19th November 2020

Messari: Show me the token lockup!

In this episode of DeFi Download, Piers Ridyard interviews Jack Purdy, Research Analyst at Messari, which is a market intelligence platform aiming at being the Bloomberg of crypto.

Messari: Show me the token lockup!

Messari is a full-service market intelligence platform that launched during the 2017 ICO boom. It provides reliable data and market intelligence for crypto investors and professionals. 

Messari’s CEO, Ryan Selkis, had been involved with crypto for a while and noticed an issue which, despite everyone recognized, no one was attempting to solve: The need to standardize what crypto projects are disclosing and then provide the tools and services that offer actionable, reliable, transparent information to the people who analyse those projects. 

As a result, Messari started building a disclosures registry, which aims to function as the SEC EDGAR database of crypto. On this registry initiative, they are currently working with 70 projects such as Cosmos, MakerDAO, Algorand, and Zcash. On top of the registry, they have also been developing financial tools that analyse that data, creating what can be considered as a Bloomberg Terminal or S&P Capital IQ for crypto.

How Messari collects high-quality information on crypto projects

Messari’s registry initiative serves as a third-party service that works closely with token projects, ingests a lot of information and then portrays it in a form that presents any piece of useful information that a current or potential stakeholder would like to acquire. Messari collects this data by:

  • Going through each project’s documentation
  • Reading Medium posts written by the projects’ creators
  • Asking developers questions about the details and implications of protocol changes, governance upgrades, and more

Messari’s primary user base

Messari evolved from appealing to the broad crypto investor, to the prosumer customer, someone knowledgeable in crypto but not super informed, who is beginning to dip their toes a little bit, to becoming an enterprise product for custodians, exchanges, and professional investors, who need a Bloomberg or S&P style, market intelligence product.

Over the years, the crypto audience has changed and is rapidly reaching a turning point. During the last six months, the pace of innovation has progressed noticeably. More and more focused use cases have been attempting to address real current needs within the new and burgeoning DeFi ecosystem.

Jack’s predictive thoughts on the growth potential of the DeFi market and projects 

The ever-increasing amount of money people put into crypto is an indication that people have more confidence in it. Although we are still in the process of proving product-market fit, it is starting to get there. Bitcoin is the only crypto asset that has established that. However, outsiders are beginning to recognize DeFi’s legitimate economic and financial value. A good example of that is the Chicago DeFi Alliance.

What DeFi offers that the traditional world of finance does not

Between DeFi protocols, there’s incredible composability. There is no need to develop everything from scratch. You can plug and play an asset management platform using open-source lending exchange protocols, where you can focus on a specific niche while leveraging the work of other brilliant top-class teams. Therefore, the pace of innovation can allow fundamentally new things. Additionally, the ways of doing trading are becoming unique to crypto and cannot be replicated in the traditional world of finance.

DeFi projects that currently stand out

  • Lending: Maker, Compound, Aave
  • DEXs: Uniswap, Kyber, IDEX 
  • Asset Management: Set Protocol, Melon Protocol

What differentiates these projects from the ones that came before is experience: We have seen what has worked and what has not and we can build much stronger models for how tokens can be valuable and create inherently new applications. As an example, Compound’s strategy was to take a much more balanced, slow approach to its token, and ensure there’s actual value in the protocol itself before introducing a token. In other words, showing product-market fit before there is an attempt at value extraction.

The trend of perpetual futures and synthetics

BitMax has pioneered a contract, which has now become the most liquid contract in all of crypto. We are now seeing an influx of them, such as dYdX, Futureswap, MCDEX, and Strike. It seems that in DeFi, traders may have a little more confidence that they will not be tricked by a corporation, even though there is an additional layer of risk in the form of system hacks from outside actors.

A perpetual swap does not have an exact equivalent in the traditional world. It is similar to a futures product, but there is no maturity. The risk of perpetual swaps, ultimately, is that you always need someone else on the other side of the position. During Black Thursday, as prices were dropping fast, the exchange was unable to pay out the traders who made money, as they could not liquidate those who were long to the amount required. Insurance funds exist to try to cover for similar scenarios, such as the Black Thursday event.

Upcoming DeFi projects that Jack considers exciting

  • Uniswap, a unique, automated market maker model
  • Balancer, a more flexible model that can solve some of Uniswap’s impermanent loss issues

DeFi’s current shortfalls and steps for further momentum and market growth

The DeFi community needs to be more demanding of rigorous audits, and to ensure that steps are being taken to eliminate risks, but if some still exist, that they are known to all involved.

It is also essential to be extremely transparent and openly communicate if you are building a project with a few people coding in their basement and cannot afford security and audits.

Jack’s advice to those considering getting started in DeFi

It can be a big learning tool for gauging the specific protocols and the DeFi space as a whole to go through the process of both seeking reliable sources of information as well as becoming involved actively within the DeFi ecosystem.

Further resources