Cynicism

The power of accurate observation is commonly called cynicism by those who have not got it.

During Token2049 in Singapore, I went to many events to network. At every event, I’ve always had the pleasure to talk to fund managers, builders and degens. And at every chance, I’ve always asked the same question.

“Why are you bullish on digital assets?”

“Well, transaction on this L1 is 10x faster than the other L1, this protocol aims to build financial primitives for NFTs, etc.”

“Ok, but that doesn’t answer the question. That answers “why are you bullish on this L1” - but why are you bullish on the digital asset world in general? What problems does it solve?”

And that’s when they go silent, and they think. My favourite answers are from the truthfully honest cynics, who say that currently there is no super important pain point to be solved, yet with the amount of money flowing in, there’s bound to be something.

Is that true?

My Conflicting Thoughts

Before writing this substack, I had an entirely different one planned out, talking about how you should understand, from a first-principles perspective, why exactly you’re investing in this space, and how you should align yourself with that ideology if you want to succeed.

I still stand by that, but at the same time, I know it not to be fully true.

The dichotomy within crypto is that there seems to be no super important product that truly solves a pain-point of consumers today. If you dig into first-principles, you arrive at the conclusion that these things don’t solve a problem that is necessarily viewed by the average person as an important problem to solve.

Let’s say shoes don’t exist. You walk around barefoot in the hot sun, your feet burning on the pavement. A shoe company pops up - does it solve an important problem? Yes!

But Bitcoin - Bitcoin solves the problem of sovereign wealth. Is that an important problem? Yes! But only to some people. Even to people in crypto today, Bitcoin is viewed as nothing but a high beta asset - I’ve seen people on my timeline give advice that they should be keeping their savings in cash because it loses less in value than BTC.

And why shouldn’t they? Bitcoin solves a problem, but that problem isn’t viewed as a necessary problem to be solved by most of the world! You can make the same argument with Ethereum as well - DeFi? Yes, it’s a great product - it cuts out the middle man, and allows people to gain a larger share of yield. But man, have you seen the yields on Aave?

You know, I’m not saying that these are useless products. I do believe in De-Fi, and ETH, and all the innovation in crypto. But I recognise that the average retailer will probably find no need to use vaults to boost his APYs by degen-boxxing his USDC.

It all exists on a spectrum as well - certain things are more useful, and have higher probability of being adopted by the masses in an app that cleans up the UI of all this - e.g CEXs, who automate the liquid staking of ETH for users in return for “yield”. They don’t know a thing.

Stuff on the way other end can be products like the “metaverse” - which, again, doesn’t really solve an active pain point for the world today.

I think @mgnr_io really aptly summed it up in his tweet below.

Silly valulation was never about product market fit, but was just how much money they could make.

Now that the tide is out, we can see who’s swimming naked.

mgnr @mgnr_io

token2049 field report: zombie state appeal of investing in crypto projects was never efficacy rather, high probability of silly valuation + quick time-to-exit but paradigm shifted retail aren't chasing junktoken regulators emboldened time-to-exit now more grim than web2

Be Cynical

So, what am I supposed to do knowing this? Well, it’s simple. Adopt the mindset that people like @DegenSpartan have.

Be Cynical.

Don’t look at protocols through a rose-tinted lens. Actually push them to understand what they’re doing, and why this is important. If you’re a VC who actually deeply believes in this space, don’t just invest in anything that has the words “this will change the world.” If anything, be more prudent with your firepower.

Dig deep, deeper and deeper until you find a good and strong, solid reason as to why you should bet big.

Let’s draw an example. Say you’ve had the opportunity to invest in NFT perps (if such a thing is launched). Your thesis, as a naive crypto person, goes something like:

“NFT perps have huge product market fit because it allows people to own a smaller share of the NFT that they love, and they don’t need alot of money to bet on the NFTs they’re bullish on! Also, NFTs will change the world (in some way, I’m sure of it)!”

A decent analysis, but not cynical enough. I’m thinking something along the lines of:

“People will literally gamble on anything they want because that’s the state of younger generations today. Gambling has become such a social problem that it’s even been banned on Twitch. NFTperps bring in a whole subset of people (NFT degens) into the scene, and they can bet on stuff they’re more familiar with, instead of the more “complex” idea of trading.”

This mindset is especially important for retailers who get too caught up in the future of finance during the hypes of the bull, believing that what they hold is truly a driver of the future.

As I’ve said, just turn off that switch in your brain that says “De-Fi is the future!”, and really LOOK and STUDY a product.

The book I’m reading - Onwards by Howard Schultz, talks about how Starbucks made its miraculous comeback in 2008. But the part I’m highlighting is the stark contrast between Howard and Wall Street - while Howard advocates that the “people and culture” make a good company, and tries his best to bring it back - the Wall Street investors do not care. They quite literally question everything for the sake of profits.

You might think that that’s pretty shitty. It is, but when you’re in the field of finance (as you very much are, in crypto) you have to do what you have to do - and that’s being as cynical as you can to actually look deep as to how something can possibly make revenue.

Comments

1. This mindset is madly unpopular, because it forces you to look at the truth - and many people don’t like that. How do I know? When I asked people “why are you investing in this?” They always look at me annoyed, like “how dare you ask me this?” But I think it’s important to admit to yourself the true reason you’re in this.

2. My qualms about writing this article is that my writing capabilities and my depth of thought are not good enough to truly flesh out everything that I want to say about this article. You’ll have to forgive me for that.

   1. This argument doesn’t apply to all products, obviously. Some net good ones have been centralized exchanges and analytics platforms.

   2. But stuff like Metaverse, GameFi projects - question.