In May, the venture capital firm Sequoia circulated a memo among its startup founders. The 52-page presentation warned of a challenging road ahead, paved by inflation, rising interest rates, a Nasdaq drawdown, supply chain issues, war, and a general weariness about the economy. Things were about to get tough, and this time, venture capital would not be coming to the rescue. “We believe this is a Crucible Moment,” the firm’s partners wrote. “Companies who move the quickest and have the most runway are most likely to avoid the death spiral.”
Plenty of startups seem to be taking Sequoia’s advice. The mood has become downright funereal as founders and CEOs cut the excesses of 2021 from their budgets. Most crucially, these reductions have affected head count. More than 10,000 startup employees have been laid off since the start of June, according to Layoffstracker.com, which catalogs job cuts. Since the start of the year, the tally is closer to 40,000.
The latest victims have been crypto companies, and the carnage is not small. On Tuesday, Coinbase laid off 1,100 employees, abruptly cutting their access to corporate email accounts and locking them out of the company’s Slack. Those layoffs came just days after Coinbase rescinded job offers from more than 300 people who planned to start working there in the coming weeks. Two other crypto startups—BlockFi and Crypto.com—each cut hundreds of jobs on Monday; the crypto exchange Gemini also laid off about 10 percent of its staff earlier this month. Collectively, more than 2,000 employees of crypto startups have lost their jobs since the start of June—about one-fifth of all startup layoffs this month.
The conversation around crypto companies has changed abruptly in the past year. In 2021, they were the darling of venture capitalists, who showered them with billions of dollars to fund aggressive growth. Coinbase, which went public in April 2021 at $328 a share, seemed to suggest an emerging gold mine in the sector. Other companies, like BlockFi, started hiring aggressively with ambitions to go public. Four crypto startups took out expensive prime-time ads in the most recent Super Bowl.
Coinbase was also focused on hypergrowth, scaling its staff from 1,250 at the beginning of 2021 to about 5,000 in 2022. “It is now clear to me that we over-hired,” Brian Armstrong, Coinbase’s CEO, wrote in a blog post on Tuesday, where he announced the layoffs. “We grew too quickly.”
“It could be that crypto is the canary in the coal mine,” says David A. Kirsch, associate professor of strategy and entrepreneurship at the University of Maryland’s Robert H. Smith School of Business. He describes the contractions in crypto startups as one potential signal of “a great unraveling,” where more startups are evaluated for how well they can deliver on their promises. If history is any indication, those that can’t are fated for “the death spiral.”
Kirsch has spent years studying the lessons of past crashes; he is also the author of Bubbles and Crashes, a book about boom-bust cycles in tech. Kirsch says that the bubble tends to pop first in high-leverage, high-growth sectors. When the Nasdaq fell in 2000, for example, the value of most ecommerce companies vanished “well in advance of the broader market decline.” Companies like Pets.com and eToys.com—which had made big, splashy public debuts—eventually went bankrupt.
In 2008, the backing reserve was basically houses. In cryptocurrency, I’m quite serious about this, the backing reserve is gullibility.
It sounds like you’re saying, one, crypto is all nonsense, but, two, the nonsense will continue indefinitely, because as long as you can invent money out of thin air, you can find a sucker to buy it. Unless governments step in to say you can’t do certain things anymore.
Yes. The good news is, there’s regulation coming. Treasury is looking at this stuff very closely because they basically have to make sure that these crypto bozos cannot screw up the actual economy where people live. And they would absolutely screw it up, because they’re idiots. And they got a taste of that in 2019 when Facebook did its Libra cryptocurrency, or tried to, and every regulator, central bank, and finance ministry in the world said, “No, you are bloody not.” Because Facebook didn’t know what they were doing and they were really arrogant about not caring that they didn’t know what they were doing. So basically, about a month later, the entire US government, Democrats and Republicans were united in this, squashed it like a bug.
So on the regulation question, are we talking about something like, if you have a stablecoin, you actually have to be audited and prove that you really have a dollar for every one of these stablecoins that you say is backed by a dollar?
That sort of proposal, yeah. There’s various versions of this, like requiring that stablecoins be issued by actual banks that are highly regulated and so forth. There have been proposed laws to this effect. None have passed, but these ideas are very much in the air.
The thing is that the regulators are reluctant to move too fast, and also they have restricted enforcement budgets. But I’ll tell you who really wants to regulate crypto: the money laundering cops. FinCEN are absolutely humorless cops who don’t care if they crush your business. And internationally, the FATF, who set rules that regulators are advised to follow if they want their country to be allowed to do business with anyone else. Those guys have put in a bunch of rules that came in 2021 about making crypto transactions more traceable. I think we’re going to end up with some sort of two-speed crypto market. You’ll have the entities that are known exchangers where people are traceable, and changing it back and forth to actual money is relatively easy, and then there will be another market which runs high on crack and is just incredibly unregulated and has a much harder time getting to the precious US dollars.
Most people don’t own any crypto, and yet you have Fidelity offering Bitcoin in 401(k)s, you have Wall Street institutions investing increasingly in crypto. How much could a crypto collapse affect the broader economy?
The main thing you have to worry about is that these bozos really want to get their tendrils into the world of real money. I think for a lot of them, that’s the endgame: get it into people’s retirement accounts. Now, the Department of Labor actually issued a notification in March warning financial advisers not to tell retirees to put their 401(k) into crypto. And Fidelity went and offered this product anyway. They really, really want to get into important products, because that way, when it collapses, they’re looking to the government becoming the bag-holder of last resort. And this is something to be fought against strenuously. It hasn’t happened yet, but we need to fear it.
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At a Mexican restaurant in North London a few weeks ago, a handful of small-time but remarkably discerning retail cryptocurrency investors predicted that terra and luna would crash. Several of them were scoffing at terra, or UST, a stablecoin whose price equivalence to the dollar is underpinned by algorithms and game theory rather than cash or collateral, and at the notion that it would maintain its peg in the long run.
The “Ponzinomics” of the project, they informed me, were just too risky. Only one of the investors seemed optimistic, out of nihilism rather than trust in terra’s solidity. He said that at some point UST’s price would grow well above one dollar per unit, and the coin’s promoters would decide to just keep it there and rebrand the stablecoin as an “inflation-resistant cryptocurrency dollar.” Another shrugged but conceded that all bets were off. “So far,” he said, “this story has always followed the most humorous timeline.”
You can bet a lot of people do not feel like laughing today. UST has lost its peg to the dollar (at the time of writing, you can buy it on cryptocurrency exchanges for $0.58), and its sister asset luna has plummeted from $82 last week to $0.02. A big chunk of the investment of around $60 billion in these cryptocurrencies was pulverized overnight, and more of it will follow as people scramble to get rid of their diminished coins.
Meanwhile this week, the wider crypto market is in turmoil as bitcoin fell to $27,000 after bleeding 8 percent of its value in 24 hours, and many other cryptocurrencies are trailing its descent. Tether, the world’s largest stablecoin, dropped under $1 on Thursday.
With terra, we are witnessing the crumbling of a project predicated on the notion that you can create money—and assign it a specific value—if people are willing to go along with the pretense that money has the value that crypto companies assign it, akin to role-playing in a video game.
A small subsection of hardline crypto believers would retort that in the age of post-gold-standard fiat money, most currencies are indeed just a collective delusion. But the fact that there is no government, central bank, economy, or actual usage underpinning terra matters. As Frank Muci, a policy fellow at the London School of Economics’ Growth Lab Research Collaboration, puts it, “It is similar to a bank run, except it’s a run on nothing.”
UST was marketed to the public as a stablecoin, a type of cryptocurrency whose value supposedly remains steady over time, creating a convenient edge against the wild price fluctuations of other cryptocurrencies like bitcoin or ether. With most stablecoins, that stability is guaranteed by currency reserves—whoever creates a stablecoin pegged against the dollar should theoretically keep an equivalent amount of dollars in a vault somewhere—or other collateral, including crypto. Except UST is an “algorithmic stablecoin” and has none of that. It is fully shielded from the real world, and takes pride in it.
On Terra’s own blockchain, UST has a symbiotic relationship with its satellite asset luna, which can be used to earn cryptocurrency rewards. It was always possible to exchange UST for luna and vice versa, and the blockchain’s own code always made sure that terra traded at a dollar a unit, while luna’s varying price was determined by algorithms keeping an eye on the market.
Like many nerds before me, I spent a goodly portion of my life searching for the perfect computing system. I wanted a single tool that would let me write prose or programs, that could search every email, tweet, or document in a few keystrokes, and that would work across all my devices. I yearned to summit the mythic Mt. Augment, to achieve the enlightenment of a properly orchestrated personal computer. Where the software industry offered notifications, little clicks and dings, messages jumping up and down on my screen like a dog begging for a treat, I wanted calm textuality. Seeking it, I tweaked. I configured.
The purpose of configuration is to make a thing work with some other thing—to make the to-do list work with the email client, say, or the calendar work with the other calendar. It’s an interdisciplinary study. Configuration can be as complex as programming or as simple as checking a box. Everyone talks about it, but it’s not taken that seriously, because there’s not much profit in it. And unfortunately, configuration is indistinguishable from procrastination. A little is fine but too much is embarrassing.
I spent almost three decades configuring my text editor, amassing 20 or so dotfiles that would make one acronym or nonsense word concordant with another. (For me: i3wm + emacs + org-mode + notmuch + tmux, bound together with ssh + git + Syncthing + Tailscale.) I’d start down a path, but then there’d be some blocker—some bug I didn’t understand, some page of errors I didn’t have time to deal with—and I’d give up.
A big problem I had was where to put my stuff. I tried different databases, folder structures, private websites, cloud drives, and desktop search tools. The key, finally, was to turn nearly everything in my life into emails. All my calendar entries, essay drafts, tweets—I wrote programs that turned them into gigs and gigs of emails. Emails are horrible, messy, swollen, decrepit forms of data, but they are understood by everything everywhere. You can lard them with attachments. You can tag them. You can add any amount of metadata to them and synchronize them with servers. They suck, but they work. No higher praise.
It took years to get all these emails into place, tag them, filter them just so. Little by little I could see more of the shape of my own data. And as I did this, software got better and computers got faster. Not only that, other people started sharing their config files on GitHub.
Then, one cold day—January 31, 2022—something bizarre happened. I was at home, writing a little glue function to make my emails searchable from anywhere inside my text editor. I evaluated that tiny program and ran it. It worked. Somewhere in my brain, I felt a distinct click. I was done. No longer configuring, but configured. The world had conspired to give me what I wanted. I stood up from the computer, suffused with a sort of European-classical-composer level of emotion, and went for a walk. Was this happiness? Freedom? Or would I find myself back tomorrow, with a whole new set of requirements?
You saw the many cryptocurrency-related Super Bowl ads, and maybe you found them weird, or deeply dystopian, or just disturbingly familiar. Nevertheless, perhaps you believe the blockchain has financial rewards left to reap and want to jump in, or you’ve already got some of your money tied up in cryptocurrencies via companies like Coinbase and FTX that were advertising during the big game.
What now? Keeping track of the ups and downs of Bitcoin, Ethereum, and other crypto coins and actively trading on those fluctuations can be a full-time job. Day-trading, basically. And jumping into NFTs, the digital baubles you can mint, buy, or sell, is still daunting for many.
For many crypto traders who are in it for the medium to long haul, there are some other ways to make money on cryptocurrency that’s just sitting in your crypto wallet: staking and yield farming on DeFi networks. “DeFi” is just a catchall term for “decentralized finance”—pretty much all the services and tools built on blockchain for currencies and smart contracts.
At their most basic, staking cryptocurrency and yield farming are pretty much the same thing: They involve investing money into a crypto coin (or more than one at a time) and collecting interest and fees from blockchain transactions.
Staking vs. Yield Farming
Staking is simple. It usually involves holding cryptocurrency in an account and letting it collect interest and fees as those funds are committed to blockchain validators. When blockchain validators facilitate transactions, the fees generated go, in part, to stakeholders.
This type of hold-for-interest has become so popular that mainstream crypto dealers like Coinbase offer it. Some tokens, such as the very stable USDC (pegged to the US dollar), offer about .15 percent annual interest rates (not too different from putting your money in a bank in a low-interest checking account), while other digital currencies might earn you 5 or 6 percent a year. Some services require staking to lock up funds for a certain period of time (meaning you can’t deposit and withdraw whenever you want) and may require a minimum amount to draw interest.
Yield farming is a little more complicated, but not that different. Yield farmers add funds to liquidity pools, often by pairing more than one type of token at a time. For instance, a liquidity pool that pairs the Raydium token with USDC might create a combined token that can yield a 54 percent APR (annual percentage rate). That seems absurdly high, and it gets stranger: Some newer, extremely volatile tokens might be part of yield farms that offer hundreds of percent APR and 10,000 to 20,000 APY (APY is like APR but takes into account compounding).
The rewards, which add up 24/7, are usually paid out as crypto tokens that can be harvested. Those harvested coins can be invested back into the liquidity pool and added to the yield farm for bigger and faster rewards, or can be withdrawn and converted to cash.