On this rendition of Flywheel we had on DeFi Surfer, an investor and substackoor who is known for his contrarian takes. Coming from a TradFi background, it was clear what he looked for in prospective projects (cash flow and sustainability) yet was open to the creativity and innovation that is apparent in DeFi presently. It is no wonder why he is so bullish Arbitrum which has had a plethora of novel applications being built on it for a while. At the same time, Surfer recognizes the difficulties of mass adoption in DeFi’s current form gives. tremendous opportunity to some of the industry’s biggest players.
Check out the full interview for all of Surfer’s insights.
DeFi is Intimidating Which Allows CEXs to Dominate
Like many, DeFi Surfer originally was a Bitcoin Maxi when he first got into crypto. Yet as time went on, he became more interested in Ethereum due to the fact that applications could be built on top of it. Reflecting on his journey, he was open about the hurdles of interacting with the world on-chain whether it was self-custody or being comfortable confirming transactions on Metamask.
It is because of these obstacles that he thinks their will be a huge opportunity for exchanges like Binance and Coinbase are best suited to abstract away the complexities of these decentralized systems for their customers. In his words “Coinbase could be the freeway into Web 3.” Already, these organizations have launched their own chains (BNB, Base) and through its resources could leverage their positions as on/off ramps into crypto to funnel users there.
Arbitrum Wins Because it has Awesome Apps
With the recent Arbitrum airdrop having taken place, it brought a lot of attention again to L2s. Yet, what has differentiated Arbitrum from its peers is how they have done a phenomenal job organically attracting a a builder-first community which has in turn made it one of the hubs of innovation within DeFi. GMX has been Arbitrum’s killer app who’s primitives such as GLP have been the most popular to build on top of. By creating a flywheel of attracting apps that people want to use, users and liquidity becomes stickier and stickier. Even as the bear market has dropped TVLs by a large margin, Arbitrum has been one of the few L2s/alt-L1s that has legitimate adoption.
The Silvergate Collapse was Swift
The entire collapse of Silvergate was “frustrating” for DeFiSurfer, as they were providing a number of services for crypto companies. He believes that the primary cause of their downfall was their close relationship with none other than FTX who’s collapse sent shockwaves throughout the industry. When the exchange went under, it “spooked” their deposit base and sent them running to other institutions. Silvergate went from 14bn in deposits to 0 in the course of 5 months. It’s a crazy “fear-driven situation” that was originally sparked by the malfeasance of SBF. Furthermore, rising interest rates are likely to have pushed many to seek new opportunities outside of Silvergate.
Surfer’s Advice with Frax
Towards the end of the interview Surfer’s brought up his main concern with Frax…. how could they maintain an operation at its current scale with its core team in the single digits? Compared to Coinbase or Binance which collectively employee thousands of people, it makes an outsider wonder how competiting with them would be feasible unless the Frax DAO boasted similar numbers? Well, the answer is simple, the smart contract handles most of the work and one elite DeFi dev is worth a priceless amount compared 10 average devs.
Surfer may have a point though that Frax does need more builders not on the core team but contributing in the ecosystem. Hackathons and other incentive programs could be the answer to motivate builders to build on Frax and integrate them into their projects.
Not financial or tax advice. This article is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This post is not tax advice. Talk to your accountant. Do your own research.