Decadence and Denial: Reflections on Consensus 2022

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Last week, CoinDesk hosted its flagship Consensus conference in Austin, Texas, the self-styled live music capital of the world, which drew thousands from around the globe to bake under the brutal Texas sun. Meanwhile, crypto market conditions showed just as little mercy, culminating in a calamitous few days for the industry. 

Deep in the Heart of Crypto

“…There’s a lot of good people in town
They love to hear me holler, see me spend my dollar
And I wouldn’t think of lettin’ em down!”

— Willie Nelson

June 9-12, 2022. Austin, Texas. 

There’s nothing quite like a crypto conference.

Consensus 2022, CoinDesk’s flagship conference, took place last week in Austin amid the usual fanfare: VCs and whales surreptitiously circulated, cutting deals and scoping projects; recruiters buzzed by busy booths while job seekers barely missed them; and lavish parties packed every venue in Austin. 

Bars and clubs and hotel lobbies percolated with players big and small, each one working an angle, each one schmoozing a client or an investor or a media contact, each one trying to one-up the party before. Drugs and booze and money and skin surged through the streets of Austin, undeterred by the scorching Texas sun. A walk down 6th Street during crypto conference time is like walking through a Dylan song—“There was music in the cafés at night and revolution in the air…”

Crypto enthusiasts like the language of revolution—they want to see the world turned upside down. But revolutions, as a rule, tend to turn to bloodbaths before all is said and done.

The Cart Before the Horse

 “A fool and his money are soon parted.”

—English Proverb

Like any other crypto conference, the name of the game at Consensus is confidence. If you harbor suspicion that the cryptocurrency industry is any less revolutionary or virtuous than its proponents make it out to be, beware of your potential ostracism, because these people do not want to hear it.

But one doesn’t have to look far at a crypto conference to see how the game works: Someone has a project that they need money to fund, and new users must give it to them. In return, they will receive a governance token, an NFT, or some other digital asset which the team will insist—in writing no less—has no monetary value, but will appear on exchanges and secondary markets all the same.

There are many kinds of language that crypto folks use to dance with the devil while sidestepping the rules they ought to know perfectly well apply to them. “What Ponzi scheme? We’re ‘bootstrapping a community’!” “Security? Nah bro, it’s a ‘governance token’!” “What monetary value? We promise the token is not intended to have monetary value; we just keep 30% in a ‘Treasury’ because—hey look, FUD over there!”

Oftentimes a team will barely have a product yet, or possibly none at all. But few let that get in the way of raising capital to develop games, build ecosystems, issue governance tokens, or otherwise “drive value” for the protocol and its token holders, Howey Test be damned. 

I’ll give an example. At Consensus, one of the more notable fundraisers of the event was a planned NFT auction to fund the production of a film version of Camila Russo’s The Infinite Machine. Billed as a “film event,” the evening drew only a handful of people, most of whom were expecting to see a movie only to be informed on arrival that there was none—this was an NFT auction to fund the forthcoming movie.

The NFTs themselves are of course not securities and represent no financial interest in the overall project. Instead, the they are associated with “utility” and “community,” the NFT market’s favorite terminology for avoiding securities regulations.

These “meta movie traits,” as they’re called, offer predictable perks for randomly selected NFT holders, including the chance to attend the premiere, the option to be an extra in the film, and a listing in its credits. “This is real-life utility that we’re talking about here,” said the moderator, parroting the right buzzwords and leaving the rest to the imagination.

But as Robert Burns tells us, “the best laid plans of mice and men oft go astray,” and boy did this one ever. Russo herself was unable to attend in person, even if thanks to the miracle of technology she was able to join by video chat. It only took between four and five minutes to get the audio working, and the moderator only forgot about Russo’s presence on the screen behind her for about 10 minutes before the guest of honor herself interjected.  

The poor turnout was only exacerbated by misconstrued expectations, and enthusiasm was so low that the planned live auction—ostensibly the whole point of the evening—was scrapped altogether. Instead, the auction opened that night on OpenSea. 

Judging by OpenSea activity metrics, The Infinite Machine’s NFT drop has been an inarguable disaster. One source mentioned that the bidding was expected to “start low” at 1 ETH, but they’ve been lucky to fetch 0.2 at this point.  

“We are creating a community and audience first, before there’s even a film out,” Russo said at one point, echoing a sentiment that pervades the crypto space. But if the idea is to “organically” bootstrap a community out of nothing, the effort may be an uphill battle. “Nothing will come of nothing,” says Shakespeare’s King Lear in the opening pages of his play: “Speak again!” (I.i).

The Gates of Eden

“…Paupers change possessions,
Each one wishing for what the other has got,
And the princess and the prince discuss what’s real and what is not.

“It doesn’t matter inside the Gates of Eden.”

 — Bob Dylan

Meanwhile, as hustlers, operators, and grifters swam among the whales, life in the real world went on.

On the third day I met a vendor selling flowers outside the convention center whose proceeds were to go toward helping the homeless. This gentleman, whose real name we won’t print here but who had taken on the handle “Sam” (in honor of the late, great Sam Cooke), wasn’t having much luck with the conference crowd, despite the fat pockets moving freely about and the purported good will of the financial democratization movement.

Having taken enough pity to spare five bucks by Venmo, I gently suggested that maybe flowers weren’t the best approach to this crowd—we were mostly from out of town, after all, with most significant others back home elsewhere in the world and beyond the immediate delivery range for fresh flora.

“I’m curious, then,” he said, “If flowers aren’t the right play here, what kind of things would these folks be interested in parting with their money for?”

“Well,” I said, hesitantly, but knowing full well the answer: “Do you know what NFTs are?”

“I’ve heard of them,” he said, “but I don’t know much.”

For the next few minutes, I explained the digital collectible phenomenon and together we began to hammer out what an NFT collection that directly benefits the homeless would look like. By the end of the day, we had a plan to release 10,000 NFTs, each one correlated to a particular homeless person, with healthy royalty fees on secondary sales going directly to each of them. So long as crypto folks want to be seen benefitting the social good, I reckoned, you could hope that those things would trade at least half as well as goblins. 

***

Meanwhile, as Sam conceptualized his own project from a position of virtually zero capital, thousands circulated inside the convention halls to see what projects untold billions had flowed into in the last year. Tokenomics, liquidity pooling, bootstrapping, airdrops, I(any letter but C)Os, and all other manner of opaque cryptospeak dominated conversations while eager heads nodded along with enthusiasm.

Yes, it was agreed—mass adoption is on the horizon! Yes, it was agreed—blockchain verification was the future of organizing property rights! Yes, it was agreed—even court findings would be unable to trump the absolute certainty of the blockchain’s records! Despite a prolonged bear market, the decisions of the crypto crowd have already been made. Blockchain is the real deal, and there’s no way it will not underpin our lives. So it was agreed. Thus, despite the declines, the conference goers cried “FUD!” and kept on their grind.

As my wife once told me, not incorrectly, “There are people on the streets with nothing to fill their bellies, and you guys are off trading Pokémon on Mount Olympus.” 

Amid the parties and the drinking, the clandestine drugging and brazen flirting, the music and the dancing and the money, money, money—prices slowly declined. Rumors of insolvencies that flittered about Twitter were dismissed as fear, uncertainty, and doubt—which, I’d remind the student and teacher alike, are all perfectly natural emotions whose purpose is to keep us safe. 

And the bands played on. 

The Writing on the Wall

 “My friend, you’re weighed in the balance and found wanting
Your kingdom is divided, it can’t stand
Yes, you’ve been weighed in the balance and found wanting
Your houses are built upon the sand.”

 —Johnny Cash 

Sunday night, the music stopped.

On Jun. 12 we received news that Celsius, a centralized service for decentralized finance (I know, I know), would pause all withdrawals and swaps indefinitely due to “extreme market conditions,” as if they couldn’t have seen such a thing coming in what even normies know is the world’s most volatile asset class. In doing so, it kicked off one of the most impressive meltdowns in the history of the industry. 

Ethereum and Bitcoin tumbled almost 15% over just 24 hours (about 37% and 32% over the last week, respectively), and the rest of the market has erupted into a wildfire. Tron’s USDD stablecoin has depegged and is struggling to regain its intended price, while double-digit losses ranging from 25-40% dominate the charts. 

Institutional players in the blockchain business have shown similar signs of buckling under the stress test as well. On Monday, BlockFi laid off 20% of its workforce in a move reminiscent of Robinhood’s mass layoff almost two months ago, and yesterday Coinbase nearly matched it by firing 18% of its staff. Also yesterday, whisperings of liquidity problems at Three Arrows Capital flew around Twitter and seemed to garner credence when, early this morning, the firm’s co-founder Su Zhu tweeted cryptically, “We are in the process of communicating with relevant parties and fully committed to working this out.”

It’s been said that bear markets exist to kill off bad projects while the fittest survive. And the killing, it would seem, has begun. 

“O Death, O Death!
Won’t you spare me away for another year?

Well, what is this that I can’t see
With ice cold hands takin’ hold of me?

“I am Death, none can excel
I’ll open the door to heaven or hell.

“O, Death,’ someone would pray
Could you wait to call me another day?…

“…No wealth, no ruin, no silver, no gold
Nothing satisfies me but your soul.”

—“O Death,” American Folk Song; Author Unknown

Today, as rumors continue to circulate about insolvencies, margin calls, further sell-offs, and the great fear that Bitcoin will dip below its previous cycle’s high, outright panic has gripped the markets. There are many, especially those who were around for previous cycles, who are taking comfort in the idea that this is business as usual, but for retail investors losing their shirts and for workers suddenly finding themselves out of jobs, the weekend was mostly devastating.

Nevertheless, the fact that liquidations are occurring and that overleveraged positions have put these institutional players in a tight spot should come as a surprise to exactly no one. If DeFi has anything in common with traditional finance, it’s a propensity to periodically (and suddenly) lose large amounts of money very quickly as a result of overexposure to risk. If you remember 2008, you know exactly what I mean, and you’ll recall that there were many cold years that followed. 

During that crisis, the United States government sprang into action with the Economic Stimulus Act of 2008 and later the American Recovery and Reinvestment Act of 2009, which between them pumped almost $1 trillion into preventing the further collapse of any “too big to fail” financial institutions. 

But for DeFi and CeDeFi protocols, there will be no such cavalry to come to the rescue. Instead, federal agencies across D.C. are studiously crafting crypto policy while the hawklike gaze of Gary Gensler is trained on the space like the Eye of Sauron. It may be 101° in the shade in Austin, but make no mistake about it—June this year is the deepest shade of crypto winter.

“Turn out the lights
The party’s over
They say that all good things must end.

Call it a night
The party’s over
And tomorrow starts the same old thing again.”

— Willie

Disclosure: At the time of writing, the author of this piece owned BTC, ETH, and several other cryptocurrencies. 

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