Bitcoin and Ethereum are now, decentralized apps are the future

As the world lurches through another cryptocurrency hype cycle, it’s wise—and refreshing—to take a break from the wildly swinging price charts of Bitcoin, Ethereum, and any number of other crypto coins, to consider how we got here and where this zany industry may be headed.

I recently caught up with Olaf Carlson-Wee, Coinbase’s first-ever hire and the founder of Polychain Capital, a crypto-focused investment fund, to glean his thoughts about the latest bull run as well as its future course. He’s been at this game for longer than just about anyone else, and he has a track record of spotting breakout trends, like “decentralized finance,” or DeFi, well before they hit it big.

In our conversation, Carlson-Wee pointed to decentralized web applications as one area he’s confident will burst into the mainstream. He believes decentralized versions of photo-sharing, micro-blogging, and chat apps, like Imgur, Twitter, and Signal, are on their way—and they’ll be owned, via crypto tokens, by the communities who use them, rather than big corporations.

Here’s a sample of our discussion, edited and condensed for concision and clarity. (If you want to read the whole Q&A, you may do so here.)

Fortune: You have a knack for being ahead of the curve. Where are you spending your time now?

Olaf Carlson-Wee: We’re in this phase that’s really exciting for me as an investor where we’re seeing the early stages of new types of apps that are uniquely possible with these new protocols and technical upgrades. [Carlson-Wee namedrops some projects and portfolio companies, including Filecoin, Polkadot, Dfinity, Solana, and various Ethereum “layer two” systems.] It looks and feels in a lot of ways similar to early Ethereum. It’s a little bit like how I was spending time in DeFi [“decentralized finance”] in 2016 and 2017, before the word DeFi ever existed.

What should people be paying attention to? Is there a particular area you think is going to pop, or burst out into the mainstream?

We have some ideas, but, like Ethereum in 2015 and 2016, it’s pretty blurry. It was not obvious back then that DeFi and NFT’s [non-fungible tokens] and crowdfunding would be big categories. It really wasn’t obvious. I say that as somebody that spent all my time tracking that area and trying to figure out what was going to be big. I think over the course of the next year, I will converge on confidence around a handful of use cases, but right now it’s very much in a rapid prototyping and experimental phase.

If you had to place your bet on something right now, what would you lay it on?

DAOs [“decentralized autonomous organizations”] owning web applications is something we’re very excited about. Today, DAO ownership units are, to me, the second major asset class that has come out of this whole area. The first asset class was what we’d call a cryptocurrency—stuff like Bitcoin, like Ethereum. DAO ownership units are tokens like Compound, like Liquity, where there is an underlying financial product, like a lending system or a trading system. Then there’s the DAO that sort of owns and operates that underlying financial product. DAO tokens are very different from cryptocurrencies. They sort of represent an ownership stake in that underlying financial product, whereas Bitcoin is more of like this gold-like, more speculative-style asset.

DAOs are big in DeFi right now. What’s their ultimate potential?

That DAO model can be expanded way beyond financial products. As more expressive platforms emerge, we’re going to see more web-like applications that look and feel like a website or a mobile app and less like a financial protocol. But these apps are going to be owned and operated by DAOs much in the way that these DeFi and financial protocols are. That’s probably my number one thing that that I do have confidence around.

One example of this might be like a Facebook without Facebook, a sort of decentralized social network, right?

Yeah, but I think it might start even more basic, like a decentralized Imgur, just a photo-hosting site or something. If you really look at everything that Facebook does, it’s a very complicated application. I think a Twitter or a Signal, a messaging app, might be a better example of a narrow kind of simple application that could be an early target for a decentralized system to operate and for a DAO to own. I think over time you move to more expressive, complex web applications, like say a Facebook or an Uber. But those are not likely to be the early use cases here.

As someone who has been investing in crypto for so long, how much of your net worth is in crypto today?

Man, it’s somewhere between 95%-plus.

Are you planning to buy, sell, or HODL?

I’ve always been a holder. When you’ve been through as many cycles as I have—I’ve been through the 2011 cycle, the 2013 cycle, the 2017 cycle, and now we’re in the fourth big adoption cycle—I would say, it really starts to feel inevitable. This is the fastest growth and highest compounding investment area and industry in the world, and it has been for 10 years. I have higher confidence than ever. I think a lot of the other people that have been in this for a long time feel similarly.

That’s just a taste of our conversation. Read the whole Q&A here.

Robert H. Hackett

@rhhackett

robert.hackett@fortune.com

In the last Ledger poll, we asked you to weigh in about the future of NFTs, or non-fungible tokens. Our audience was pretty evenly divided into thirds, with the bulls having a slight edge.

Participate in our next poll below.

DECENTRALIZED NEWS

Credits 🚀

Bridgewater billionaire Ray Dalio prefers bitcoin to bonds ... Carl Icahn is into alt-coins ... People went billion-dollar bitcoin bargain hunting ... Influencer Elon Musk gave bitcoin a boost with "green" mining talk ... "Green" crypto Chia looks to go public this year ... Goldman Sachs says Coinbase stock is a "buy" ... Ethereum upgrade is poised to give it an environmental edge, says Vitalik Buterin ... U.S. Senate launches "financial innovation caucus" ... The Fed is paying close attention to China's digital yuan ... Brazil announces digital currency guidelines ... Apple seeks crypto talent ... Robinhood lands top spot on CNBC's "disrupter 50 list" ... Klarna is close to a $40 billion valuation ... PayPal is adding crypto transfers ... Inside Stripe's "go deep, move fast" culture ... Fintech Adyen gets Fed banking approval ... Square to add checking and savings accounts ... Affirm spinout raises $60 million ... Nvidia posts record earnings thanks to crypto mining ... $AMC is rallying ... a16z crypto fund in talks to raise $2 billion ... Blockchain "bomb-sniffing" startup raises $20 million ... Wired: "We need to create an interspecies money to save the planet"

Debits 🐻

2021 shows echoes of past crypto crashes ... Coal mining concerns spurred China's crypto crackdown ... Greenpeace stops accepting bitcoin ... Tezos investor sues IRS over tax rules ... Blockchain scaling is hard, explains Vitalik Buterin ... Amazon sued over anticompetitive pricing ... Germany scrutinizes Google over antitrust concerns ... Russian dark web market transacted $1.4 billion last year ... Iran bans crypto mining ... St. Louis Fed head says cryptocurrencies are "worthless" ... Insure-tech bungles A.I. Twitter thread ... The ransomware negotiation cottage industry ... There's now a FOMO ETF ... Avocados as a store of value? "@espn I don't need you. I got @ethereum_max" ... Paul Krugman still doesn't get the Internet. 

FOMO NO MO

Coinbase Global Inc., which has made billions running cryptocurrency markets, is facing competition from a new breed of upstarts that look less like the New York Stock Exchange and more like Napster, the defunct music-sharing service....

Unlike conventional crypto exchanges, DEXes don’t require users to hand their digital tokens to the exchange to be able to trade. That appeals to traders worried about losing their holdings to hackers who have a long history of targeting crypto exchanges for theft.

There is no central authority on a decentralized exchange to decide who is allowed to trade, or what tokens can be traded. Uniswap can be used to trade more than 30,000 unique tokens.

“It’s like eBay. If you want to sell something, you can list it,” said Boris Wertz, founding partner of Version One Ventures, a venture-capital firm that invested in Uniswap last year alongside Andreessen Horowitz, one of Silicon Valley’s most prominent VC firms.

Today's featured selection was a tough call. It was either this incredibly insightful Wall Street Journal profile of Uniswap, the most popular decentralized cryptocurrency exchange (DEX), sampled above, or this other Journal profile of Sarah Mehoyas, the irreverent, penny stock-sketching crypto artist behind "Bitchcoin." Since DEXs seem still to be hovering on the margins of the public consciousness, whereas NFTs have broken into the mainstream, we opted for the former.

DEXes are—and Uniswap, in particular, is—growing incredibly fast, as the Journal notes, and that means they "could be on a collision course with regulators" as it dawns on them how they can be abused for money laundering. "It is also unclear how the government could require any entity to act as a gatekeeper and identify people using the protocol," the piece astutely observes.

BUBBLE-O-METER

-97%

That's the magnitude of the drop-off in the number of comments on Reddit's r/WallStreetBets forum since late-January when, during the Gamestop "short squeeze" mania, the day-trader den was netting more than 430,000 posts a day, per data from the research group Quiver Quantitative. How has the conversation shifted? From May 1 to May 21, posts on r/Cryptocurrency rose 82% to 36,000 daily, while comments on r/WallStreetbets dropped 42%, down to 13,000 on May 21, reports the Financial Times, covering Quiver's analysis.

THE LEDGER'S LATEST

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Why China cracked down on crypto by Isabella Weber

We polled CFOs to find out what they really think about going back to the office by Sheryl Estrada

Epic Games vs. Apple: Here’s the trial’s likeliest outcome by Robert Hackett

China’s pledge to crack down on mining may actually worsen Bitcoin’s environmental profile by Shawn Tully

New Florida law would punish social networks that remove ‘conservative ideas’ by Brendan Farrington

Why Coinbase stock could rise another 36%, according to Goldman Sachs by Anne Sraders

Will Bidenomics transform America’s economy? Not so fast by Philipp Carlsson-Szlezak and Paul Swartz

This breakthrough could make Ethereum more environmentally friendly than Bitcoin by Matthew Leising

Startup Tenstorrent aims to build A.I. chips that beat Nvidia’s best by Aaron Pressman

Are SPACs the second coming of the IPO—or a flash in the pan? by Daniele D'Alvia

(Some of these stories require a subscription to access. Thank you for supporting our journalism.)

MEMES AND MUMBLES

This isn't supposed to be the knock Elon Musk section, but a lot of the great tweets lately seem to be poking fun at the Tesla CEO's expense. Barry Silbert, a longtime Bitcoin believer and founder of Digital Currency Group, whose Coindesk Consensus conference took place this week, teased the centibillionaire spaceman about bigfooting into his industry. If we're voting on names, I propose Electric Vehicle Orchestra.

Interested in joining Fortune's The Ledger as a writer? We could use another pair of (diamond) hands. Contact robert.hackett@fortune.com.