Originally posted by Sizhao Yang on Twitter —

  1. First, we have to see what how the current banking system is laid out.
  2. At the core of the modern monetary system is the central banking per country.
  3. The role of the central bank is the manage the money supply, interest rate, and currency in reaction to the economy.
  4. The goal of the central bank is to change these instruments in response to inflation, economic growth, and employment.
  5. The monetary supply and interest rates defines the monetary velocity and supply to the country first and its constituents.
  6. These constituents are the commodities (petro dollar) linked to the currency (otherwise known as tokenization in crypto).
  7. Other constituents include the trade partners (i.e China and US, US and Euro).
  8. This is why the entire world holds its breath whenever the Fed chair speaks because when he/she talks, it affects the world.
  9. Currently, the monetary supply is based on fiat, which means that the central banks can print as much as possible.
  10. The old central banks were based on Gold, but that tied the central banks hands when crisis happened.
  11. Nixon moved the USA off of the gold standard to enable flexibility for the central bank to change the monetary supply/velocity.
  12. Why does the central bank matter? The interest rates affect the interest rates of your mortgage, credit card, and savings account.
  13. The central bank lends to the commercial banks (JP Morgan), and they buy equities/bonds or lend out money for mortgages/CCs.
  14. Central bank -> Banks -> Commercial/Retail banking -> Mortgages/Private banking/Credit cards/Loans/Insurance
  15. So, how is this market segmented? It’s by volatility and ability to take volatility as a consumer/business.
  16. The avg consumer has a 9 to 5 job and gets a steady paycheck and cannot handle sudden losses because they will take years to get it back.
  17. Therefore they can primarily invest in less volatile financial instruments. Mostly stocks, bonds, munis, or real estate.
  18. So a lot of the conversation about why normal consumers are not in $BTC or $ETH is besides the point. It’s simply too volatile.
  19. It’s no surprise to see from one statistic that only 300k people hold more than $5k USD worth of Bitcoin $BTC.
  20. As you get more volatile, it tends to correlate with wealthier individuals and institutions.
  21. From least volatile to most volatile is: treasuries, muni bonds, real estate, bonds, stocks, junk bonds, mid cap stocks, small cap, VC.
  22. Notice that venture capital and angel investing is at the end of the spectrum. Why? Because usually 80 to 90% of a portfolio goes to 0.
  23. Yes 0. Most companies that venture capital invest in, either become zombies (cannot return capital, or cannot exit) or die outright.
  24. With such illiquidity, it’s no wonder that the industry is myopically focused on unicorns. You have to catch unicorns just to survive as a fund. 80% of your portfolio goes to 0 and you are illiquid for 10 years.
  25. So how is this related to crypto? Right now we’re in the very right of the spectrum of banking products.
  26. Meaning bitcoin and alt coins are very volatile and it’s designed for whales but what happens in 2025 when bitcoin is $1m a coin?
  27. Will it still move 800% in one year? No it won’t. It will be like the central bank now, it will be much more stable almost boring.
  28. As $BTC bitcoin is the reserve currency, you will increasingly have other products that will be built as a “loan” from the central bank.
  29. Remember this? Central bank -> Banks -> Commercial/Retail banking. We are in the left side right now. We’re not even in step 2.
  30. As $BTC become the lending instruments, it will be lent to more products.
  31. From most volatile (most reward) to least volatile (lowest yield): ICOs, tokenizing startups, tokenizing venture capital.
  32. Then as the more consumers get in they will demand less and less volatile products.
  33. Remember this? treasuries, muni bonds, real estate, bonds, stocks, junk bonds, mid cap stocks, small cap, VC.
  34. The next products will be tokenizing equities, junk bonds, mid cap equities, and bonds and this is exactly what’s happening right now.
  35. Overstock is leading the charge. They are creating a marketplace where ICOs and stocks can flow through enabled by crypto.
  36. This process of tokenization will continue further and further down the chain of volatility until it reaches your consumer/mom.
  37. When will that happen? When will normal people use this? Well likely when most people used Facebook, which is ~16 years after Netscape.
  38. So long? Crypto is going to disrupt everything! Democratization takes time. Technology, use cases, and distribution have to line up.
  39. The use cases that people are looking for which is insurance (Geico) will take much longer than people think.
  40. Consumer markets are not just constrained by technology and use cases, but also go to market strategies.
  41. Most famously, Sequioa always ask “Why Now?” The timing within this sequence is as crucial as knowing the exact use case.
  42. There was a board game that was monopoly for failed dot com ideas.
  43. The “stupid” failed ideas were: social networking, reviews, group discount buying, social games.
  44. The “stupid” failed ideas all become unicorns in the 2010s as Facebook, Zynga, Yelp, Groupon.
  45. So why am I talking about this? As we discuss what use cases will gain traction.
  46. It’s important to talk about the context. Certain types of fields can only hold certain plants. Environment and timing is as important. As idea, execution, and go to market.
  47. In conclusion, the banking will get disrupted in reverse of volatility.This is probably why Naval Ravikant invested in a stable coin.
  48. The likely map is the reverse of this: treasuries, muni bonds, real estate, bonds, stocks, junk bonds, mid cap stocks, small cap, VC.
  49. Tokenize everything but in reverse of volatility.