Original author: Richard Chen, partner of venture capital firm 1Confirmation, early investor of OpenSea

Editing of the original text: The Way of the Yuan Universe

Late last year, I wrote an article about three unobtrusive product trends for 2021. Before I make my three predictions for 2022, let's review my performance.

1. Crypto art

Conclusion: correct

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Source: https://cryptoart.io/data

I'll review two sentences I wrote in my 2021 forecast:

"DeFi maximalists currently regard NFT as a toy, which is reminiscent of BTC maximalists' denial of dApps in 2018." ——Those DeFi Twitter influencers who were publicly very bearish on NFT a year ago suddenly came A 180-degree change, began to promote and hype PFP, and even raised NFT funds. “There are currently three artists with a combined value of more than $1 million and 43 artists with a combined value of more than $100,000. I expect to see far more than that by the end of 2021.” — Today, the total value of artworks exceeds There are 4 artists with US$100 million, 46 with more than US$10 million, 268 with more than US$1 million, and 1,283 with more than 100,000 US$.

2. Prediction markets

Conclusion: don't know

Between the 2020 U.S. presidential election and the inauguration, Polymarket saw a spike in trading volumes in January. Trump supporters who believe in #stopthesteal continue to buy Trump stock at 10 cents on the dollar, giving those who believe otherwise a 10% "arb" opportunity. But outside of one-off events like major real-world politics, prediction markets struggle to sustain volume. I think prediction markets and decentralized social networks are two killer use cases for cryptocurrencies, but the product-market timing is still further off than I initially thought.

3. DeFi derivatives

Conclusion: correct

I tweeted my popular opinion that 2021 DeFi has reached the point of adding functional improvements (such as better stablecoins to replace the original stablecoins), or replicating work on Ethereum to other L1s.

The few 0-to-1 innovations we’ve seen in DeFi this year center around derivatives. Index Coop and Ribbon build structured products that provide exposure to index and income strategies. Notional launches fixed-rate lending. But more importantly, the two major innovations of DeFi this year, Uniswap v3 and Primitive.

Uniswap v3 redefines the meaning of a liquidity provider, reconsiders capital efficiency rather than total value locked as a KPI for DeFi projects, and launches a structured product ecosystem, such as Gamma building a market-making strategy on top of Uniswap. Since the release of v3, Uniswap’s DEX market share has increased from 45% to 75% (Sushi’s has decreased from 24% to 12%), because the transaction volume has converged to the AMM with the best execution.

Primitive is also the first project to implement a replicating market maker. Given the expected return of a particular financial derivative (e.g. options, swaps), a binding curve function can be constructed to replicate this derivative in the AMM spot market. This is a big deal for DeFi options, as options are the last category in DeFi without a clear market leader - tradfi options are difficult to replicate on-chain due to things like gas and liquidity fragmentation. Going forward, I believe Primitive will reinvent existing options projects in the same way that Uniswap did with previous order book DEXs such as EtherDelta and Radar Relay.

A look at three unobtrusive product trends for 2022

1. Vertical specific NFT market

OpenSea is clearly the biggest winner in our portfolio. While it will continue to be a timeless company and dominate the NFT secondary market, I believe vertical specific markets will carve out niches due to better UI/UX and search and discovery capabilities. SuperRare is a successful example of high-end 1/1 crypto art, but there are other categories like photography (eg Sloika), metaverse lands (eg Metahood), and music (eg Catalog).

A breakdown of the Craigslist infographic that web2 VCs love to use to guide thought.

I will place a special emphasis on music NFTs. Unlike other categories such as fine art, collectibles, and games, music NFTs have surprisingly not yet exploded, but I feel that collectors' tastes are changing rapidly. Catalog, the leading music NFT market, ushered in a breakthrough month in October, and the volume chart easily reminds me of what I saw at SuperRare in early 2020 before the explosion of crypto art. With music, it's just a matter of "when" not "if".

2. Trust-minimized cross-chain bridge

Almost all cross-chain bridges today are variants of trusted multisig. Specifically the Ethereum-to-Avalanche bridge, an External Ethereum Address Account (EOA) whose private keys are split among four trusted Intel SGX signers, and which holds over $6 billion in user funds.

These bridges are huge honeypots, and I predict cross-chain bridge hacks will be the new CEX and DeFi hacks. The $611 million Poly Network hack is just the tip of the iceberg of what lies ahead.

Fortunately, more trust-minimized bridging products are entering the market. Hop is currently the leading trust-minimized bridge product that uses bond brokers and stablecoin exchange AMMs to rebalance the funds between the two sides of the bridge. While the focus of bridges thus far has been token transfers, the holy grail and an active area of ​​research now is how to transfer information across chains in a trustless manner. This cross-chain composability will enable a plethora of new use cases. DeFi project smart contracts on Ethereum L1 will be able to call smart contract functions on L2 or side chains.

3. Invest in DAOs

I like to think of investing in DAOs as segmenting collectors rather than works of art. The problem with fragmenting NFTs as I see them is that fragmented tokens (ERC-20s) are not traded on top of the underlying NFTs (ERC-721s or ERC-1155s), because if their prices deviate significantly, there is no way to arbitrage. So it doesn't make sense to hold fragmented tokens as cheap index exposure to specific blue chip NFTs like CryptoPunks.

FlamingoDAO is by far the most successful investment DAO, and we have also seen DAOs starting to be used for large group purchases, such as the US Constitution and Ross Ulbricht's artwork, etc. The process today involves deploying Gnosis Safe, but I'd like to see better tools like Koop that facilitate easier group purchases of expensive NFTs. It's an open secret that 99% of NFTs won't hold their value long-term, and it's an open secret that expensive blue-chip NFTs (CryptoPunks, Bored Apes, etc.) will hold the best value. Investing in DAOs is the cleanest way to give the masses better access to high-end NFTs.