuring themselves: instead of an Ethereum ETF made of ETH, they’ll be made of a rotational basket of the Ethereum Network’s top tokens. Too, when some ETF’s start offering baskets of all crypto’s, how many ERC tokens do you imagine will be in there if current trends hold?

Remember the top three US companies we talked about in 1996? Well, by the early 2000’s, tech companies (what we defined earlier as internet applications) began dominating the mid-tier list of largest US companies, some making it quite high. And integrated oil-majors (Exxon, Chevron, etc) replaced the car companies as the largest by mkt cap, you know the ones selling the gas? No point here actually, besides the pun.

Note: I promise I’ll try bringing this all around to make sense. So let’s continue this senseless ramble:

After the 2008 economic crisis (which lasted some years) an unexpected group of companies staged a sudden move up the mkt cap rankings: Banks. Why? Quantitative Easing, zero percent interest rates, and loose central bank monetary policy on a global scale. It’s no coincidence that at this same time, Bitcoin came into existence. But, those damn longterm internet applications accruing value…

Right, so fast-forward to today. Go to your brokerage and find the top companies by market cap on any stock exchange. What are they? Bingo:

• Apple
• Microsoft
• Amazon
• Alphabet
• Google
• Facebook

They’ve all finally made it. The difference is, they’re unlikely to be replaced by anything unrelated. They shouldn’t be. Not for a generation, right? Wrong. Most will be replaced from the top spots because they’ll be weakened by a DAO Web 3.0 predator that syphons, feeds, borrows, steals, learns, wraps, experiments, fails, merges, digitizes, and innovates at a pace that’s impossible to keep up with. And for good measure, add in the fact that it began as, and is unified with finance. Its imagination will never overreach its supply of money. On a global scale, that’s insane. At least that’s the longterm view of Ethereum. What replaces the top company’s spots is anyone’s guess. If it’s Boston Dynamics I’ll know the end is near. If it’s a green energy breakthrough I’ll have hope.

Thanks for reading. Just wanted to try cleaning my mind this morning. Now for some fun predictions a couple years out dealing with finance bits:

• Ethereum’s gas fees fall and staking becomes available to the masses (both promises of 2.0)

• Hindsight data shows DeFi eroding chartered bank margins

• Central banks are forced to combat China’s digital Yuan threat by rolling out their own digital fiat much faster than we thought

  -Bitcoin captures 50% of gold’s $10T mkt cap

• Fat protocol thesis is finally set loose

• ERC tokens comprise 13 of the top 20 token spots.

• DeFi friction collapses and with it the learning curve

• Country’s banks compete for global retail borrowing undercutting Ethereum’s staking rewards APY by 3% or more in some places

• Cryptocurrency makes the platform of both major US political parties

• Digital fiat captures the stablecoin business and Tether collapses from their front end integration allowing the Ethereum Network (all ERC tokens combined) to make a run on Bitcoin’s mkt cap

• Volatility continues to dissipate and wild speculation is gone, the global confidence curve of crypto is flat, longterm deflationary appreciation begins and “margin capture” of what were once traditional bank margins (profits) is the new speculation as YOU become the bank

• Two major US banks consolidate/merge

• Ethereum’s next major upgrade hype is an on-chain oracle

• US Treasury sets up probate crypto address

• London is no longer the world’s forex Capitol, their failure to adapt to crypto and their innovation lag is devastating

• ENS (Ethereum Name Service) finally gets its act together allowing WEB 3.0 to begin in earnest

• The forbidden coin (XMR) has its day entering the top ten as atomic swaps and privacy premiums spike value after decentralized platforms begin (ever so) softly merging with legacy finance

• Manned moon mission data inadvertently raises serious questions about the veracity of previous manned moon missions