Note from the Fund Manager

With prices plummeting, protocols imploding, and centralised financial entities (CeFi) going under, crypto has experienced an incredibly tumultuous start to the year.

Investors should not fear the chaos. As it is often said: “Revolutions pass by period of great turmoil”. The same apply for tech revolutions.

Within the current turmoil, attentive minds can see a multitude of catalyst emerging. Catalysts poised to shape the industry in the second half this year and beyond.

Early identification of these technology developments is key for a good portfolio positioning.

Below we present 4 key trends that here at Algo Capital we believe will shape the second half of the 2022 crypto markets.

Get in touchThis email address is being protected from spambots. You need JavaScript enabled to view it.if you want to discuss further and understand how the Millennials Multi Strategy fund is looking to take advantage of market opportunities.

  1. The Ethereum merger

    As far as Ethereum goes, the major theme to watch in H2' 22 is “The Merge”. The long-awaited and fundamental Ethereum 2.0 upgrade will see the network transition from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism. 

    The main effects of the switch to PoS will be
    - Drastic reduction in Ethereum’s energy consumption, alleviating concerns about the network’s environmental impact — particularly among ESG-conscious, institutional investors
    - Drastic (ca. 90%) reduction of issuance required to secure the network, transforming ETH in a deflationary ecosystem

    The net effect of the above is that Ethereum will become an extremely profitable protocol, creating value for all its stakeholders.

  2. Layer-2 scaling

    Layer-2 networks are poised to continue on a growth trajectory in the latter half of 2022.
    L2s represent the present and future of Ethereum scaling. Optimistic and zero-knowledge (zk) rollups serve as execution layers that provide users with a fast and cheap transacting experience, while still maintaining the nation-state resistant security of the underlying Ethereum L1.

  3. The Rise of Cosmos and App-Chains

    Another major theme to monitor in H2 is intensified growth of the Cosmos ecosystem.
    Cosmos is aiming to create the “internet of blockchains.” Via the Cosmos SDK, developers can create sovereign, highly customizable blockchains that are specialized for individual applications — known as app-chains. 

    Given the protocol’s history of early adoption of new technologies this is a high signal indicator that suggests more prominent apps may follow suit and begin to build on Cosmos, creating a vibrant ecosystem to potentially rival Ethereum’s.

  4. The ERC-4626 Revolution

    DeFi yields have compressed considerably in 2022 as on-chain activity, demand to borrow, and desire to speculate have all plummeted. Despite this, yield farming is on the precipice of its next growth phase already. This is thanks to the adoption of ERC-4626. 

    4626 could light up the DeFi user experience by enhancing capital efficiency. Users will be able to trade, LP, and use these new types of tokens as collateral, earning a return from participation, while simultaneously earning yield from the underlying strategy being run in the vault itself. 

    Given the immense benefits of 4626-based products, the future of farming will see users mint or buy and then hold a diversified basket of these tokenized yield strategies rather than deposit into numerous individual protocols.

    The protocols and DAOs who are early adopters of the standard should see outsized growth in their offerings as DeFi users wake-up to the benefits this new class of tokens offers.

    Digital Asset markets are in constant (r)evolution; stay tuned to stay updated