I drew inspiration to verbalise my interpretation of crypto’s demoralisation & structural weakness through Thiccy’s piece “dealing with loss” & Dougie’s piece “crypto is dead”.

“Losing money is what kills you. It’s not the actual loss. It’s the fact it messes up your psychology. You lose the bullets in your gun. Then the elephant walks by when your gun’s not loaded. In this game, you want to be there when the great trades come along.”
- Brett N. Steenbarger

It is an undeniable truth that most reap what they truly seek from markets.

Capitulation remains a habitual phenomenon. It serves as part of a natural cleanse we experience each cycle, as we begin to contemplate what follows.

Beginning to question crypto’s positioning as a category in its lifecycle -attempting to uncover the remaining foundations we have to show after years of inflated promises, manic belief, emotional rollercoasters & unrealised expectations.

Does crypto possess the underlying qualities to confidently belong on a pedestal alongside established & mature markets? Or are we eternally doomed to remain a capital black hole intrinsically driven by speculative value & gambling seeking an escape hatch from financial mediocrity?

I am well aware of my excessive cynicism, yet I only allude to our collective past failures in an attempt to articulate my vision for crypto’s continuity.

Participants are quick to draw analogies with the Dotcom crash, refer to the Gartner cycle, in an attempt to pinpoint our shortcomings & express potential optimism for the future.

Some reluctantly surrender to the urge of pointing fingers, looking for scapegoats. Falling to the extent of calling out accounts rocking NFTs on their Twitter (while conveniently turning a blind eye to NFTs in their portfolio) or disregarding their personal venture bags in L1s altogether when articulating their L1 doom thesis (a few characters immediately jump to mind, love Santiago, to be clear).

Everyone is entitled to an opinion, yet the extent of distress visible on the timeline, as well as in the orderbooks feel progressively worse, especially in light of the continued outperformance of other risk assets, while alt land continues looking ever gloomier.

The levels of coping are truly a miserable sight to witness.

• “I miss 2021”

• “Crypto is dead”

• “I wasted my last 8 years in crypto”

As dismissive & unempathetic as I may come off, operating under this frame is fundamentally flawed. It will be more about revanche than echoes - it always is.

The early discoverers of the land of magical internet coins have succumbed to the curse of being early. The right place at the right time enables a perfect setup & I sincerely hope those participants fully capitalised on that blessing, as the current iteration is significantly more nuanced & the game is now on hard mode.

“Skill issues” exist & we all cave in to over-index on past success, often failing to objectively reflect on the holistic picture the board presents.

The collapse of FTX presents a compelling case to revisit. The crash & burn of the exchange had a salutary effect on the market - a catharsis that allowed us to look forward & leave many of the foul actors, along with the sins of the last cycle, behind us. While it may have felt like we were roadkill, it objectively presented a unique prospect to seek asymmetry & figure out how the next fortune reversal might shape up.

Fast forward to today: the feedback loops of the market have accelerated exponentially, & the industry as a whole has shown signs of attempting to escape the status quo. This should be a moment of salvation - to leave the tricks & games of the past behind, rendering them largely obsolete.

I loved the parallel Scimitar Capital made in his piece:

“In Greek mythology, Sisyphus is condemned to spend eternity pushing a boulder up a hill, only to watch it roll back down the moment he reaches the top. There is something uniquely cruel about this punishment, something that cuts directly to the core of the human experience that drives many to suicide.”

Trading shares this quality. Unlike other professions, no checkpoints exist. A single faulty or misguided decision can doom a flourishing career built on hundreds of wins.

The single adjustment I would make is applying this parallel to both drawdowns & periods of stellar success.

We tend to underemphasise when you win big. When do you really step away? Do you at all? As the goal post progressively moves further away, accolades are hit that were once meant to be the end line.

A symbiosis of greed & addiction. Cognitive biases, amplified by volatility, driven by the addictive nature of information & price movement. Volatility - so deeply ossified within our space. These biases stem from Prospect Theory, gluing us to the table when, in reality, it is often best to step away.

But if you are reading this, the journey likely continues. Markets like these are the greatest testament to & measure of one’s true love for the game.

In my eyes, the most meaningful question to ask yourself is: Do you still have Edge?

It is clear we are in a structural bear market for alts. Even now, with valuations down exponentially, I am unable to shake the thought that we remain detached from reality.

We had ETFs, DATs, so what is the real reason to believe now?

There is no marginal buyer for the majority of coins, & the industry has transitioned to become more PvP than ever before.

I find it highly impractical to position purely on hope - that the money printer will drive miracles or that mean reversion will save us. These forces remain outside our control.

The market remains horrendously inefficient, & fundamentals remain largely questionable across crypto.

What is worth backing? The continuous existentialism persists.

Surely, as an industry, we are more than DeFi, stablecoins, perp DEXs, & potentially prediction markets?

The never-ending debates surrounding infrastructure vs app layer. The “revenue meta” is an effort to distinguish vaporware from substance, holding protocols to the standard of Hyperliquid.

Inevitably, ideas require funding. Jeff set an example - fully backing his own ideas, bootstrapping in the early days of the protocol - something that remains largely unaffordable to replicate.

I know contrasting views have been expressed on the topic of venture allocators, & I remain far too biased, yet venture backing is an integral part of the emergence of genuinely novel ideas & teams.

“People don’t know what they want until you show it to them”

⁃ Steve Jobs

There is a kernel of truth embedded in that quote that feels especially uncomfortable for crypto today. We have spent years oscillating between dogma & reactionary verbiage - mistaking loud narratives for progress & even consensus for conviction.

Too often, we ask users what they want, only to mirror back incremental abstractions of what already exists elsewhere - cheaper, faster, more leveraged versions of yesterday’s ideas. That has never been how new categories are born.

If crypto is to stand on parity with other asset classes, it will not be by winning marginal efficiency contests or endlessly recycling the same constellation of beliefs around infrastructure, incentives, & reflexive growth.

It will require novel primitives, new mental models, & a willingness to step beyond what already “works”. Not everything that matters can be product tested, revenue-mapped, or justified in a simple deck. Some ideas only reveal their inevitability in hindsight - & that takes time.

This is where the industry must grow up. Less reverence for past cycles, less nostalgia for 2021, & more intellectual truth about what is structurally broken - & what remains possible to rebuild.

The path forward is unlikely to look familiar, & it certainly won’t be obvious at the moment it matters most.

Yet, despite the noise, despite the unprecedented urge to capitulate, I remain hopeful. Markets have a way of humbling us right before they bless us.

Those who have seen it before understand this truth: participants will be crucified every time. Some will survive. Some will return.

If history rhymes at all, then perhaps what lies ahead is not an echo of what we lost, but a final, improbable last dance - reserved for those who stayed mentally intact, remained solvent, upheld the rigour as the game evolved, & kept their edge intact.

In the words of my friend Dougie,
Long Live Crypto.

A trader I hold in high regard recommended watching “Jiro Dreams of Sushi”. They drew an analogy between the granularity & continues refinement of the process of the Japanese chef Jiro & that of the highest calibre of trader.

Initially, I took it to be somewhat of a stretch (to say the least). However, as I got on a 14h flight, I thought, given that I didn't have many better things to do at that moment, I’ll give the documentary a watch & see if I can draw any major parallels between the 2 crafts.

Jiro is a chef in Japan. He is 100 years old & is the owner of Sukiyabashi Jiro. Jiro is unique; he is obsessive, truly harsh on himself & stubborn in his ways.

A good trader, similar to that of Jiro, hones in on his craft. This obsession for simplicity in the process with defined steps is the magic of a 3 Michelin star chef & a trader carrying many wins & accolades under his belt, from my perspective, is no different.

In the documentary, it is outlined that the attributes of a great chef are:

1. Take work very seriously & perform at the highest level

2. Aspire to improve one’s skills

3. Maintain cleanness

4. Impatient character (they are often better leaders than collaborators)

5. Unprecedented passion for their craft

All of those apply to trading.

In the story of Jiro, his edge lies in the fact that he finds it essential to double-click on every single detail.

In the restaurant, they would age a small tuna for about 3 days & a larger tuna for up to 10 days. Everything is being done ahead of time, similar to the research & work it takes before any trade ever takes place.

What others might not notice, Jiro will spot simply from having done this for such an extensive period of time. Once again, if we draw a parallel, in a trade, if you are not meticulous in your ways, you will be more prone to losses & succumb to growing sloppy over time - discipline is essential.

His routine is simple, yet timeless. He has taken the same steps for > 50 years. The only occasions during which he takes time off & has days when he is away from the restaurant are national holidays & funerals.

“The way of the shokunin is to repeat the same thing every day”

This is rare & I find it to be beautiful. In my eyes, this is exactly what it takes to stand out from the herd as a trader.

In France, the 1st Michelin guide was first published in 1900.

Michelin inspectors look for:

1. Quality

2. Originality

3. Consistency

Again, I know I am beginning to sound like a broken record here, but all of those in my eyes qualify as traits of a good trader.

For reference, a perfect 3-star Michelin rating means that it is worth making a trip to that country just to eat at that restaurant.

You can probably understand that when Jiro’s restaurant received 3 Michelin stars in 2008, most were rather astonished.

Think about it.

There are only 10 seats in his restaurant, with the restroom being outside of the premises. Average duration of a meal is ~15/25min, with no appetisers, just sushi.

We can definitively say that there is no other 3-star rated restaurants anything this in the world & it would stay be an understatement.

“No matter how many times you eat at Jiro’s, the sushi there is incredible” - Michelin

Right now, it might just seem like everyone is obsessed with Jiro, almost becoming deluded.

Surely his food cannot always be a 10/10 every time? He is inherently dependent on external factors; what if they let him down? i.e bad tuna or shrimp?

Before WW2, they used to cook fatty tuna (o-toro), the taste of the fatty tuna is simple & predictable, although the flavours of the leaner cuts (akami) are significantly more subtle & sophisticated.

Each tuna has its own unique taste, yet it’s the leaner cut that carries the essence of the flavour.

“We can’t buy just any tuna” - Jiro

& a good trader doesn’t buy just any coin ;)

Now let’s dive into the supply of tuna.

The tuna vendor is a priori the tuna expert; the same applies to the shrimp vendor, who is a specialist in his field.

Each one of the vendors is a specialist in their niche & have unique edge that Jiro & his crew do not have. It’s a de facto that specialists, in this case, the vendors, are significantly more knowledgeable.

If we are honest, they are the ones that can disrupt the flow for Jiro & his culinary magic. To avoid such occurrences, the team made a conscious decision to build a relationship of trust with them.

Trust is everything. In markets, those same trust assumptions apply.

“I would make sushi in my dreams. I would jump out of bed at night with ideas” - Jiro

There is always a yearning to achieve more with Jiro. I find it honestly fascinating, the level of obsession & dedication to the craftsmanship.

1. Always try to look ahead & above yourself

2. Always try to improve yourself

3. Always strive to elevate your craft

Those are the lessons Jiro taught his sons.

There is even an undeniable level of joy when a master calls the apprentice a “shokunin”; it is what they strive for over many years.

The way of the shokunin is powerful in its own right, & I believe we have a lot to learn from it & carry over many of the teachings to our own pursuits.

“Perfection is achieved not when there is nothing more to add, but when there is nothing left to take away.”

Lately, I’ve found myself overly cautious. Markets like this have a unique way of turning even the highest-conviction bull into a cynic.

Inherently, most participants joined with an expectation of asymmetry, the premise of outsized returns, yet somehow instead found themselves stuck in recursive cycles of volatility & disappointment to a larger extent.

More & more, I hear the refrain that the market is ‘boring’. This really has a way of throwing me off. Is it truly boring? Or has it simply been unrewarding for your bags & we stopped having everything going parabolic & doing a 10-20x? (We did have Aster, Zcash, Plasma & others tokens do silly multiples like this, just fyi).

It’s rather ironic that the more time I spend around markets, the more I view them through the same lens as poker.

The top percentile hones in on optimising the process itself vs fetishising the result & outcomes like many of us succumb to in the space. In markets, this becomes exponentially harder; we largely operate with incomplete information, blurred & often delayed feedback loops & path-dependent outcomes.

It’s with a heavy heart that I say the addiction to volatility has ossified into our culture, in my opinion.

We are in a place where we conflate action with progress, having exposure to developed conviction, randomness & honestly blatant luck with skill.

Inevitably misaligning timeframes.

I.e are you a trader? A bag holder? Or just hoping for the best & slightly high off copium?

The human mind is genuinely rather remarkable in its capacity to rationalise & stomach things (personally guilty of outsized copium) & honestly turns into the most efficient liquidity sink of all.

I think operating under the assumption that most reap what they truly seek from markets is not a bad frame of thought, per se.

Some seek validation or adrenaline or a sense of belonging & I think for all of us universally, if you are playing the game, you seek capital, if we are being honest here.

Capital preservation, yet alone wealth creation, even a semblance of it, demands restraint, a kind of intellectual sobriety.

In the end, making money as an idea is awesome. Objectively, who wouldn’t want to? Although in practise is in most cases it’s rather a boring process that requires the highest level of pedigree & as with everything worthwhile, time.

In my eyes, it is largely dependent on one’s discipline, patience & overall technical acumen.

Same as in poker, where the game will reward those who can detach from trepidation & recency bias, those who are here for the luv of the game over the outcome & will continue no matter the weather, the time of day nor the hand they are dealt.

I’ve had this line stuck in my head & I think it’s only appropriate to close out this spree of thought with it.

“The two hardest tests on the spiritual road are the patience to wait for the right moment & the courage not to be disappointed with what we encounter.”

We live in an attention economy, where often vitality trumps substance and entertainment masquerades as purpose. Yet an entertainment phenomenon such as Sperm Racing still poses as the new ridiculous idea people can not help but share with their friends.

I would like to articulate that this is not an attempt to over-intellectualise gamblers putting capital behind a new format of betting but rather diving into the core of what Sperm Racing is looking to achieve, the problematic side of male fertility at the moment and the result of 16 and 17 year old founders getting together to disrupt a vertical with one of the most unique, crazy and creative ways. (Shout out @Nick_Smoll)

Beneath the meme-worthy absurdity, there is a crisis unfolding. Male fertility rates continue to tank, and it does not seem to be an area getting much light shed on it. According to Human Reproduction Update, global sperm counts have dropped by 59% between 1973 and 2011. More recent studies suggest the rate of decline has accelerated to >2.6% per year since 2000. At this trajectory, the average man could reach sperm counts below the threshold for fertility by 2045. This is a societal problem unfolding.

The causes are manifold, from endocrine-disrupting chemicals, processed food, sedentary lifestyles, chronic stress, nicotine use (guilty), rising obesity rates, to excessive screen time. Male testosterone levels have declined in lockstep, dropping nearly 1% per year for the last four decades. A study from the Journal of Clinical Endocrinology and Metabolism showed that a 60-year-old man in 2004 had testosterone levels 17% lower than a 60-year-old in 1987. Rather crazy to think about.

As a result, it is no surprise to see the rise of TRT clinics once a medical solution for hypogonadism, are now repackaged as a lifestyle upgrade. Joe Rogan, Dana White, Jeff Bezos, and many more have actively spoken out about their TRT usage. The narrative has shifted from pathology to optimisation. To think that society turned default into an intervention. In a way that “synthetic” testosterone is the answer not to disease, instead to normal decline.

Meanwhile, IVF is no longer niche; it has turned pretty mainstream. The global IVF market is expected to surpass $36b by 2028 (what a great business), driven by delayed childbearing, declining fertility, and more same-sex couples and single parents opting for assisted reproduction. In Denmark, >10% of babies are born through IVF. In Israel, it is 1/9. The average IVF cycle costs over $15k in the US, and success rates still hover below 30% per attempt. Fertility is rapidly expanding to become a luxury good, subject to economic inequality.

And with that, the ghost of eugenics looms. The more we optimise, select, enhance - whether through embryo screening or hormone engineering, the closer we edge toward a society that treats reproduction not as a miracle, but a market. Sperm, like talent or intelligence, becomes selectable. Customisable and maybe even ranked. One of the most interesting companies I looked at recently does exactly that.

With all this said, enter Sperm Racing.

You might think that it sounds like a joke, but lowkey it is. But it is also not. The structure is real, microfluidic devices mimicking the female reproductive tract, chemical signals guiding sperm cells to a finish line, and optical sensors verifying the winner. It’s part spectacle, part science experiment. A blend of biology and sports.

And like any good spectacle, it mirrors sport. Think back to April 9, 2005. Forrest Griffin vs. Stephan Bonnar. UFC 1 Finale. That fight did not just entertain, it highly legitimised the UFC. It turned a niche, borderline illegal bloodsport into a multi-billion-dollar global league. Not through coordination or planning, but rather through virality.

Sperm Racing is made from the same cloth. It is wild, unpredictable, visceral to say the least. Which also makes it perfect grounds for betting.

Prediction markets are built on asymmetric information. But with sperm, performance is opaque. There is no footage of a sperm camp, no insights into last week’s motility drills. You can know the biometrics age, fitness, testosterone levels - but it does not necessarily translate cleanly into odds. In the case of Noah Boat’s and Jimmy Zhang’s race, Jimmy is 2 years older, Noah is in arguably better physical shape, yet Jimmy won. This uncertainty creates real markets. You are not betting on skill, you are betting on biology, and one can argue on chaos. Not your typical casino, it is phenotypic probability meets internet and meme culture.

In a way, we can argue that is why it works. Virality is a key step, as it gets the foot through the door. Although more importantly, data comes in next. Each race generates metadata on sperm motility, morphology, and health - creating the first decentralised fertility dataset ever built in public. And over time, patterns emerge. An immense opportunity that, in a way, is being overlooked.

Age vs. speed. Diet vs. quality. Environment vs. morphology. And more.

Not something that might stand out initially, but it’s a real opportunity. I guess you could say what started as entertainment becomes infrastructure. What begins as a race ends as a research initiative. Sperm Racing is crazy, but that is kind of the point. Because fertility is not just science. It is culture. And sometimes, you have to laugh before you learn - being in crypto, many of us know that too well.

By no means is it a whitepaper on reproductive biology. It is exactly what it sounds like: sperm races. But underneath the wildness is a system that has been engineered with precision.

The race begins with a microfluidic device, a microscopic racetrack that simulates the female reproductive tract. Two sperm samples are loaded into identical channels. At the far end of each track is a chemical attractant - from my understanding, it is typically progesterone, the hormone naturally released by an egg to guide sperm, acting as the finish line beacon.

To ensure a fair start, both sperm samples are held in place behind a barrier. At go-time, the barriers are dropped simultaneously. The sperm, now free to move, will swim towards the finish line guided by the chemical gradients and fluid dynamics of the racetrack. Everything, from temperature to fluid viscosity, is controlled to mimic a natural fertility environment.

All tracked in real-time. High-resolution microscopes paired with optical sensors and imaging software monitor movement, speed, and pathing. The race is broadcast with live commentary, stats overlays, and even slow-motion replays.

Once a winner is determined, the sperm that crosses the finish line first, the results are logged. The sperm samples are either ethically disposed of or, if previously agreed upon, donated to a sperm bank. It is equal parts science fair, performance art, and new-age fertility analytics.

In a world defined by spectacle, maybe that is exactly what we need. Definitely looking forward to the next race and the show the guys have set for us.

Fertility is in a bad place. I’m hoping that Sperm Racing can be a spark in people’s minds to begin actioning the problem at hand.

If you are interested in the subject area and are keen to explore the full potential of the human body, I also recommend checking out @enhanced_games.

Crypto lives and dies by its power laws. The vast majority of activity, whether it’s trading volume, TVL, or profits, often comes from a small, concentrated and highly active group of users. Lose those users, and you lose the flywheel. Growth stagnates, liquidity dries up, and the chain dies. The stakes are high, especially in a space full of new chains coming out regularly and mindshare fading faster than a Twitter trend. There isn't a fully fleshed-out playbook for success. The only way forward is to build a fundamentally novel rather than an incremental improvement. It might crash and burn, but it could form the new standard if executed correctly.

This is precisely what Berachain is looking to achieve - an EVM-compatible L1 built on the Cosmos SDK. By introducing Proof of Liquidity [PoL], Berachain has put a unique twist on blockchain security, turning liquidity from a passive resource into the active core of its ecosystem. It’s a “playground for infinite economic games”, in which capital doesn’t just sit idle; it powers every aspect of the network, from security to governance to application growth. It is an ambitious vision, but if built out correctly, it could position itself as the product many users want.

The story of how Berachain came around traces back to 2021 as ‘Smoking Bears’, an NFT project that leaned into meme culture and irreverent vibes, which is pretty crazy to think back to. But behind the scenes, the team wasn’t content with staying in the cultural corner of crypto. They took a ‘black pill’ [Smokey’s words, not mine] with their thesis that infrastructure had become mainly a meme, a static layer disconnected from the real value drivers: applications and liquidity.

Smokey, the founder of Berachain, puts it best, “Proof of Liquidity is the first primitive aligning incentives between liquidity and security at the protocol level. Berachain has a unique opportunity to become the protocol with the greatest total accessible liquidity of any chain in existence.”

In most Proof of Stake systems, rewards flow top-down, i.e. validators stake tokens, secure the network and get paid for doing so. Meanwhile, liquidity sits idle, locked up and gathering dust. Berachain takes a different path and puts liquidity at the centre of its network design. To earn governance tokens and emissions rewards, Bera Governance Token [BGT], users must actively provide liquidity to the network’s protocols. This liquidity is directed through gauges, dynamic reward mechanisms managed by validators, who decide where rewards flow. Applications can petition to become part of this reward structure, effectively incentivising validators to direct emissions toward their protocols.

This system creates a unique interplay. Validators become economic curators, allocating rewards to applications and liquidity pools that contribute the most value to the network. Applications, in turn, are incentivised to bootstrap their liquidity by partnering with validators rather than relying on high-dilution liquidity mining programs. A protocol can, for example, allocate its native tokens to a validator, who then directs BGT emissions to the protocol’s liquidity pools. Instead of burning through its token supply, the protocol gains liquidity while users and validators earn rewards, potentially enabling a win-win-win dynamic that reshapes how applications can grow.

The implications on paper are massive. You can look at Berachain as a liquidity machine. Validators distribute rewards across DEXs, perpetual vaults, and stables lending platforms, all baked into the chain at launch. Over time, as more developers deploy on its complete EVM environment, the range of applications will only expand. The thinking behind this is to avoid becoming another static chain but rather create a system where incentives flow continuously, fuelling growth at every layer.

With all of this said, liquidity incentives are not new. Blockchains have been handing out native token rewards to bootstrap protocols for years. However, on most chains, these processes are highly manual, often centralised, and heavily reliant on BD efforts, making deals behind closed doors. On Berachain, incentive mechanisms are programmatic and permissionless, allowing any application to tap into native rewards without needing pre-approval or unique partnerships. This creates an environment where active applications can bootstrap liquidity directly from the network without diluting their token supply or relying on opaque allocation processes.

The validator-centric model raises essential questions about incentives and activity. Validators in Berachain aren’t just responsible for securing the network; they’re also tasked with making critical economic decisions about where rewards flow. This dual role adds a layer of complexity that could deter participation, especially among smaller, less-resourced validators and could be challenging for solo stakers. Running a validator node is already demanding and requires technical know-how and capital. Adding the responsibility of economic curation, i.e. deciding how to allocate rewards across dozens of applications and pools, could make it even harder to onboard new validators or retain existing ones.

For validators, this isn’t just about running software; it’s more about understanding the nuances of Berachain’s economic landscape, engaging with applications, and making decisions that directly impact the network’s growth. While the most active validators may thrive in this system and get adequate rewards, smaller operators or solo stakers could struggle to keep up. This, in turn, could raise the risk of centralisation, where a smaller number of well-capitalised or highly active validators dominate the ecosystem. This isn’t a system for passive participants. The most active, engaged players will reap the greatest rewards.

Berachain’s scalability also presents a potential bottleneck. The chain isn’t aiming for ultra-high throughput. It’s not in the parallelisation race like Monad or Megaeth, which promise massive TPS capabilities through advanced parallel execution. Berachain’s current design supports around 700 TPS, with 500 TPS for swaps [from my understanding, but I could be wrong here], which is sufficient for most DeFi use cases but less competitive compared to chains optimised for speed and throughput. While Berachain’s focus on programmability and liquidity dynamics sets it apart, its lower throughput could limit its ability to support high-frequency trading platforms, large-scale NFT marketplaces similar to Blur, or other applications that require near-instant finality at a massive scale.

This trade-off between programmability and raw speed reflects Berachain’s broader philosophy. The network isn’t trying to be everything to everyone; in a way, it’s carving out a niche as a liquidity-first ecosystem where capital efficiency and innovation take precedence over sheer transaction volume. For most DeFi applications, the chain’s anticipated performance is more than adequate. I have to emphasise this. But as crypto continues to evolve, with parallelised chains setting new benchmarks for scalability, Berachain must prove that its unique approach to incentives and liquidity can offset its more modest throughput.

Despite highlighting the above, Berachain’s programmability introduces flexibility that could be a game-changer. Applications can work directly with validators to bootstrap liquidity, bypassing the need for high-dilution liquidity mining programs. Protocols can incentivise specific pools, trading pairs, or lending markets through targeted emissions, creating a system where rewards flow dynamically based on demand. Validators, in turn, gain new revenue streams by partnering with applications, creating a flywheel of collaboration that benefits the entire ecosystem.

At the heart of Berachain is its tri-token architecture, which may seem confusing and maybe even overengineered at first glance, but is crucial to ensuring that liquidity, governance, and utility are deeply interconnected.

1. BERA: The gas token for transaction fees and staking. Validators bond BERA to secure the network.

2. BGT: A soulbound governance token that cannot be transferred. It is earned by providing liquidity or participating in the ecosystem. Holders influence validator rewards, governance, and emissions distribution.

3. HONEY: An over-collateralised stablecoin backed by staked assets. It powers stable lending, trading, and other dApps within the ecosystem.

The real magic of Berachain lies in how these elements work together to create a new kind of economic system. Validators don’t just secure the network; they directly shape its future by deciding where rewards flow. Users don’t just stake tokens; they strategically choose validators who align with their interests, whether bootstrapping liquidity for a specific application or maximising their rewards. Protocols don’t just deploy contracts; they actively engage with the validator set to secure emissions that fuel their growth. It’s an ecosystem with a vision of every participant having skin in the game and where the incentives are aligned to accelerate adoption and new products.

Berachain’s Beaconkit framework underpins all of this. Built on the Cosmos SDK, it offers full EVM compatibility, making it easy for Ethereum developers to deploy their applications without modifications. It supports dynamic validator sets, cross-chain interoperability through Cosmos IBC, and modular scalability for rollups and L2s. Although I don’t view Beaconkit as just a technical foundation, it’s a launchpad for Berachain’s vision of liquidity-first blockchains.

The power laws of crypto mean that ecosystems live or die by their ability to attract and retain the most active users. While I might be wrong here, from how the team has gained mindshare and evangelised their vision so far, I believe Berachain understands this better than most. Its PoL system rewards those users and makes them central to the network’s security and governance. Applications that thrive in Berachain’s ecosystem are those with high capital velocity, DEXs, perpetual protocols, and even marketplaces that require fast, deep liquidity dynamics.

Berachain doesn't position itself as just another blockchain; it is posed as a liquidity machine. With its PoL consensus, tri-token architecture, and Beaconkit framework, Berachain aligns security, governance, and utility in ways that should create unparalleled capital efficiency.

For applications, it’s a chance to bootstrap from zero without relying on traditional liquidity mining. For validators, it’s an opportunity to shape the economic fabric of the network. For users, it’s a playground of rewards and governance choices. Far from just being theoretical, early signals already validate its potential. Over $2 billion has been deposited across 11 pre-deposit vaults for the Boyco Protocol, a liquidity facilitation layer, ahead of Berachain’s official launch.

Berachain is building a playground for infinite economic games where liquidity reigns supreme. For those who understand its vision, there are plenty of opportunities to get involved.

Berachain in Q5.

If you’re building on Berachain - please reach out; we’d love to chat.

Thank you to Nelson Ryan for all his help, ideas, and feedback on this piece.

Disclosure: Eden Block is not an investor in Berachain or any ecosystem projects. Yet.

In the not-so-distant future, AI agents won’t just be the engines of automation, but active participants in the global economy. Yet, a fundamental bottleneck remains - agents lack the infrastructure to pay humans directly for tasks. This limitation isn’t just a technological oversight; it’s a structural gap that restricts the autonomy and scalability of AI.

Payman emerges to bridge this gap, creating the underlying rails that enable an agent-driven marketplace where AI seamlessly compensates human labour. By doing so, Payman seeks to unlock a new phase of economic productivity.

Rethinking the Payment Paradigm

The current economic model is built on a simple premise: humans paying humans. However, this assumption breaks down when we envision AI at the core of production. Unlike traditional workers, AI cannot establish bank accounts or autonomously manage financial relationships. This dissonance leads to friction, inefficiencies, and a missed opportunity in enabling agents to participate in the economy actively.

Payman challenges this status quo by creating a foundational payment layer that supports Agent-to-Human transactions. Rather than waiting for legacy systems to adapt, Payman develops a novel financial infrastructure that empowers AI agents to access capital, allocate tasks, and verify work, all in near real-time.

The Payman Approach

Payman’s solution hinges on three core pillars: funding, verification, and marketplace creation. The platform enables AI agents to access capital autonomously, removing the limitations of traditional banking and allowing seamless deployment of resources. Payman then addresses the verification challenge through a distributed network of human agents who confirm task completions, ensuring speed and accuracy without compromising on reliability. Finally, Payman builds an open marketplace where AI agents can source human labour dynamically, unleashing the potential for on-demand work at scale.

By integrating these pillars, Payman lays the groundwork for a new type of economic infrastructure, one designed not for humans alone but for the emerging AI workforce. This is a subtle yet profound shift in the way we conceptualise value exchange in a world driven increasingly by autonomous systems.

Payman’s Infrastructure: Seamlessly Bridging AI & Human Capabilities

Payman AI’s core lies in its sophisticated, yet intuitive, technical architecture, which allows AI agents to seamlessly tap into human expertise. The platform’s API integration acts as the gateway, empowering AI systems to autonomously post tasks that range from repetitive processes like data labelling to more nuanced problem-solving that demands human creativity and adaptability. This API-first approach not only scales effortlessly but also establishes Payman as a flexible and indispensable layer in the AI-human interaction landscape.

When a task is completed, Payman employs a dual-layer verification process. Human verification agents step in to promptly review and validate the work, maintaining high standards without sacrificing efficiency. The real brilliance of Payman’s design, however, is in its payment processing. Upon task verification, payments are executed instantly, leveraging both traditional banking networks and cryptocurrencies. This multi-rail system eradicates bottlenecks, ensuring that every transaction remains fluid and frictionless, regardless of the user’s financial infrastructure. It’s a deliberate move to make Payman universally accessible and future-proof.

Crucially, the platform isn’t just about connecting AI with labour, it’s about creating a vibrant, open marketplace. Human workers can list their skills and availability, while AI agents, empowered by transparent data and reputation metrics, can select the most suitable candidates. This marketplace isn’t merely transactional - it’s a dynamic ecosystem, driven by trust, accountability, and performance. Such transparency gives AI agents the confidence to scale tasks rapidly while ensuring that every job is executed to the highest standards.

This multifaceted architecture, combining API-driven task creation, real-time validation, and an open marketplace, represents Payman’s vision of an interconnected, AI-driven economy. By seamlessly aligning the capabilities of AI with the nuanced expertise of human labour, Payman is setting the stage for a new era of autonomous productivity.

Why This Matters Now

AI-driven automation is already reshaping industries, but the full promise of AI remains out of reach without a reliable infrastructure for economic interaction. The crux of the problem is not just about developing smarter AI, but enabling AI to engage with humans as autonomous economic actors. Payman recognises that, in this future, the real opportunity lies in creating a payment system that scales with autonomy.

Today, we stand at an inflexion point. As businesses adopt AI agents more extensively, there is an urgent need for solutions that allow these agents to interact with human labour efficiently and independently. The size of this potential market is staggering, as evidenced by Payman’s growing waitlist of 10,000+ users, signalling a significant unmet demand.

The Future of Payman

Payman is not merely a solution; it’s the blueprint for a new economic paradigm where autonomous agents become active participants in global markets. As industries accelerate their adoption of AI, the ability of these agents to directly engage with human talent will redefine how work is distributed, value is created, and efficiency is scaled. By establishing the foundational infrastructure for AI-to-human payments, Payman positions itself at the epicentre of this transformation, unlocking new dimensions of productivity and collaboration.

The path forward for Payman is clear - scale globally, deepen marketplace dynamics, and continuously innovate on its core infrastructure. In a world where AI capabilities are advancing at breakneck speed, Payman’s architecture is built to remain adaptable and resilient. The platform’s focus on security, transparency, and seamless user experience ensures it will stay ahead of market demands, enabling businesses and individuals to confidently harness the power of autonomous agents.

What sets Payman apart is its vision, a vision of an economy where AI and human capabilities are not competing forces but complementary drivers of growth. As Payman scales, it will catalyse this shift, creating a fluid ecosystem where AI can autonomously source, verify, and compensate human labour without the friction of traditional systems. This evolution is not just about automation; it’s about unlocking a new wave of economic potential driven by intelligent collaboration.

Payman AI is building more than a platform; it’s laying the groundwork for the next era of economic interaction. This is a rare opportunity to be at the forefront of a generational shift in how value is created and exchanged in a future shaped by AI. We are excited to back Tyllen and the team on this journey.

Support Payman’s Mission

Website - https://www.paymanai.com/

Twitter - https://x.com/PaymanAI

Discord - https://discord.com/invite/uheBscdKas

Regards

Thank you to Nelson Ryan, Daniel Luca, Lior Messika, and Rafael Mannelid for all their help, ideas, and feedback for this Investment Thesis.

Disclosure: Eden Block is an investor in Payman AI.

Nothing contained herein constitutes investment, legal, tax, or other advice nor is to be relied upon in making an investment or other decision. This presentation contains the opinions of the author, and such opinions are subject to change without notice. Furthermore, it may also include data and opinions derived from third-party sources. Eden Block does not accept liability for the accuracy or completeness of any such information or opinions which can be subject to change without notice.

Polymarket's performance during the 2024 U.S. election was remarkable, with 20 million website views, $300 million in trading volume, and over 1 million concurrent users. The platform's open interest reached a record $463 million on Election Day, marking a 40% increase from the previous week.

Cumulatively, Polymarket has processed over $3.5 billion in trading volume related to election outcomes.

These figures underscore a significant public demand for trading in prediction markets. However, can they be relied upon, and are they sustainable?

Successes, Failures, & Lessons

Prediction markets are not a new phenomenon. The concept of financial speculation on uncertain outcomes traces back to the Iowa Electronic Markets [IEM] in the late 1980s, which allowed participants to wager on U.S. election results. By aggregating insights from traders, IEM offered forecasts that were often more accurate than traditional polls, providing a model for prediction markets as powerful information aggregation tools.

Since then, prediction markets have struggled to gain a stable foothold, facing regulatory challenges, low liquidity, and difficulty achieving significant adoption. Platforms like InTrade and PredictIt emerged as early leaders but ultimately failed. InTrade, a pioneer in geopolitical and financial predictions, became a media sensation before closing in 2013 due to regulatory pressures and liquidity challenges. Its downfall revealed a fundamental truth about prediction markets: they are vulnerable without regulatory clarity and robust liquidity.

PredictIt faced similar barriers. While it pioneered political prediction markets in the U.S., regulatory pressure from the Commodity Futures Trading Commission [CFTC] forced it to shut down in 2023. This regulatory action dampened the prediction market community, as PredictIt was a model for legally compliant, event-based trading. Polymarket, however, bypasses many of these issues by operating as a decentralised, on-chain platform, showcasing crypto’s potential to deliver transparent and open prediction markets.

Aggregating the Wisdom of the Crowd

Prediction markets operate on a simple yet profound principle: they aggregate collective intelligence by allowing participants to bet on uncertain events. Each trade is a market-based expression of probability, producing a dynamic forecast that reflects the beliefs of a wide range of participants. This approach, rooted in the “wisdom of the crowd,” capitalizes on the insight that, collectively, a diverse group’s opinions can yield accurate predictions.

In Polymarket’s setup, participants use stablecoins, typically USDC, to place bets on various outcomes. These outcomes are binary: winning bets receive a payout if the predicted event occurs; if it doesn’t, the losing bets expire worthless. Unlike traditional betting platforms, Polymarket functions as a neutral exchange, enabling users to trade with one another directly rather than with the platform. This decentralized structure allows open, peer-to-peer trading, sidestepping the legal constraints that traditional betting platforms face.

Polymarket’s architecture depends on UMA’s decentralised oracle for outcome verification. In this context, an oracle is a data source providing real-world information to smart contracts, thereby ensuring accurate, transparent results that aren’t prone to manipulation. However, reliance on third-party oracles introduces risks, highlighting a core challenge in decentralised prediction markets.

Free Markets as Information Aggregators

Prediction markets are effective because they leverage free markets' principles as efficient information aggregators. In a free market, each participant has “skin in the game,” which motivates them to invest only when they believe in their position. The resulting balance of opinions, shaped by financial incentives, yields a more reliable approximation of event probabilities than traditional methods, where biases or external agendas can influence public statements.

Prediction markets align with ‘Hayekian information theory’, where free markets are regarded as sophisticated information processors integrating knowledge dispersed across individuals. Unlike polling, which relies on stated beliefs, prediction markets incorporate financial stakes, making them less susceptible to bias. By encouraging participants to put capital behind their beliefs, prediction markets create price signals that reflect real conviction, providing a form of forecasting rooted in economic theory.

Yet, this doesn’t make prediction markets immune to flaws. As evidenced by Polymarket’s need for consistent liquidity, a well-functioning market must balance a diverse range of participants. When liquidity is limited, markets are more vulnerable to manipulation by “whales” or groups of traders capable of moving prices, compromising their role as reliable information sources.

Polymarket’s Business Model & Competitive Edge

Polymarket breaks from the traditional exchange model by avoiding transaction fees altogether, opting instead for a frictionless, accessible trading environment that aligns closely with crypto’s decentralized ethos. Rather than monetising directly from trades by taking a cut of the stakes or winnings, Polymarket relies on an indirect approach focused on strategic partnerships, potential sponsorships, and community-driven incentives. This model allows Polymarket to cultivate a loyal, engaged user base while sidestepping conventional fees, positioning itself as a platform rooted in community ownership. This strategy prioritises growth and engagement first, laying the groundwork for future monetisation through avenues like token incentives and external collaborations, creating a more inclusive and sustainable ecosystem.

Polymarket’s fully on-chain structure gives it a distinct regulatory advantage and provides its users with an unmatched level of transparency. By decentralising the marketplace, Polymarket mitigates the regulatory risk that centralised predecessors like PredictIt and InTrade faced, positioning itself as a secure and censorship-resistant alternative.

Liquidity, Market Manipulation & Regulatory Barriers

Polymarket and other prediction markets face significant challenges, especially around liquidity. Sufficient trading volume and open interest are essential to creating an efficient market and ensuring prices reflect real probabilities. With sufficient liquidity to balance opposing views, prediction markets can avoid being swayed by well-capitalised players or coordinated groups, whose trades can distort market prices and erode credibility.

In August 2024, for instance, a group of traders accounted for over 23% of Polymarket’s daily volume on bets related to the U.S. election, highlighting the risks of concentrated market power. When a few players dominate trading, prices may reflect their interests rather than the crowd's collective wisdom.

Wash trading, where users rapidly buy and sell assets to inflate trading volume, poses another risk. Nearly 41% of Polymarket’s volume stemmed from penny-share trades, inflating reported figures and undermining the credibility of metrics that could otherwise signify genuine interest.

Election Cycles & the Prediction Market Cycle

The cyclical nature of prediction market engagement is a defining question for these platforms. Historically, prediction markets see spikes in activity during elections or major geopolitical events, only to face declines afterwards. While Polymarket’s non-election volumes have shown growth, they fall short of levels seen during peak political events, suggesting prediction markets may naturally fluctuate with media cycles.

Still, data shows a gradual upward trend in non-election volumes, hinting at a potential product-market fit beyond election cycles. This growing engagement outside of traditional high-stakes events suggests that prediction markets are finding resonance with audiences interested in speculative and entertainment-driven trading. The rise of “meme markets”, where users wager on viral or humorous topics, points to a new use case for prediction markets as a form of speculative entertainment, potentially expanding their reach.

Trusting Prediction Market Outcomes

Oracles are central in prediction markets, especially in decentralized platforms like Polymarket. An oracle is a trusted data source that provides real-world event outcomes to smart contracts, allowing for automated payouts. However, oracles introduce vulnerability. Polymarket’s reliance on UMA’s decentralised oracle, for instance, means that a sufficiently influential actor could manipulate outcomes, calling into question the integrity of decentralised prediction markets.

This dependence on third-party oracles underscores the need for further innovation in oracle reliability. The resolution process must be accurate and tamper-proof in a well-functioning prediction market. The oracle problem remains one of the most pressing challenges in decentralised finance, and robust solutions are needed if prediction markets are to serve as impartial truth providers.

Philosophical Implications & Real-World Impact

Prediction markets embody a vision of free-market information synthesis, where financial stakes reveal genuine beliefs and aggregate insights. By quantifying uncertainty through price signals, prediction markets translate individual expectations into a framework for collective forecasting. In theory, these markets offer an unbiased alternative to polls, producing probabilistic insights that can inform decision-making.

Moreover, prediction markets open the door to a new category of uncertainty-driven financial products. They could enable novel risk instruments, such as event-driven insurance contracts, while offering transparent, market-based indicators of public sentiment. The philosophical implications are profound: prediction markets, as decentralised instruments, democratise information and incentivise accuracy, creating an ecosystem where speculation and truth-seeking converge.

Beyond Speculation to Sustainable Value

Prediction markets, particularly platforms like Polymarket, represent a bold approach to information synthesis, merging speculation with crowd-sourced truth. They serve as tools of insight and reflections of public psychology, attracting participants who seek to bet on everything from political events to cultural trends. Yet, as captivating as they are, prediction markets operate within a delicate balance: liquidity, manipulation risks, and regulatory pressures loom large.

For platforms like Polymarket, future success depends on several factors. First, they must expand liquidity to support diverse markets outside high-stakes cycles. If achieved, prediction markets could transition from speculative tools to stable information sources, enhancing their place within the broader financial ecosystem.

Second, the oracle problem must be addressed. A reliable, transparent, and tamper-resistant resolution mechanism is essential if prediction markets are to be trusted. Strong oracles could lend prediction markets the legitimacy needed to fulfil their promise as decentralised information aggregators.

Lastly, prediction markets must integrate with traditional financial and informational systems, positioning themselves as continuous, data-driven insights providers. With AI agents on the horizon, prediction markets may soon gain a unique form of liquidity as these automated participants place rapid, probabilistic trades in response to real-time data.

In a rapidly evolving world, prediction markets offer a tantalising vision of decentralised truth-seeking, democratising access to probabilistic insights and reflecting what society believes rather than merely speculating. If they can overcome the structural challenges, they may become a cornerstone of decentralised finance, an unbiased alternative to traditional systems, and a powerful vehicle for aggregating and quantifying collective knowledge.

For builders, traders, and observers, prediction markets provide a front-row seat to a new experiment in free-market information aggregation. The journey remains in its early stages, but the potential of prediction markets is unmistakable, a fusion of speculation, information, and philosophy that could redefine the future of finance and reshape our approach to forecasting and knowledge itself.

If you’re building in the space - please reach out, we’d love to chat.

Thank you to Nelson Ryan, Daniel Luca, Lior Messika, and Rafael Mannelid for all their help, ideas, and feedback on the piece.

Disclosure: Eden Block is not an investor in Polymarket or any prediction markets. Yet.

Despite the advantages of decentralised finance [DeFi] and self-custody, centralised solutions [CeFi] still dominate in terms of user adoption. This is mainly due to the superior user experience that centralised platforms can provide, especially for new crypto users. Infinex seeks to bridge this gap by creating a UX that rivals centralised exchanges while preserving DeFi's fundamental advantages.

Addressing the DeFi Market Gap

Even though decentralised finance [DeFi] offers superior features like transparency and trustless self-custody, it hasn’t been enough to draw users away from CeFi, particularly in the derivatives market, where centralised platforms continue to dominate.

Infinex aims to provide the “holy grail” of decentralised derivatives exchanges by combining a CeFi-like user experience [with security modules, account recovery, and user-friendly UI] with DeFi’s infinite advantages of transparency, self-custody, and permissionless derivatives.

Trustlessness & Transparency

Trust in decentralised systems doesn’t mean the absence of trust, but minimising it. When users control their private keys, they place trust in themselves, which can sometimes be problematic. To truly win over a broader user base, Infinex offers a third option: a system that integrates trustless technology with familiar security measures, such as social recovery with centralised, MFA-gated guardianship.

Transparency is central to trust. Unlike centralised exchanges, where users place blind trust in the platforms, self-custodial systems like Infinex offer transparency through smart contracts. These contracts not only provide clarity on how the system operates but also allow users to audit the execution of the code itself. This level of transparency is essential for building true trust in decentralized platforms.

Building for the Next Wave of Adoption

The next wave of DeFi adoption won’t happen by itself. It’s not enough to be decentralised - we must provide an experience users can trust and feel comfortable using. Infinex has built a UX layer that removes the barriers to getting on-chain while maintaining the core advantages of decentralisation.

With its Infinex Account, users can safely connect to on-chain protocols without learning anything new, setting the stage for decentralized products to finally compete with CeFi based on the value they provide.

Onchain Infrastructure

The Infinex Account is implemented on EVM chains using Solidity and on Solana using Rust. While it borrows some elements from the ERC-4337 [account abstraction] standard, Infinex’s implementation is fully custom-built to optimise performance and security. The platform uses Gelato to pay for gas and relay transactions, while Triton and Helius provide RPC services for Solana transactions.

Infinex integrates with on-chain protocols through isolated smart contracts and programs that interact with the user’s Infinex Account via a limited interface. This modular approach ensures security while allowing for flexible protocol integration

Security & Passkey Architecture

Passkeys are the core security mechanism for Infinex Accounts. A passkey, which is a public-private key pair generated by the user’s operating system or password manager, is stored securely on the user’s device. The private key never leaves the user’s device and can only be unlocked via biometric or password challenges. This significantly reduces the risk of phishing or key theft compared to traditional wallets.

Since passkey signatures are not natively supported on-chain, Turnkey is used to translate passkey signatures into ECDSA [for EVM chains] or Ed25519 [for Solana] signatures, enabling on-chain transactions without compromising security.

Optimised User Experience & Censorship Resistance

Infinex’s technical design strikes a balance between user experience and security. Unlike traditional DeFi architectures, which rely heavily on thin clients and result in poor UX, Infinex assumes that the rest of its stack [frontend, backend, and RPC services] will remain online. This pragmatic approach to censorship resistance allows Infinex to provide the kind of smooth, familiar user experience that will help onboard millions of users from centralised platforms into DeFi.

Funds Recovery is a key aspect of Infinex’s security design. Users can recover their assets if they lose access to their passkeys through a variety of methods, including social sign-ons (Apple or Google accounts) or signing transactions from an external wallet. This ensures that Infinex remains accessible and secure for a wide range of users, from crypto experts to everyday traders.

Protocol Integrations

Infinex supports a wide range of protocol integrations, allowing users to seamlessly interact with various DeFi services through the Infinex Account. These integrations are approved by the Infinex Council and can be updated independently of the main Infinex Account, ensuring flexibility and scalability. The modular architecture ensures that Infinex can scale its feature set without introducing unnecessary complexity, providing a superior trading experience compared to centralised exchanges.

Addressing Common Token Distribution Issues

Unlike many projects where token distribution is skewed toward early investors and team members, often resulting in short-term sell-offs, Infinex implements a more balanced approach. The longer vesting periods for the team and investors, along with substantial community rewards, foster long-term value creation and alignment among all stakeholders. By tying rewards to the platform's performance and ensuring that the community is actively incentivised, Infinex avoids the pitfalls of traditional token distribution models.

Competitive Landscape

Infinex is uniquely positioned to compete with both centralised and decentralised incumbents, simultaneously being complementary to a lot of the products within DeFi. While centralised exchanges like Binance offer liquidity and advanced tools, they come with significant custodial risks. On the other hand, decentralised platforms like Uniswap offer non-custodial trading but often lack liquidity and advanced functionality.

Infinex bridges the gap between CeFi and DeFi. While CeFi offers familiarity, liquidity, and ease of use, it compromises on transparency and user control. Conversely, DeFi platforms offer transparency and self-custody but lack the smooth, familiar user experience. Infinex combines the best of both worlds, offering the liquidity and tools of CeFi while preserving the trustless, transparent, and decentralised properties of DeFi.

The Future of Infinex

Infinex is uniquely positioned to reshape the crypto landscape by offering a platform that doesn’t compromise on functionality, security, or decentralisation. The key to widespread adoption lies in making decentralised platforms as accessible as centralised ones. By offering a user experience equal to or better than CeFi while retaining the advantages of DeFi, Infinex is poised to lead the charge into the future of decentralised finance.

Support Infinex’s Mission

Try out the safest way to get on chain with Infinex -

https://infinex.xyz/

Docs - https://infinex.xyz/litepaper

Twitter - https://x.com/infinex_app

Discord - https://discord.gg/chainflip-community

Regards

Thank you to Nelson Ryan, Daniel Luca, Lior Messika, and Rafael Mannelid for all their help, ideas, and feedback for this Investment Thesis.

Disclosure: Eden Block is an investor in Infinex.

Nothing contained herein constitutes investment, legal, tax, or other advice nor is to be relied upon in making an investment or other decision. This presentation contains the opinions of the author, and such opinions are subject to change without notice. Furthermore, it may also include data and opinions derived from third-party sources. Eden Block does not accept liability for the accuracy or completeness of any such information or opinions which can be subject to change without notice.

TON has seen rapid growth in recent months in a push to capture user mindshare and generate user engagement. Anchored by Telegram’s vast and growing user base, TON leverages the social app’s existing audience and taps into Telegram’s distribution to connect directly with users.

This case presents a fascinating case study of how crypto ecosystems can establish a seamless user experience while hiding away the complexities of crypto.

Telegram and TON have found themselves in the limelight with the recent arrest of their founder, Pavel Durov. In this piece, I delve into the history of TON, the dApps driving user engagement, its potential shortcomings as well as how it may continue to evolve.

TON's Genesis

TON, short for 'The Open Network', came about in a somewhat dramatic manner. Initially a brainchild of Telegram, similar to Facebook's Libra project, the project was formed internally at Telegram, which then stepped away from the project due to regulatory pressure. The project promised a decentralised world within the familiar interface of a globally popular messaging app. After stepping back from the project and returning investor funds, a community-led Free TON network was launched and has since been integrated into the Telegram app.

This transition marked the beginning of an ecosystem poised to leverage Telegram's massive user base, looking to foster an organic, community-driven expansion, or so it appeared.

TON's ecosystem is thriving and characterised by a unique blend of social interaction and DeFi. This symbiosis serves as the bedrock of its stably growing user base, active market presence and growing narrative.

The direct integration of TON with Telegram allows users to use the crypto network without having to leave the messaging app, creating a far more seamless user experience, altogether blurring the lines between the user's social interaction and financialization aspects that crypto brings to the equation, all while having them integrated into an already familiar user interface.

Currently, TON is experiencing immense demand on the gaming side of the platform, with deeply engaging and fun play-to-earn apps that create incentives for users and have a high level of user retention.

User Mindshare & Incentives

TON's approach to capturing user attention through unique interactions and incentives can be compared to the early days of other networks and their initial user capture through 'killer apps' such as the relationship between Base and Friend Tech.

Friend Tech, a SocialFi app on Base, launched as one of the chain's cornerstone project,s showcasing the unique features Base could offer to applications with its integration with the rest of the Coinbase ecosystem. The app launch was a massive success, driving over 50% of all Base transactions being FriendTech related.

To put the success into perspective, in the first 24 hours that the platform was live, it generated more fees than Bitcoin, Uniswap, and Binance Smart Chain. As Friend Tech is on Base, the L2 was able to heavily capitalise on the success of the social app. This in turn, led to Base becoming the largest L2 ecosystem in crypto today.

Similarly, TON's ecosystem has the potential to benefit significantly from dApps that offer attractive incentives, drawing parallels to how FriendTech's offering propelled Base, despite FriendTech's subsequent decline in appeal and usage numbers.

The allure of high rewards and incentives can drive substantial user engagement and rapid growth within a platform. For instance, play-to-earn games on TON, such as HMSTR, TONCrush and TONWar, provide users with significant rewards in the form of tokens. These games have already captured user interest and driven considerable traffic to the ecosystem. Similarly, TONSwap and TONLend have previously offered lucrative DeFi opportunities, attracting users looking for high yield.

This growth strategy can create a virtuous cycle of growth, where the initial influx of users drawn by attractive incentives boosts the platform's visibility and user base. Even if the incentives prove to be unsustainable in the long run, the initial surge in activity can establish a solid foundation for the ecosystem. As seen with Base, the popularity of Friend.Tech led to a massive spike in activity, helping Base secure its position as a major L2 ecosystem despite the subsequent decline in Friend Tech's usage.

Simultaneously Friend.Tech's relationship with Base was able to show why Base is unique and allure builders to the L2 versus existing incumbents and alternative L2s with an established developer community and user mindshare.

While Friend.Tech did not end up having a success story; it positioned itself as an app attempting to innovate and test new approaches targeting consumers with a fresh take on user experience and leveraging Coinbase's distribution.

We can argue that this is what Telegram needs as of now, an app that showcases Telegram's unique nature with differentiation from other ecosystems. This cannot be achieved purely through lower-quality apps with incentives as a growth backbone.

With that said, what Telegram has achieved to this point is lower the bar of users that can get involved in farming airdrops, skipping the extra steps and allowing network participants to farm through a simple press of a button, a simplification that may catch up with them later down the line.

Building communities around value transfer

In a lot of ways, TON has been developing in a similar manner to existing companies with their go-to-market strategies in their earliest moments.

TON being embedded into Telegram brings back a reminder of Spotify's partnership and integration with Facebook in 2011, a key moment for the music streaming space. The Spotify-Facebook integration enabled users to share their listening habits and playlists directly on the page of the social media giant, serving as a significant boost to Spotify's visibility and usage.

Spotify was able to accumulate 1 million new Facebook-connected users within a 4-day period. Within six weeks, Facebook-connected Spotify users shared their listening activity over 1.5 billion times through Facebook's Open Graph, which allows developers to integrate their applications into the social media platform. Since then, the rest is history.

Similarly, TON's integration with Telegram allows developers to integrate their applications into Telegram's extensive social network, making it easier for users to discover and use the applications and services. As Spotify harnessed Facebook's social graph to build communities around music sharing, TON harnesses Telegram to build communities around value transfer.

Since Telegram endorsed TON, the network has experienced consistent and progressive levels of growth, reaching over $700m in TVL at its peak.

Simultaneously, the daily active wallets continue to hit all-time highs, as token holders and trading volumes show a strong uptrend.

While reasoning by analogy has its limitations, there are striking parallels between the Facebook-Spotify and Telegram-TON integrations. When Facebook integrated Spotify in 2011, Facebook had around 800 million users, and Spotify at the time had 2 million paying subscribers. Less than a year later, Spotify's paying subscribers doubled.

Similarly, when Telegram integrated TON in 2023, Telegram also had about 800 million users, while TON had about 100,000 monthly active wallets. Less than a year later, TON has grown to about 5.5 million monthly active wallets.

Although the increase in active users for Ton is an order of magnitude larger than Spotify's, it's important to note that comparing Spotify subscribers over a decade ago to active TON wallets now is not a direct comparison. What matters is that the adoption of a new technology saw significant growth after integrating into a massive social network.

Given that the crypto platform has only tapped into a small fraction of Telegram's user base so far, it's reasonable to expect its growth to continue as the technology continues to scale.

With this said given the currently developing case against Telegram and Pavel Durov, and deep uncertainty about the future of the platform and the network TO,N naturally saw a deep decline in key on-chain metrics and usage.

Apps on TON

Apps on TON have been interesting to follow, but a phenomenon behind a lot of the "buzz" around TON within less crypto native audiences stems from the rapid emergence of hyper casual "clicker" gaming applications, driven by Telegram's HTML5 integration. It enables the creation of user-friendly, game-like interfaces that can be easily launched within Telegram, making these games highly accessible. Clicker games typically involve simple, repetitive actions like finger tapping to earn in-game currencies, often with the expectation of a future airdrop.

Notcoin is a great study to look around this craze, serving as the first major example of a tap-to-earn game on TON, with the ability to attract over 40 million users and reach a peak of 6 million daily active users. Notcoin eventually evolved into TON's first meme coin, with its token, $NOT, launching on Binance and achieving a fully diluted valuation above $1 billion. Firmly positioning it as one of the leading gaming tokens within the TON ecosystem.

Following Notcoin's success, clicker games have dominated the top 10 applications on Telegram, with an average subscriber base of over 12 million each, showing the deep virality those apps have.

Another viral hit, Hamster Kombat, is another app worth highlighting as it was able to amass over 200 million registered users and more than 30 million daily active users, reminiscent of the early days of social gaming on platforms like Facebook. However, TON's integration with Telegram offers a modern twist, combining social engagement with financial incentives on the crypto side.

Infrastructure Challenges

Despite all the attention on the network and the vast growth it experienced, TON faces several challenges, particularly in terms of existing infrastructure and development. TON has been struck by occasional outages, with the last one having no new blocks produced in 3 hours, with a 'network overload' having TON validators become overloaded, causing them to lose consensus.

A significant limitation is the lack of Oracles such as Chainlink, which are not yet available for the ecosystem and are crucial for connecting blockchains with real-world data and enabling smart contracts to be executed based on external information. The absence of a reliable oracle infrastructure in TON means many potential apps, especially those requiring real-time data, cannot be fully realised and need to build their own substitute, which creates further bottlenecks for teams to build on TON.

Building on TON presents immense challenges for projects. Developers often face steep learning curves due to the unique architecture and programming languages within the ecosystem. FunC is the tailor-made language for TON smart contracts.

Smart contracts are built using the Actor model on TON, with actors being technically represented as smart contracts, making the wallet a simple actor and a smart contract. Actors process incoming messages, change their internal state, and generate outbound messages as a result. That's why every smart contract on the TON Blockchain must have an address to receive messages from other actors. The absence of comprehensive developer tools and resources further complicates the process, making it difficult for new projects to launch smoothly. On TON, smart contracts are built using the Actor model. In essence, actors in TON are technically represented as smart contracts. This means that even your wallet is a simple actor [and a smart contract].

TON network demands a deep understanding of its architecture, which differs considerably from other blockchains like Ethereum. Developers must account for the intricacies of TON's asynchronous messaging and gas mechanics, which can introduce additional layers of complexity when ensuring that smart contracts are both efficient and secure. The steep learning curve, combined with the high stakes of smart contract security, poses challenges for builders and developers, particularly those new to the ecosystem, to build confidently and effectively on TON.

Rev Share & Collectables

A novel feature presented by TON is the way it unlocks new avenues for the Telegram community to monetise, share, and grow their businesses.

Fragment, a decentralized marketplace on the TON network, provides users with a platform to trade collectables such as virtual phone numbers and custom Telegram usernames.

To date, Fragment has facilitated over $350 million in sales of these digital assets. But this is just the beginning. In the near future, Telegram stickers - which have been sent over 730 billion times - could be transformed into NFTs, making them available for purchase and sale on the TON blockchain.

Telegram is also making a significant leap by integrating revenue sharing with content creators and channel owners through its Fragment platform, powered by the TON. This initiative marks a departure from traditional social media models, enabling creators to directly earn from ad revenues on their channels. This approach not only compensates creators for their content but also strengthens the relationship between the platform and its users, promoting a more equitable distribution of financial rewards within the ecosystem.

USDT on TON

Tether announced the deployment of its stablecoin, USDT, on TON and within Telegram's Wallet. Marking a major milestone for the space, enabling hundreds of millions of users to effortlessly send and receive stablecoins through Telegram, making transactions as simple as using Venmo or Apple Cash, is a huge unlock, especially for those making payments internationally.

The TON network's scalability ensures that transactions between users incur a fixed fee of approximately $0.10, which is 66% cheaper than other crypto payment platforms. Building in on-ramps and off-ramps, such as bank transfers and exchanges, was introduced to further simplify access and usage.

Stablecoin payments via Telegram's Wallet are especially impactful for individuals in developing countries, where access to traditional banking services is limited. Users often face challenges with complex crypto interfaces when storing and transferring funds. With stablecoins now available on the TON network, the vision of programmable peer-to-peer money and a globally accessible decentralized financial system is becoming a reality.

TON's impact on Telegram

Telegram's recent PnL statement showcased Telegram's revenues from crypto and TON. The recent data threw light that Telegram currently holds $400m in crypto and has gained $148m through crypto-related activities in 2023, with the primary revenue stemming from collectable sales and integrated wallet. This goes to further highlights the reaped benefits the social network has from its crypto offspring.

What does the Future entail for TON?

Will TON be able to evangelise the crypto space to the non-crypto native communities? I find it hard to give a definitive answer at this stage, given the ongoing scrutiny both Telegram and the network face in the eyes of the regulators, the future is uncertain as there may be jurisdictional restrictions for Telegram, which will directly impact TON and its distribution, as well as existing inaccessibility of the apps native wallets to U.S. based users creating additional friction for user onboarding.

Yet, Telegram is still one of the world's fastest-growing and largest social messaging platforms, with no marketing expenditure and almost 2.5m users joining the platform a day, making it a huge channel of distribution for TON.

I am a firm believer that the narrative of onboarding the next billion users to the space will be achieved by an ecosystem or product that is able to build at the intersection of tourist and purist. TON has shown its ability to add value for both and tackle that in a creatively new manner, through its user-friendly interface and mobile-centric focus. With this said, the ecosystem is deeply nascent and deserves time to facilitate itself, attract builders, flesh out the infrastructure and tackle the ongoing hurdles and constraints it is faced with on the regulatory side.

Regards

Thank you to Nelson Ryan, Daniel Luca, Lior Messika, and Rafael Mannelid for all their help, ideas, and feedback on the piece.

Disclosure: Eden Block is not an investor in TON or any apps in its ecosystem. Yet.

Ordinals are a new framework originating on the Bitcoin blockchain, introducing a new primitive that fundamentally differs from the established standard introduced by NFTs. By leveraging Bitcoin’s security and transparency, Ordinals enable the creation and management of unique digital artefacts that are immutable and highly traceable. The framework opens up vast possibilities for art, identity, and data integrity, transforming how we perceive and interact with digital artefacts to date.

Origins of Ordinals

Casey Rodarmor introduced the concept of Ordinals and released the initial paper outlining the concept. Rodarmor envisioned a system that utilises Bitcoin’s inherent security and transparency to bring unique, identifiable digital assets to its blockchain. He unveiled the idea in more detail in his paper, “Ordinals: A Method for Tracking Individual Satoshis and Inscribing Data,” which has since become the foundation for the Ordinals’ ecosystem.

The first Ordinal to be minted on Bitcoin, Inscription 0, is a simple black skull with white markings. This Genesis inscription, created by Rodarmor, is a piece of “tiny pixel art” that marked the beginning of what the Ordinals ecosystem is today. The image was timestamped on December 14, paying homage to Bitcoin’s genesis block.

How Ordinals work

Bitcoin operates on a fundamentally different architecture compared to Ethereum. Each Bitcoin transaction comprises data known as Unspent Transaction Outputs [UTXOs]. Ordinals leverage this UTXO model to create a numbering scheme for individual satoshis, the smallest unit of Bitcoin, giving each satoshi a unique identifier.

Ordinals assign a unique number to each satoshi, allowing them to be individually tracked and identified. These identifiers can be represented in various formats, such as decimals, degrees, or percentiles. An inscription in the Ordinals ecosystem is arbitrary content attached to a specific satoshi.

For example, if a satoshi carries a profile picture image, it is the Ordinal, and the image is the inscription. When creating an inscription, this data is added to a specific UTXO.

Bitcoin’s protocol enforces a dust rule, preventing the creation of transactions that output very small amounts, which are economically unfeasible to spend. This rule mandates a minimum amount of satoshis to be grouped and spent in a transaction. Consequently, Ordinals cannot utilise individual satoshis directly. Instead, they operate in groups, typically around 600 satoshis, to remain above the dust threshold. Casey Rodarmor, the creator of Ordinals, developed an indexer that every Ordinals explorer relies on. This indexer scans the entire transaction history, interpreting the Ordinal’s data embedded within.

NFT Standards on Ethereum

On Ethereum, NFTs are governed by smart contract code, typically adhering to standards like ERC-721 or ERC-1155. Each NFT is a unique token stored within a smart contract, and ownership is recorded by associating a unique token ID with an address. For instance, in the Mutant Ape Yacht Club case, the contract storage would map each unique NFT ID to an owner’s Ethereum address.

Potential & Limitations

To fully grasp Ordinals’ promise, it is crucial to draw parallels with the initial offerings of NFTs and the value-creation elements they introduced. While Ordinals offer a more integrated vision of digital artefacts within the Bitcoin ecosystem, the market remains nascent, facing potential challenges akin to those experienced by early NFT adopters. By addressing these challenges proactively, Ordinals can potentially avoid the pitfalls that hinder the broader acceptance and utility of NFTs.

Unlike many NFTs on Ethereum that point to off-chain data stored on the Interplanetary File System [IPFS] and can be altered through dynamic metadata, Ordinals inscribe all data directly on-chain. This ensures the permanence and authenticity of the digital artefacts on the oldest and most secure blockchain.

• Leveraging Bitcoin’s robust security model, Ordinals offer immutability and traceability. This ensures that each Ordinal’s ownership and history are transparent and tamper-proof.

• By utilising the Bitcoin blockchain, Ordinals benefit from security and name recognition, enhancing their credibility and security compared to NFTs on less established blockchains.

• Attaching arbitrary data to satoshis allows for diverse use cases, including digital art, metadata storage, and more complex assets that can evolve.

Despite their potential, Ordinals must navigate several technical and market challenges to achieve widespread adoption.

• Bitcoin’s limited block size and transaction throughput pose scalability concerns. Efficient data handling and potential L2 solutions could mitigate these issues.

• The dust rule and transaction costs necessitate careful economic planning. Ensuring that Ordinals’ creation, transfer, and storage are cost-effective is crucial for user adoption.

Rare Sats

The Ordinals community values certain satoshis categorised as ‘rare’ or ‘uncommon’. These satoshis, tied to significant events in Bitcoin’s history, such as the start of new difficulty adjustment periods, have become collector’s items and often sell at premium prices. One of the unique aspects of Ordinals is the concept of rare sats. Rare sats are specific satoshis that are considered valuable by the community due to their historical significance or unique properties.

Ord.io is the largest Bitcoin explorer, a platform built to showcase these rare sats, providing insights into their provenance and enhancing their collectable value.

Ordinal Inscriptions

Inscribing Ordinals differs significantly from minting on Ethereum-based NFTs. Minting on Ethereum involves deploying a smart contract and issuing tokens. On Bitcoin, inscribing Ordinals involves inscribing data directly onto satoshis within UTXOs. Inscription platforms like Ordinalsbot streamline this process, ensuring users can inscribe their Ordinals seamlessly. Ordinalsbot specialises in automating the inscription process, enabling users to batch-process multiple Ordinals efficiently. This service is particularly valuable for projects requiring large-scale Ordinal creations.

At Eden Block, we believe in Ordinals’ promise, and we have backed great teams building in this vertical. By supporting platforms like Ord.io and Ordinalsbot, we are excited to contribute to the development of robust, user-friendly tools and services that will help Ordinals realise their full potential.

Conclusion

While Ordinals leverage Bitcoin’s unparalleled security and transparency to offer a large product offering, there are still many unanswered questions. Ordinals have the potential to be positioned as the most immutable and decentralised home for digital artefacts if they can address the limitations faced by NFTs, capitalise on Bitcoin’s strengths, build a sustainable ecosystem, and win user mindshare.

The efforts of projects such as Ord.io and Ordinalsbot are instrumental in this journey, equipping creators and users with the tools and infrastructure required to realise Ordinals’ full potential. As this emerging market matures, these platforms will be critical in driving adoption and innovation within the Ordinals ecosystem, making interactions more accessible and intuitive.

The journey of Ordinals is just starting, and there are still many outstanding questions. If the space is able to learn from the mistakes NFTs made and prioritise building a sustainable ecosystem with value creation, security, immutability, and decentralisation at its core, Ordinals can establish a new standard for digital artefacts and fulfil the promise that NFTs never could.

Regards

Thank you to Nelson Ryan, Daniel Luca, Lior Messika, and Rafael Mannelid for all their help, ideas, and feedback on the piece.

Disclosure: Eden Block is an investor in Ord.io and Ordinalsbot.

In the ever-evolving landscape of on-chain culture, NFTs have led the segment as a cornerstone of digital ownership, scarcity, and monetisation of IP. However, as the NFT market expanded, scalability and cost-efficiency issues became apparent, particularly on Ethereum’s network with high gas prices.

The surge in popularity of NFTs highlighted the need for enhanced scalability and interoperability. Enter compressed NFTs [cNFTs], a new alternative solution pioneered on the Solana blockchain, offering a path to address these challenges.

This piece delves into the inception, impact, and future prospects of compressed NFTs [cNFTs], marking a new paradigm in the scalability and accessibility of NFTs for creators, collectors, and consumers alike.

The Historical Context of NFT Scalability

The journey of NFTs to their current state has been a testament to crypto’s impact on digital ownership and art. Originating on Ethereum, the early NFT projects like CryptoKitties not only showcased blockchain’s potential for creating unique digital assets but also exposed its limitations.

Ethereum’s scalability issues became evident as the popularity of NFTs surged, leading to network congestion and prohibitive transaction fees, particularly during market peaks. For instance, during the 2017 CryptoKitties craze, the Ethereum network experienced unprecedented congestion, significantly increasing gas prices and transaction times on the chain.

The CryptoKitties craze highlighted the need for scalable solutions capable of supporting the growing demand for NFTs without compromising on cost or efficiency. The scalability challenge prompted the exploration of using alternative networks like Polygon, Solana, and various L2s on Ethereum, which promised higher transaction throughput and lower costs, setting the stage for innovations like compressed NFTs [cNFTs].

In response to scalability challenges, Solana emerged as a potential game-changer for the NFT ecosystem. With its innovative Proof of History [PoH] consensus algorithm combined with Proof of Stake [PoS], Solana offers a high-throughput, low-latency platform that significantly reduces transaction costs and speeds compared with Ethereum.

This different technical approach made Solana an attractive alternative for NFT projects seeking scalability and efficiency. One example of Solana’s impact is the launch of Degenerate Ape Academy in August 2021, which saw a rapid sell-out of 10,000 NFTs in just 8 minutes, showcasing Solana’s capacity to handle high-volume transactions seamlessly.

Solana’s entry into the NFT space has not only provided a different solution to Ethereum’s congestion and high fees but also expanded the possibilities for NFT innovation, paving the way for the development of compressed NFTs. These cNFTs further capitalise on Solana’s strengths, offering a scalable and cost-effective approach to NFT creation and management, and represent a significant milestone in the evolution of the NFT marketplace.

Understanding Compressed NFTs

Compressed NFTs [cNFTs] leverage advanced data compression techniques to address scalability and efficiency within the blockchain.

State compression reduces the blockchain storage space required for each NFT by compacting its data, allowing for a more efficient use of resources. Compressed NFTs utilise state compression to efficiently store their data in a Merkle tree, contrasting with traditional NFTs that store information directly on-chain.

Traditional NFTs store their data directly on the blockchain, where it is both visible and accessible. However, with cNFTs, an external service is required to store your data.

The key innovation here is that the data is no longer stored on-chain; instead, it’s kept off-chain.

The blockchain merely holds a checksum of all the NFT information, which isn’t usable by itself and does not allow you to access the underlying information merely by examining the checksum.

To clarify, using a Merkle tree doesn’t mean you are actually storing data. Although a Merkle tree can compress data, it doesn’t allow for retrieval. You can verify the presence of data in a Merkle tree if you already possess it, but without the data itself, you cannot retrieve it from the tree alone.

Essentially, you need to have the data on hand to use the Merkle tree to confirm that the data is included in the tree. Think of it as a checksum for an arbitrary amount of data.

This approach ensures that while the detailed account data resides off-chain in RPC provider-managed data stores, the integrity and quality of the NFTs remain intact. Importantly, compressed NFTs can be seamlessly converted back to their full-quality, uncompressed Metaplex NFT counterparts, guaranteeing that the original quality and detail of the assets are preserved throughout the process.

It’s important to note that not all Solana RPC providers supply the necessary data, and Solana nodes are not obligated to provide this information either.

As long as Bubblegum is operational, the NFTs will continue to exist. However, if Bubblegum were to discontinue operations, the fate of the NFT data would remain uncertain since it is not stored on the blockchain.

Presently, only four RPC Solana providers have implemented the “Metaplex DAS API.” Should these providers cease to offer this information, the NFTs would effectively become inoperative.

This changes the minting economics on Solana by utilising state compression technology, slashing minting costs by about 24,000 times. This significant reduction in costs associated with minting makes the mass creation of NFTs extraordinarily cost-effective.

For example, whereas traditionally minting one million NFTs might cost around $250,000, with compressed NFTs, the cost drops dramatically to between $110 and $500, depending on Solana’s market price.

These changes to the set norm make cNFTs a cornerstone for scalable, cost-effective digital asset management.

Popular marketplaces on Solana, such as Magic Eden and Tensor, have implemented cNFTs.

Expanding Markets through New Distribution Models

Compressed NFTs have the potential to alter the existing distribution of NFTs, significantly lowering the barriers to entry for creators and consumers alike. By minimising the costs associated with NFT creation and transaction fees, cNFTs enable a plethora of innovative distribution models previously unfeasible due to economic constraints.

Examples include tokenised access to exclusive content, dynamic pricing models for digital art, and large-scale airdrops to engage and expand communities.

These new models leverage the inherent cost efficiencies of cNFTs to not only broaden the market’s potential size but also to introduce digital assets to a wider, more diverse audience beyond the crypto-native community.

The impact of these changes echoes the transformation seen in consumer behaviours with the advent of disruptive services like Uber and Airbnb, where cost reduction opened up new markets and usage scenarios.

The Future Prospects of Compressed NFTs

The future of compressed NFTs [cNFTs] holds immense potential to transform the digital asset landscape. As cNFT technology matures, we can anticipate broader adoption across various sectors, including gaming, art, and digital identity, further integrating NFTs into everyday digital interactions.

While Compressed NFTs [cNFTs] have promise, the future also presents challenges. The main issues with compressed NFTs often revolve around compatibility, complexity in decompression, and potential limitations in interoperability with platforms not specifically designed to support them. Addressing these issues will be crucial for maximising the benefits of cNFTs and fully realising their potential to make digital ownership more inclusive and accessible for all.

Compressed cNFTs [cNFTs] are an interesting development addressing scalability and efficiency challenges on the blockchain. By employing state compression and Merkle trees, cNFTs drastically reduce the blockchain storage space and ensure data integrity through secure, verifiable means. This brings a unique shift towards more efficient resource use and significant reductions in transaction times and costs, paving the way for a new possibility of scalable, cost-effective NFT creation and transfer.

The thesis is co-written with Nelson Ryan.

In November 2022, crypto exchange FTX filed for Chapter 11 bankruptcy protections as it attempted to assess the value of its remaining assets collapsed. The failed exchange was soon found to have an over $7b shortfall in assets due to bad loans made to sister market-making firm Alameda Research with customer deposits.

In the wake of 2022’s tumultuous events, epitomised by the downfall of FTX, the crypto community faced a stark reminder of the inherent risks in centralised exchanges. FTX’s collapse was not just a one-off scandal but the continuation of a troubling trend of centralised exchange collapses. This incident underscored a fundamental flaw in the opaque nature of centralised exchanges: the over-reliance on trust-based custodial systems. Trust, which in this case ultimately ended in fraud and mismanagement.

The Rise of DEXs

The ethos of crypto has always been rooted in decentralisation and the elimination of trust-based systems. DEXs embody this principle by enabling permissionless peer-to-peer transactions without intermediaries, mitigating the risks associated with asset exchange. The trustless exchange of one crypto asset for another enables a new way of trading assets, enabling a new way to bootstrap liquidity for a market. The growth in DEX usage reflects a broader industry shift as users seek more control over their assets and a reduction in counterparty risk.

Over the past 4 years, we have seen DEXs rise from a large niche hobbyist market to one of the primary ways transactions are settled in the crypto space. The rise of Automated Market Maker [AMM] DEXs, led primarily by Uniswap, radically simplified the DEX experience, making it easy for anyone to perform a swap in a few clicks. In 2023, the portion of DEX volume relative to CEX volume crossed over 20% reaching an all-time high driven by on-chain trading of meme coins on Ethereum.

DEXs have grown considerably in recent years, and the market is considerably larger when looking at broader centralised exchange volumes. The opportunity for DEXs remains to eat into the CEX market, which at its peak in May 2021 rose above $4 trillion in volume and over $1.1 trillion in December 2023. While CEXs historically have had an advantage over DEXs due to superior liquidity and a smoother user experience, DEXs today have an opportunity to dramatically simplify this experience, swapping one asset for another wallet to wallet. For the space to reach its full potential, there is a need for permissionless swaps.

The Future for DEXs is Cross-Chain

DEX volume today remains largely exchanging assets that exist on the same chain; however, the dream for DEXs has always been true cross-chain swaps, allowing direct exchange of one asset for another between different blockchains. While bridges offer one solution to this problem, they do come with their own trust assumptions and security risks, which may not always be clear to the end user. Seamless cross-chain swaps of one asset for another remain the gold standard for lowering the barriers between blockchains. Crypto is rapidly evolving towards a multichain future, necessitating platforms that enable seamless cross-chain interactions.

Chainflip: The Cross-Chain Liquidity Network

Chainflip is a decentralised protocol designed to address the challenges of cross-chain swaps in crypto. It stands out by enabling seamless and secure exchanges of assets between diverse blockchains, directly from users’ wallets, bypassing the need to rely on centralised exchanges or bridging solutions. Chainflip leverages a dual-layer structure comprising an Accounting Layer and a Settlement Layer. The Accounting Layer, operating on a proof-of-stake consensus, maintains the protocol’s state, including tracking deposits, withdrawals, and swaps.

Chainflip simplifies the user experience of cross-chain swaps by eliminating the complexities associated with wrapped tokens and specialised wallets. The protocol achieves this through a robust network of validators and the use of Threshold Signature Schemes, minimising reliance on centralised entities and single points of failure.

Why is Chainflip better than existing approaches to cross-chain swaps?

Unlike some existing IBC-reliant approaches, Chainflip offers true interoperability between different blockchains without requiring any modifications to the existing chain infrastructure. Chainflip achieves this by facilitating swaps directly from wallet to wallet without using wrapped tokens or specific blockchain integrations, which can limit their scope and increase complexity. This approach also dramatically improves Chainflip’s user experience with users performing swaps directly from their wallets, without transferring assets to a centralised exchange or navigating complex bridging protocols.

The Settlement Layer, known as the Chainflip Engine, manages the actual transfer of assets across different blockchains. Central to its operation are validators, collectively forming the Authority Set, chosen through auctions based on their stake in the native token, FLIP. These validators are crucial for both layers, holding private keys for consensus participation and Multi-Party Computation [MPC]. The protocol utilises vaults for liquidity storage, including smart contract-based Vault Contracts and Native Wallet Vaults, both operating under a Threshold Signature Scheme [TSS] with FROST [Flexible Round-Optimised Schnorr Threshold] for enhanced security and efficiency.

Why is Chainflip better than existing approaches to cross-chain swaps?

Unlike some existing approaches, Chainflip offers true interoperability between different blockchains without requiring any modifications to the existing chain infrastructure. Chainflip achieves this by facilitating swaps directly from wallet to wallet without relying on wrapped tokens or specific blockchain integrations, which can limit their scope and increase complexity. This approach also dramatically improves Chainflip’s user experience with users performing swaps directly from their wallets, without transferring assets to a centralised exchange or navigating complex bridging protocols.

Chainflip also differs from existing cross-chain solutions like Thorchain through its Just-In-Time [JIT] AMM model. Similar to Uniswap v3, Chainflip’s JIT AMM encourages active participation from market makers, allowing them to actively set liquidity ranges in line with market dynamics. By leaning into Just In Time liquidity, Chainflip incentivises market makers to compete with each other to offer the best price for end users, ensuring users receive prices close to the global index market price.

FLIP Token

The FLIP token in the Chainflip ecosystem is used as collateral for accounts on the State-Chain, operates relayers, and allows users to participate in Validator auctions. Unlike in other Proof of Stake Networks, to become a validator in Chainflip’s validator set, participants must bid for slots in the validator set in an auction, which is held every roughly 12 hours.

As validator rewards are not dependent on the number of FLIP tokens staked, participants in these validator auctions bid the amount of FLIP they are willing to stake to join the active validator set. As network emissions for authority validators are currently set at roughly 7%, through this open process, validator returns are determined by the market through these validator auctions. To help offset this issuance, Chainflip also implements a burn mechanism similar to Ethereum’s EIP-1559 model. To achieve this, the protocol charges a 0.10% network fee on all swaps facilitated by the network in USDC, which is periodically used to buy and burn FLIP tokens from the native FLIP/USD pool. This mechanism not only provides rewards for Validators but also provides offsetting deflationary pressures on the supply over time.

What’s the future for Chainflip?

As the network expands, we believe Chainflip will play a key role in moving the industry away from centralised intermediaries to decentralised exchanges. This shift towards decentralised exchange is not just a reaction to past failures but a proactive step towards realising the full potential of crypto. We believe that Chainflip is a major step in that direction, lowering the barriers between networks, connecting currently siloed ecosystems to the wider network of chains and a step towards a more open, transparent and secure financial system.

Support Chainflip’s Mission

• Swap on Chainflip - https://swap.chainflip.io/

• Docs - https://docs.chainflip.io/concepts/welcome

• Twitter - https://twitter.com/Chainflip

• Discord - https://discord.gg/chainflip-community

Disclosure: Eden Block is an investor in Chainflip.

Nothing contained herein constitutes investment, legal, tax, or other advice nor is to be relied upon in making an investment or other decision. This presentation contains the opinions of the author, and such opinions are subject to change without notice. Furthermore, it may also include data and opinions derived from third-party sources. Eden Block does not accept liability for the accuracy or completeness of any such information or opinions which can be subject to change without notice.

One of the most compelling aspects of NFTs is the community element. Owning a particular NFT often grants access to exclusive communities, events, or content. These communities have flourished because they offer more than just ownership; they offer a sense of belonging and engagement. For example, owning a Bored Ape Yacht Club NFT grants access to virtual parties and real-world events, creating a holistic experience around the digital asset.

Despite these advancements, NFTs in their current form have limitations. Currently, their utility is mostly confined to buying, selling, and trading. They are largely static, two-dimensional assets with limited interactive capabilities. While they have enabled new forms of digital ownership and community engagement, they have not fully realised the potential for dynamic, interactive experiences. NFTs still have much to prove in terms of long-term value and utility. Yet, the intrigue surrounding them is undeniable, hinting at an underlying potential waiting to be fully realised. Breakthroughs like ERC-6551 could be pivotal in this journey, shaping the next chapter of NFTs and solidifying their place in the digital landscape.

ERC-721: The Blueprint for NFTs

The current standard universally adopted by the developer community for NFTs is ERC-721.

This standard governs the creation and management of NFTs, which are unique cryptographic assets on a blockchain, distinguished by individualised codes and metadata.

The ERC-721 standard provides a blueprint for creating non-fungible tokens on the Ethereum blockchain, specifying a set of standard functions that smart contracts can implement. It allows for the ownership and transfer of these unique assets using Ethereum’s existing infrastructure, and it’s fully compatible with Ethereum wallets that support the ERC-721 standard.

Legacy of CryptoKitties

The standard was first introduced in 2017 with the launch of CryptoKitties, starting the craze around NFTs that turned into NFT spring in 2021, with digital art and collectables largely propelling the ERC-721 standard forward, beyond the crypto native audience.

CryptoKitties was a pioneering game built on the Ethereum blockchain by Dapper Labs that allowed users to purchase, trade, and breed unique digital cats. It was the first mainstream application of NFTs, setting the stage for other popular collectables such as NBA Top Shot [Dapper Labs], Bored Ape Yacht Club [Yuga Labs], Cryptopunks [Larva Labs] and Sorare. Unlike traditional games, each CryptoKitty is a unique NFT, with distinct traits and characteristics, even if they share the same parentage.

CryptoKitties was more than just a game; it was a phenomenon that had a significant impact on the Ethereum network itself. At its peak, CryptoKitties accounted for 13% of all transactions on Ethereum, causing noticeable congestion and highlighting the network’s scalability issues. This led to an increase in Ethereum’s gas fees and forced CryptoKitties to adjust its breeding fees temporarily. The game’s overwhelming popularity and the challenges it posed to Ethereum’s infrastructure accelerated the development of Layer 2 solutions aimed at improving scalability.

When we talk about NFTs and their history, CryptoKitties serves as a seminal chapter. It not only popularised NFTs, but it also pushed the boundaries and established a standard that is widely used to this day.

The first NFT project on Ethereum is Cryptopunks, a precursor to the ERC-721 standard. A collection of 10,000 Cryptopunks, with 6,039 male NFTs and 3,840 female NFTs, with the rarest Cryptopunks being the 88 zombies, 24 apes and 9 aliens. Cryptopunks opened the door for the scarcity model that drove the NFT adoption, affecting availability and determining how many items are for sale at a time. Higher scarcity can drive up prices with growing demand.

While Cryptopunks demonstrated the potential for unique digital assets, it also highlighted the standard’s focus on scarcity rather than utility or meaningful interactivity. This has left the NFT community yearning for more dynamic and functional forms of digital ownership.

The primary issue with the ERC-721 standard is its static nature, which has become increasingly evident as the NFT space has matured. While the standard has enabled unique digital ownership, most of its value has been derived from speculative trading and off-chain activities. This has led to a landscape where the social and graphical aspects of NFTs have evolved significantly, although the underlying smart contracts and on-chain functionalities have largely remained stagnant. This disconnect between social evolution and technical stagnation has created a gap in the market, one that ERC-6551 aims to fill.

Introducing ERC-6551: Adding a Third Dimension to NFTs

ERC-6551 is not just another incremental update; it’s a paradigm shift in how we understand and interact with NFTs. By introducing the concept of Token Bound Accounts, ERC-6551 transforms NFTs from mere digital collectables into functional smart contract accounts. This opens up a world of possibilities, adding layers of utility and functionality that have been conspicuously missing in the traditional ERC-721 framework. It’s a transformative standard that aims to make NFTs more than just digital collectables, turning them into versatile assets with a wide range of applications.

The concept of TBA is not entirely novel in its essence, as evidenced by Uniswap V3’s pre-existing, non-standardised TBAs, as the platform used NFTs to represent concentrated liquidity positions for LPs in a trading pool. ERC-6551 standard expands its potential applications.

For example, it can serve as:

• An entity within a web3 game housing other on-chain in-game assets,

• A diversified digital asset investment portfolio, or

• A membership credential embedded with tickets and vouchers provides the owner access to specific services.

Backwards Compatibility & Enhanced User Experience

Importantly, the ERC-6551 standard is designed for backwards compatibility, requiring no modifications to extant ERC-721-compliant contracts and systems. This means that the transfer of an NFT inherently shifts control of the associated TBAs to the new owner. Additionally, the standard allows users to maintain multiple smart contract accounts with varying implementations, thereby offering a more modular approach to asset ownership.

A singleton ERC-6551 registry contract is tasked with generating TBAs upon demand. Utilising a single, unified contract guarantees that all TBAs are catalogued and can be accessed via the authoritative registry, thereby simplifying the process of TBA monitoring.

One of the most compelling advantages of ERC-6551 is its impact on user experience and security. The standard eliminates the cumbersome and risky need for seed phrases or private keys for account recovery. This is a significant step forward in making blockchain more accessible and secure for the average user. By reducing the risk associated with account loss due to misplaced seed phrases, ERC-6551 adds an extra layer of security and peace of mind for NFT owners.

Composability Across Multiple Domains

ERC-6551’s competitive edge lies in its ability to offer composability across multiple domains. For instance, in the realm of digital fashion and customisation, projects like RTFKT and CloneX can now enable users to equip digital outfits and items directly through their NFTs. Financially, ERC-6551 enables new models like ERC-20 token earning and airdrops, as demonstrated by projects like BAYC and Cool Cats. Furthermore, the standard allows NFTs to serve as on-chain identities, enabling layered social network models seen by implementation with Lens Protocol and community loyalty systems. It even extends to asset management and curation, providing the ability to mint or curate baskets of assets, ranging from art to DeFi instruments. The integration into the DeFi space means that NFTs can be used as collateral for loans or even staked in liquidity pools. This bridges the gap between traditional finance and the digital world, offering new financial products and services centred around NFTs. ERC-6551 enables NFTs to be tied to real-world assets, allowing for the tokenisation of physical goods. This means assets such as real estate, art, or even intellectual property can be represented as NFTs on the blockchain, making them easily tradable and accessible to a global audience.

As ERC-6551 gains traction, the NFT market is set for a fascinating evolution. The challenge lies in balancing the newfound utility with the speculative nature that has characterised NFTs so far. The success of ERC-6551 will hinge on how well it can integrate into existing ecosystems while providing tangible benefits that go beyond mere ownership. It’s a delicate balance, but one that could redefine the very fabric of the NFT market.

ERC-6551 is poised to be a catalyst for innovation in the realms of NFTs and blockchain-based gaming. NFTs will evolve beyond mere profile pictures or static artworks, incorporating dynamic, composable, and interactive elements. When integrated with Account Abstraction [ERC-4337], a marked improvement in Web3 user experience can be anticipated.

However, the expanded capabilities of ERC-6551 necessitate heightened vigilance regarding security risks. As NFTs become more valuable and complex, they become increasingly attractive targets for hackers looking to exploit intricate mechanisms in decentralised applications and games.

Built upon the foundational framework of ERC-721, ERC-6551 is still in the testing phase. Nonetheless, its potential to significantly accelerate the evolution of NFTs is clear. The NFT landscape is on the cusp of a transformative shift, with ERC-6551 laying the groundwork for a new generation of feature-rich digital assets.

Blend by Blur, an innovative lending platform in the NFT space, has introduced an intriguing (Buy Now, Pay Later BNPL) service that combines the flexibility of peer-to-peer lending with the fluidity of peer-to-pool lending.

While this service offers new opportunities for borrowers and lenders, it is essential to carefully assess the potential risks associated with Blend’s lending mechanism. This article explores the implications of Blend’s BNPL service, including financial instability, increased market volatility, risks in loan refinancing, overreliance on floor price, limited repayment options, lack of transparency and regulation, potential illegality, and the impact on attachment and emotional value of NFTs. Understanding these risks is crucial for participants in the NFT market to make informed decisions and ensure responsible lending practices.

Blend’s BNPL service allows users to borrow funds against their NFT assets, enabling them to make NFT purchases with deferred payments. The service incorporates features such as perpetual terms, no oracle-based liquidations, refinancing via auctions, and automatic loan refinancing. While it aims to provide liquidity and flexibility, it is important to consider the potential risks associated with these functionalities.

Financial Instability and Debt Burden:

Blend’s BNPL service introduces the potential for users to accumulate more debt than they can handle. The ease of borrowing and deferred payments may lead individuals to overextend themselves financially, resulting in difficulties in repaying loans, defaults, and a negative perception of the NFT market. This can discourage new entrants from participating and disrupt the overall stability of the market.

Increased Market Volatility:

By using borrowed funds to purchase NFTs, users may amplify price fluctuations and market volatility. Leveraged positions could force borrowers to sell their NFTs when the floor price approaches their borrowed amounts. This selling pressure may trigger cascading effects, leading to rapid price declines and market instability. The increased volatility resulting from these practices can undermine investor confidence and hinder the market’s long-term stability.

Inherent Risks in Loan Refinancing:

Blend’s automatic refinancing mechanism introduces potential risks for borrowers. Refinancing loans with new lenders may expose borrowers to unfavourable loan terms, such as significantly higher interest rates. This can increase the likelihood of loan defaults and negatively impact the reputation of the NFT market. Borrowers may find themselves caught in unfavourable loan agreements, exacerbating their financial burdens and potentially deterring their participation in the market.

Overreliance on Floor Price:

Blend’s BNPL service heavily relies on the concept of floor price as collateral. However, floor prices are volatile and subject to manipulation. Depending solely on floor prices as a measure of NFT value introduces uncertainty for borrowers and lenders. Inaccurate valuations can lead to misjudgments in loan amounts and repayment obligations, posing additional risks within Blend’s lending framework.

Limited Repayment Options:

Currently, borrowers using Blend’s BNPL service are required to repay the full amount of their borrowed balance. This limited flexibility in repayment options can create challenges for borrowers in managing their financial obligations.

Lack of Transparency and Regulation:

The text highlights the lack of clear regulations and oversight surrounding Blend’s BNPL service. This absence of transparency and regulatory framework can pave the way for predatory lending practices or market manipulation. Without robust safeguards and transparent regulations, concerns arise regarding the fair treatment of borrowers and the overall integrity of the NFT market. The lack of regulatory oversight can erode trust among potential users, hampering the broader adoption of NFTs.

Potential Illegality:

Operating within a regulatory grey area or potentially even being considered illegal in certain jurisdictions, Blend’s BNPL service may expose both borrowers and lenders to legal consequences. Engaging in unregulated or illegal lending practices can significantly damage the reputation of the NFT market and discourage new participants from entering the space.

Impact on Attachment and Emotional Value of NFTs:

While Blend’s BNPL service adds liquidity and flexibility to the NFT market, it also carries the risk of encouraging speculation and prioritising trading over collecting. The availability of borrowed funds and the flexibility to enter leveraged positions may incentivise users to prioritise short-term profit-seeking rather than appreciating the artistic or emotional value of NFTs. The emphasis on speculation and trading may undermine the long-term growth and stability of the NFT market, favouring quick gains over fostering a community that values the artistic narratives and cultural significance encapsulated within these digital assets.

In conclusion, the interplay between Blend’s BNPL service, the adoption rates of short-term collateralised lending, and the changing sentiment within the NFT market presents a fascinating landscape to watch. The future of the NFT market will depend on how stakeholders navigate these dynamics, striking a harmonious balance between financial innovation, artistic appreciation, and the preservation of emotional value within the NFT space.

Ethereum’s developers opt to delay the Surge (the network’s sequel to the Merge), instead prioritising ETH 2 withdrawals.

Ethereum’s developers are focused on Beacon Chain withdrawals for the Shanghai Update, the next update for the network, expected to go live in the third quarter of 2023.

The update is driving the EIP-4844 discussion, with an activation of proto-danksharding (the Surge) in a separate update, with an expectation of going live post-Shanghai update.

The Surge is expected to improve the network’s performance, as well as decrease transaction costs. This, in turn, will allow greater scalability of L2 roll-ups. Proto-danksharding is the first of two-part processes that Ethereum plans to implement to achieve full sharding, dividing Ethereum’s workload across small chains working in tandem. Upon implementation, EIP-4844 will allow downloads of a small portion of each block produced by the network through L2 validations. Simultaneously giving the ability to validators to delete historical data older than 30 days, allowing a reduction of computational barriers to become a validator.

Looking forward to further discussions on Ethereum developments in 2023.

This article serves as an outlook & personal observation on the current state of creator royalties within the NFT market. Bringing trends, shortcomings and expectations.

NFTs are a transformative chess piece for remedying the existing inequalities within the creator economy.

Within this written offering, I look to unravel the value within creator royalties, explore ongoing market sentiment surrounding the topic and present a personal stance on the debate.

There has been a changing sentiment over creator royalties within the NFT market. Through the ongoing market developments, we can observe the gradual erosion of creator royalties, with a cost leadership war between NFT marketplaces.

Vanishing creator royalties paired with the prolonged bear market serve as a direct representation of the critical errors and arguable signs of complacency the NFT market is currently experiencing.

This debate presents an existential threat to creators within the industry and questions the status quo of the incumbent NFT marketplaces, with existing industry players gradually opting into an optional royalty policy.

To uncover the conversation further, it is essential to dive deeper into both sides of the discussion.

What is the inherent benefit of royalties within the NFT ecosystem?

Creator royalties play a significant role in the economics of NFTs.

Posing as a risk-sharing mechanism, enhancing trading via splitting the risk associated with future price volatility, is particularly applicable for low-risk sensitivity incumbents within the market. Aligning incentives long-term, as higher acting as a direct incentive for higher pricing in the future. 

Creator royalties allow price discrimination, as royalties are a tool to capture value from heterogeneous buyers.

Due to the inevitable information asymmetry, dynamic pricing is present, as further value is extracted from better-informed participants long-term.

Creator royalties ensure project longevity and incentivise innovation, with the secondary sales revenue serving as the capital for unique value creation for holders post-mint.

Royalties act as a redistribution mechanism of equity for the artist's work, empowering creatives and transforming the norm for pricing. Free mint has been a prevalent phenomenon within the market, a key example of projects relying on royalties for development funding capital.

This allows creators to continue to benefit financially from their work post the initial sale and incentivises them to continue the production of new and innovative content.

What is the inherent drawback of royalties within the NFT ecosystem?

The NFT ecosystem's reliance on creator royalties as a means of compensating creators for their work presents several inherent drawbacks that have sparked a debate about alternative solutions.

As the market matures and new infrastructure is developed, the need for royalties as a means of compensation becomes less essential.

One such solution gaining traction is Blur, which utilises a community-driven approach to compensation, bypassing the need for creator royalties.

This method is gaining traction as it addresses issues such as a lack of transparency in the distribution of royalties, the potential for founders to manipulate the market through the generation of 'FUD', and a lack of transparency as a primary speculation tactic.

Lowering commissions through creator royalties allows for an opportunity for creators to charge a higher rate during the mint up front, leading to higher liquidity for the projects and therefore more commissions over the long run ,giving more capital to innovate and develop products for the community. Simultaneously lowering the hurdle rate during purchase.

Assessing the situation from the standpoint of a trader, the high gas fees associated with the purchase and sale of NFTs can act as a significant burden, and the added cost of creator royalties only exacerbates the issue. In turn, this potentially discourages traders from participating in the market and makes it difficult for creators to gain fair compensation for their work long-term.

Additionally, there are examples of founders creating 'FUD' in order to artificially inflate the value of their own projects in order to collect a higher royalty rate, further undermining the integrity of the creator royalty's place within the NFT market.

Furthermore, the current system of creator royalties also affects the liquidity of NFTs, with particular NFTs remaining locked up in creator wallets, unable to be sold, simultaneously affecting the overall value of NFTs as the royalties are often subtracted from the total value of the NFT, creating a negative impact on the overall market.

These drawbacks highlight the need for more research and experimentation with alternative solutions, such as Blur, to ensure that the NFT ecosystem can sustainably support creators while maintaining a fair and transparent market for traders and investors.

Despite these concerns, many reap that the benefits of creator royalties outweigh the drawbacks.

OpenSea recently announced its decision to enforce creator royalties on all sales of NFTs listed on its platform. Creators will receive a percentage of each sale of their NFTs, regardless of the buyer or seller. In turn, this significantly impacts project founders and traders within the ecosystem. Founders achieve a stable source of revenue through the policy, with a consistent rate of royalties as their work is sold on the platform. Serving as a means of further monetising their work and as a reward allocation for creativity.

Although meaning that the value of an NFT will be affected by the percentage of royalties that must be paid to the creator, consequently decreasing the overall value of the NFT and creating potential challenges for traders.

For traders, the decision to enforce creator royalties could mean an additional cost associated with buying and selling NFTs on OpenSea. The royalties will be added on top of the already high gas fees associated with buying and selling NFTs, which may discourage some traders from participating in the market. Additionally, the royalties may also decrease the overall value of an NFT, making it more difficult for traders to make a profit on their investments. Traders have to consider the liquidity of NFTs, as particular NFTs may remain locked up in creators' wallets, unable to be sold, due to royalties.

The decision to enforce creator royalties on OpenSea is a significant development for the NFT ecosystem, potentially impacting the market potentially able to provide a stable source of revenue for creators, simultaneously creating new challenges for traders and investors in the market.

Through unique stances and platforms, opting for embedding royalties has been an ignition in the debate of royalty enforcement beyond the social layer, on the protocol layer. 

Encoding royalty rules for NFT sales on the protocol layer creates efficiency and transparency. Decentralisation is a key benefit of enforcing royalties on the protocol layer, with the absence of a central authority to enforce royalty payments eliminating the risk of potential bias in the system. This provides a level playing field for all participants, as all transactions are governed by the same set of rules encoded in the protocol. The rules are visible to all participants and cannot be altered without consensus, providing a transparent and fair system for NFT sales. The rules are also recorded on an immutable ledger, further increasing trust in the system.

With many NFT sales potentially happening simultaneously, the automation of royalty calculations and distribution ensures that creators receive their proper share of revenue, without the need for manual intervention. Increasing efficiency and reducing the overhead costs associated with manual calculation and distribution.

Royalties are necessary to support the long-term growth and development of the NFT market and are crucial pieces for ensuring fair creator compensation for their work. NFTs have the potential to revolutionise the creator economy by empowering artists and redistributing equity through royalties. With many increasing in regard to the impact of royalties on the secondary market, the benefits of royalties far outweigh the drawbacks. It is crucial for the industry to continue to explore ways to support the growth and development of the NFT market simultaneously not neglecting founders, and ensuring fair work compensation.

Looking forward to further discussions on creator royalties.

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