As I already described in InvestBasics #1: Holy Grail of Investing it clearly matters to have high conviction in the positions you take.
The first way to get conviction of course is to know as much as possible about the project you are interested in investing in. But no matter how much you research or time you dedicate to a project there will still be unknowns left that only time will answer.
I learned that it was much more important how I dealt with unknown unknowns, rather than the things I knew.
Ray Dalio
Thus to get even higher conviction, it can be helpful to filter your watchlist by their underlying technical / growth assumptions. The fewer assumptions are needed for the project to be successful the better.
Finally, the best bets are, of course, once that will not go against if you are wrong, but move massively in your favour if your thesis is right.
What do I mean by that?
Imagine an gold rush in historic times:
1) You can either search for gold yourself
Or
2) You can sell Jeans, Shovels, and Picks
In both cases, you are profiting from the gold rush directly or indirectly. However, if the gold rush turns out to be fake you still have revenue in option 2), just not as much optionality. While you are probably broke in option 1).
Simple Assumptions with profound change
I think the following assumptions are hard to argue against. This list can also be a good starting point if you are looking to start something in this space.
Number of Investment Vehicles Rising
The Web1.0 revolution made it easy to share information worldwide. The Web3.0 revolution makes it easy to create new Investment Vehicles. Thus it is an easy assumption to make that the number of investment vehicles will rise substantially over time. Whether this will be ERC-20, ERC-777 or any other standard on a new blockchain.
Implications:
- Increased need of research, advisory, analytics
- Increased need of trading / market making
- Need for active portfolio management
- Need for derivates on base assets
- Need for margin-lending
Number of Smart Contracts Rising
With more assets becoming available on “digital native rails” automated ways to process them become essential.
Implications:
- Increased need of Smart Contract Developers
- Increased need for Smart Contract Auditing
- Increased need of Eduction around Smart Contracts
- Need of NoCode Smart Contract Editor?
Fraud Detection & Compliance
With any system that doesn’t let you reverse transactions, fraud will always be present. You can already see current crypto exchanges becoming more regulated and users moving to decentralized exchanges.
It’s a simple assumption to bet on more regulatory needs, fraud detection as well as tools that are trying to counter that and maintaining users’ privacy.
Summary
It is only very rare that you encounter a project which only underlying assumption is any of the thesis above. Most early crypto projects are a bet on the founders more than anything. Nevertheless, I hope this high-level description helps you to think about your positions.
If there are any thesis I missed, let me know and I might write up a V2 of this article: [email protected]
