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What are the favorite cryptocurrency investment themes for the PhD in Macroeconomics in 2022?

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From an investment risk/reward perspective, expect attractive Alt Layer1> attractive Layer2> Ethereum Layer1.

Tascha: Three crypto Investment Themes to Watch for 2022

原文作者： Tascha，宏观经济学博士

The Way of DeFi

2021 looks good for cryptocurrencies. The picture will be different next year due to changes in the macro environment and technology adoption cycle. Here are my top three cryptocurrency investment themes for 2022, and my top three bearish ones.

First, look at 2021.

Loose fiscal/monetary conditions since the great Recession have brought liquidity to all risky assets. The total market capitalization of cryptocurrencies grew 300% year on year.

For the first time ever, cryptocurrencies have found real use cases in DeFi and NFT, which has also driven their valuation skyrocket. DeFi's total TVL increased by 1600% year-on-year.

Ethereum's NFT market cap alone increased by 16,600% year on year.

Consensus algorithms with proof of ownership and layer 1 blockchains with second-generation smart contracts provide significant infrastructure for these use cases, and valuations have risen.

But as inflation rises, the Fed is forced to "do something", even though it is being driven mainly by supply bottlenecks rather than overheated demand.

In 2022, the Fed's balance sheet will likely grow flat and try to raise rates. Given heavy debt burdens in the public and private sectors, and the fact that inflation remains largely a supply problem, a sharp rise in interest rates is unlikely.

In any case, monetary conditions will almost certainly be tighter in 2022. Lower purchasing power due to inflation + withdrawal of monetary stimulus = deterioration of economic growth. By the end of the first quarter, macro analysts could be busy revising down their growth forecasts.

In terms of encryption, the large-scale adoption of Web 3 technologies is just beginning. The experience of the first two exponential waves of "Internet and Mobile technology" suggests that once the focus reaches a billion users, mass-market applications begin to gain significant traction.

By comparison, there are only 180 million Ethereum addresses today. As a proxy for Web 3 adoption, at current growth rates, it will take another five years to reach 1 billion users.

At this stage of adoption, high value-added infrastructure and niche applications are likely to stand out. And in the context of these macro and technical cycles, these three crypto industries could be the winners in 2022.

01 Blockchain games

On the demand side, there is a high degree of overlap between the gamer community and the early crypto users. Players have a ready-made need to own in-game assets, which is a natural use case for NFT and builds on the success of the latter. The weak economy has made it more attractive for players to make money from their games.

On the supply side, gen 2 L1s and L2s have cheap and fast deals that make the infrastructure more suitable for high-performance games.

For this industry to explode, the catalysts we need are real players and high-quality blockchain games that they actually want to play to make their Token economy sustainable.

Fortunately, the hype surrounding cryptocurrencies has attracted a lot of game design talent to the space. Some of their work will at least begin to bear fruit in 2022. Watch out for serious gamers like Gala Games.

02 Proof of interest Layer 1/Layer 2 platform

2021 is the year of Alt L1s. This is not a fad.

Mass adoption of Web 3 depends on an extensible public blockchain. It's no accident that gen 2 L1s, which have led to massive growth in on-chain applications, are reaping most of the value in the current cryptocurrency boom.

This trend will continue in 2022 (just beginning) with the new L2s on Ethereum joining the fray.

From an investment risk/reward perspective, I would expect attractive Alt L1s & GT; Attractive L2s > Ethereum L1.

At this stage Alt L1s allows for better combination/mobility in its own ecosystem and is starting from a smaller base so may grow faster in ST. Eth L2s can take advantage of the existing Eth user base and mobility.

However, the L2s competes on more of the same metrics, and may have a harder time standing out from the competition than Alt L1. If successful, Eth L2 will be the source of more new added value than Eth L1.

03 Cross-chain solutions

When Bitcoin and Ethereum make up the entire blockchain world, there is little need for cross-chain asset transfer/interoperability. That reality is changing fast.

With multiple Alt L1s and ETH L2s thriving, coupled with new chains created by Web 2 enterprises, transportation between encrypted "countries" and "cities" becomes the next infrastructure challenge.

The industry is destined to grow. But there is no established/dominant player yet, and it is uncertain where the increment will come from. (Similar to the DeFi situation.)

Focus on promising projects such as Quant and LayerZero.

By contrast, here are three sectors that could underperform next year:

1.DeFi

The industry as a whole will continue to grow. But so far, DeFi's moat has proved difficult to defend for individual applications, with a few exceptions. Therefore, the underlying L1 protocol is the biggest beneficiary of DeFi growth, not the DeFi application itself.

Second, progress in bringing off-chain collateral up the chain remains slow, a major bottleneck to the industry's medium-term growth.

第三，紧缩的货币条件可能会对 DeFi 项目造成特别大的损害，这些项目是半金融庞氏骗局，没有强调 Token 的使用案例，因为他们的部分 Token 估值来自于协议自有资产的未来收入的折扣。

此前 Tascha 表示，加密原生「储备货币」需要为其 Token 寻找经济用例。协议控制的价值是好的，但如果没有来自经济活动的持续的 Token 需求，当冬天来临时，它就会如履薄冰。没有经济支撑的货币是虚构的。

2. 创造者/社区 Token ，如 Web3 亚马逊，Uber 等

创造者 Token 在 2021 年初被大肆宣传。我相信他们最终会爆发，但现在我们还早了几年。其他试图创建 web3 双向市场的项目，如亚马逊和 Uber，也属于同一类型。

As mentioned above, mass market apps gain significant traction when the focus technology reaches a billion users. Cryptocurrency adoption is far from supporting thousands of individual creators issuing their own mini-currencies.

此外，在大多数情况下，这些创造者 Token 的效用还不够强大，也就是说仍在寻找适合市场的产品。因此，在 ST 中，游戏、NFT 和 DeFi 将仍然是承载用户采用加密技术的负载的用例。