A Year in Review: Too Many Ways to Make It-2021
What a time it has been in 2021, congratulations to those that have been able to change their lives in some sort or another. This has truly been a year of incredible gain as long as you had conviction in your research and were patient enough. Over the course of this trip around the Sun, there was opportunity to make money hand over fist in almost every narrative but let’s discuss a bit of what went down.
NFTs Came Into Prominence
Whether you liked it or not, NFTs were a large reason for higher transaction costs and clunky confirmation times on the Ethereum chain. Also, a select few were able to turn incredible art into on-chain fortunes like never before. We saw the rise of profile picture avatar collections popping up all over OpenSea with somewhat randomness as to what became worth multiple ETH and what became lost to time.
Despite this, there are some principles to take forth for what will determine a successful NFT project:
- A dedicated community that genuinely loves the product and bring others along with them
- A team that pushes adoption of the collection by continuing to deliver value to their holders via special airdrops, public partnerships, subsequent collections
- Added utility of the NFT that allows for extra membership perks, staking possibilities, metaverse compatibility
- Art that sets it apart from other competitors whether it is generative, pfp, or music
Some projects succeed with only one of these traits and defy all logic but that is the beauty of art, it does not always have to make sense. Most people that got into this space did not get blindingly rich and quit their jobs, but at the very least they joined some awesome and supportive communities that are on the cutting edge of adoption of this technology. NFTs as a whole have been in a bear market since August, it could very well be the case that we see a major resurgence in 2022 as weak players were flushed out and innovators continue to win.
Layer 1s Were the ‘Set and Forget’ Play of 2021
It did not matter which Layer 1 competitor that you chose, it could have been Solana, Luna, Avalanche, Fantom, or even Near. All you had to do was park some capital in any of those and it is highly likely that you would be up 50x minimum to this point.
In 2021, we saw a large influx of new users to the crypto space. Many of these newbies were not made of money and thus needed to seek an alternative to operating on Ethereum DeFi or NFT applications. This left room for these newer, faster, and cheaper alternatives to steal market share and deliver insane returns as a result. For a point of reference, Solana is still up 50x despite the recent downturn, Avalanche is up a measly 30x, and Luna finds itself still up 90x. The strength of this narrative has been unmatched so far this cycle and this will likely continue in 2021 but without the nearly 100x unless you find another early stage version of these.
Not only could you have made a boatload of cash in Layer 1s by just sitting on your hands, those of us around from the 2016–2018 bull run may come to notice an interesting observation. It could very well be possible that there will forever be a rotation to the new up and coming L1 of the particular cycle that we are in. Last run, the likes of NEO, TRX, EOS, and many others were of the same mission that SOLUNAVAX is on this time around. History tends to repeat and it is the same story this run too.
It can also be a trap and a lesson in maximalism. None of the Layer 1 leaders of last cycle have performed even close to their 2016–2018 run, all of that capital is in the new shiny objects. Watch out for the same happening next run to the current round of Ethereum Killers. The trend is your friend until it is no longer and this trend is strong.
DeFi 2.0 Created More Headaches Than Wealth
We have all heard the slogans tossed out there about DeFi 2.0, “Passive income to retire”, “1 year to millions”, “Compound your way to riches”. The real question is, what has really come from this innovation where the protocol is printing massive amounts of supply to their stakers?
For sure the early adopters of OlympusDAO have made themselves a pretty penny by now if they have been staking the entire time. Even early adopters of Wonderland have likely gotten some level of return despite the downward spiral of the last month. The vast majority of OHM forks have not faired as well. Most of their charts have a similar look where price pumps initially, then continues in a death spiral down to the “Risk Free Value” and basically stays there. People are chasing APY rather than trying to find the innovators and back them for the long term. It is an experiment in human greed that has shown us what this new idea of Protocol Owned Liquidity can look like when you essentially do not bring anything new to the table.
The idea itself is absolutely genius. Bringing power back to the people, allowing them to build a treasury that actually has value and an asset from it that essentially can grow in base value over time as this well-managed treasury also grows. I think once there is a more healthy narrative around these leaders like OlympusDAO and Wonderland that maybe you can not retire from these plays, rather they are powerful tools in your DeFi tool chest that are part of an overarching balanced growth strategy. Nobody wants to hear that though. Not as flashy as the headlines circulating out there about them but it is what is needed to push this idea to a more long term head space.
GameFi Still Has Not Reached Its Full Potential
It has been incredible to see the start of the impact that GameFi has to essentially put an end to poverty across the world (where they have access to the internet). With the rise of Axie Infinity, not only did early believers in the idea get rewarded. The people that decided to put in long hours to play a game that is really underwhelming were paid a living wage in many countries where it can be hard to find work that is not only safe but pays fairly. Whether you are talking about the Philippines, Venezuela, Brazil, or a list of other counties that are struggling financially to provide opportunity to their citizens, crypto is here to help and it sure has. While this feat has been wonderful for those that are benefiting from it at the moment, there is still far more ahead for DeFi gaming.
Firstly, there is room in the space for actually compelling gameplay that mirrors the likes of League of Legends or Call of Duty. Imagine the kind of adoption that would come about when a game of that level of complexity and outright fun is developed for this sector where players can also make a decent living from it as well. There will be in-game NFT exchanges where people that have played hard enough to unlock special features can then sell them to other players who do not want to put in the work but rather put up the capital to own these limited pieces earned by their counterparts.
This sector will likely not see a full adoption cycle until next bull run unfortunately as the innovations needed to push it to that higher level are years away from fruition. But everyone likes to feel early right? There is opportunity here to find some absolute gems for the long term and join the winners.
Layer 2s Could Be the Darling of 2022
While there is still strong upside to be had for Layer 1 plays, many of them are in the top 15 in market capitalization and will grow as the overall crypto space continues a run but the same upside they have experienced in 2021 is just not possible from their current levels of adoption. A narrative that has yet to be tapped is the Layer 2 sector. Layer 2 and ZK Rollup technology seeks to solve the scaling issues that Ethereum has been notorious for over the past year. These technologies essentially enable transactions to be bunched together and processed off-chain to lower transaction fees considerably while improving the speed of said transactions.
The entire Layer 2 sector has seen fantastic growth this year as many others have but the interesting factor is that the three main contenders in this vertical do not have their own token as of yet. If you want exposure to the growth that is being seen here, you would have to invest in Loopring, dYDx, or Boba Network at the moment. While the upside has been considerable thus far for those projects, the real leaders to watch are Arbitrum (#1 in volume), Optimism, and ZK Sync. With all three of these innovators yet to give their communities exposure to their technology and increasing usage, keep an eye out for those launches as it could present a massive opportunity to capitalize on the next major adoption cycle.
Fundamentals Do Not Correlate With Strong Returns, Yet
At R.F. Capital, we would consider ourselves fundamentalists. When you pick fundamentals in the crypto space, you do not have to worry about whether or not your project will be around next cycle as they are crucial to the sector as a whole. While that is fine for the long term, it is apparent that the winners this time around have not necessarily been the most fundamentally sound. Rather, the winners have been the ones building rabid communities and delivering enough to keep this community happy.
A prime example of this is the comparison of Chainlink versus Solana.
Chainlink is quite possibly the best fundamental project in the space, brining real time data on chain to enable hybrid smart contract applications. Without Chainlink, all of the innovations that we have seen in DeFi, NFTs, and Gaming would be impossible. It is an essential piece of blockchain infrastructure and was the price action leader during the last bear market.
Solana is a competitive Layer 1 blockchain that boasts cheap and fast transactions for its users and has a host of major NFT projects and some DeFi applications as well. They have had trouble scaling and have actually had the entire chain completely shut down multiple times during this run. This problem stems from their node validators being too centralized and due to the extremely high cost to run a node on their network, it is hard for them to continue to scale with more validators. Based on this description, you would think that Chainlink has been outperforming Solana hand over fist but that is not the case.
In 2021, Chainlink has seen a price increase of roughly 45%. During the same period of time, Solana is up 5000%. Despite this price action, will Solana be around during the next bull run? People in 2017 through that Neo would be the project to unseat Ethereum but it has seen literally no price action this run to speak of. Chainlink on the other hand will continue to be a top project for decades to come as they have a monopoly on the oracle sector. As previously stated, fundamentals have not mattered during this run as much as projects that are part of narratives that the general crypto community have their eyes on.
The Bottom Line:
Overall, 2021 was a year of incredible adoption for the crypto space as a whole. We are currently at a multi-trillion dollar market cap for the entire sector which was something people could have only dreamed of in years past. As our level of adoption has taken off, so has innovation in the space. If you are trying to make some money in 2022 it appears that you have a plethora of ways to do it.
Pick a vertical you are interested in, find the leaders, research who is next up and never stay married to your picks as things can change overnight in this world. Thank you to everyone that has taken time to read my articles over the past year, hopefully you have learned something and gained some perspective!
Cheers to everyone that has been hard at work making contributions to the space, the future is always bright when you are on the side of innovation. Let’s keep crushing in 2022.
About RF Capital
RF Capital is an alternative investment firm with a special focus in the underlying infrastructure of the blockchain space. Other areas of specialization include real estate, debt/equity markets, and OTC trading.
