What is the crypto industry and what projects should we look up to? 🌟

The crypto industry (or “digital asset industry”, as traditional finance people like to call it), is often used to describe an amorphous mass of ventures more or less related to blockchain.

This was probably enough several years ago, but now that the crypto industry is taking a concrete shape, it is time to define the main sectors that compose it and analyze their own threats and opportunities.

The sector analysis is crucial not only for composing a well-balanced investment portfolio, but also for trying to spot the next big thing.

We have identified 5 big directions of the crypto industry development and their most promising projects. In this newsletter, we’ll take a high-level look the crypto infrastructure, finance, creator economy, gaming, and community.

Crypto infrastructure ⚙️

The technical base on which the crypto world is built, crypto infrastructure is crucial for the space, and is constantly evolving. These are its main activities and our take on the most promising projects within each of them:

➡️ Blockchains. The best – for us – are still Bitcoin and Ethereum, but the newcomers like Near or Aptos are also interesting;

➡️ Mining (for PoW blockchains). Eco-friendly miners like the American Bitfarms ($BITF) and Stronghold ($SDIG), the French BBGS…

➡️ Layer-2 scalability solutions. Three L2s are currently disputing the leadership: Polygon ($MATIC), Arbitrum ($ARB), and Optimism, with the promising zkSyncto be released soon;

➡️ Interoperability protocols that allow cryptoassets to travel across blockchains. Polkadot ($DOT) and Cosmos ($ATOM) are two biggest ones;

➡️ Oracles that bring off-chain data on-chain. Chainlink ($LINK) is an undisputed leader;

➡️ Decentralized storage and computing. Filecoin ($FIL), Arweave ($AR),

➡️ Decentralized identity (DID). The two most promising directions are Jack Dorsey’s Web5, and SoulBound Tokens formulated by Vitalik Buterin. SBTs are now developed by projects like Proof of Soul and Otterspace, but it is still very early.

Our take on the most promising development vectors in crypto infrastructure :

👉 The current big thing in crypto infrastructure are layer-2s using zk-rollups tech (more on it here).

👉👉 The next big thing in crypto infrastructure would likely be DID protocols, which could become the glue that binds the whole crypto world together, creating a fluid user experience across DApps.

Finance 💰

We have dedicated one of our previous newsletters to the three categories of crypto finance: TradFi, CeFi, and DeFi (you can check it here). TradFi and CeFi are the ones that are most exposed to regulatory risk, and their potential largely depends on their ability to defend themselves on legal ground.

Across the 3 categories, crypto finance evolves around activities like:

➡️ Payment services and wallets. Strike and Wallet of Satoshi leveraging Bitcoin’s Lightning Network, Metamask as the leader among Ethereum wallets;

➡️ Exchanges. The only Nasdaq-listed crypto exchange Coinbase ($COIN) is now struggling with the SEC, as decentralized exchanges like Uniswap ($UNI) or Curve ($CRV) thrive;

➡️ Lending-borrowing. Centralized Nexo ($NEXO), which managed to keep its liquidity, as its competitor Celsius was drowning, decentralizedAave ($AAVE);

➡️ Asset management. While centralized Grayscaleis suing the SEC for the possibility to offer its funds as ETF, decentralized Enzyme ($MLN) enables anyone to become an active fund manager, and yield protocols like Yearn ($YFI) offer a passive revenue;

➡️ Insurance. Nexus Mutual ($NXM) is the biggest player, with newcomers like Neptune Mutual ($NPM) are paving their way;

➡️ Tokenization, or creating an on-chain version of off-chain assets. Specialist companies like Securitize and crypto-friendly banks like Sygnum offer tokenization services, while DeFi protocols like Synthetix ($SNX) create token versions of popular stocks.

Our take on the most promising development vectors in crypto finance :

👉 DeFi insurance, a much-needed but dramatically under-developed sector,

👉👉 Tokenization, an opportunity that Citi in its recent report estimated at $4-5 trillion for tokenized securities and $1 trillion for trade finance.

Web3 gaming & metaverse 🎮

Crypto tools offer a disintermediated ownership of assets, which means that crypto games can easily implement the play-to-earn model, and decentralized metaverses offer true ownership of their land.

Most of the world’s 3 billion gamers are still suspicious about crypto, as they care more about enjoying the games than earning from them. This means that web3 gaming must become more entertaining.

The metaverse, so inspiring only a year ago, is now all but forgotten, mostly because the existing realizations are rather disappointing. This year’s Metaverse Fashion Week is a good example of that (here’s our recap).

➡️ Web3 games. With over 570k monthly unique active wallets, Alien Worlds is the most popular web3 game, while Axie Infinity generates the most trade volume ($750 million monthly). Among the most awaited games are Illuvium and Aurory (both in beta);

➡️ Metaverse. The (more or less) realistic Decentraland ($MANA) and the boxy Sandbox ($SAND) are two biggest decentralized metaverses now, but both rather empty.The upcoming releases of Yuga Labs’ Otherside, and Ripple x Fluf World’s The Open Metaverse also promise to be interesting. Also, MapleStory Universe, a PC game with 180 million users, can soon be powered by Polygon, with which MapleStory developer Nexon has recently signed a partnership;

➡️ Web3 fashion. The most famous crypto-native fashion companies are The Fabricantand RTFKT, the latter acquired by Nike.

Our take on the most promising development vectors in web3 gaming :

👉 Play-to-earn games that focus on the entertaining part,

👉👉 Metaverse that will grow to actually attract people.

Creator economy 🧑‍🎤

NFTs can unlock new revenue streams for creators of all kinds: NFT-gated content, NFT tickets, disintermediated streaming…  Blockchain can also serve to create a decentralized version of social media, where users would truly own their data. Most notable examples of crypto use in creator economy include:

➡️ Music. Streaming platform Audius ($AUDIO), and royalty-sharing Royal are the most developped projects in the space;

➡️ Animation. Stoner Cats was financed by issuing NFTs, which now serve to unlock the content, and White Rabbit allows its NFT holders to decide what happens in the next episodes;

➡️ Education. Bankless ($BANK) is one of the most reputable crypto media, which functions as a DAO;

➡️ Social media. Powered by Aave, Lens protocol ($LPP), which enables users’ contacts and data portability, is gaining speed.

Our take on the most promising development vectors in the crypto creator economy:

👉 Music, probably the most evolved sector that is already bringing real revenue to artists,

👉 👉 Social media, a sector that can scale massively.

Community & cooperation 🧑‍🤝‍🧑

Blockchain tools like NFTs and DAOs can help organize, incentivize, and remunerate people in a variety of ways. This quality is used by:

➡️ Web3 projects & NFT collectibles. BAYC and Azuki are some of the most notorious examples;

➡️ Consumer brands using NFTs to engage with their clients. Adidas, Gucci, Porsche… the list is long,

➡️ DAOs, or decentralized autonomous organizations. DAOs are often used as governance bodies for DeFi protocols, like MakerDAO.

➡️ Charities. Big Green DAOis motivating Americans to grow their food, and the Ukrainian NFT Museum of War helps Ukraine fight off the russian invasion by raising funds through NFTs…

Our take on the most promising development vectors in the community-building direction:

👉 NFTs for consumer brands, because the potential client base counts billions of people,

👉👉 DAOs as a new way of organizing work.

We have organized these 5 sectors by utility, but they represent only the biggest current conglomerates, missing some other blockchain functions, like, for example, certification. Over time, we might have to add more categories to account for the new use cases, and then some more… until crypto tools are ubiquitous and commonly used in most of our daily lives ✨

This is not for tomorrow, but the way things are going, it could happen sooner than we’d expect.

That’s all for today, see you next week! 🫡