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A Return to Common Sense


If you followed my twitter (@simiao_li) for the past month, you'd probably already seen me reiterating a general theme of returning to common sense. This is so underrated in crypto that I think a dedicated piece is warranted. I'm writing this in one-go and mostly just reflecting what we've been internally discussing since July, so won't bother to edit for perfection. Forgive me for oversimplication. Also, NFA, please don't short local bottom reading this.

TLDR:

  • In markets with extreme degree of reflexivity, the exactness of some "truth" most serious people seek often doesn't matter. But common sense very much does. Don't find comfort in the exactness of "fundamental analysis" while losing sight of common sense.

  • A few common sensical rules that are violated now (still) in crypto, and should be corrected through the natural process of the market.

  • Rule 1: If you see scammy/opportunistic behaviors that rely on easy money falling from the sky, that's not how things normally work.

  • Rule 2: If you still see optics/appearances >>> substance in lots of key opinion leaders, builders, and investors, that's not how valuable enterprises are built. Understand countersignals.

  • Rule 3: Scammy & manipulative behaviors still persist? And little net value accrue to asset holders? That's not the sign of asset classes ready for big-money value investors.

  • The ability and courage to stick to common sense is rare, because crypto and crypto twitter allow for the most obnoxious kind of media-price manipulative complex, and because of trained muscle memory of 10yr of UPONLY.

Bureaucratic Exactness vs. Common Sense

In crypto, perhaps more than in any other markets, the price is exorbitant for pursuing bureaucratic exactness at the expense of losing common sense.

  • You can calculate every little detail of bluechip projects, and yet still mistake cyclical levered beta as secular growth (e.g. Lido, DeFi in general).

  • Most of the time, the market doesn't give a shit to exact fundamental calculations because we are talking about an emerging onchain native economy (Ethereum) that barely has any existing consumption behavior. Most projects on ETH exist to burn gas through speculative activities and are derivative to the network effect of Ethereum, not really net-value-additive to it.

  • There's no amount of exactness that can compensate for a lack of appreciation in the meta-game being played:

  • Ethereum wants projects that burn gas and increase capital efficiency of existing TVL on this chain. Projects that do either of these most efficiently will rise in price. Often times, one project only does this for a short period of time until the next one spins up. Defi ponzis are dead, so next up is RWA onchain t-bills just to keep TVL staying in crypto.

  • Only when new projects that actually introduce net new inflow of users and capital emerge can we get over this extreme PvP.

We are at a time when such PvP games being played have almost run to exhaustion, while little new consumer behavior and actual applications have emerged in the last two years and more.

A few greenshoots I'm seeing:

  • Prediction markets: polymarket et al.

  • Fun casino: Rollbit.

  • Early utility use case of NFT: digital pawn shop for luxury watches.

  • Some early attempts to build payment apps.


And really not much else. Gaming (both Web 2.5 gamefi, and fully onchain gaming) IMO haven't found the PMF, but I hope I will be proven deadly wrong on this.

Common Sense

Rule #1: If it seems like people still largely believe easy money is falling from the sky, and scammy/opportunistic behaviors are getting rewarded, we are not in "value zone".

  • L2s are the new alt L1 game. Now everyone (old L1s, projects) wants to be a new L2 because it pumps their valuation.

  • NFT bluechip projects milking out the very last bit from their most loyal users (hey Azuki).

  • Clearly over-valued new VC token launches by project that hasn't proven anything (Worldcoin launching at OpenAI valuation).

  • Increasingly desperate pumps and dump behaviors from mostly dead projects in a last effort to squeeze out some more exit liquidity from retail (won't name names since there's too many).

  • VCs investing in new hot narrative (albeit much less so than 6 months ago) based on the belief that when the bull market comes, this will be instantly valued at 100M USD like this other project that launched a while ago.

Rule #2: If you see optics/appearances >>> substance in lots of supposedly key opinion leaders, builders, and investors, we aren't quite there yet as far as "builder's market" goes.

  • All conferences are still way too noisy. HK this, Singapore that. Keynote speakers are more interested still in having a great presence than the actual content of the conference.

  • Being a founder is still automatically something to glorify about (even those that have already liquidated their own bags), even if your product has less than 100 real users and you are more interested in showing up to investor parties than heads down grinding in the pit going forward.

  • Working in crypto too often still means spending L1 foundation money to go around preaching and holding events.

  • VC investors with mediocre track record acting like kingmakers on Twitter talking about how sure they are of next big thing coming soon, while apps built by their portfolio company has a total web visit number mostly attributable to themselves & competitor investors.

  • Conversely, those who have actually built the most for this space are often low profile (Brian Armstrong, Vitalik, Opensea, some new Solana projects etc.), and those new projects that are slowly building legit products don't have their founders timing their releases & announcements and aggressive PR in anticipation of market risk-on. You just build, and ship, and let the users speak with their money and attention.

Rule #3: When manipulative behaviors are acquiesced and taken for granted, and the liquid token market remains largely a place for exit liquidity, institutions aren't coming to buy our bags.

  • Just open any low liquidity shitcoin chart that's been slow bleeding for more than a year with periodic catalyst driven pumps and you will understand why.

  • It's so taken for granted that players like DWF are the new talk in town.

  • Projects with no real users can still casually exit via IEO.

  • Projects that do actually attempt to accrue value to token holders have done well, but are still called ponzis/scams (Rollbit, Unibot) by "serious investors".

*This is admittedly exaggerated and somewhat of a simplication for the status quo of the industry (there are pockets where common sense has returned and deals are attractive), but generally a much underappreciated reality.

Courage & Conviction

10 years of QE ultra low interest rates and the cult of cryptonativeness have really blinded people's eyes towards common sense. WAGMI because halvening is coming. WAGMI because Powell is saving our asses. WAGMI because Bitcoin always goes up, in the long run. It's in times like this when the courage to insist on simple common sense will be greatly rewarded.

I don't think people's conviction has been tested hard enough. What would you do if we go sideways for another three years from here? Would you still believe in crypto? Would you still think this is the inevitable future for finance and human coordination? I would, but I'm sure most people being bullish now wouldn't.

True courage and conviction take a complete disregard for consensus and appearances, and a relentless heart for patience. Both are in short supply.

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