Welcome to the Metaverse
September 9th, 2021
Welcome to the M31 Capital Investor Newsletter! We use this platform to share monthly updates on the industry, our views on the broader market, important crypto-native metrics, as well as to highlight specific cryptoassets and decentralized finance (DeFi) protocols we find interesting.
For those reading who are new to M31 Capital, we are a global alternative investment firm focused exclusively on digital assets backed by cryptography and blockchain technology. This new asset class, pioneered by Bitcoin, is beginning to change the way humans coordinate economic activity at a global scale and holds the potential to create trillions of dollars of value in the process. M31 Capital exists to promote this paradigm shift and to capture the unique, cryptoasset-specific investment opportunities for our investors along the way.
We at M31 Capital have staked our careers and our reputations on the success of this technology. As always, we thank you for putting your trust in us and for your support of this new asset class. Please feel free to reach out to our Investor Relations team with any questions, ideas, feedback, or just to say hi: contact@m31.capital.
Nathan Montone
Chief Executive Officer
M31 Capital Management, LLC
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M31 Capital is enormously excited to introduce our newest Managing Partner, Mason Jappa!
Mason is well-known and well-respected as a powerhouse of the global Bitcoin mining industry. He is the Founder and CEO of Blockware Solutions, one of the largest mining operations in North America.
Mason will act as Strategic Advisor for M31 Capital's onchain Active Network Participation (ANP) activities, including mining and node running operations, as well as build out more robust infrastructure to expand into new ANP opportunities, helping make M31 a more competitive crypto-native investment firm.
Hear his story on The Pomp Podcast here.
To welcome Mason or discuss anything Bitcoin mining related, he can be reached at: mason@m31.capital
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August Performance
Market highlights and rationale from a selection of the most interesting assets in the industry:
(NOTE: M31 Capital may or may not hold positions in the following tokens)
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P A R T N E R H I G H L I G H T S
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L1 Szn
Layer 1 protocols staged an impressive bounce off the July low to enjoy a virtually uninterrupted August uptrend with a handful even printing new all time highs.
M31 Capital portfolio protocols Solana (+195.7%), THORChain (+80.2%), and Terra (+194.2%) were the top performers across the board in August as Solana captured significant institutional interest and capitalized on the NFT hysteria, THORChain made impressive strides to relaunch a less chaotic Chaosnet, and Terra went vertical as usage of its UST stablecoin picked up heavily.
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Ethereum significantly lagged its competitor chains, rising a "mere" +35.7% despite posting extremely high burn rates since EIP-1559 went live on August 5th.
Since then, 241,000 ETH have been burned, the equivalent of $820M or 0.2% of the total ETH token supply. In one month!
A major trend worth noting here is how fast ETH's inflation rate has been declining since EIP-1559 was implemented. Annualized daily inflation was hovering ~2-3% but current data shows ETH's annual inflation is around 0.6%.
At the moment, EIP-1559’s impact on ETH’s inflation is the equivalent of TWO Bitcoin halvings... leading to new predictions for $20,000 ETH by January.
You can follow the burn in real time (i.e. block time) at: www.watchtheburn.com
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JPEG Summer
The NFT craze is single-handedly driving ETH burns higher at the moment. OpenSea and Axie Infinity contracts alone are responsible foer 20% of all ETH burned (~48k ETH).
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With both the quantity and transaction volume of NFTs exploding in the past month, massive revenue is being driven toward NFT platforms like OpenSea:
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TL;DR
For years Ethereum has been the only serious smart contracting platform in town. The "ETH killers" have largely failed to gain any real traction and only succeeded in profiting their founders.
Now for the first time, we're seeing real developer activity and user interest happening outside of Ethereum on new chains like Terra and Solana, and the massive traction of NFTs (covered in detail below) provide a hint that this competition is just getting started.
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N A R R A T I V E F O C U S
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Welcome to the Metaverse
It has been impossible to ignore the explosion of NFTs over the past month. Clipart rocks selling for millions, pixelated Twitter profiles, $19m Sotheby's NFT auction, and 12 year olds getting rich drawing squiggles...
WTF are NFTs?
If you're struggling to understand NFTs ("non-fungible tokens"), it's because they're deceivingly simple. They're JPEGs on a blockchain. That's it.
A Bitcoin is 1 of 21,000,000 units. An NFT is 1 of a kind.
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The images above range from $4.5M to $340M
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Society Gets the Art it Deserves
Every generation creates their own art. The struggles and successes of an era manifest themselves in a medium specific to that generation.
The sentiment of the Silent Generation was captured through the poetry of the Beatniks. Baby Boomers expressed themselves through Rock ‘N Roll. And we Millennials have what?
Don't say Cardi B.
There's no way it can be healthy to have an entire generation devoid of artistic expression. And yet, where is our counterculture?? (Wokism is automatically disqualified since subordination and compliance are its central tenets).
NFTs on the other hand present an interesting candidate for the representative Millennial art form: digital, egregiously nonproductive, and more than a little nihilistic... they reflect our cultural milieu perfectly.
And strongly echo the founding ethos of the original cyberpunk Web1.0.
Cyber Nihilism
Disenchanted with the violence and Realpolitiks of the 1980s, the OG cyberpunks gave up on the idea of changing the world and instead focused on inventing a new one.
A parallel world that would exist only in the new digital space Neal Stephenson termed "The Metaverse".
Today, Millennials are responding similarly to what they see as a fairly bleak state of the world. They sense the traditional paths to success are closing, a debt-burdened economy is lowering overall standards of living, asset inflation prices them out of homeownership, and boomers' reluctance to pass the torch leaves fewer spots open at the top.
Case In Point: The increasing number of octogenarian politicians:
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These dual threats of inflation and stagnation force people to take increasingly risky bets just to have a shot at achieving the same life milestones previous generations took for granted.
This is why GameStop, Dogecoin, and EtherRocks make sense.
Not as sound investments, but as financial performance art of an entire frustrated, digitally native generation.
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The progression of finance in 2021. Duchamp would be so proud.
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As hero Wade Watts put it in the prescient tale, Ready Player One:
“I was born in 2027, after people stopped trying to fix problems and just tried to outlive them.
These days, reality’s a bummer - everyone’s looking for a way to escape.”
Enter: The Metaverse.
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D16174l 3l173
Like Ready Player One, the COVID lockdowns accelerated us into a fully digital world, bringing not just entertainment but also our work lives online.
As the rest of our lives migrate from meatspace to cyberspace (education, dating, socializing, etc.), digital status games and cyber-flexing are simply an inevitability.
This provides another way to understand NFTs: status symbols for the Metaverse's digital elite ("1337").
Flagrantly non-productive Veblen goods that confer Proof-of-Inclusion in a digital community.
Screenshot Thieves
"But why would someone pay $1,000 for an image anyone can download for free?". This common question misses the point completely.
The fact anyone can screenshot your NFT is only a problem if you live in the physical ("offchain") world.
Proof-of-Ownership is all that matters in the onchain world. This decoupling of ownership from consumption means you're now playing two games simultaneously:
- Offchain (the game): "Look at my NFT, isn't it cool? It exists on my computer."
- Onchain (the metagame): "Separate from what my NFT looks like, it proves that *I* exist on the blockchain as part of the provenance of this digital property."
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Just the Beginning
Art & gaming NFTs expand the creativity aperture for both art and gaming which is a self-evidently good thing, not to mention helps rapidly onboard new users into the crypto economy.
But these applications barely scratch the surface of potential use cases for NFTs - it's the low hanging fruit of the NFT design space.
More significant applications of NFTs will include:
- Finance: DeFi projects like Skyrim Finance using NFTs to isolate risk tranches for fixed income products
- Software: Web3 project, Fluence, enables developers to monetize their code by converting data packets into NFTs that app developers & users can pay to use
- Property Rights: Website domain names represent digital property. DNS projects like Handshake leverage an implementation of NFTs to ensure ownership of Web3 domains
- Intellectual Property: ~80% of the S&P's value is tied to intangible assets (IP, patents, branding, etc.). DEIP is one project using NFTs to improve liquidity and value capture for the long tail of intangible assets
- Fake News: Since there's only one owner per NFT, concepts like an NFT profile pic on Twitter can help filter out bot accounts, impersonators, etc. A decentralized blue checkmark. This same concept can be similarly applied to combat other forms of disinformation.
NFTs aren't just art. They're the missing authentication layer for Web3, allowing digital identities and therefore reputations to form.
This should lead to less toxic online communities as your digital reputation directly affects the value of your NFT avatar.
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Conclusion
NFTs today largely fall outside of M31 Capital's investment mandate. In their current form (primarily art & gaming), they're better thought of as luxury goods or digital bragging rights. As a DeFi fund, we aren't buying CryptoPunks for the same reason we aren't buying Basquiat originals. It's a completely different game.
But NFTs can and will evolve - impacting everything from Wall St. to Silicon Valley - much faster than many realize.
NFTs usher in a new age. They're a new art form that embody the struggles of a generation and, for better or worse, reflect the fact we now live nearly 100% of our lives online.
Welcome to the Metaverse.
If you are interested in investing with M31 Capital, visit this page to access our subscription materials. You can also always reach our Investor Relations team at: contact@m31.capital
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PROTOCOL HIGHLIGHT
In our ongoing effort to be a value-add educational resource for our investors, we include a section in each newsletter highlighting an interesting or important part of the crypto ecosystem
DAOs
Decentralized Autonomous Organizations, are a new form of democratic, tokenized governance structures that allow community members to participate in the direction, day-to-day operations, and strategic decisions of a project.
Instead of the typical hierarchical structure of a corporation (CEO, Managers, Employees), DAOs are relatively flat and organize themselves into smaller teams across networks.
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The Future of Work
This is a powerful concept as it creates a framework for ten people or ten thousand people across the globe to organize collaborate without the need for formal roles or hierarchy.
To get rewarded for one's work in a DAO, members are paid in the DAO's native token. DAOs leverage existing trends that define the future of work: decentralized, global, digital, remote, and an extension of the "gig economy".
Valhalla Venture DAO
Purpose: Decentralized venture capital firm. DAO members pool capital to collectively invest in promising new projects within the THORChain ecosystem.
Token (vXRUNE): vXRUNE ownership represents membership in the Valhalla DAO. Members vote on which THORStarter IDOs the DAO will invest in and when to sell. Profits are distributed pro-rata to vXRUNE token holders.
Holding vXRUNE is therefore equivalent to being a Limited Partner in a decentralized VC fund, but with the added option to play an active role as a voter.
How to Participate:
- Buy XRUNE on SushiSwap or THORSwap
- Go to the Governance tab on the THORStarter website
- Under 'Voting Token', lock your desired amount of XRUNE to mint vXRUNE
- The minimum amount to grant you DAO membership (the ability to vote, receive rewards, and participate in IDOs) is 100 vXRUNE
- Go to 'Proposals' and start voting on the direction of the Valhalla Venture DAO!
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If you want to start working at a DAO project today, take a look at
M31 Capital's Jobs Board to see opportunities at some of our token investments.
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What We're Reading
A selection of our favorite articles this month:
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U P C O M I N G E V E N T S
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The M31 Capital team will be speaking at and attending a number of upcoming conferences and events. Please reach out if you are interested in connecting, or better yet - meet us there:
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