View this email in your browser

Over 100,000 crypto investors trust the Journal.



HEALTH, WEALTH, AND HAPPINESS

June 30, 2022

"I want to leave something behind. A blueprint. A work ethic. Something that my great-grandkids and their kids and their kids can see: This is where it started. Lineage. Intergenerational wealth. Things that are here forever. All that."

- Michael B. Jordan

MakerDAO Jolts Its Members with Bold Governance Proposals (Decrypt): MakerDAO, one of the OG crypto projects, made a decision to go fully decentralized last year. Now its founders are regretting that decision.

Rune Christensen, a MakerDAO co-founder, wrote a lengthy post in May about the two big problems with decentralized governance:

1) Lack of technical knowledge: The community votes on every major decision, but most people don't understand the technical nuance, which leads to...

2) Voter apathy: Most token holders are busy and don't have time to do technical deep-dives on important proposals, so they simply don't vote.

The article above explains how three recent proposals tried to "re-centralize" parts of MakerDAO, creating oversight boards or technical committees that would have more autonomy to move faster.

Surprise, surprise: the decentralized community overcame their voter apathy to shoot down all three proposals, making MakerDAO stuck with its slow-moving decentralized structure, at least for now.

Rune Christensen tries to explain total decentralization is not a utopia, but kind of a mess. A structure that's a mix of centralized and decentralized is better.

Investor Takeaway: Far from a theoretical argument, this issue of decentralized governance has tremendous implications for crypto investors.

In a nutshell, the question is: can totally decentralized projects continue to innovate?

We've been warning about the dangers of decentralization, especially when taken to extremes. Imagine a business that required majority approval from shareholders before the CEO or executives could make any major decision. That's the deal that many crypto projects have made with their token holders.

In our view, total decentralization is often a way to avoid looking like a security to the SEC. The tradeoff is that a brilliant founding team has now sacrificed their decision-making power to token holders, who often don't understand or don't care.

This is, of course, the same problem that bedeviled the early founders of the United States, where proponents of states'  rights (decentralization) were in conflict with those of federal rights (centralization). What we learned: a mix of both is needed.

For crypto projects that have opted to go fully decentralized, the MakerDAO drama shows it's going to be a long slog to try to claw back some of that centralized power. In the meantime, the evidence is piling up that total decentralization may not be good for investors (see below).

Here's a look at MakerDAO's (MKR) price over the last year, since the project went fully decentralized in July 2021:

The price has dropped 65% in that time. Of course, the crypto market has dropped overall, but even bitcoin has dropped by just 43%.

Investor takeaway: Our thesis is that fully decentralized projects, by surrendering decision-making power entirely to the community, cannot innovate quickly enough to stay competitive -- and the price will eventually reflect it.

Or, to put it as Clay Shirky did almost 20 years ago, A Group is Its Own Worst Enemy.

This is an unfashionable thing to say in crypto circles, as complete decentralization is considered the Holy Grail. But we're not here to be fashionable; we're here to help you, the investor. Time will tell.

We can also look at predictive mechanisms like the Atlanta Fed's GDPNow model, which seeks to make predictions. Until today, this model predicted positive GDP Growth in Q2. Today it turned negative and now predicts -1.0% growth.  

I also want to remind everyone that there is a silver lining. 

First, markets and the economy are not the same.

Second, for markets, bad news could be good news. And what I mean by this is that the Fed is combatting inflation, and they are willing to hurt markets to do this since they see inflation as the greater evil. I agree.

But if and once the US is officially in a recession, it will also be the Fed's job to get the economy out of the recession. After all, the Fed has a dual mandate:

1. Price Stability.

2. Maximum Employment.

The St. Louis Fed did a great job explaining it here if you want a deeper dive.

Recessions come with increased unemployment, so the worse it gets, the more the Fed will be pressured to act. If the increase in layoffs in the tech sector means anything, the Fed will eventually have to act and at least slow down or stop its quantitative tightening, if not start quantitative easing again. 

Whichever market the direction is going for the rest of the year and whichever version of Powell we get, you can't go wrong if you:

1. Increase your income.

2. DCA into investments you are bullish on long-term.

Sincerely,

Alexandre Lores

Bitcoin Market Journal is a daily newsletter that makes you a better crypto investor. It is created by Evamarie Augustine, Charles Bovaird, Mati Greenspan, John Hargrave, and Alexandre Lores.

Paid subscribers get full access to our top crypto picks; both free and paid subscribers get content to build you into a better investor.

Upgrade to paid, and become a Blockchain Believer!