Dear Bankless Nation,

A week ago…

• SNX was $1.07 now it’s $1.45 (+35%) 😲
• AAVE was $.08 now it’s $.14 (+75%) 🤯
• COMP was $78 now it’s $255 (+210%) 😱

Wow.

If you want to find out what’s going on with DeFi tokens listen to the podcast with Dan Elitzer we just put out. Summary—DeFi tokens are real & crypto is about to 🚀.

But I want to talk about something else today.

Because despite DeFi going bananas ETH is mostly flat.

What gives?

When ICOs took off in 2017 so did ETH.

So why is ETH getting left behind DeFi now? That’s the question I asked Friday.

It’s not that I think 6 days of DeFi token pumps tell us much. Crypto investors buying on fundamentals need far more patience if they’re going to make it on the journey (pick a time horizon folks!).

But I asked the question because it gets at something more important. It gets to the heart of ETH value accrual: if DeFi is successful—will ETH accrue value?

The answer to that question tends to fall in two camps: bears and bulls.

🐻

ETH bears

The bears say…ETH won’t capture the value on Ethereum—that’s why DeFi is going up without ETH and we expect this to continue because:

• ETH is losing its moneyness. It’s losing moneyness to non-ETH assets on Ethereum like stablecoins and tokenized Bitcoin. In 2017 if you wanted to raise funds on Ethereum, you had to use ETH. It was the reserve money. In 2020 ETH competes with dozens of assets—and it’s losing.
  
• DeFi doesn’t mean ETH goes up. The utility of DeFi doesn’t have anything to do with the price of ETH. Why should it? People buy the minimum amount of ETH needed to run a DeFi transaction. ETH is like gas for your car—you don’t hold it, you just keep a full tank—the minimum needed.
  
• Ethereum is a prototype. The market knows another network will supersede Ethereum. Look at the gas fees! Unsustainable. Look at the transactions per second! Paltry. Look at staking! Still not here. Ethereum is a prototype—DeFi will move to a better network long-term. [P.S. buy my ETH killer!]

🐂

ETH bulls

The bulls say…ETH will capture the value of Ethereum and if you’re a little more patient you’ll see we’re right—and retrospectively it will have been obvious that:

• The market is wrong—ETH is money.
  The market’s coming off two years of the harshest ETH winter ever seen. So the market is backward facing—still assuming ETH is a utility coin. No. ETH is the reserve asset for DeFi—the trustless economic bandwidth, the only asset that gets scarce with DeFi use. The market will catch on soon.
  
• DeFi profits cycle back to ETH.
  As DeFi’s reserve asset ETH isn’t threatened by stablecoins or tokenized bitcoin on Ethereum. DeFi’s success is good for ETH. More economic activity increases ETH locked up as collateral and ETH as a trading pair. DeFi token profits will be cycled back into ETH. Wait and see.
  
• Ethereum eats the world.
  Layer two scalability is hitting mainnet now and Eth2 is just as far along as any competitor. Finance is a game of network effects and Ethereum’s lead over competitors isn’t just growing it’s accelerating. Competing chains will be sidechains of Ethereum.  None will have an asset like ETH.

See the problem?

Both can’t be right.

It’s either bears or the bulls. It can’t be both.

So who’s right?

I’ll make this easy.

I’m betting the ETH bulls are right.

If you’ve been reading Bankless you know the big reasons why (e.g. see the Ethereum section of guide) and this new DeFi rocket fuel reinforces my view.

I’m seeing three things now:

1. DeFi locking up more ETH.

   

   👆
   $100m ETH locked after the release of COMP last week.

2. Early stages of ETH momentum shift.

   

   👆
   Email from a fund manager I received this am.

3. Protocol sink thesis coming true.

   👆
   Crypto banks like Nexo using money protocols like Compound is how DeFi wins

Yes…what’s good for DeFi is good for ETH.

Yes…DeFi token profits will eventually get cycled into ETH.

Yes…the narrative that ETH is just a utility coin will die in the coming cycle.

Yes…it flows back to ETH.

Feel free to disagree. No one knows how this all turns out. We’re all placing bets!

And I’ve placed mine.

- RSA

P.S. People are loving the new Bankless Starters Guide…you gotta check it out!