DeFi, NFTs, What’s Next? Part I: How Did We Get Here?
Part One: How Did We Get Here?
One of the ways to answer “what’s the next big thing?” would be looking back on what already happened and figuring out why.
For those long enough in crypto, each new stage of its development did not come as a surprise, but in case you’ve been doing something else for the last couple years (hopefully, chilling somewhere on a beach) here’s a fast-forwarded recap.
First, Bitcoin introduced the idea of a protocol for decentralized trustless currency. People quickly figured out that there could be more than one coin — sprawling a multitude of alt coins. Also, a race for faster and cheaper transactions started. A number of popular blockchains emerged, requiring also a way to exchange between them — all kinds of swap tools and bridges branched from here.
Then Ethereum proved that a token could wield interesting properties and have more complex logic behind its behaviour while they also provided the means for anyone to build such tokens. One of the standards was ERC20, but you may know it as the Non Fungible Token, but before ape pictures became a thing there was also DeFi.
What do you do, when you have some form of money and a tool to build programmable logic around it? Finance, of course! All kinds of financial instruments were created — most of them work much similar to the traditional ones like loans or options, but the mechanisms around the blockchains, such as staking for one example, also provided some new things to do with your coins. Yet, that was not enough.
There was the problem: while you could trade a coin for another coin, or stake it into a pool to provide liquidity for others to swap coins — there was not much else to do with it. For the insiders, NFTs have been around for several years. OpenSea already existed for quite some time. So what happened in 2021?
Each cycle of innovation had been built on a backbone of not just technological, but also social, and economical advancement.
Let’s take a quick detour to talk about how innovation works. Each cycle of innovation had been built on a backbone of not just technological, but also social, and economical advancement. Breakthrough is not a puzzle with meticulously crafted pieces that precisely fit each other, think of it in terms of a chemical reaction: it takes multiple components, mixed in the right order, auspicious conditions like temperature or the right amount of heat applied over time in order to make the compound work and produce something new.
In case of NFTs, there were several components to the mix:
- a growing number of crypto literate people with adequate amounts of currency in their wallets;
- a question “what else I could do with my coins?”;
- an outside trend of rapidly growing creator economy with artists of all kinds searching new forms to express themselves, make sustainable profits out of a hobby, and find a way to hack the old fashioned art-selling business;
- a friendly interface (you should never underestimate how much it means in terms of new tech adoption speed);
- and a handful of memes (I see your smile, but that’s how social trends work — you need a Trojan horse, something familiar which conceals something entirely new);
With all things listed in place a chain reaction ensured. The memes (nyan cat, for example) helped create precedents (“a digital picture sold for insane amount of money”), propagate the news and create the initial buzz to attract attention, but most important of all to communicate that there’s now an entirely different market for creatives with whole new set of mechanisms to own, distribute, and trade objects of digital-art.
Had there been any of the ingredients missing, nothing would happen — technology to make NFTs possible, platforms to trade them with convenient and user friendly interfaces, people with money interested to buy and collect digital art, widespread attention, and, of course, the artists and creators themselves.
People came for the art-ownership, but stayed to support the creators.
Another plausible driver for the NFTs rise might be that they are one of the first exclusively crypto/web3 community things — something of our own making entirely.
We go deep into the NFTs phenomena in such detail, because it illustrates in a very transparent way that for some new trend to emerge only technology is not enough, some other crucial things are required.
One more thing to note here, the technology enables new trends, but not immediately after its been developed — it has to sit there for some time for people to play around and figure out its capabilities.
Now back to the next big thing! We have shown that apart from tech infrastructure something else is required — several groups of independent actors, certain levels of expectations, demand, and saturation.
Where do we go from here? Stay tuned for the upcoming part two of the series.
This article is brought to you by the Super Protocol team and is a part of an ongoing series with our musing on the current state of web3, its core concepts, and plausible future scenarios.
Author: Artemy Domozhakov-Liarskii