Price speculation has been the defining cryptocurrency theme of the past decade. But in 2019, speculation began to take a back seat to product usage for use cases beyond price speculation.
When I worked at Coinbase back in 2013, our core product allowed people to speculate on bitcoin (BTC). The buy/sell functionality has always been the backbone of the Coinbase business but at that time, many of us were most excited about the new use cases that a permissionless platform for innovation in financial services could bring to the world.
We also had an application programming interface (API) that helped developers build Bitcoin apps. Interesting apps like BTC Jam (global peer-to-peer lending), BitPesa (cross-border payments) and Bsave (interest-bearing BTC) used the Coinbase API, but these products never gained much traction. It was too early; it turned out that Bitcoin was great as a speculative store of value but wasn’t the permissionless platform for innovation that we thought it could be.
Six years later, those same use cases and many more are finding product-market fit as decentralized applications (dApps) on Ethereum. 2019 will go down as the year cryptocurrency use cases beyond speculation began to blossom.
Here are the 10 most important product developments of the past year:
1.) Open, global financial applications on Ethereum are giving new people new ways to borrow, spend and earn
Borrow with MakerDAO: Anyone in the world with ETH or BAT (and soon many more types of collateral) can get a collateralized loan without permission from anyone. This is a product that simply couldn’t exist prior to Ethereum, and its traction in the past 18 months has been impressive. 2019 was a transition year for the project (an upgrade from Sai to Dai was made in November) and the future looks bright as more collateral is added and Dai stability is proven.
Send and spend with Dai: Fixed-supply cryptocurrencies like BTC are too volatile to be used as a medium of exchange by most people for the foreseeable future. Stablecoins are designed to be price-stable first and foremost, which makes them much more viable as a medium of exchange. Dai has social scalability potential that no other stablecoin on the planet currently has because it is designed to minimize trust. While Tether and USDC are more widely used today, the trajectory of Dai is quite exciting.
Earn interest with Compound or dYdX: There are significant cost and regulatory barriers to entry for interest-bearing custodial products. For non-custodial interest-bearing products, the barrier to entry is much lower. As a result, we’re now seeing lots of experimentation in this area. Users can go to services like Compound and dYdX to loan out their cryptocurrency and earn interest in a non-custodial manner that doesn’t require trusting one party to custody funds.
2.) The macro environment continues to indicate that distrust of large elite institutions is growing around the world
Populism is on the rise globally. That has never been more clear than it is today, with populist parties controlling many democratic countries in the world (see https://qz.com/1774201/the-global-state-of-right-wing-populism-in-2019/). Cryptocurrencies will continue to benefit from this trend in a big way.
If you live in the U.S. and don’t want to place your trust in a bank or the U.S. government, you can convert USD to BTC and send it to a Ledger wallet. If you live in Venezuela and don’t want to store your wealth in Venezuelan bolivars, you can convert bolivars to dai, send it to a Metamask wallet and start using it.
Most people remain comfortable trusting large institutions with their money, identity and data, but the trust is clearly waning heading into 2020 and cryptocurrencies provide an alternative. The emergence of stablecoins like Dai is especially important in offering a stable medium of exchange for people who don’t have a lot of discretionary spending in countries with highly inflationary currencies.
3.) Decentralized exchanges are taking steps forward
From Mt. Gox in 2011 to Binance in 2019, centralized exchange hacks have been a painful part of the industry to date. Non-custodial exchanges reduce counterparty risk for people who want to speculate on crypto and there has been a lot of experimentation happening in this category for many years now. This year, two non-custodial exchange products had breakout years:
Kyber Network has quietly generated the most DEX volume this year. The main UI for it, Kyber.Swap, now does less than 40% of the total Kyber volume and the Kyber team has done a fantastic job getting the Kyber smart contracts integrated into many Ethereum products.
Uniswap pioneered the automated market making (AMM) approach for ERC20 tokens and saw strong growth this year. It remains to be seen if AMMs will generate significant volume in the long-term relative to the traditional order book approach like Kyber, but Unsiwap has a passionate community with its unique shared ownership model.
Both of these products allow non-custodial trading of just ERC20 tokens, and a big opportunity remains for someone to capture the non-custodial exchange market for all cryptocurrencies beyond just ERC20.
4.) The crypto user experience is getting better, though lots of room for improvement remains
The new crypto products we’ve seen in the past few years are still primarily being used by “crypto natives.” Key management remains a big user experience barrier for mainstream users and historically there has been a tradeoff between censorship resistance and UX (Coinbase.com offers a good UX but is not censorship resistant, while Metamask offers a bad UX but is censorship resistant). This year we started to see a new wave of products that find that holy grail of providing a good UX while also maintaining censorship resistance:
Brave is a secure, fast and private web browser that has a cryptocurrency wallet built in and provides an easy way for users to get their first crypto by opting to view ads. Brave is one of the best examples to date of a great product first and foremost that uses cryptocurrency in the background and it recently surpassed 10 million users.
Argent is a mobile Ethereum wallet that seeks to be a gateway to DeFi for new users. It launched in 2019 and could have a breakout year in 2020 as improvements are made, like the recently added walletconnect support.
Authereum is a login and wallet solution for dApp developers who want to provide their users with a web2-like user experience while maintaining censorship resistance. It’s still in beta-mode but will be publicly launching in early 2020.
5.) Prediction markets are making progress and 2020 is shaping up to be a big year for political markets
Some look at the minimal traction that Augur has experienced thus far and say that prediction markets have failed. That view is shortsighted, as there are early signs of progress that indicate a censorship-resistant prediction market platform is going to bring a lot of new people to the space.
Augur v2 is one of the most exciting developments to look out for in the first half of 2020, particularly with the next U.S. Presidential election in November 2020. Augur v2 is Dai-only so that users can get exposure to the markets they want without worrying about the volatility of ETH. It also has a spruced-up client and improves upon a number of UX issues with v1.
6.) Non-fungible token usage is growing and the future of NFTs + gaming appears bright
Cryptokitties started the non-fungible token movement in 2017. Two years later, we’ve yet to see another viral sensation like that but we are quietly seeing growing traction in the space, led by games like Gods Unchained and Decentraland. There are a number of strong teams working here and as new contexts to own and display digital goods are built, the demand for this category of assets is likely to increase.
OpenSea is the leading non-fungible token exchange and has experienced tremendous growth this year. Q4 was especially strong as a result of Ethereum Name Service trading.
7. ) Infrastructure continues to mature to support new use cases (though still a work in progress)
Cosmos is at the forefront of token interoperability. This could be the key to unlocking the non-ERC20 crypto-crypto DEX puzzle. Some notable projects like the Binance DEX are utilizing the Cosmos SDK to create their own proof-of-stake based dApp and blockchain-specific development is a trend to watch for dApps that need high-throughput.
Polkadot is at the forefront of smart contract interoperability, a holy grail that Ethereum is also working towards with ETH 2.0.
There are a number of other talented teams who have raised money to work on promising infrastructure like Dfinity and Filecoin. The jury is still very much out on these teams delivering, but there could be some surprises here in 2020.
8.) Early experimentation in nascent areas like bonding curves, insurance and governance is promising
There has been lots of experimentation in bonding curves, insurance and governance, which could lead to some breakthroughs in the coming year. Nexus Mutual is at the intersection of these three trends and the growth of Nexus has been strong in 2019. Many other projects are worth watching, like Forte and Fairmint.
9.) Usage of privacy products to date is low
Privacy is a meme that has created $1.5B+ in value (Monero, Dash, Zcash, etc.), but there has been minimal growth in privacy coin usage. These projects have interesting tech and passionate investors, but few users to speak of. The reason underlying this trend is unclear. Do most people simply not care about privacy? Is it just too early and the tech hasn’t progressed yet? Or does the winning platform not exist yet?
My view is that when it comes to medium of exchange, people do care about privacy but they care about stability first and foremost. If you’re trying to build a coin to be used as a medium of exchange, stability must be the initial feature focus. The privacy coins out there today are for the most part fixed supply cryptocurrencies built more to be a speculative store of value like Bitcoin than a medium-of-exchange coin like Dai. In 2020 and beyond, I expect existing cryptocurrencies to implement privacy, which will catalyze product usage. Tornado Cash is one of the most exciting projects on this front.
10.) Many of the most important social network companies (Facebook, Twitter, Telegram) and many countries (China, Russia, Sweden) are in various stages of launching cryptocurrency initiatives
These projects have all been well-publicized by mainstream media over the past year. While I am generally skeptical of their long-term success because of regulation and the innovator’s dilemma (see thoughts on Facebook Coin earlier this year), there’s no question that these initiatives have helped the mainstream perception of the industry. I think that more projects like these will continue to help the industry move forward and we could be surprised by one of them.
We’re still waiting for the industry to deliver on the mainstream hype that price speculation has brought for the better part of the past decade. The progress above indicates we’re heading in the right direction and the energy and excitement, but a lot of work clearly remains heading into the next decade.
Disclosure: 1confirmation is an investor in many projects mentioned, including BTC, ETH, MKR, ATOM, DOT, NXM and REP tokens (complete portfolio here). This content is provided for informational purposes only and should not be relied upon as legal, business, or investment advice.