GMIJanuary 2022 Monthlyfor RVFULL

© Global Macro Investor 2022 1
CONTENTS
This month in Global Macro Investor
1 / Introduction 3
2 / Why Gold Lost its Mojo 26
Ronald-Peter Stöferle
3 / The Nuclear Renaissance 39
Justin Huhn
4 / Tesla 50
5 / The Rapid Commercialization of Space 61
Leon Alkalai
6 / Web 3.0 76
7 / The Future of Crypto is Multichain 89
Ryan West
8 / M2 – A Framework for the Internet of Value 102
Santiago Velez
9 / NFTs Market Cycles and the Road Ahead 120
Sergio Silva
10 / The Future of Gaming 126
Joe Begonis
11 / The Most Interesting Charts in the World 134
12 / YOUR Exponential Age 142

January 2022 Think Piece
Introduction

Happy New Year everyone!
To the new readers amongst us, you will discover that the January GMI Monthly is presented in a
different format to the usual: introducing the GMI January 2022 Think Piece. Each year I try to step back
a little and think harder, mull over the bigger picture and provide us with new things to chew over. I get
tired of every bank and research service giving their definitive forecasts for the year ahead. Even though
they make for good reading they are invariably wrong. I do give some thoughts as to how things might
play out but that is not the purpose of this publication. As an aside, I will be travelling at the end of
January for two weeks so the February Monthly will be published early and will revert back to the usual
GMI format.
Generally, I also try to avoid putting any capital to work too quickly as the beginning of the year can
often create fake-outs. I prefer to be a little cautious.
For those that are familiar with the January Think Piece, we have a few surprises... we have invited several
experts from my inner circle to help build our knowledge base in areas that I think are important: from
Gold to Uranium, from NFTs to the business of Space. Lots of cool and fascinating stuff and hopefully
great reading...
2021
As ever, each year I like to review my performance and draw from any lessons...
Winners
• I had my biggest-ever core bet in ETH, which was a knockout and one of the best GMI trades
in history. ETH is up 1459% since inception and 422% in 2021.
• BTC did well too and is up 442% since inception and 60% in 2021.
• Carbon, my other decent-sized bet was also a killer – up 91% in 2021.
• There were some good winners in crypto +72% SOL, +72% GMI Alts Basket, +40% XRP, etc.
Losers
• I had some carry-though positions in bonds from last year that I had to close out for a loss.
Nothing major.
• Gold was a small drag -3.8%.
• GDX was my worst position -16%.
Overall, it was one of the best years in the history of GMI, if not the best-ever year. Last year was also
incredible. It makes me nervous when I’m so right as I know how rapidly one’s fate can change! No one
gets it right all the time...
I will go through crypto in a bit, but I’d like to keep all those positions and will likely add more in the
next month once we get some further clarity.

The Business Cycle
My view remains that the consensus view of strong growth for 2022 is most likely wrong and that, as
per usual after an initial recovery, GDP growth slows, requiring further stimulus.
The ECRI has been slowing fast...
... and that will continue to drag on IP...

... and Durable Goods...
Freight Shipments seems to be leading ECRI...

... as do Car Sales...
The Dollar also seems to lead and suggests ECRI will keep on falling...

... and GDP should keep softening...
This is confirmed by the LEI...

Inflation, as measured by PCE, should begin to fall sharply...
... and we see the same using Core CPI...

... additionally, Non-Farm Payroll growth will slow...
Using the ISM, we gain some additional information that leads me to think that slower growth is on the
cards. Here is Residential Fixed Investment as a Percentage of Total Fixed Investment...

... and New Orders Less Inventories...
ISM Price Paid is also suggesting that CPI is going to fall sharply. We saw something similar in the early
cycle move in 2011 too...

The 6-month rate of change of the CRB Commodity Index also suggests inflation is about to evaporate...
Everything seems to suggest to me that 2022/23 will be weaker than expected and with less
inflation. I have been suggesting that this is normal after a recession. The best example is 2011.
In 2011, the Fed tried to reduce the balance sheet. The yield curve flattened, and Europe blew up
in 2012, causing the Fed to print again. Just keep that in mind.
New Thoughts...
I am starting to develop a potential hypothesis around my core concept that suppressed volatility leads
to hyper-volatility. We saw suppressed volatility in GDP over The Great Moderation when extensive use
of monetary policy subdued the cycles. You can see the difference in GDP volatility clearly from 1987
(when the Fed first used rate cuts to protect asset markets) until 2020...

Maybe, with zero interest rates, yet more debt, and a reliance on fiscal stimulus, we will return to a
period of high amplitude waves, which are shorter but relatively bigger when compared to the last thirty
years.
This would be a world where the US economy swings up and down as fiscal and monetary stimulus
courses through and then wanes, until some sort of eventual equilibrium is reached, much like when
dropping a rubber ball from a great height.
I think that there is significant merit to this idea and will spend more time thinking about it and its
impacts.
Macro Big Picture

As ever, the key things to watch out for in the macro picture are the dollar and bond yields.
My base case was for the dollar to revert to the middle of the range, which has now happened...
... but there remains the risk that this is a larger version of the previous bull market and that this is the
mid-cycle pause...

This is backed up by the Euro chart... which is 4% from the biggest trend line in its history... it is a long-
term chart so maybe the trend break is a 2023 event, but let’s see...
Additionally, $JPY is close to its biggest trend line and is also a large, inverted head-and-shoulders
bottom... again, it could be another year before the head-and-shoulders breaks...
The Dollar is THE key macro variable to watch in 2021.

Bond yields are equally interesting... there could be a wedge or inverted head-and-shoulders forming...
BUT the chart of truth comes in at 2.2% these days... a typical overthrow of the trend would take it to
2.5%...
Every time that bond yields have hit the top of the Chart of Truth since 1999, a recession has followed
in around eighteen months. We would, however, first need to see the yield curve invert.
I don’t know how this will play out. My base case is for yields to peak soon as growth begins to slow,
and that slow growth pushes the dollar higher (the business cycle is the key driver of the dollar).
Either way, everything we need to know will be in the dollar and bonds.

Crypto
Crypto was a damp squib in the last quarter of 2021, just when we all expected fireworks. I spent quite
some time trying to figure out what happened and it seems – as ever – to be a culmination of things.
First, in December, hedge funds took profits to secure their year-end performance fees. Institutions
rebalanced to get their weightings back in line. That killed the year-end rally.
But the reality was that after a strong start in Q1 2021, interest in the space died down. The biggest
shock was the banning of crypto in China. That removed a huge number of active addresses from the
market. BTC has been slowly climbing back in term of active addresses as non-Chinese traders and
investors slowly offset the lost participants from China...
Additionally, transaction volumes have been stagnant as ETH has taken the limelight and BTC use cases
remained limited...

The loss of China and retail investors was partially offset by new institutions...
... but some of the increase was caused by price effects. When viewed in BTC terms, they barely rose...
With BTC lacklustre, focus moved to ETH. NFTs and other activity prevented ETH from a similar fall in
active addresses...

... and transaction volumes remained reasonably elevated (but off their highs) ...
Staking for ETH 2.0 kept rising...
... and with more active wallet addresses and higher volumes, more ETH got burned which kept prices
higher. NFTs plus DeFi and a better narrative led to less of a demand drop and more ETH got locked
into DeFi, smart contracts, and got staked, leaving a super-low supply and the burn created the extra
demand...

... hence why ETH outperformed, and its market cap rose faster than BTC...
Overall, it was a year of headwinds. The Fed Balance Sheet grew at a slower pace in 2021...

And retail investors lost their marginal ability to invest disposable income as real wages went negative...
Add that to China woes and you’ve got a generally sideways market.
The only way for investors to make money was by churning through sectors to find returns – NFTs,
Metaverse and Layer 1s were the chosen vehicles, but they couldn’t push up the market cap of the
digital asset space overall...

NFTs saw mass adoption, Metaverse tokens saw a revaluation from Facebook and Layer 1s saw activity
for NFTs and others switching to cheaper, faster alternatives – Terra, Solana, AVAX.
My view remains that the digital asset space will become more complex and require deeper knowledge
than just buying and holding BTC and ETH. I’m still thinking through the year ahead, but I think that the
next round of beneficiaries will be cross-chains like Polkadot and ATOM and maybe also interoperability
tokens as people look for cheaper parts of the market.
However, I do expect hedge funds to bring their new P&Ls and thus new risk appetite in January and I
expect (know) institutions will be coming in. I also think that the crypto hedge fund space will be the
next big thing as VC has become overpriced and institutions are comfortable with fund of funds and
hedge funds in general. I can see from the demand for the Exponential Age Digital Asset Fund that it is
going to bring in a lot of fresh capital...
When I look at the long-term BTC chart below, it is defined by the 48-month Exponential Moving
Average and the regression channel. We are far from overbought, so I expect it to continue higher in a
longer cycle...

ETH is oversold versus its shorter-term log trend...
... and ETH looks to be consolidating...

Over the next week or so, BTC and ETH will put in weekly 9 lows, which should be the bottom...
And BTC looks cheap versus Metcalfe’s Law valuations...

However, it still appears that ETH is going to outperform BTC...
... and Solana looks like it will outperform ETH (GMI holds Solana) ...

I will likely re-shuffle some crypto later in the month once I have a clearer view of what I would like to
own for this year.
Overall, I think this pause may see a bit more downside in the next couple of weeks before new capital
comes into the space and it continues its rise higher after a slow nine months.
This chart best encapsulates my view... a longer cycle at its halfway mark...
HODL.

Why Gold Lost Its Mojo
By
Ronald-Peter Stöferle
Ronni is Managing Partner of Incrementum AG. In 2007, whilst at the Erste Group, he published his first In Gold We
Trust report, which has proceeded to become one of the benchmark publications on gold, money, and
inflation. Adviser to Affinity Metals (AFF), Matterhorn Asset Management and on several boards including Tudor
Gold Corp, Ronnie has co-authored the international bestseller, “Austrian School for Investors”, and in 2019, “Die
Nullzinsfalle” (The Zero Interest Rate Trap). Contact Ronni at @RonStoeferle www.incrementum.li/en
https://ingoldwetrust.report/?lang=en

Raoul’s Note:
Ronni is my go-to person to help comprehend the deep workings of the gold market and how the
macro overlays the fundamentals. I really wanted Ronni to help us understand what is going on in gold
and if there is still an opportunity ahead...
Why Gold Lost Its Mojo

Gold and the year 2021: one meme catches it all...
Your time is precious, and we won’t beat around the bush: 2021 was disappointing for gold, especially
as inflation rates have surged dramatically during the year, rising from 1.4 percent in January to 6.9
percent year-on-year in November.
The HICP for the eurozone recorded a meagre 0.9 percent increase in January, while in November it
stood at 4.9 percent year-on-year. Still, in many currencies, gold struggled over the course of the year.

And in those currencies in which the gold price recorded a gain, the gain was small relative to the sharp
rise in inflation...
Year USD EUR GBP AUD CAD CNY JPY CHF INR Average
2000 -5,3% 1,2% 2,4% 11,2% -1,9% -5,4% 5,8% -4,2% 1,4% 0,6%
2001 2,4% 8,4% 5,3% 12,0% 8,8% 2,4% 18,0% 5,5% 5,8% 7,6%
2002 24,4% 5,5% 12,3% 13,2% 22,9% 24,4% 12,2% 3,5% 23,7% 15,8%
2003 19,6% -0,2% 8,0% -10,7% -1,3% 19,6% 8,1% 7,4% 13,9% 7,2%
2004 5,6% -2,0% -1,7% 1,5% -2,0% 5,6% 0,8% -3,1% 0,1% 0,5%
2005 18,1% 35,2% 31,6% 25,9% 14,1% 15,1% 35,9% 36,3% 22,8% 26,1%
2006 23,0% 10,4% 8,1% 14,3% 23,3% 19,0% 24,2% 14,1% 20,7% 17,5%
2007 30,9% 18,4% 29,2% 18,0% 12,0% 22,5% 22,5% 21,8% 16,9% 21,4%
2008 5,4% 10,0% 43,0% 30,5% 28,7% -1,5% -14,2% -0,8% 30,0% 14,6%
2009 24,8% 21,8% 13,0% -1,6% 7,9% 24,8% 27,9% 21,1% 19,2% 17,6%
2010 29,5% 38,6% 34,2% 13,9% 22,8% 25,1% 13,2% 16,8% 24,8% 24,3%
2011 10,2% 13,8% 10,6% 9,9% 12,7% 5,2% 4,5% 10,7% 30,7% 12,0%
2012 7,1% 5,0% 2,4% 5,3% 4,2% 6,0% 20,7% 4,5% 11,1% 7,4%
2013 -28,0% -30,9% -29,4% -16,1% -23,0% -30,1% -12,6% -29,8% -19,1% -24,3%
2014 -1,8% 11,6% 4,4% 7,2% 7,5% 0,7% 11,6% 9,4% 0,2% 5,6%
2015 -10,4% -0,2% -5,3% 0,6% 6,8% -6,2% -9,9% -9,7% -5,9% -4,4%
2016 8,5% 12,1% 29,7% 9,4% 5,3% 16,1% 5,4% 10,3% 11,4% 12,0%
2017 13,1% -0,9% 3,3% 4,6% 5,9% 6,0% 9,0% 8,3% 6,3% 6,2%
2018 -1,5% 3,0% 4,3% 9,0% 6,8% 4,1% -4,2% -0,8% 7,3% 3,1%
2019 18,3% 21,0% 13,8% 18,7% 12,6% 19,7% 17,2% 16,6% 21,3% 17,7%
2020 25,0% 14,7% 21,2% 14,1% 22,6% 17,2% 18,8% 14,3% 28,0% 19,5%
2021 YTD -5,2% 3,0% -2,1% 2,4% -4,0% -7,4% 4,4% -1,1% -1,4% -1,3%
Average 9,7% 9,1% 10,8% 8,8% 8,7% 8,3% 10,0% 6,9% 12,2% 9,4%
Source: Reuters Eikon (as of December 17th 2021), goldprice.org, Incrementum AG
Record low and falling real interest rates should have been favourable to the gold price, since the
opportunity costs of holding cash have been rising, as have the opportunity costs of bank deposits,
given the low and sometimes even negative nominal interest rates for deposits.
In November 2021, the Real Fed Funds Rate even fell below the 1975 low of -5%. However, the gold
price did not follow this historical decline in real interest rates, contrary to the solid negative correlation
between the gold price and yields, but merely moved sideways...

Has gold become irrelevant?
So, the question arises: has gold lost its central portfolio characteristic as an inflation hedge?
We do not think so. There are some good reasons for this year's disappointment.
1) After record gains in 2019 and 2020, gold had to take a deep breath: after two years of well-
above-average gains of 18.9 percent and 24.6 percent, as well as a new all-time high in August
2020, gold had to consolidate. More so, as the huge 80 percent advance in gold from the August
2018 lows to the August 2020 top correctly signalled the 2021 surge in the CPI. Back in 2020,
gold did exactly what it should do in a diversified portfolio. Gold was an excellent hedge against
the multi-layered turmoil that hit the global economy because of the outbreak of the Covid-19
pandemic, with gold acting as a hedge against recession, stock market turbulence, rising
inflation, and black swan events. Furthermore, gold demonstrated its ability to hedge against
recessions, corroborating our analysis of this matter in the In Gold We Trust report 2019. To
sum it up: Gold confirmed that it is the Virgil van Dijk of assets: always on hand when things
get really hairy.
2) Long-term inflation expectations remain subdued: while inflation rates have picked up
significantly, long-term expectations are still close to central banks’ inflation targets. Global
central bankers have been pounding the table that inflation will be transitory. Even though
Jerome Powell recently revoked his assessment that the rise in inflation will be short-lived, the
market still believes otherwise. In our opinion the market is most likely underestimating medium
to long-term inflationary dynamics and at this point still is discounting a transitory inflationary
environment.
Last year, we outlined our view of a structural change towards higher inflation in an, In Gold We
Trust special titled, “The Boy Who Cried Wolf: Is an Inflationary Decade Ahead?”. We have also
made that case in numerous editions of our annual In Gold We Trust report. Ronald-Peter
Stoeferle’s keynote speech, “The Monetary Tipping Point”, provides an update to this long-held
contrarian view of ours, which is now becoming more and more mainstream.

Record rises of producer prices around the globe support our view. Producer prices in the US
are up 9.6 percent year-on-year, in China 12.9 percent, and in Germany a staggering 19.2
percent. Contrary to the mainstream view, inflation is not limited to energy prices, as more than
80 percent of CPI components have recorded an inflation of 2.5 percent or more. In addition,
there are initial signs that the dreaded wage-price spiral has set in. Without doubt, base effects
and pandemic-related one-off effects are currently driving inflation as well; but contrary to
many statements from central bankers, even without these effects, inflation rates would still be
well above target.
3) Crypto assets such as Bitcoin have attracted significant attention: in 2021 cryptocurrencies took
a big step in the maturation process towards becoming a full-fledged asset class, as we discuss
in our “Bitcoin Chartbook 2022: Is This Halving Cycle Over?”, which was published mid-
December 2021. At this point inflows into crypto products are significant. Bitcoin’s market cap
has reached roughly 10% of gold’s market cap and cannot be ignored, even from the point of
view of a pure gold investor. More and more traditional banks are offering services and products
related to crypto assets; regulatory authorities are drafting or already implementing regulatory
frameworks; and tax authorities are detailing the tax treatment of crypto assets. For crypto
enthusiasts who jumped in early, these may be negative developments, but for the masses they
are confidence-building signs.
As a result of this maturation, Bitcoin ETFs saw inflows across the board in 2021, while US gold
ETFs faced significant and sustained outflows.
When moving sideways is a success
Sometimes, a sideways movement is a success, as it was for gold in 2021. If you listen to the Nervous
Nellies in the gold community, you might think that the gold price had collapsed by 50 percent or even
more. However, when you widen the perspective, gold's performance over the past few months, which
has fluctuated between USD 1,700 and USD 1,900 (see overleaf), seems like an interim breather, not the
beginning of a bear market.

Therefore, the sideways movement of gold should be interpreted in light of the fact that the gold price
fended off further declines, defending its terrain despite several developments which were
disadvantageous to gold.
• Tapering debate
Market expectations were that the Federal Reserve’s tapering would be the nail in the coffin for
gold. It seems that gold agrees with bonds that the Fed’s tightening will lead to market
conditions that force additional money printing in the not-too-distant future. To put it
differently, central banks will abandon the normalisation process when the inevitable
consequences of even a slightly tighter monetary policy begin to play out on financial markets
as well as in the real economy. We are quite certain that this will be the shortest and shallowest
rate-hike campaign in the history of the Federal Reserve.
• USD appreciation
Despite record-high inflation and money supply growth figures, as well as fiscal deficits of more
than 10 percent of GDP in two consecutive fiscal years, the US Dollar has rallied since summer,
as the Federal Reserve has taken the lead in tightening monetary policy from ultra-loose to
loose. As a result, the US Dollar strengthened considerably, by more than 7 percent.

Can gold regain its mojo in 2022?
In 2022, gold should prove that there is life in the old dog yet.
• Investor demand
Investor demand will tip the scales as it slowly but surely recovers from the dramatic setback
caused by the Covid-19 pandemic. While investors in the US and UK continue to decrease their
gold ETF holdings, demand from India, France, China, Hong Kong, Australia and Germany has
been substantially positive in the course of 2021. Given the pro-cyclicality of investor demand,
the slight upward trend of gold in recent months should generate more investor demand and
could once more trigger a self-reinforcing upward spiral.
Consumer demand appears to be on the verge of fully recovering from the sharp 23 percent
drop in 2020. Germany and Austria, which have a strong fear of out-of-control inflation due to
their respective traumatic historical (hyper)inflationary experiences, recorded twice as much
consumer demand in 2020 as in 2019. This trend was confirmed in the first three quarters of
2021. In the US, consumer demand has also almost doubled in 2021 compared to 2019. China's
consumer demand, the world's largest, has already overcome the massive slump of 2019 while
India, which takes second place, is still well below the level of 2019 but significantly above the
2020 trough. All in all, Asia sets the tune as it now accounts for around 60 percent of global
consumer demand.
• Central bank interest

Central banks have remained net buyers of gold, despite the economic havoc caused by several
Covid-19 waves and ensuing lockdowns. Nevertheless, net demand in 2020 was the lowest in
ten years. In Q3/2020, net central bank demand was negative for the first time since Q4/2010.
In 2021, net central bank demand recovered but is down a significant 20 percent from 2019
levels. The top buyers in the first three quarters of 2021 were diverse. In descending order, they
were Thailand, Japan, India, Hungary, Brazil, Uzbekistan, Singapore, Kazakhstan, Mongolia,
Cambodia and Poland. Poland, an EU member state, has confirmed its willingness to add
another 100 tonnes to its gold reserves. This investment will boost Polish gold reserves by more
than 40 percent. Ireland, a euro member state, has also increased its gold holdings for the first
time in twelve years due to inflation fears.

• Monetary policy will only tighten, from ultra-loose to loose
Several central banks have said farewell to their ultra-loose monetary policies. There is, however,
no chance for central banks to raise interest rates significantly, as this course of action would
endanger both the economic recovery and, most importantly, the financial viability of the highly
indebted governments. In 2020, global public debt jumped by 19 percentage points to 99
percent of GDP, with global debt experiencing the largest surge in fifty years to 256 percent of
GDP from 227 percent in 2019.
In the US, for example, the Congressional Budget Office (CBO) has calculated that even under
a moderate increase in yields, interest service will rise from the current 1.4 percent of GDP to
an unfinanceable 8.6 percent in 2051. In a further scenario considered by the CBO, which is still
far short of extreme, interest service could reach 15.8 percent. So, financial repression – the
regime of negative real interest rates – is here to stay.
Jerome Powell’s announcement in mid-December 2021 that the Federal Reserve might raise
interest rates three times in both 2022 and 2023, would translate into positive real rates only if
inflation were to fall to no more than 1.5 percent. This prospect seems highly unrealistic.
More likely than a substantial increase of interest rates is that Austria will reach the final of the
World Cup in Qatar at the end of this year, where it beats Germany 7–0.
• Stock-to-flow ratio (SFR) supports the case for gold – and Bitcoin
It’s all about relative scarcity: M2 money supply growth has pulled back from a record high of
25 percent or more year-on-year but, with growth rates in the double digits, M2 growth is still
well above the average growth rates of the last forty years. Compare these growth rates to the
annual supply growth of gold and digital gold, i.e., Bitcoin, of 1.7 percent.
To put it differently, the stock of gold and Bitcoin is almost 60 times larger than the annual flow,
that is, newly mined gold and bitcoins, which translate into a stock-to-flow ratio (SFR) of almost
60. In stark contrast, the SFR for M2 is currently less than 7, after a record low of slightly more
than 5 in 2020. This huge difference between gold’s SFR and that of the US Dollar – as well as
those of all other fiat currencies – should support the gold price in the months and years to
come...

• Technical analysis supports bullish outlook
The long-term cup-handle formation, which could now soon be resolved, is particularly
interesting.
The correction since August 2020 appears as the handle part of the formation. The price target
can be estimated by measuring the distance from the right edge of the cup to the bottom of
the cup and then extended further in the direction of the breakout area. Accordingly, the price
target of the formation is around USD 2,700.

• The long-term perspective remains bullish
In our In Gold We Trust report 2020 we presented our proprietary valuation model. We use two
parameters to calculate the gold price target, namely money supply developments and the
implicit gold coverage ratio.
For the growth rate of the money supply in the coming decade we have drawn up three
scenarios. We have used historical M2 growth rates from different decades – the inflationary
1970s, the disinflationary 1990s, and the 2000s – which experienced average growth rates of
9.7 percent, 3.9 percent, and 6.3 percent respectively. To each of these scenarios we assigned
an estimate of their probability of occurrence: 15 percent for the first, inflationary scenario; 5
percent for the second, disinflationary scenario; and 80 percent for the “average” scenario
represented by the 2000s.
The implicit gold coverage of a currency is calculated by valuing the central bank’s gold reserves
at the current gold price and relating them to the money supply.
If we now calculate a cumulative distribution function across all scenarios, the following picture
emerges.
Our expectation for the gold price at the end of the decade is around USD 5,830, equalling to
a CAGR of 15.8 percent. The distribution is clearly skewed to the right. This means that
significantly higher prices are far more likely than lower ones. That our assumptions are quite
realistic is corroborated by monetary developments since January 2020, which saw an annual
growth rate of more than 17 percent.

A word on mining stocks
So, gold’s performance in 2021 was disappointing, but the performance of mining stocks was even more
disappointing. In the last few years mining stocks failed to emancipate themselves from the gold price,
as they were able to do in the long gold bull market that got underway at the beginning of the new
millennium. Back then gold rose about 600 percent while the HUI posted a gain of 1,400 percent in less
than twelve years.
However, the outlook for mining stocks is bright since, based on a wide range of indicators, mining
stocks are inexpensive.
Moreover, there has been a spate of M&A activity recently, suggesting that the larger players see value
in the smaller companies that own Tier 1 assets in safe jurisdictions. For example, Newcrest Mining
acquired Pretium Resources at a 22% premium, and Kinross acquired Great Bear Resources at a 40%
premium to Great Bear’s 20-day VWAP.

Conclusion
Wonderful one minute and rubbish the next – this emotional rollercoaster seems to be a characteristic
of our times, and the public’s view on gold is not an exception to the rule. In summer 2020, when gold
marked a new all-time high above USD 2,000, gold was the asset par excellence. But just a few months
later gold was considered an asset of the past. Neither of these emotional extremes does gold justice.
Gold was, is, and will remain a solid defender in any investment portfolio, demonstrating its strength
especially in times of economic turmoil. Gold displays its strength in the medium and long term; it is an
insurance policy that will not disappoint policyholders. The case for gold remains more than solid.
In 2022, inflationary pressure will remain high as inflation has become a widespread phenomenon,
supported by several fundamental changes – economically, politically, psychologically, and
demographically. That does not mean that inflation rates will continue to rise but that the inflation level
will remain elevated, i.e., (well) above central banks’ inflation targets. In its most recent projection, the
ECB has almost doubled its inflation forecast for 2022 to 3.2 percent, significantly higher than its
symmetric 2 percent inflation target. And as long as the Covid-19 pandemic continues to affect daily
life, further restrictions by governments to contain future Covid waves will create supply-side woes that
fuel inflationary tendencies.
2022 will also turn into a turbulent year, not only because several central banks have announced that
they will end their ultra-loose monetary policies soon, but also because stock markets all over the world
are heavily inflated, with excessive money supply growth and government support programmes as the
latest boosters. Only 2 percent of the time in history has the CAPE multiple been at today’s 40x level or
higher, and breadth has been lagging too, which is rarely an encouraging sign.
To bet against gold at this point is to bet that central bankers will actually be able to implement a less
accommodative monetary policy and stay the course when, in response to tapering and rate hikes,
markets plunge, interest rates rise, and the economy cools. Our take is that central banks will fail this
test. As a result, real yields will remain in negative territory for much longer than even pessimists think.
And as the following chart clearly shows, negative real yields are the foundation for every bull market
in gold.

That gold is far from being an outdated asset was demonstrated by Palantir, a US data analytics software
company, in August 2021. Palantir, a name taken from the fantasy novel Lord of the Rings, where palantir
is a stone used for communication, bought USD 50mn in gold bars, probably as a hedge against black
swan events that could significantly shake financial markets. The fact that Palantir is one of the best-
connected companies in the world adds even more significance to this decision.
However, gold's potential lies not only in hedging against unforeseeable events. There is also a genuine
investment case for gold, because compared to the all-time highs of 1980 and 2011, gold still appears
cheap in relative terms. In fact, gold seems to be one of the very few undervalued assets out there at
the moment.
Two huge steps forward, one small step backward – that was gold’s rhythm over the last six years. If
gold keeps this rhythm, 2022 and 2023 will indeed be golden years for gold.

The Nuclear Renaissance
By
Justin Huhn
Justin Huhn is the Founder & Publisher of Uranium Insider Pro Newsletter. www.uraniuminsider.com
You can contact Justin at: support@uraniuminsider.com.
.

Raoul’s Note:
I think nuclear power has a big role to play in ESG. The industry and the technology have come a very
long way from the dirty waste and fragile power stations of the past and the scene is set to massively
change power generation globally. It is an important theme that we all need to follow...
The trigger event for the 10-Year “Bear Market”
On Friday March 11, 2011, Japan experienced a magnitude 9.0 earthquake. As a result of that
earthquake, Japan then was hit with a large tsunami that devastated an entire region of the country.
The earthquake was centered 130 km offshore the city of Sendai in Miyagi prefecture on the eastern
coast of Honshu Island (the main part of Japan) and was a rare and complex double quake giving a
severe duration of about 3 minutes. An area of the seafloor extending 650 km north-south moved 10-
20 meters horizontally. Then, 41 minutes later at 3:42 pm, the first tsunami wave hit, followed by a
second 8 minutes later. The tsunami inundated about 560 sq km, resulted in a human death toll of about
19,000, and caused much damage to coastal ports and towns with over a million buildings destroyed
or partially collapsed. Eleven Japanese reactors at four separate nuclear power plants in the region were
operating at the time, and all shut down automatically when the earthquake hit. Subsequent inspection
showed no significant damage to any of these reactors from the earthquake.
The reactors proved robust seismically, but ultimately were vulnerable to the tsunami. At the Fukushima
Daiichi plant, all six external power supply sources were lost due to earthquake damage, so the
emergency diesel generators located in the basements of the turbine buildings started up. Initially,
cooling would have been maintained through the main steam circuit bypassing the turbine and going
through the condensers, however these submerged and damaged the seawater pumps for both the
main condenser circuits as well as the auxiliary cooling circuits, notably the Residual Heat Removal (RHR)
cooling system. The tsunami also drowned the diesel generators and inundated the electrical switchgear
and batteries, all located in the basements of the turbine buildings (the one surviving air-cooled
generator was serving units 5 and 6). So, there was a station blackout and the reactors were isolated
from their ultimate heat sink, resulting in partial meltdown of the three reactors. The tsunamis also
damaged and obstructed roads, making outside access difficult.
At 7:03 pm the same day, a Nuclear Emergency was declared, and at 8:50 pm the Fukushima Prefecture
issued an evacuation order for people within 2 km of the plant. At 9:23 pm the Prime Minister extended
this to 3 km, and at 5:44 am on 12th he extended it to 10 km. He visited the plant soon after. On
Saturday, March 12th he extended the evacuation zone to 20 km. While there were no deaths or cases
of radiation sickness from the nuclear accident, over 100,000 people were evacuated from their homes
to ensure this outcome. Interestingly, official figures show that there have been 2,259 disaster-related
deaths (e.g., from maintaining the evacuation) in contrast to the little risk from radiation if early return
had been allowed.
The events described above had a profound influence on the entire uranium industry for the
balance of the decade. Ten years before Fukushima, many had started to hope that the time had come
for a nuclear renaissance. Fears over nuclear safety following the disasters at Chernobyl and Three Mile
Island meant that new nuclear capacity plummeted in the 1990s. Before the earthquake and tsunami
hit, Japan had 54 operating nuclear reactors with a capacity of around 47 gigawatts (GW). It was the
third largest nuclear power-generating country after the US and France. Japan lost 10GW of nuclear
capacity instantly when the earthquake hit, shutting down facilities at Fukushima, Onagawa and Tokai.
The serious damage to the Fukushima Daiichi plants in the accident meant that all six of its reactors
were officially decommissioned. In the ensuing months, Japan proceeded to take all its nuclear reactor
fleet offline. Japan was left with a gaping hole in its energy mix.

The sudden loss of over 10% of the world’s nuclear generation ushered in an almost 10-year long
uranium bear market. Counterintuitively, in the wake of the accident the producers kept producing,
living off their existing long-term contracts in place. Additionally, a colossal source of new supply was
emerging with the recent arrival of Kazakhstan’s Kazatomprom – which became the world’s largest
producer in 2009. This state-owned operation benefited from both the most economical method of
extraction (In Situ Recovery, “ISR”) and its ever-weakening local currency, the Kazakh Tenge.
There is a recurring pattern in commodities – it follows the “boom-bust” cycle that accompanies strong
demand followed by an increase in production only to fall victim to contracting economic growth in the
midst of excess supply. The cycle is self-correcting, however, low prices eventually choke off supply, and
so goes the expression, “the cure for low prices... is low prices.” As described above, the last uranium
cycle was amplified by a very specific idiosyncratic event: the aforementioned Fukushima Daiichi disaster
of March 2011, which had a profound effect upon the uranium sector in terms of a sudden and
unexpected drop in consumption and abrupt changes in former national pro-nuclear energy policies.
The dramatic expansion of Kazakhstan’s ISR production ramp-up of the last decade and resultant “cheap
pounds” further exacerbated the situation in terms of excess annual uranium production over demand.
For other worldwide uranium producers, this low-cost new source of production accompanied by
plummeting prices severely impacted investment in uranium exploration. Like so many commodities
that plunge in price, funds for exploration and development dried up as corporate budgets were
tightened. Worldwide expenditures on exploration and mine development imploded from $2bn/yr to
$500mn/yr over the period 2014-2018. It bears mentioning that the uranium cycle was also adversely
impacted by several other sector-specific anomalies that further elongated the price recovery process,
including both enrichment underfeeding and uranium supply that arose from the Megatons to
Megawatts (MTMW) nuclear warhead decommissioning program... both added significant “secondary
supply” into the already oversupplied market.
Securitization Takes on a “Pivotal Role”
In 2005, Uranium Participation Corp. (UPC) was launched and began trading on the Toronto Stock
Exchange (TSX). The purpose of this entity was to purchase pounds of uranium and hold them for long-
term appreciation in much the same way as SPDR Gold Shares (GLD: NYSE) acquires ounces of gold.
The management contract for UPC was acquired in 2021 by Sprott Inc. (SII: TSX), and Sprott formally
took over as the manager last July. Over its 16-year lifespan, UPC acquired 18.5M pounds of uranium.
Sprott converted UPC from a corporate entity to a trust structure and renamed it the Sprott Physical
Uranium Trust – aka “SPUT” (U.UN: TSX). In 2018, a similar vehicle, Yellow Cake plc (YCA:LSE), was
launched in London with the same objective. Yellow Cake launched with an interesting 10-year
Framework Agreement with Kazatomprom (KAP: LSE) to acquire US$100 million per year of uranium
through 2027.
Now, we return to SPUT and its dramatic impact on the uranium space in 2021. On August 17, 2021,
SPUT activated its first in a series of At-the-Market (ATM) financings – a type of registration that
essentially allows the issuer to issue new units of the Trust on a daily basis as long as the Trust’s unit
price is trading at a minimum of a 1% premium to Net Asset Value (NAV). In its first 4½ months, utilizing
its ATM, it has purchased a massive 23.0M pounds of uranium (data as of December 21, 2021). During
this period SPUT has raised a hair under $1.0 billion in new investor capital ($999.2 million as of
December 21, 2021) solely with a TSX listing. Recently, SPUT filed the necessary paperwork to allow the
trust to take in a total of up to $3.5 billion through its ATM. SPUT is pursuing a N.Y.S.E. listing, expects
to file their application for listing in January 2022, and management anticipates being granted a listing
by mid-2022.

Examine the chart below to view the remarkable accumulation of pounds over this short window –
pounds that are now “sequestered” because SPUT’s Trust structure does not permit the sale of
accumulated pounds...
To put this in perspective, the United States, with the world’s largest operating fleet of 94 nuclear
reactors, consumes just under 50 million pounds of uranium (U3O8) per year. Each 1GW nuclear reactor
consumes approximately 450,000 pounds of U3O8 per year. So, in just over four months, SPUT’s
purchases have had the effect of 51 new reactors placed online and fueled with an entire year of uranium
fuel.
As previously mentioned, SPUT’s Trust structure does not permit issuance of newly issued Trust units
unless they are issued at a minimum of 101% of NAV for the new issuance to not be dilutive to pre-
existing Trust owners. As you can see in the chart below, SPUT had been trading at a discount to NAV
for much of Dec 2021, preventing SPUT from taking in new capital through new ATM issuance and the
further large-scale acquisition of pounds, but we expect that circumstance to reverse in the new year...

To get a better perspective of where the current uranium rally stands vs. the prior bull run in the first
decade of the new millennium, examine the long-term weekly chart below that includes SPUT and its
predecessor UPC. The trading volume is noteworthy, as well...
As mentioned above, SPUT is not the only physical acquisition entity. London-based Yellow Cake plc
continues to pursue its business objective of accumulating pounds as well. Yellow Cake plc now holds
18.5M pounds of uranium. In November 2021, yet another physical acquisition entity was announced
with initial sponsorship from the world’s largest producer, Kazatomprom. KAP announced that it was
going to “seed” a new uranium physical acquisition entity called “ANU Energy” along with co-sponsors,
the Central Bank of Kazakhstan, and an Emirati investment firm. The initial news release outlined the
initial funding of US$50 million as well as plans for a follow-on US$500 million equity offering to be
funded by Central Asian and Eastern investors. Anecdotal comments from Kazatomprom COO Askar
Batyrbayev made it clear that the likelihood and success of this subsequent funding is very high.
Current Supply/Demand Outlook
The current health of the uranium market required bold and unprecedented steps by the industry to
put supply and demand back into equilibrium. In 2018, the world’s #2 producer, Canadian-based
Cameco Corp (CCJ: NYSE), put its massive McArthur River mine on “Care & Maintenance.” McArthur
River was producing 18M lbs/year and has a nameplate production capacity of 25 million lbs/year. Not
only were those pounds removed from the market, but because Cameco had a forward contract book
they had to continue to deliver into, it has required Cameco to purchase over 56M pounds in the open
market over the last four years. That means that the cumulative “swing factor” that arose from Cameco’s
McArthur shutdown decision has exceeded 100M pounds. Cameco was not the only large producer that
has exercised discipline. Former 100% SOE – leading producer, Kazatomprom, since floating 25% of its
equity to private investors in 2018 – has demonstrated western-style business thinking of prioritizing
“value over volume” (i.e., a focus on profits as opposed to production volumes). In 2018, Kazatomprom
cut its production to 20% below the “Subsoil Use Agreement” targets and has committed to maintaining
those reduced production levels through the end of calendar 2023. Kazatomprom’s production cuts
have prevented a further 100M pounds from hitting the market. Over the last twenty-one months,
another supply constraint emerged as COVID-19 work stoppages and interruptions further tightened
an already-tightening market.

Leading nuclear industry consultancy firm, UxC Consulting, has just issued their projection for primary
uranium supply and demand for 2022. The numbers are stark. UxC is projecting primary production of
135 million pounds vs. worldwide demand of 200 million pounds... but that demand does not include
the “financial demand” outlined in the previous “Securitization” section. Let’s take a snapshot look at
these numbers to get a truer “global” picture:
DEMAND:
UxC projected 2022 Demand ……..… 200M lbs.
SUPPLY:
Worldwide Production…………………... 135M lbs.
Plus: Secondary Supply ………………… 15M lbs.
Total 2022 Supply…………………………. 150M lbs.
FINANCIAL DEMAND:
2022 Projected Primary Deficit: -50M lbs.
SPUT …………………………………………..…... 25M lbs.
ANU Energy…………………….…….…………. 10M lbs.
Yellow Cake plc ………….……………………... 2M lbs
2022 Financial Driven Demand…. 37M lbs. *
* U3O8 price assumption of $ 50.00/lb.
We have employed a very conservative estimate of “financial demand” for 2022 (e.g., we assume that
SPUT will acquire pounds at only 1/3 the pace in ’22 as compared to ’21, despite the fact that we expect
an NYSE listing by mid-2022). Based upon this conservative analysis, the 2022 structural deficit expands
from -50M lbs to -87M lbs. We wish to point out that we are completely ignoring any repeat of the
purchase of over 10M lbs of uranium by pre-production companies that occurred in calendar 2021.
Unlike other industries or commodity sectors, there has been essentially no immediate supply response
to the supply/demand situation that is now clearly out of balance. Why is that? Uranium mines take
years to come online. For example, if a recommissioning decision of Cameco’s McArthur River occurred
today it would take eighteen months to fully get back online. Cameco has emphatically stated that
McArthur River won’t be put back into production until those pounds have a “home” – meaning they
are sold into long-term contracts with utilities.
Even when one takes into consideration future production coming online from: Cameco’s McArthur
River (~18M lbs/year); KAP’s Budenovskoye in Kazakhstan (Projected production: 6M+ lbs/year – which
anecdotally KAP has stated is already fully contracted out through 2027); Paladin’s Langer-Heinrich
project in Namibia (Projected production: 6M lbs/year – China National Nuclear Corp. owns 25% of
Paladin and has a substantial “offtake” of future production); Orano’s Zoovch Ovoo deposit located in
Mongolia (Projected production: 3M+ lbs/year); enCore’s Texas-based Rosita operation (Projected
production: 1M+ lbs/year); Boss Resources’ Honeymoon Project in Australia (Projected production:
2.5M+ lbs/year); Global Atomic’s Dasa Project in Niger (Projected production: 4M+ lbs/year); Vimy’s
Mulga Rock Project located in Australia (Projected production: 3.5M+ lbs/year); production increases in
Uzbekistan (~2-4M+ lbs/year); and increased production of 1M lbs/year from both Argentinian
domestics and Ukrainian restarts... we still project annual demand to be in significant excess of
annual supply. It is important to point out that the last bull run in this sector (2004-2010) occurred
during a period where annual supply exceeded annual demand. The point we are making is at some
juncture, “security of supply” will become paramount for utilities around the world for this product which
has no substitute.

To the bears that argue that Kazatomprom could quickly ramp production by 10-15M lbs/year, we
respond that even if they could, “they won’t and the company has already stated so.” Sidestepping the
argument about whether KAP in fact could easily ramp up production, KAP’s management has been
outspoken about their perception of the coming supply crunch. COO Askar Batyrbayev is already on
record as saying there simply won’t be enough uranium, and it is clear to us they understand that they
are going to be able to harvest from a much higher pricing environment in the years ahead.
How pressing is the need for new mines to come online? Look at the chart below created by industry
consultant, TradeTech. Furthermore, you need to understand that this chart was created before China’s
November pronouncement of their planned 150 nuclear plant buildout by 2035, and does not include
any projected future demand from Small Modular Reactors (SMRs) ...
Even if one accounts for these new mines that are expected to come online and on time over the next
several years – which is a rarity in mining – one must be knowledgeable about the uranium “fuel cycle”
to understand when the end consumers will be able to secure new inventory. The length constraints of
this piece do not allow for an elaborate discussion of the uranium fuel cycle, but succinctly stated, once
yellowcake is put in a drum it then must go through a 3-stage process that involves conversion,
enrichment, and fuel fabrication. This process consumes approximately a twelve to eighteen-month
timeline until that nuclear power plant receives those custom fabricated fuel rods for their reactor. Put
simply, supply cannot be brought on quickly.
To understand why we believe that we are on the verge of the largest long-term contracting cycle the
sector has ever seen, examine the evidence in the chart overleaf, courtesy of Yellow Cake plc. Because
of the length of the fuel cycle, it won’t be long before both U.S. and European utilities will be addressing
their uncovered requirements while at the same time competing with China for “security of supply.”

The world presently has 445 operating reactors and 52 under construction. Within the last sixty days,
China has announced its intention to put 150 new reactors in service by 2035 in order to reach their
stated goal of 200GW of nuclear generation (China currently has ~51GW). To put that in perspective,
that is more new reactors in the next thirteen years than the entire world has built in the last thirty-five
years. Another often overlooked factor is that many planned nuclear power plant retirements that
analysts had penciled into multi-year supply/demand models are not panning out as expected. This is
due to both a growing recognition of nuclear plants having far longer useful lives, as well as recently
legislated U.S. Government financial subsidies now available to preserve these non-carbon-emitting
power sources from planned retirement. As previously stated, none of these industry projections are
factoring in the impact that Small Modular Reactors (SMRs) are expected to have on demand either –
and it could be quite significant – in the next decade and beyond. The practicality of replacing coal-
fired plants that are already connected to an existing electric grid with SMRs is part of the future energy
reality. In fact, Bill Gates’ TerraPower is about to do just this in the State of Wyoming.
The Climate Initiative, Carbon Neutrality Pledges, the “Frailty” of Renewables & “ESG”
Nation after nation is making pledges to achieve “carbon neutrality” over the next 25-30 years. Their
carbon neutrality targets are being promulgated in order to memorialize their commitment to
addressing the climate challenges. In the context of this fluid sentiment and policy environment, nuclear
energy has been paired with recently announced net zero targets in the EU (2050), UK (2050), Japan
(2050) and China (2060). A lofty goal? Yes. Will they achieve it? Hard to say. What we do know for certain
is that power generation around the world is one of the largest contributors to pollution and carbon
emissions. China, the world’s largest polluter, has issued a plan of sorts – aiming to have CO2 emissions
peak in 2030 while achieving carbon neutrality by 2060. Consider the stunning fact that a single coal
plant generates as much waste by volume in one hour as nuclear power has during its entire history.
Coal plants also release more radiation to the environment.

Ironically, China, while aggressively committed to its nuclear buildout, is at the same time still building
more coal-fired plants! Looking ahead at Chinese nuclear, cost overruns and extremely long permitting
times are being overcome with standardized designs like China’s Hualong reactors that are now in their
second generation and can be built one after another in “fleet mode.” One thing is certain: there will be
“No, not in my backyard” (NIMBY) resistance for China’s planned 150 nuclear reactor buildout.
The nation of Japan which had turned its back on nuclear power in the wake of Fukushima a decade
ago, has admitted that it is impossible to achieve their climate goals without nuclear power, and is
turning idled Japanese reactors back on. Japanese reliance on soaring LNG (and coal) to fill the nuclear
gap has had negative consequences for the world’s climate and their own competitiveness. France,
which up until recently was planning to diminish the footprint of their nuclear power generation, has
just announced aggressive new nuclear buildouts in response to the energy crisis. In the east, India is
also feverishly building new reactors and has just announced plans to build six new 1.6GW reactors.
Further complicating the parochial thinking of the traditional “Green Movement” has been the exposure
of the frailty of renewables over the last year: the State of Texas which had made a significant investment
in wind-generated power saw their wind turbines freeze up and seize; In Germany, millions of solar
panels were blanketed in snow while 30,000 wind turbines sat idle because there was no wind; In Japan,
the government was forced to admit the failure of a $580 million wind-power initiative launched post-
Fukushima as they shut down the last two wind turbines that were part of the project because they were
only functioning with 36% efficiency. Millions of citizens around the world now have a new
understanding of the limitations of renewables. Suffice it to say that there is a heightened understanding
that nuclear power represents reliable base load power that can run 24/7, 365 days a year. It is now
clear that the single-minded strategy of mitigating “climate change” solely through renewables has the
unintended result of an unstable and unreliable energy grid. Nuclear power is not only emission free,
but also reliable, baseload energy.
As if the climate challenge was not enough of an impetus to re-embrace nuclear power, many regions
in the world are currently facing an acute energy price spiral. Europe now finds itself in a full-blown
energy crisis and European governments are acting with urgency and a new understanding of the frailty
of renewables (i.e., when the wind doesn’t blow, or the sun doesn’t shine). This “energy shock” has
resulted in real and tangible nuclear energy momentum in Europe. It should be well understood by all
that a politician’s prime goal is to stay in office, and they now realize that the prospect of having their
citizenry shivering in their homes this winter is not a recipe for that outcome. To give you a sense of
how quickly the sands have shifted, we offer as prima facie evidence these two covers from The
Economist below. On the left, the September 2020 cover; on the right, the October 2021 cover:

It is clear that a growing number of investors – and now, politicians – have come to the realization that’s
been obvious to the friends of nuclear power for decades: nuclear must be an essential element of
achieving the goal of carbon neutrality. Apart from hydro or geothermal, there is no other non-carbon
emitting baseload power besides nuclear, and the recent failures of renewables have left politicians who
pinned their national energy policy solely on them looking silly. The recent 2021 United Nations Climate
Conference (“COP 26”) held in Glasgow, Scotland will be looked back years from now in our view as the
reincarnation of nuclear power as a rational solution to the world’s growing climate challenge. The
wrangling over whether nuclear will be included in EU Taxonomy has been torturous but despite
Germany’s contortions, we expect a positive resolution early in the new year. That development would
make nuclear eligible for attractive low-cost financing as well as foster mandated flows for uranium
shares by European investment managers who have been constricted by “green” investment mandates.
Wall Street’s tendency to be attracted to “themes” is well documented. Throughout 2021, the focus has
been on the “ESG” (Environmental, Social & Governance) characteristics of a company and that trend
has been picking up momentum. Increasingly, institutional investors are applying these non-financial
factors as part of their analysis process in terms of determining whether an investment is suitable for
the funds they steward. How does that relate to the uranium industry? Climate change has clearly
become a hot-button issue. All manner of industries from EV manufacturers to solar stocks to renewable
energy alternatives that address carbon emissions are receiving outsized valuations. How impactful can
ESG-driven investment flows be? Earlier this year, Morgan Stanley issued an insightful research report
entitled “Rate of Change – ESG investing is going mainstream,” citing valuation changes in what they
labeled as the “U.S. clean energy space.” In that report they included the following passage, “With more
money moving into ESG, pure-play green investments have seen valuations skyrocket... we think the
power behind green investing and socially responsible investing will continue to grow...” From our
perspective, this trend is undeniable. Nuclear power – once thought of by many as a menacing source
of power generation – is now being reconsidered by many, including the environmentalist left, as a
clean energy source to be embraced. In short, nuclear power and uranium producers now check many
of the ESG boxes. Along with all of the other underlying bullish elements that support our bullish
uranium investment thesis, the increase of ESG investment flows into this tiny space will, in our view,
lead to dramatic increases in uranium equity valuations over time. Have the ESG flows already started
to influence the uranium sector? We think they have, and we believe they will continue, perhaps quite
substantially.
Summary:
A confluence of factors has coalesced and refocused both interest and growth in a longstanding, time-
tested technology that produces clean, carbon-free energy: nuclear power. Unlike other commodities,
uranium is largely inelastic to economic contractions, and uncorrelated to movements in the U.S. Dollar.
The climate imperative has added extra momentum due to scarcity of alternatives and further
strengthened the case for nuclear energy and its necessary input which has no substitutions: uranium.
Importantly, there has been a noticeable and measurable change in public attitudes towards nuclear
power. As is the customary pattern, when government policymakers want to change course, you can
expect to see more and more favorable press to surface. That is precisely what has happened as this
“orphaned” clean energy source has in some ways been reintroduced to the public as a potential
solution to the collective climate challenges. Nowhere has the shift been more noticeable than the views
of those on the “left” of the political spectrum, who have been historically opposed to nuclear power. A
recent study conducted by ecoAmerica found that American support for nuclear power has grown 10
points from 2018 to 2021. Three years ago, 49% of Americans said they supported nuclear, compared
to 59% today... 60% of USA Democrats now report supporting nuclear energy, compared to 37% in
2018.

In a poll conducted by Bisconti Research, the results were even starker (see chart below). We understand
that polling results can vary widely, but one thing is clear – there has been a palpable and profoundly
positive change in the attitudes of the general population towards nuclear power. To illustrate how far
the pendulum has swung, California – one of the most liberal states in the U.S., which for years had been
steadfast about closing its Diablo Canyon nuclear plant – is apparently at the eleventh hour having
second thoughts...
We anticipate an increased allocation by generalist and natural resource funds combined with possible
further aggressive investing in the space from the hedge fund community. Despite providing 10% of
the world’s energy needs and ~20% of those in the U.S., the uranium sector still only has a global market
cap of sub-US$40 billion, with a freely tradable float of perhaps 70% of that (US$28bn). That is how we
enter the year 2022. Along with the marked change in public sentiment as nuclear becomes increasingly
accepted as “green,” the institutional “box checkers” will be happy too.
There are now reports emerging that not all utilities are prepared to wait for the music to stop to secure
long-term contracts. Despite the fact that the contract details of almost all long-term contracts between
producers and utilities are shrouded by NDAs, evidence of material price firming is now surfacing. Just
this month in a public presentation at the recent “Mines & Money” conference, Daniel Major, CEO of
Goviex Uranium, Inc. cited a recently-signed long-term contract by an Asian utility that stretched beyond
2030. According to him it was signed with a $55.00/lb price cap in the first two years, and a $78.00/lb
price cap in the ensuing years. Clearly this is a utility that wants to hedge its exposure to an expected
rising uranium price. Not that long ago, long-term contracts were being signed in the $30s/lb.
In short, the uranium market is structurally undersupplied. Even if the world’s two largest producers,
Kazatomprom and Cameco, ramp up production, the world will need significant new mine development.
The “Electrification” of everything and the worldwide push towards EV production will put new and
unprecedented strains on the power grid. Elon Musk, the most prominent voice on electric vehicles,
recently stated that EVs will double the world’s need for electricity by the year 2040, and has endorsed
nuclear energy and therefore the uranium bull case. Nuclear Power and its irreplaceable commodity,
uranium, stands at the center of both the power generation challenges and the climate challenge.
Uranium prices started 2021 at $30.35/lb and now stand at $42.75/lb (data as of December 21, 2021).
The price of uranium must rise dramatically higher to incentivize badly needed new production. We
believe the convergence of all of these factors will lead to a very strong uranium bull cycle in the coming
years.

Tesla

I love cars. I have driven them on racetracks, enjoyed rally driving days and I’ve owned pretty much
everything from Ferraris to more Porsches than I can count. I’ve had Mercs and BMWs, an Audi and
sadly, even a Volvo, a couple of TVRs (British sports cars), Land Rovers and even a Nissan Leaf (electric).
The Nissan Leaf was a surprise to me. I wanted an eco-friendly car on Little Cayman to offset my old
diesel Land Rover Defender (safari set-up) so I bought a second-hand Leaf. It just plugs in like a vacuum
cleaner, you get in and it drives – no gears, no noise, lots of torque and zero maintenance. You see, it’s
not easy having cars on Little Cayman, either the salt spray destroys them or they suffer for the want of
a mechanic who can actually fix anything. This little, slightly tatty Leaf just keeps going and going. All
the dashboard lights are permanently on but it’s never required actual fixing as there are very few parts
that move. That is the enjoyment of an electric car.
To me, the Leaf demonstrates the USP of an electric vehicle – an easy-to-own car that costs very little
to run and is a substitute for a regular car.
Misguided
That is until I took delivery of one of the two Teslas I ordered for home in Grand Cayman... and suddenly
I realised that my view of electric cars being a substitute for a petrol car was plainly misguided.
I ordered a Tesla Model Y Performance for my wife and a Tesla Model X Plaid for myself. My car has yet
to arrive as it’s a totally new model and only just in production, but my wife’s car arrived in November.
I’ve been in Teslas before – we all have – but when you own one and drive it, you understand that
everything has changed.
The Greatest Car on Earth?
Every single car I’ve ever owned pales into insignificance versus that Tesla Model Y Performance and
although, as you likely know, this model isn’t the fanciest they make, in my mind it is probably the purest
expression of Tesla. It moves the concept of a regular car so far into the future that everything before
is rendered out-of-date by a decade or more, and its lead is so far ahead that no one can likely catch
up.
The iPhone of cars

I had this feeling twice before in my life – the Apple iPod and even more so, the Apple iPhone.
Before the iPhone, all phones were basically a combination: a press-button landline phone with a small
screen, like the Nokia...

... or mini computers with mini keyboards, like the Blackberry (which was deemed revolutionary because
you could type on a qwerty keyboard) ...
Then Apple released the iPhone - a tiny device with super-computing power, touch screens, apps and
multi-functionality, all on a stunningly simple to use interface...
Everyone has had that iPhone moment.
This breakthrough in design and technology propelled Apple to become the $3tn company it is today.
Everything really came from the breakthrough of that one device. Once you own the hardware interface,
you can create a complementary architecture of software and applications, and if you can create a great
brand around it, you have won the game. Apple is essentially untouchable for the next decade until
something new entirely comes along that negates the need for such hardware.
Owning a Tesla is exactly the same and, within an hour of taking delivery, I realised that everything I
had ever doubted about Tesla was wrong, and that every single car on the road from the Bugatti Veyron
to the BMW X6 was suddenly twenty years out of date...
Let me explain...
First, it is controlled by an app on your phone. It recognises your phone and unlocks the car, and
remotely, you can set the A/C to run to your exact preferred temperature; check the cars location; find
out who has been near the car; allow a valet to drive it; stop your kids driving it over a certain speed;
open the windows for the dogs; flash your lights; honk the horn; open any chosen door; check the
charge level. You can even summon your car if you have self-drive mode.

This is not a gimmick. I know other cars have some similar functionality but in a Tesla, technology is
used to simplify everything and strip it back to the bare minimum, just like the iPhone. It negates the
need for these functions elsewhere, creating a much cleaner experience...
That same digital, touchscreen experience extends to the interior and plays an equally important role.
The internal display is a game changer but, like the iPhone, takes a little getting used to. However, it
controls every single part of the car, from the incredible 360-degree cameras to the photos it takes if
someone approaches the car or even if you are in an accident. It controls climate, windscreen wipers,
side mirrors, interior lighting, exterior lights, your satnav, your phone, your charging, location of
charging points (and trip-plans around them) security, sound system, doors, windows, video games,
videos, and maintenance. It shows the time, the weather, your speed, your software updates, and is
controlled by your wifi or mobile phone data. It also shows a driver visualisation of where you are on
the road, obstacles, other cars, etc.
Even the air vents on the car are gorgeously controlled by touchscreen: you wipe the airflow around the
screen to direct how you’d like the airflow in the vehicle.
And all of this can be voice-controlled, should you so desire.
Take a look at the video to see what I mean... it is stunning and so cleanly and beautifully designed...
https://www.tesla.com/support/videos/watch/meet-your-model-y-touchscreen
But again, many car companies show some similar functionality but nowhere near as nice. You see the
magic here is just like the leap from Blackberry to iPhone.

All cars now have some sort of central control but they also have a mountain of knobs, dials, switches,
displays, clocks etc...
Compare this to the Tesla Model Y...
Ultra pure. Ultra serene. Ultra elegant.

Essentially, Tesla has used massive amounts of technology to reduce everything down to the
simplest elements. No dials, knobs, switches, air vents, buttons, panels, etc., except for the
absolutely essential.
The new Model S Plaid is even more extreme... they have even removed most of the steering wheel...
And the performance...
The performance is outrageous. The Model Y does 0-60 in 3.5 seconds. This is the same as a Porsche
911 GT4S. The model Y is basically a nice shopping car (and priced as such), as opposed to a record-
breaking sports car.
However, when you get to the Model S Plaid, things get really, really crazy. It clocks 0-60 in 1.9 seconds.
That is faster than any Porsche ever built, faster than any Ferrari, Bugatti and the same as the Koenigsegg
Gemera (the world’s fastest production car costing $2m). However, the Tesla Model S Plaid now holds
the track record on the Nürburgring too. It costs $130,000.
There are no gears and no turbo lags. It is instant power, so forceful that you leave your stomach content
in the back seat.
Even my new Model X Plaid does 0 to 60 in roughly the same time as the fastest Porsche, and it’s a
bloody SUV!
To understand how far ahead Tesla is in this whole game, you need to note that the new Porsche Taycan
Turbo S (all electric) is slower 0-60 than my SUV.

You see, everyone else is playing last decade’s game. They are making decent electric cars that mimic
regular cars. Here is the new electric Taycan interior: a digital shitshow of dials, clocks, knobs, screens,
vents, switches, buttons, etc., as if the world hasn’t moved on from the 1950s except for the LED
displays...
But that is not all...
But world-leading design understanding and execution, and building the fastest cars on the road at a
very inexpensive price, is not why we have misunderstood Tesla. It is the technology that is the real
game changer.
The Model S has a range of 405 miles (650KM). The Porsche has a range of 280 miles. Tesla is working
on extending the range to 650 miles, as is Mercedes. It is almost impossible to beat Tesla significantly
in range or speed, and the spin-off from their battery technology is powering houses, power plants and
all sorts of other use cases. Tesla is also working on reducing the size of the batteries and the overall
efficiencies, where it holds a firm lead too.
But even that isn’t the killer app. It was only on driving the car that I understood everything. The onboard
computer is like nothing else. It shows you in real time – using its camera tech – every curb, road
marking, roadside, traffic cone, traffic light, every pedestrian, and every car (graphically by type: truck,
hatchback, sedan, pick-up, bus, etc.). It also allows you to record markers of places of interest etc. It will
brake automatically if you get too close and correct your steering if you veer from the road.
Talking of brakes – the generative braking, where it sends power back to the battery to slow the car is
exceptional and gives you a hugely commanding new way to drive. You barely need to use the brakes
at all as it converts the energy from the wheels.
But unlike every other car company, ALL this data is then sent back to Tesla. It is recording EVERYTHING.
And with 2.5 millions Teslas on the road, it is capturing more driving data and road data than any other
company, including Google.

The more Teslas are sold, the more data it captures and the more it feeds the self-driving algorithm,
quicker and in more detail than anyone else. It has such an incredible lead on this data that it is near-
impossible for anyone ever to catch up. Tesla’s data is exponential and that is compounded by
exponential sales. Some forecasts suggests that they can sell 25m units per year by the end of the
decade. That would suggest some 40m cars generating ever increasing amounts of data.
There may well be better self-driving technology, but no one has the data Tesla has and therefore, with
a market cap of over $1tn dollars, it can buy any technology it wants. It can use Google’s trick of
removing all competitors by buying them and that makes the value of the data even more exponential.
If Tesla chooses to, it can become a black hole for self-driving technology, buying everything that is a
threat or that is additive.
The computing power in Tesla vehicles is also rising exponentially – enough that they will be able to
provide crypto mining and distributed IOT computing power. Even more than your iPhone, it will
become your personal gigantic supercomputer, linked to all others via 5G. Teslas are serviced mainly
via internet software updates – displacing the need for so many mechanics and middlemen, allowing
Tesla to build subscription models around their services, much like Apple. Which in turn opens up
product bundles too.
Instead of using dealers, Tesla has created its own showrooms and a very simple, beautiful website,
further enhanced by less product choice but perfect product/market fit, cemented by the Cybertruck
and the new Tesla Semi, both near production. This drives massive margins and free cash flow and
captures more of the value chain, giving away less to third parties.
Their battery technology allows for electricity savings so large that in a few years’ time, the savings will
pay for the replacement cost of two cars within twelve years – essentially allowing them to bundle a
complement service of solar and battery that generates free cars, all driven by subscription models.
Tesla will likely create their own insurance too, perfect to bundle in with service and IOT services,
creating an even bigger moat.
Financially, for other car companies to keep up is also near impossible. The US car companies have
around $1tn of net debt while Tesla has $10bn of cash on their balance sheet and no debt. Tesla’s
margins are 50% larger than any other car company, so they could squeeze many competitors out of
business by underpricing, just as Amazon did in retail.
Add to this the fact that Tesla is about to tokenise payments, creating its own system of money, probably
built around Doge...
Once you own a Tesla, all of this becomes clear in minutes. This is not a car company – it is a fully
integrated technology software, hardware, AI company and financial service that will be built
around cashflow-generating subscription models, leveraging one of the best brands in the world.
And it has a tailwind – every major country on earth now has a mandate to get to 100% EV within
thirty years, most likely twenty years.
This is truly an exponential age company and maybe it will be the largest of all time. It is too
early to tell but the probability is in its favour.

The chart always concerns people, along with its valuation. Grumpy old men shake their fists in anger
over the stupidity of investors paying this price for a car company.
They are wrong. They are very wrong. When you look at a log scale chart – either it’s overbought now
versus the long-term trend, or it has just started its exponential trend and is cheap. I think it’s most likely
the latter... I don’t think Tesla has really even started yet...

I think Tesla is trading just like Amazon did in the past. Amazon had roughly ten years of sideways
trading until it went exponential. Tesla went exponential after nine years...
Interestingly, Amazon started its exponential run from a price of around $40 back in 2009 and has risen
100x. Tesla started at $40 too. Is it possible to have a $100tn+ company? Maybe. Will it go there in a
straight line? No chance.
If we use the regression trendline as fair value of the shorter-term log chart, it is possible to see a
$30,000 share price by 2025...We should use that as our base case.

... and if we use the conservative long-term log trend, we can see $10,000 by 2030...
Even if it falls sharply first, which I think is near impossible for an extended period, the upside is massive.
I think the biggest risk is a sideways market for a couple of years.

The Rapid Commercialization of Space-
Towards an Interplanetary Society
By Leon Alkalai
Leon Alkalai, CEO, Mandala Space Ventures
GP, Explorer 1 Venture Fund1

Raoul’s Note:
I was introduced to the theme of Space and to Leon Alkalai in particular, by a good friend and one of
the longest-standing GMI members, who also happens to be one of the single best macro thinkers I
have ever known. At first, I thought he was crazy to talk about investing in Space, as is often the case
when this guy introduces a new theme, but a few years later, I realised that he was a visionary... again.
We are incredibly lucky to have Leon write for GMI. He spent his career at the forefront of Space
technology at the Jet Propulsion Lab at NASA, working on many of the biggest and most important
Space projects in history. Leon is now CEO of Mandala Space Ventures, a VC fund he has launched to
take advantage of this Exponential Age opportunity.
I interviewed Leon on Real Vision and to say it was one of the most mind-blowing interviews I have ever
done is an understatement! Here is the link:
https://www.realvision.com/shows/the-exponential-age/videos/space-the-new-exponential-
frontier?source_collection=91a209c840564d52a4842f995fa8a6cd
You can contact Leon here – Leon Alkalai: leon.alkalai@mandalaspaceventures.com
https://www.mandalaspaceventures.com

Introduction
The 21st century will most certainly be remembered in history as the century that witnessed the rapid
democratization and commercialization of space towards a sustainable interplanetary society. Whereas
the past century was undoubtedly marked by historic, pioneering, and foundational scientific and
technological achievements in space (of which there are too many to list), the 21st century is already
making its own unique mark on space exploration history with the rapid democratization and
commercialization of space. Until only a few decades ago, space was the exclusive domain of large
sovereign nations or federations such as the USA, Russia (USSR), China, India, Japan, or the European
Space Agency (ESA). They were the only countries who could set aside significant resources to invest in
space. In all of these countries, the implementation of space missions was either at government-owned
facilities or at large government prime contractors. In the US, some of the recipients of large
government system contracts have been Lockheed Martin (LM), Boeing, or Northrop Grumman
Corporation.
Today, the commercial space

ecosystem in the USA is very
different and more vibrant than at
any time in the past. In 2000, Jeff
Bezos founded Blue Origin, in 2002
Elon Musk founded SpaceX, and in
2004 Richard Branson founded
Virgin Galactic (in 2017 he founded
Virgin Orbit). Together with
hundreds of smaller space start-up
companies in the US and around the
world, this new generation of
commercial providers of access to
space and space services is
generally referred to as New Space.
As evidence of the broad
acceptance of New Space, NASA
recently selected SpaceX to build
the next Human Lander System
(HLS) to take US astronauts to the
surface of the Moon, including the
first woman and the next man as
part of the NASA Artemis
NASA Artemis Program, Figure Courtesy of NASA Program https://www.nasa.gov/spe
cials/artemis.
On December 3rd, 2021, NASA announced the winners of the Commercial Lower Earth Orbit (LEO)
Development Program (CLD) study phase to build the next generation of privately funded space stations
to replace the costly International Space Station (ISS): Blue Origin’s Orbital Reef, Nanoracks and
Lockheed Martin’s Starlab, and Northrop Grumman. According to this program, NASA plans to become
a customer of the commercial space industry and will no longer finance the expensive International
Space Station (ISS). Almost two years before this announcement, NASA awarded Houston-based Axiom
Space a contract to develop a commercial module that will be added to the ISS. In February 2022, the
first generation of Axiom commercial astronauts on a joint NASA/Axiom mission called Ax-1 will start
training at the ISS, preparing for operations on their (future) commercial space station.

All of these recently formed companies are part of the New Space ecosystem that is transforming,
democratizing and commercializing space in a fundamental and impactful way. This should be for the
betterment of all of humanity as we move towards becoming an interplanetary society that will build
permanent settlements on the Moon and Mars, and source precious resources across our solar system.
This technological evolution and maturation needs to be accompanied by a parallel evolution of the
collective consciousness towards a peaceful, sustainable planet for all, and to protect other planetary
bodies from contamination from Earth. One of the stated space policy priorities recently published by
the White House in the “US Space Priorities Framework, December 2021”, states that “The United States
will work with other nations to minimize the impact of space activities on the outer space environment,
including avoiding harmful contamination of other planetary bodies.” This policy also includes the need
for increased efforts to mitigate, track, and remediate space debris, and also to lead the international
community in protecting Earth from potential harmful impacts by near-Earth objects.
The Role of the US Government and NASA
The US Government DOD and NASA space programs have had the explicit long-term goal to invest
large resources to transition essential space capabilities and services, traditionally implemented by the
US Government or prime contractors, into the broader New Space commercial sector, thus stimulating
competition and economic growth. This topic remains a central part of the White House US Space Policy
Priorities, to “...foster a policy and regulatory environment that enables a competitive and burgeoning
US commercial space sector”. Notable NASA programs that implement this policy include:
• Commercial Crew & Cargo Program to replace the Shuttle program and service the
International Space Station (ISS) with cargo and human-rated commercial vehicles.
• NASA Artemis to return astronauts to the surface of the Moon, including the first woman and
the first person of color. The program includes development of the Lunar Gateway in cis-Lunar
space as a permanent station in proximity to the Moon.
• Commercial Destinations in LEO program to create new destinations in LEO to supplement and
eventually replace the ISS with commercial real-estate destinations managed and financed by
the private sector.
• Commercial Lunar Payload Services to deliver scientific and other payloads to the surface of the
Moon using a portfolio of commercial lunar landers: small, medium and large.
No other sovereign government or national space agency has explicitly pushed for the rapid
commercialization of space as has the USA through its civil and defense programs. This policy has been
welcomed by founders and venture capital investors alike. The role of the government is critical to the
growth of the commercial space industry: it provides non-dilutive grants through competitions; early-
stage technology investments and licensing opportunities; risk reduction using in-space technology
demonstrations; and being a first adopter of new commercial space products and services. The result is
a booming commercial space industry that is heavily based in the USA, which is commercializing space
at an unprecedented pace. The strategy is clearly paying off as the private sector is eager to leverage
government investments and financial stimuli, while also supplementing these investments with venture
capital which is accustomed to taking risk. This is often referred to as public-private partnerships and it
is likely to increase in the coming years in the USA, as it is clearly a strategy that has bipartisan support
in the US Congress and the public.

Key Enablers of Growth of the Space Economy
It is fair to ask, ‘Why now?’ Just as has been recorded in other fields such as the semiconductor industry
or the rapid adoption and growth of the worldwide internet, there are usually multiple factors that,
when combined together in time and space, and with the right stimulus, result in the rapid adoption
and exponential growth of an industry. In the case of the US space industry, the landscape for rapid
growth has been seeded, over many decades, by consistent government research and development
investments. With the proactive government policy to create competition and stimulate a diverse and
sustainable private sector, the space industry is poised for rapid growth and commercialization.
We discuss five factors that have enabled the rapid growth of the space industry: 1. reduced cost of
access to space; 2. emergence of satellites as a commodity; 3. the maturation of data analytics, artificial
intelligence and machine learning; 4. innovation in space, as entrepreneurs offer new solutions with
existing technologies; and 5. venture capital ready to invest and take risk.
1. Reduced cost of access to space
This is perhaps the most important factor of all. From the 1970s and into the early 2000s in the USA,
access to space was limited to the US Government via the government-funded Space Shuttle Program,
and by commercial contractors such as LM (Atlas), Boeing (Delta), or Orbital (ATK, now NGC). LM and
Boeing later merged their launch services divisions into the United Launch Alliance (ULA) in order to
reduce cost and share the small market offered primarily by the US Government, civil and military. At
that time, the lion’s share of the international launch vehicle business was in the hands of Russia’s Soyuz
launch vehicle. The rest was shared by ULA (USA), Orbital ATK (now NGC), Arianespace (ESA), ISRO
(India) and China. Enter Elon Musk with SpaceX in 2002 with a bold vision of reusable rockets that will
significantly reduce the cost of access to space. Two decades later, SpaceX dominates the launch vehicle
market share with 22% in 2020. Moreover, the cost of access to space, measured as the average cost
per kilogram, has plummeted from roughly (multiples of) $100,000, to (several) $1000. SpaceX is not
alone in this pursuit. Recently, the USA has gained three additional launch vehicle providers that have
successfully launched payloads into space: Rocket Lab, Virgin Orbit, and Astra. Moreover, there are more
start-up companies ready to launch in the coming months including Firefly Aerospace, Relativity Space,
and ABL. Even more early-stage companies such as STOKE and Radian Aerospace1 are in the pipeline
to disrupt the launch vehicle market and
further reduce the cost of access to space.
The net effect is that the options for access to

space have grown significantly across a wide
range of payload sizes from very small
nanosatellites and CubeSats (1 - 100 kg), to
small (100 - 300 kg) and medium-sized
spacecraft (300 - 600 kg). This is fueling
competition and reducing the overall cost of
access to space. This trend is expected to
continue in the coming decades even if some
consolidation and attrition occurs in the F
marketplace. Figure 2: SpaceX’s Starship launch vehicle. i
g
u
r
e
2
:
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© Global Macro Investor 2022 p
65
a
c
2. Small Satellites, CubeSats and more
Over the past thirty years, the US Government, academia and the space industry have witnessed the
steady but lasting adoption of small satellites (< 300 kg) for space science, commercial applications and
defense services. Small satellites are here to stay and will continue to grow in functionality and reliability
and at reduced cost. They do not replace or compete with all large spacecraft systems where physics
(such as large collecting apertures) dictates the size of the spacecraft. This technology trend towards
smaller and more effective satellites is fueling innovation and allowing start-up companies, universities
and even high schools to launch their own micro (< 100 kg), nano (< 10 kg) or even pico (< 1 kg)
satellites for educational purposes.
Over the past decade, multiple constellations of large numbers of low-cost small satellites in LEO have
been successfully deployed. This is in direct competition with the more traditional approach of using a
few larger geostationary (GEO) spacecraft. First to do this on a large scale was Planet Labs (2010) which
currently operates over 600 satellites in LEO for continuous and global imaging of Earth on a daily basis.
SpaceX and OneWeb have each deployed their own constellations of small satellites in LEO to provide
broadband internet services around the world. Spire did the same for weather monitoring services on a
global scale. Umbra and Capella provide RADAR imaging, and many more constellations of small
satellites in LEO are getting ready to launch. In the near future, Amazon plans to launch its Kuiper large
constellation to also provide broadband internet services across the globe. Behind this revolution in
spacecraft miniaturization and capabilities are decades of research and development funded by the
NSF, NASA, DARPA at national laboratories (JPL, ARC, Aerospace Corporation, AFRL, etc.) and at
universities: Cal Poly San Luis Obispo, MIT, Stanford University, UCLA, USC, Univ. of Michigan, Purdue
University, Univ. of Texas, Austin, and many more.
In May 2016, the National Academies of Sciences, Engineering and Medicine, Space Studies Board,
Division on Engineering and Physical Sciences, chaired by NASA Associate Administrator for Space
Science, Professor Thomas Zurbuchen, published a seminal study called “Achieving Science with
CubeSats: Thinking Inside the Box” The National Academies Press. The report spells out the significant
space science opportunities enabled by CubeSats of different sizes and their use in large numbers such
as constellations and other forms. The role that NASA and the government can play for the community
has also evolved in terms of buying down risk, developing new technologies and doing first of a kind
space science missions using CubeSats. In 2018, NASA flew a pair of CubeSats as part of the MarCO
mission, which provided valuable relay service at Mars for the successful landing of the INSIGHT lander
on Mars. These CubeSats were the first interplanetary CubeSats to fly by another planet, thus
encouraging many to follow to explore CubeSat missions to the Moon, Mars, asteroids and beyond.
MarCO CubeSat that flew past Mars and performed a valuable relay service for the successful
landing of INSIGHT lander on Mars. Credit: NASA/JPL

Since 2013, NASA established the Small Spacecraft Systems Virtual Institute at the Ames Research
Center in Palo Alto, California, which publishes the Small Spacecraft Technology - State of the Art Report
each year https://www.nasa.gov/smallsat-institute/sst-soa. According to the recently released 2021
report, “In 2013 alone, around 60% of the total spacecraft launched had a mass under 600 kg, and of
those under 600 kg, 83% were under 200 kg and 37% were nanosatellites. Of the total 1,282 spacecraft
launched in 2020, 94% were small spacecraft with an overall mass under 600 kg, and of those under 600
kg, 28% were under 200 kg, and 9% were nanosatellites. Since 2013, the flight heritage for small
spacecraft has increased by over 30% and has become the primary source to space access for
commercial, government, private, and academic institutions.” A detailed report of all the satellites
including small satellites launched, is published by BryceTech “SmallSat by the Numbers, 2021” at:
Reports.
It is fair to point out that this revolution in spacecraft cost and size is not without its challenges. For
example, there have been more recorded failures of CubeSats in space than has been recorded in the
past by more traditional spacecraft suppliers. Whereas they are cheaper to build, they are often less
reliable and typically lack redundancy or built-in safety features, making them prone to failure in the
harsh space environment. Even so, small and nanosatellite providers have been able to adapt and further
improve performance by using innovative solutions and new technologies such as: deployable
structures for antennas and solar arrays; building in reliability at the system level using multiple
spacecraft; using commercial off-the-shelf hardware and software systems; and finding innovative ways
to mitigate failures due to radiation exposure in space using software techniques, new coating materials
and more.
3. Rise of Data Analytics, AI and ML
Fortunate for the growing space industry is the synergistic growth of the fields of data analytics, artificial
intelligence (AI), and machine learning (ML). These are disciplines that have matured over the past thirty
years from basic research at universities to applications by industry. With the proliferation of spacecraft
due to reduced cost of access to space and the reduction of cost of small spacecraft, we are now
inundated with enormous volumes of data from a plethora of constellations in LEO. Without the right
tools for data analysis, users are left to struggle and navigate the raw data. Users need and require
actionable information and knowledge, not volumes of data. For example, a wine grower would benefit
from knowing the right time to pick grapes based on their sugar content. They would also benefit from
having local and global situational awareness on other wineries for the purpose of trading in the open
market. In any case, they would welcome more reliable and precision weather prediction models to
protect their investments. The same example can be given for farmers in the field deciding on what,
where, and when to plant and when to harvest. All this information is accessible from space but has to
be translated into a language and format that a user can understand and act on. The number of
applications of observational data from space is endless both for civil and defense applications and is
growing each year. Observational data of Earth from space is also essential for monitoring Climate
Change, for providing healthcare services in remote locations especially in Africa or Asia, critical to
weather monitoring and disaster management, national security and situational awareness, military
applications, and more. In the coming years, it is natural to expect a rise of innovative start-up
companies and entrepreneurs who will focus on data assimilation and analysis, focusing directly on the
user, and buying data from all suppliers as needed and as available. This marketplace of converting
volumes of raw data into actionable information and knowledge will further stimulate innovation and
applications for the benefit of all.

4. Innovation in Space
A key factor fueling the emerging New Space industry is innovation. Key enabling technologies for the
exploration of space are still generated within US Government laboratories: NASA’s JPL, GSFC, ARC, JSC
or GRC; DOD’s Aerospace Corporation or ARFL; DOE laboratories such as SNL or LLNL and many more.
There is no way that a start-up company can compete with the US Government in spending, for example,
$100M over multiple years on basic research to pioneer a new class of space detectors, new and
improved nanomaterials, new propulsion technology, or a new navigation device. Start-ups need to
license these technologies from the US Government or universities and then apply their own
entrepreneurial talent and innovation to create new systems. Whereas the US excels in this department
compared to the rest of the world, it could do more to facilitate technology transition from government
and academia to industry. Moreover, the US could partner with industry to allow start-ups to use
national facilities when they are not used by the government. The benefit to the government is obvious,
as innovations in space by private industry will return in the form of lower cost contractors to the
government.
It should be pointed out that space innovation is not unique to the USA. Most notably, universities such
as Cambridge, Oxford, University College London and Imperial College in the UK, have excellent space
innovation centers that are sourcing numerous start-up companies in space. The same can be said of
other European universities in Italy, France, Spain, Germany, Ukraine, Russia, Lithuania and more. In Asia,
China, Japan and India stand out, as well as Australia, New Zealand and Singapore. In the Middle East,
Israel, the UAE, Qatar and Saudi Arabia have active entrepreneurial space programs. In each of these
countries there is a solid educational system and very talented young founders in the making, looking
for opportunities to contribute to the emerging space economy.
Innovation in space is also stimulated when parallel fields of development are leveraged by the space
community, as is the case with Data Analytics and AI. Other areas where this is taking place is in the
area of commercial microelectronics where advanced semiconductor foundries such as the TSMC are
fabricating chips that are, by design, more resilient to some radiation effects in space, such as Total
Ionizing Dose (TID). For example, the microcontroller powering the Ingenuity Helicopter on Mars, is
sourced by Qualcomm’s Snapdragon microcontroller which is a commercial product screened for use
on Mars. This helicopter was the first ever use of an aerial mobility platform on an alien planetary body,
a Kitty Hawk moment for the history books.
Another area of innovation and application to space is the field of Cloud Computing and Software as a
Service (SaaS). Whereas this model of business is old news on Earth, it is new to space and is expected
to grow in the coming years. Companies such as Slingshot, Kubos, Epsilon3, and Continuum Space
Systems (CSS)1 are examples of what is being referred to as Digital Space and Space as a Service. In
these cases, digital platforms hosted in the cloud by Amazon Web Services (AWS) or Azure are used to
provide space services to the growing space community.
Innovation centers are emerging not only in close proximity to universities such as MIT, Univ. of
Colorado, Purdue or Michigan, but also in the form of space-themed incubators and accelerators.
Techstars, Starburst, Y Combinator, Creative Destruction Lab (CDL), Seraphim and Mandala Space
Ventures1 in Pasadena, California, are all examples of new incubators, accelerators or studio ventures
that are investing in early-stage start-up companies that are entering the new space economy.

5. Venture Capital
It has been well documented in finance and banking (JP Morgan, Morgan Stanley, The Space Report,
BryceTech and many others) that space is an emerging new market for investment using a broad range
of investment vehicles from angel and seed investments to public markets via Special Purpose
Acquisition Corporations or SPAC. Companies that have recently used SPAC as a vehicle for entering
the public market include Planet, Spire, Virgin Galactic, Astra, Rocket Lab, and many others. The number
of VCs entering the business of space has skyrocketed (pun intended) and many of them are investing
in early-stage companies at the pre-seed or seed rounds. Traditional large VCs with deep pockets are
now joined by new emerging venture funds eager to find good deals and be the first to invest in high-
growth/high-risk space enterprises. This is good for both founders and the business of space. The
average size of the Seed and A rounds have grown significantly, as have company valuations, reflecting
a market eager to find good deals and be the first to sponsor a new and talented founding team.
Whereas the US is well known for its venture capital business, investment in space is not limited to the
US. Active VCs in space exist in the UK, Singapore, the Middle East most notably the UAE, Israel, Japan
and other countries. In the US, there are a few funds dedicated to the emerging space economy
including Hemisphere Ventures, Techstars and the Explore1 Fund.
The Segmentation of Space by Destination
Three broad-based destinations are emerging for space economic development as follows:
1. Earth Orbit (Lower, Medium, and Geostationary)
We are seeing an exponential growth of systems being deployed in LEO. This is fueled by two major
application areas which are creating a ‘Gold Rush to LEO’:
a. Broadband Internet: OneWeb and SpaceX’s Starlink constellations represent just the
beginning of the era of constellations of satellites for the sole purpose of connecting the world
via high bandwidth internet services. Amazon’s Kuiper constellation is also planning to deploy
a large constellation in LEO as well. Applications include entertainment, social media, economic
transactions such as banking, electronic ledgers and blockchain, business-to-business and
many others. The recent global Covid pandemic has also transformed the workspace and the
balance between the need to go to work and working from home. This change has been
enabled by broadband internet services and the appetite for more bandwidth at the consumer
and business level is expected to grow further over the coming years and decades. Social media
and entertainment content are contributing significantly to its growth. At the moment, all of
these systems are using microwave (RF) communication systems, however, optical
communication systems are rapidly entering space as well. Mynaric is a publicly traded
company offering optical communications terminals for space, whereas Hedron1 and Skyloom
are emerging start-up companies planning to disrupt the marketplace in the coming years.
These companies are also planning to build a constellation of satellites as communication
infrastructure as a service, that will offer bandwidth as a service to existing constellations such
as Starlink or OneWeb. Only a few days ago, NASA successfully launched the Laser
Communications Relay Demonstration (LCRD) mission to GEO to demonstrate optical
communications between Earth and GEOspace. Next year, NASA will launch the Psyche mission
to an iron-core asteroid and demonstrate Deep Space Optical Communication (DSOC) from the
distance of the asteroid belt, back to Earth. NASA has also previously demonstrated optical
communication from and to the Moon. So, optical communications are maturing to the point
of commercial use.

b. Remote Sensing: Remote sensing applications are generally divided into passive and active
systems.
1. Passive systems collect reflected signals such as sunlight from the Earth and turn them into
images. Depending on the spectrum of observation they can use cameras in the visible
spectral range as does Planet. Other constellations such as Satellogic collect multispectral
or hyperspectral data that provide information about the composition of the observable
target. Other companies such as GeoOptics use signals from existing satellites such as GPS
to image the planet.
2. Active systems use a signal generated onboard the spacecraft to bounce off the surface of
the Earth and then receive the signal onboard the spacecraft. Examples include RADAR
imaging (Capella, Umbra, or Iceye); start-up NuView, which proposes to use light (LIDAR)
imaging to image the globe on a regular basis; and Spire, which uses Radio Occultation
(RO) to send a signal through the atmosphere to another satellite and thus measure cloud
coverage, precipitation and other weather conditions across the globe.
Each of the above active or passive observation platforms offer a different view of Earth and sometimes
different views of the same target. A user application will likely benefit from multiple sources of data of
the target as each gives different kinds of information.
In essence, LEO is already crowded and about to get even more crowded as existing constellations grow
to full scale and as new constellations are launched. In a recent news article, SpaceNews reported that
multiple constellation providers filed with the FCC to bid for the new V-band spectral allocation to
provide internet services around the world. In doing so, they filed for a total of 38,000 satellites. This
does not include another 30,000 planned by SpaceX for Starlink. Therefore, it is reasonable to assume
that over the next decade another 100,000 satellites will be deployed in LEO, driven primarily by the
need for increased broadband and remote observation services. Whereas space is large, it is getting
crowded, generating its own set of problems due to the rise of junk in space, space debris.
2. The Lunar Economy
Thanks to NASA’s Artemis Program, the USA has created an international coalition of space agencies to
jointly construct a smaller version of the ISS at the Moon, called the Gateway. It will operate in cis-Lunar
space, which permits human sorties to and from the Gateway to the surface of the Moon. The Gateway
in cis-Lunar space represents another steppingstone in humanities ascent to becoming an
interplanetary society and enabling the permanent settlement of the Moon. NASA has also selected
Lockheed Martin’s Orion spacecraft to ferry astronauts to and from the Gateway, even though SpaceX
has also developed the Dragon module to do the same.
In parallel to the Artemis Program, NASA’s Commercial Lunar Payload Services program (CLPS) is
incentivizing a broad sector of commercial space to develop landers, payloads, rovers, and other
modules to be delivered to the surface of the Moon. NASA recently announced its selection of the small
lunar lander from Intuitive Machines (IM) as the first in a series of landers to deliver payload to the
surface of the Moon.

In the coming years, more contracts are expected to be awarded by NASA, providing a major stimulus
to growing small business space communities. A number of applications and services have been
identified to be available at the Moon as follows:
• Remote sensing resource prospecting from Lunar orbit;

• In-situ resource prospecting and utilization;
• Creation of human habitats for long-term habitation on the Moon;
• Research parks and observational science stations for astrophysics;
• Power stations and power utility services on the Moon;
• Precision navigation and timing services on the Moon;
• Communication services between assets on the Moon and between the Moon and Earth;
• Manufacturing of propellant and fuel storage;
• Servicing the cis-Lunar economy, fuel depot;
• Launchpad for human mission to Mars;
• Training ground for astronauts and demonstrating sustainability on another planet;
• Space Tourism and education.
The Moon is also a possible and likely destination for the launch of large payloads to Mars including
humans. The reason is that it is expensive (due to the Earth’s large gravity well) to launch large payloads
from the Earth to Mars. However, if resources such as fuel were sourced and fueled in lunar orbit, then
launching from the Moon (which has a much smaller gravity well) to Mars will be less expensive and
more cost-effective. Refueling depots would then be placed in lunar orbit or cis-Lunar space; humans
would station on the surface of the Moon, and when the vehicle is ready, dock with the interplanetary
shuttle and go to Mars. The shuttle would then come back to the Moon for refueling and to pick up
new passengers.
3. Mars, Asteroids and Beyond
Human exploration and the permanent settlement of Mars are within reach in the 21st century. Today,
NASA has two one-ton nuclear-powered rovers (Curiosity and Perseverance) active on the surface of
Mars and performing cutting edge scientific research.
Credits: NASA TV, Perseverance rover took its first image of Mars on February 18, 2021.

Moreover, the Perseverance rover is the first step in a three-part mission called Mars Sample Return, in
partnership with the ESA, to return Mars samples back to Earth for scientific research. Technologically,
the Perseverance rover and the Ingenuity Mars Helicopter are cutting-edge space technology, with
ample opportunities for commercialization and applications in the emerging space economy.
Perseverance’s MOXIE experiment demonstrated for the first time the ability to create pure oxygen from
the Mars atmosphere, a critical step for future human habitation on Mars. Moreover, NASA has
sponsored research at universities on how to create human habitats on Mars using local material and
3D printing technologies. This coupled with water resources on Mars, an (thin) atmosphere and gravity
closer to what we have on Earth (than the Moon), makes human habitation on Mars even more
technologically feasible than on the Moon. Using the Moon as a training ground for interplanetary
travel, using it as a source of fuel, and using cis-Lunar space as a staging ground for reaching Mars, and
ultimately permanently settling on Mars, will qualify humanity as an interplanetary society.
In addition to Mars exploration, NASA and the international space research communities are actively
exploring asteroids in situ and via proximity observations. This is being done primarily to obtain scientific
knowledge about the formation of our solar system and how life may have originated on Earth. Ongoing
and upcoming NASA missions to asteroids include OSIRIS-REx, Lucy, and Psyche. In addition, NASA
recently launched the DART mission to an asteroid as part of a planetary defense demonstration. Today,
the technology to source, rendezvous, sample, capture, and robotically return a small to medium-sized
asteroid (10-20m) to the Earth-Moon system already exists, even though it has not yet been
demonstrated. In the near future, commercial companies may be contracted by NASA to do so and
provide precious samples for scientists to study, while retaining some agreed upon fraction of the extra-
terrestrial resource for commercial use.
There is no doubt that this technology and service will be deployed in the 21st century as Planet Earth
continues to grow in population and continues to deplete precious resources. There is no reason why
we should not source scarce resources wherever we can, from the Moon, Mars, asteroids, and beyond.
Our solar system has plenty of additional water captured in what are referred to as Ocean Worlds of our
solar system. The moons of Jupiter including Europa, and of Saturn including Enceladus, have vast
oceans of water below their icy crusts. NASA has already made significant progress towards fielding
missions to Europa (Europa Clipper, 2024) and Titan (Dragonfly, 2027), the moon of Saturn which
contains vast oceans of methane.
An integral part of becoming an interplanetary society will be the sourcing of extra-terrestrial resources
from throughout our solar system which will stimulate an interplanetary trading infrastructure much like
exists today on Earth.
Space Investment Verticals
Several space investment verticals are already emerging in the space industry. For example, Launch
Vehicles as a sector is already formed with a pipeline of established public companies (LM, Boeing,
NGC), private companies (SpaceX, Firefly, Astra, Virgin Orbit and Rocket Lab) and a set of emerging
start-up companies (Relativity Space, ABL, Stoke, Radian Aerospace and more). Other verticals in
formation include:
• Space Tourism.
• In-Space Manufacturing.
• Real Estate in Space.
• Space Infrastructure.
• In-Orbit Servicing, Assembly and Manufacturing (OSAM).
• Supply Chain in Space.

Space Tourism is quickly transitioning from ‘in the future’ to ‘now’; from ‘the billionaires club’ to the
‘luxury tourism’ industry. Besides the recently well-publicized Blue Origin and Virgin Galactic suborbital
flights, other companies are developing infrastructure to support the growing demand and appetite for
space tourism. Axiom Space and other commercial real-estate providers in space are counting on
tourism as one of their main growing business sectors, as they develop real-estate in space. A weekend
getaway to LEO is not too far away. Other forms of tourist attraction will include a sortie from the space
station; a trip to circumnavigate the Moon and back; time at the Lunar Gateway, or even time on the
surface of the Moon. Companies such as Space Perspective1 are counting on the growing demand for
space tourism as they offer a view of space using high-altitude gondolas at a fraction of the current
price of going into orbit, thus further democratizing the New Space ecosystem.
In-Space Manufacturing is another fast-growing field in the space industry. Companies such as Varda
and Space Tango are developing in-space manufacturing services and capabilities that offer the unique
microgravity environment to manufacture innovative products that cannot be manufactured on Earth.
Examples are plentiful in the fields of pharmaceuticals, bioengineering, healthcare, semiconductors,
metallurgy, and more. From the early years of manufacturing on Earth, we have been confined to
building systems in Earth’s gravity. Space now offers a new vantage point that we have not used before,
other than on the ISS, for basic research available to only a few universities or government laboratories.
Real estate in space is rapidly evolving into a distinct ecosystem and a clearly investable marketplace.
The lead was taken by Axiom Space, but now Blue Origin, Nanoracks and NGC have been selected by
NASA to perform a phase one study for developing a commercial space station where NASA can
become a tenant. It is only a matter of time before there are other entrants into the space real-estate
business. These venues will provide a location for applications such as space tourism, in-space
manufacturing, astronaut training, R&D, government services and more.
Space infrastructure is quickly becoming a target for government and venture investment as it is critical
to the whole space industry. Examples of technologies and companies include:
• Optical communications between satellites and between LEO and Earth to supplement the
growing system of constellations that are bandwidth limited. Emerging companies in this field
include: Hedron, Skyloom, Mynarec, SA Photonics, and others. Optical communications, as
opposed to microwave communications, has the potential to provide higher bandwidth and to
provide more secure communication between satellites, compared to microwave-based
systems.
• In-space computing and storage centers.
• Refueling depots.
• In-space transportation.
On-Orbit Servicing, Assembly, and Manufacturing (OSAM) is a fast-growing field that is of dual use, with
both commercial and strategic applications. A multi-agency working group has been formed in the US
to coordinate and stimulate this sector of high value to the space economy. This field includes servicing
existing assets in space, assembling larger structures from smaller building blocks such as large
telescopes or complex systems, and using technologies such as 3D printing to manufacture components
in space that can then be used to service or replace failed parts.
Supply Chain in Space refers to the growing service industry that needs to emerge as part of the end-
to-end mission supply chain. This includes subsystems such as advanced propulsion, thermal, structural,
power, communications, avionics, and payload and software systems for mission operations. It also
includes spacecraft systems which are evolving very quickly.

Protecting Planet Earth
One of the leading topics today of great concern to the general public is Climate Change. What are we
doing to protect and help our planet heal? There is no doubt in the scientific community that human
factors are a significant contributor to climate change and that there is a need for urgent and immediate
action. In fact, some scientists claim that the damage caused so far is so broad and devastating that it
will take many centuries or even millennia to reverse the damage, even if we were to immediately halt
all human-generated carbon emissions. According to this view, only proactive regenerative solutions
such as carbon capture, provide a credible path forward. In any case, there is also no doubt that scientific
observations from space are critical to our continued understanding of what is happening on our planet.
A series of Climate Change-related missions is in the process of being implemented, including Carbon
Mapper, MethaneSAT, Hydrosat, and many more. Each mission uses the unique vantage point of space
combined with special remote sensing instruments such as hyperspectral imaging or thermal infrared
spectroscopy to image Earth and provide new information related to Climate Change. These missions
are intended to complement existing NASA missions to observe Earth and collect scientific data.
According to the latest National Academy of Science (NAS) Decadal Survey for Earth Science: “Thriving
on a Changing Planet”, published in 2018, Thriving on Our Changing Planet: A Decadal Strategy for
Earth Observation from Space, one of the key challenges in the observational field of Planet Earth is to
understand Earth as a single system, the ocean and sea-level rise, mass change, cloud formation and
precipitation, and how all these combined act as the single system we call Planet Earth. We need to
proactively monitor, protect, and preserve our land, ice, waters, air, and space, in order to be both
responsible custodians of Planet Earth and to also learn how to protect other planetary bodies such as
the Moon and Mars.
Today, Earth’s LEO is littered with space junk, and the problem is getting worse every year. There is even
a US Space Policy Directive (SPD-3) issued by the USA National Space Council (NSC) to actively solve
the problem of space junk, or orbital debris. This is a threat to both doing business in space and to the
broader space economy in LEO. The recent demonstration by the Russian Space Agency (ROSCOSMOS)
hitting one of its own defunct satellites in LEO resulted in substantial orbital debris that is a problem for
all. China made a similar demonstration using one of its own satellites in 2007. As the number of
operational satellites in LEO grows exponentially to over 100,000 in the next decade or two, there will
have to be an active process and indeed a set of commercial services to proactively locate, rendezvous,
capture, and actively remove debris from space. New rules are in place already by the FAA to make sure
constellation providers have designed their systems with enough resources to deorbit and burn up in
the Earth atmosphere. This is a move in the right direction. Companies like LeoLabs have built
commercial RADAR systems to actively monitor space debris and provide an early warning system to
satellite operators. Other companies such as Astroscale and Starfish, and Rogue Space plan to provide
services in LEO to remove orbital debris.
Another important area where space can and will provide significant benefits to humanity is disaster
prediction, monitoring, and management. This includes weather predictions and monitoring, support
for first responders, information management during disasters, flood predictions, fire risk assessment,
fire monitoring and fire management, and more. Space can also support healthcare providers in Africa,
Asia, or South America. Many diseases such as malaria are strongly correlated with weather conditions
on Earth and this information can be used to prevent the spread of disease.

Towards an Interplanetary Society
As a society, over the past century, we have made amazing scientific discoveries and deepened our
understanding of how nature works and behaves, starting from the Big Bang some 13.8 billion years
ago, until today. The basics of cosmology and the observation of distant galaxies have unique
touchpoints with fundamental particle physics, the pursuit of knowledge how matter was created from
energy and how we ultimately evolved into the intelligent species we are today, inhabiting Planet Earth
in the goldilocks region in our Solar System in the spiral Milky Way galaxy.
However, as a society, we are plagued by collective human behaviors that should make us pause and
wonder, ‘who are we, really?’ and, ‘are we responsible enough?’ to expand our ways of living and
cohabitation to other planetary bodies. Technologically, we are ready to expand to the Moon, Mars, and
beyond within this century. However, we must improve our collective behavior and demonstrate a
planetary level of consciousness for the betterment of all humanity. This is perhaps our biggest
challenge towards a sustainable interplanetary society. The United Nations (UN) and NASA’s Artemis
Program are making formidable steps in this direction, defining basic principles of international and
interplanetary norms such as the peaceful exploration and utilization of space for all, equality, inclusivity,
transparency, emergency support and more. We need to protect not just Planet Earth but also all other
planetary bodies as we settle them for the benefit of humankind.
1
Leon Alkalai is the CEO of Mandala Space Ventures which has launched Continuum Space Systems as
its first incubated company. Leon is also the GP of the Explorer 1 Fund whose current portfolio includes
Radian Aerospace, Continuum Space Systems, Space Perspective, Hedron and Ursa Major Technologies.

What the Hell is Web 3.0?

You might recently have heard the term Web 3.0 bandied around. It is a small term that means big
things and I think it will be helpful for you to understand what it is and how it fits into the big themes
of digital assets and Exponential Age technology.
First, if we are talking about Web 3.0, then there must be a Web 1.0 and Web 2.0. What the hell are
those??
Web 1.0
Web 1.0 was the first iteration of the internet – essentially its invention. In its first guise the web wasn’t
interactive per se, but was a Read-Only experience. This was the rise of the web address and web page.
It was generally a pure source of information.
Web 1.0 was the invention of the internet as the first foundational layer (which itself was built on the
back of the personal computer).
Web 2.0
In the mid 1990s Web 2.0 began to emerge and that led to the massive internet boom and bubble of
2000. This was the rise of the Read and Write web.
Web 2.0 allowed users to not only read information but to create interaction and content, accessed via
a web browser. This made it finally usable by general consumers. It basically started with internet
shopping, where you could fully interact with websites as a user and it then morphed into social media,
where users created content on platforms such as Facebook, YouTube and Twitter. This became the
mass consumer adoption phase, where the global business model pivoted away from bricks and mortar
and into the digital realm.
Web 2.0 was the creation of the applications layer of the internet. It gave rise to the monopolies of the
web today: Google, Facebook, Amazon, etc.
The digitization of everything...
In 2011, Marc Andreeson famously created one of the most profound statements of our time: Software
is Eating the World. What he was referring to was the ongoing digitalization of everything, a process
that has already disrupted almost every business model in the world, from factories to media, from
accounting to legal work, from state bureaucracy to medicine. This digitization of everything is creating
the largest technological disruption the world has ever seen and in the shortest time period imaginable.
With almost every single job in the world now being disrupted by digitization, one area remained that
had been untouched – the system of money and value.
Web 3.0 – the Foundation Stone – Bitcoin and Blockchain
Then in 2008 came bitcoin and everything changed. Blockchain technology had become the
foundational layer for Web 3.0 – the Read-Write-Own web where the very system of money had
become digitized along with money itself.

The next foundation – the smart contract
Blockchain technology allowed networks to be built around the transmission, storage and proven
ownership of digital goods. The rise of smart contracts via Ethereum gave rise to the possibility that ALL
assets can be attached to a blockchain, lowering costs and destroying middlemen. It also created a
private system of money – the internet of value – comprised of the tokens that represented the
ownership stake in these new networks.
A multichain world of Layer 1s and Layer 2s
The networks had value and thus the tokens had value. In Web 2.0 we saw the rise of network business
models but in that iteration of the web, the owners of the networks were the shareholders and the
network users only got the value of using the network but in Web 3.0, these are public networks owned
and supported by the token holders. It is the decentralised internet.
The big trend here is not only the rise in value but the sheer number of protocols solving different
needs, from secure and decentralised to fast and cheap and less centralised. The complexity of offerings
has risen dramatically and the rise of new Layer 1s has been enormous. On top of that has been the rise
of Layer 2 protocols too, which allow for even faster and cheaper transmission of value.
There is an entire article in this publication just on this sector.
By 2021, the number of users had grown to over 200m people worldwide...

The Applications Layer - Stablecoins
With blockchain as the foundational layer and smart contracts as the programmable layer,
entrepreneurs could begin to create the applications layer.
First, we saw the wrapping of traditional fiat money onto blockchain – so called stablecoins – giving the
ability for the blockchain world to become interoperable with the traditional financial world and improve
on its efficiency rather dramatically. Money transfers became instantly verifiable and costless.
By 2021, stablecoins accounted for over $6 trillion of transaction volumes.
The Applications Layer - DeFi
This enabled the rise of Defi in 2020 – the Decentralised Finance layer – where blockchain and smart
contracts began to disrupt the traditional financial businesses of lending, borrowing, yield creation,
insurance, and asset management.
This part of the revolution has only just begun and is roughly where web 2.0 was in maybe 1995. It will
eventually destroy almost all of the financial system as we know it. Governments are busy creating
Central Bank Digital Currencies to disrupt all of their own transmission rails using blockchain too.
There is now $250bn of outstanding DeFi contracts, a 100x increase in 2021 alone...

... with the largest protocol by far, being Ethereum...
The Applications Layer – NFTs
The next foundational layer was the rise of NFTs. Essentially, NFTs allow for anything to be attached to
a blockchain from artwork to tickets, from insurance contracts to real estate.
This part of the crypto market exploded in 2021 but is really at its very earliest phase. Right now, it is
mainly art and community identifiers such as Bored Apes or CryptoPunks, but in this space we will see
the rise of unique digital identity, music, IP rights, tickets, video, etc., and subsequently we will see a
phase involving real estate and tokenised physical assets. This is the first true consumer use of
blockchain and the area that will see the largest number of use cases.
This is basically unlocking the individual’s or businesses’ or communities’ ability to own, store
and transmit value across the internet. This also allows all assets of any type to get network
effects. It is so incredibly disruptive we can’t yet get our heads around how many ways this
technology will be used.

Volumes went from zero to billions a month in the last year and this will rise exponentially as new use
cases roll out...
And wallet holding NFTs have just started going exponential too... although it is very, very early days. I
think more people will own NFTs in the next decade than any other part of Web 3.0...

The use cases are starting to rise but it’s mainly digital avatars or community identifiers... this will change
dramatically in the coming years...
The next step in the foundation of Web 3.0 came with on-chain gaming and Play-to-Earn, in-game NFTs
and GameFi (borrowing and lending of game collateral).
Axie Infinity was the breakout in Play-to-Earn and has 2.5m users – small in the gaming world but
dramatic in its rise thus far...

Its token, AXS, was one of the best-performing tokens in all of 2021...
... and this saw the rise of numerous new games... doubling in a year...

... and the market cap of GameFi protocols just crossed $25bn...
See the article on Gaming and Blockchain later in this January Think Piece to dig into the theme a little
deeper.
The Interoperability or Cross-Chain Layer

The next foundation stone became the ability to transfer assets from one chain to another – to allow
the free movement of digital value outside of any walled garden - a key requirement if Web 3.0 is to be
fully decentralised with individual ownership rather than just corporations.
There is also an article on Interoperability (M2) in this publication as it is a vital foundation stone of the
future that we need to understand, allowing blockchain to be universal and all-encompassing.
This is a very early-stage space and one that will become ubiquitous in the future. Expect dramatic price
rises as protocols begin to solve tricky problems and are adopted at scale.
The Applications Layer – Social Tokens

The next big shoe to drop will be the social tokens that I have discussed in the past in GMI, in the article
The Exponential Business Model.
This allows you to own a stake in the communities you belong to, from music artists to sports teams,
from fashion brands to charities. Those stakes will be freely tradeable and will create digital sovereign
states around communities with their own systems of private money. Get your head around that!
Out of this space will come some of the largest single consumer applications where billions of people
can participate in a community both as community members and stakeholders.
This will drive the new concept I have referred to as Universal Basic Equity, replacing the need to
buy traditional investments or even to have a job because you can accrue asset value in culture.
And massively helps alleviate the risk of AI and technology replacing the need for humans in the
workforce.

Culture as an investment is liberating and game changing. It will change the investment world
forever. No longer will investing just be about financing business via share sales but now you can
earn value by helping a community grow or flourish.
NFTs and social tokens will be the largest distribution/redistribution of wealth in history.
This will forever change the relationship between brands and their customers; everyone will have to
create community first. It also changes the marketing game and dramatically reduces the necessity for
advertising and other expensive marketing strategies. Brands will move from an intangible on the
balance sheet to a tangible asset, unlocking enormous value for brands, artists, teams etc., and their
fans.
This is one of the biggest changes to the global business model since the rise of corporations.
The Decentralised Corporation or Governance Structure

Next up is the need to disrupt the corporation itself and its hierarchical nature, and the disconnect
between the needs of the company and its customer. In this world of decentralisation and
disintermediation you need a new system of governance that helps manage complex adaptive societies
(communities of individuals).
Enter the DAO – the Decentralised Autonomous Organization.
Think of DAOs like an internet-native business that's collectively owned and managed by its members.
They have built-in treasuries that no one has the authority to access without the approval of the group.
Decisions are governed by proposals and voting to ensure everyone in the organization with a token
has a voice.
Enthusiasts look at DAOs as the next logical step to this trust-building process by bundling a series of
smart contracts to create what they describe as a smart “organization” – where business decisions such
as inventory control, cash management, pricing and even hiring, are made based on predetermined
inputs...

And the DAO looks like this....
How do DAOs work?
• Code is written in the form of smart contracts, which provides some sort of governance
mechanism.
• Members typically use governance tokens to vote on decisions made by the DAO, such as the
allocation of funds.
• In the case of many DAOs, the impact of a member's vote can increase based on the amount
they have contributed to the project.
• The outcome can be based on the degree of participation as well as voting preference.
What advantages do DAOs have?
• Transparency – voting, funding decisions, and other actions are viewable by anyone.
• More firepower – members across the world can contribute, giving DAOs lower barriers to
entry than companies.
• Cheaper – the concept has firmly taken root in the DeFi, and there are many tools that can be
used like LEGO, so little needs to be built from scratch.
• Collaborative – giving everyone a voice pools mass knowledge for a proposal and enables
experts to invest in the ecosystem they are building.
I don’t think we yet know how DAO will be fully applied as various models are being tested right now.
There are DAOs that form crowd-sourced investment funds such as Flamingo DAO, and there was even
a DAO formed to buy an original copy of the US Constitution, Constitution DOA, where a community
that formed in a matter of a week or so with the sole purpose of buying the Constitution that came up
for sale at auction, raised $45m. The bid ultimately failed on a technicality by the auction house, but the
genie was out of the bottle.
There is now a DAO being formed to buy an NBA Team.

Expect DAOs to quickly form around political and social aims; they will change the nature of political
fundraising.
I’m not sure however, whether it will entirely replace the corporation as many need to be driven by a
leader to survive, but the uses of this kind of structure will become commonplace in the Web 3.0 world.
The Identity Layer

We also need to build Digital Identity. This will allow us to move around a Web 3.0 world: no logins, no
endless KYC, no need to disclose details about ourselves and thus give us the ability to own and control
our data via permissioning.
This finally kills the Web 2.0 monopolistic rent model of monetising our attention and shares the value
with the user who allows their identity to be used with their permission in exchange for payment.
Advertisers essentially pay individuals for their attention, as opposed to the platform, who will get a
small cut only (a facilitation fee).
Zero Knowledge Proof cryptography also allows for verification without disclosing actual details like
driving licences or passports or social security.
The UX Layer
Let’s face it, the user experience in the Web 3.0 world is still awful. In the future, wallets will be secure
and on our phones and protected on our browsers; we won’t need to know or care what blockchain we
are on, we won’t need to check transactions on-chain, we won’t need big strings of hash numbers for
our addresses. Everything will seamlessly integrate and operate with the simplicity of Web 2.0, where
everything is intuitive.
All of this is being worked on.
This is Web 3.0.
When you combine all of this together – all these foundational layers and applications layers – you get
an internet and system of money and value that is wildly different to today’s world.
It is a world where we all get to participate in the economic upside, earning universal basic income and
universal basic equity.
The internet becomes not controlled by monopolies but by individuals and communities, and the same
also applies to the system of money.
All this is happening with provable network effects, driven by Metcalfe’s Law and that makes its adoption
exponential. This will happen at a speed that none of us have predicted i.e., at an exponential speed.
And we will soon all learn about Amara’s Law...
"We tend to overestimate the effect of a technology in the short run and underestimate the effect in
the long run," coined by Roy Amara, past president of The Institute for the Future.”
Roy Charles Amara

Early adopters take more risk which is the speculation phase and, on reaching maturity (the two lines
crossing) speculators tend to underestimate the tech because it is not evolving fast enough, or the
returns are not as high as in the speculative phase. This is a technology S-Curve essentially...
And in Web 3.0, this is what it looks like... the hype around Web 3.0 is building; we will likely see a bubble
phase and then a cooling off before the real action starts...
That, my friends, is Web 3.0. It is the biggest systemic change in history and it paves the way for
the fully adoption of the metaverse, which is the digital end state that endlessly evolves... and
it’s going to happen sooner than you think.

The Future of Crypto is Multichain
By
Ryan West
Ryan is an IT Strategy Consultant and part-time cryptocurrency researcher and writer with a focus on
Layer 1s, Decentralized Finance, and the Terra ecosystem.

Raoul’s Note:
As I have explained, the complexity of the digital asset space is rising fast. It is not just a bitcoin or
Ethereum game now but a multi-chain world. I have featured articles in GMI on Solana, Terra, XRP and
others, but I want to tie it all together in one comprehensive article to help structure it all.
The Future of Crypto is Multi-Chain

The blockchain and cryptocurrency space has evolved immensely over the past year and has introduced
far more excitement and complexity than we have ever seen before. One of the driving narratives
throughout the year was a large increase in brand new Layer 1 and Layer 2 blockchain adoption.
Before we begin, it would be best to define these terms. Layer 1s can be seen simply as the base ledger
where transactions are validated and recorded. Bitcoin, Ethereum, and even Dogecoin, can be
considered Layer 1s, because they represent this base level network. However, when most people refer
to “Layer 1s” as a narrative, they are generally referring to those with smart contract capabilities, where
decentralized applications and token creation can take place, Ethereum and Solana being prime
examples. Layer 2s are networks built on top of existing blockchains in which transactions are
outsourced and bundled before being settled back on the Layer 1 for increased scaling, throughput,
and efficiency.
Anyone who has been paying attention to this space during the last few years saw the explosion of
Ethereum and its network development. This began in what is commonly referred to as “DeFi Summer”
in June of 2020. Borrowing and lending protocols, yield optimizers, decentralized exchanges,
stablecoins, and other niche DeFi protocols all saw explosive growth over just a few months. Then, in
early 2021 we saw the meteoric rise of NFTs. Beeple sold one of his art collections for $69 million, the
floor price for CryptoPunks reached hundreds of thousands of dollars, and OpenSea hit over $100
million in daily volume. The amount of value being transacted on the Ethereum network was incredible
and outperformed every other chain by an extremely wide margin.
What we essentially saw during this period was the proof of concept for smart contract and NFT
technology. The use of financial products – open to anyone with an internet connection and without
the inefficiencies and centralized control of traditional middlemen, and the ability to have verifiable and
immutable ownership of unique digital objects and collectibles – these are mind-blowing concepts that
finally became a reality during this time period. While most of the products were driven largely by hype
and speculation, it was hard to ignore the future implications of such a technology.
However, with high rates of growth and adoption, Ethereum’s fundamental scaling issues became
impossible to ignore. Gas fees for transactions on the network began to reach averages of $100 or more
which priced out smaller users on the network. The Ethereum team had decided to take a slow and
methodical approach to their scaling issues, prioritizing the building of ETH 2.0 sharding capabilities
and novel Layer 2 technology, both of which are very complex and take a long time to develop. With a
delay in much-needed infrastructure, other Layer 1 blockchains offering similar smart contract
capabilities for a fraction of the transaction cost, began to gain a lot of attention over the course of the
past year.
But what began as a flight from Ethereum’s scaling issues soon opened up the door to a new paradigm.
As more eyes were drawn to different smart contract platforms, users began to see certain
differentiating factors in these alternatives they weren’t seeing on Ethereum. Different sets of
applications, communities, cultures, and ideals began to form. With these different states came an
increase in network adoption and, through Metcalfe’s Law, an exponential increase in the value of these
new networks. Many token bridges had also been developed, allowing users to seamlessly transfer their
assets from one chain to another.

No longer was there one dominant platform that drew in all the users and developers, there was now
freedom of choice and the free flow of capital across many different blockchains.
This now opens up the way for a multi-chain future, in which there are many different blockchains, each
with their own use cases and trade-offs with respect to decentralization and efficiency. It is then in the
hands of the users and developers who ultimately have the freedom to decide where they invest their
time, energy, and value.
Let’s explore the many chains that have achieved meaningful adoption in the past year, explain why
Ethereum has taken its slower route towards scalability, and consider how they all fit into this multi-
chain thesis.
Meteoric Rise of Alternative Layer 1s

In early 2021, given the rise in NFT trading and immense volume of users flooding the Ethereum
network, users had their first taste of rising gas fees. At this point, many alternatives were still in
development or building out their early ecosystem primitives, but there was one chain in particular that
had started to gain traction: Binance Smart Chain.
Binance Smart Chain (BSC)
BSC launched towards the end of 2020 as a blockchain allowing for the creation of smart contracts and
Ethereum Virtual Machine (EVM) compatibility, with gas fees at often less than a penny. This allowed a
very easy onboarding for users looking for cheaper alternatives and, due to EVM compatibility,
developers who were working on Ethereum could just copy their project to the new chain. Also, because
there weren’t many built-out smart contract platforms at this time, BSC quickly became the go-to
network for an escape from growing dissatisfaction for the user experience on Ethereum. The chain
absolutely exploded around February, growing from a few hundred million dollars in total value locked
(TVL) to over $30 billion in just a few months.
While the low fees have allowed for better user experience there were, and still are, many issues with
the chain.

First, the network is extremely centralized. There are only 21 validators and they are likely all run by the
Binance organization. While this is contributing to the super-low fees users pay, this means the network
has a single point of failure and therefore is not as secure or censorship resistant. Also, developers who
have tried to build on the network have reported very little help from the core Binance team, which is
not a good sign given that developers will likely move elsewhere. Given its rise in popularity that
coincided with the social media virality of many meme tokens who all launched on the network (some
with names I would rather not mention here), BSC also hasn’t built the best brand, becoming known as
the main source of token creation for these meme tokens and extremely experimental DeFi.
Despite these facts, Binance Smart Chain has built up a fairly robust DeFi ecosystem, holding the 2nd
spot in total TVL by chain behind Ethereum at over $16 billion at the end of 2021 and have a reported
one million daily active users, the most of any chain by far. Some notable protocols built on the network
include the decentralized exchange PancakeSwap, borrowing and lending platform Venus, and the yield
aggregator Tranchess.
After its explosion in the early half of 2021, the entire market went through a downturn, which in turn
damaged the value locked on BSC’s network. This also coincided with the rise in development activity
on alternative Layer 1 ecosystems. As the market started to recover in the summer months, rather than
users going back to applications on BSC, they ventured towards other chains that started to make some
noise, the first being Solana.
Solana
Solana is another smart contract platform designed for maximum performance. How it differs from all
other smart contract platforms is that it uses its novel consensus mechanism called Proof of History.
This essentially has all validators agree on the current time, which allows the correct ordering of
transactions at the lowest possible level of latency. Rather than being bound by how big blocks are, it
is instead bound by the bandwidth available to the network. This allows it to have extreme levels of
throughput not found on any other blockchain, allowing for transactions to reach finality in milliseconds.
The team claims to be able to reach a potential 50,000 transactions per second (TPS), but in reality has
fluctuated around a few thousand. This is still incredible compared to any other network, such as Bitcoin
(7) or Ethereum (20).

Due to this extreme level of performance and the blockchain design, Solana becomes a prime chain for
some specific applications that likely cannot exist elsewhere. This includes many derivatives trading
platforms, such as Mango Markets, and blockchain integrated games such as Star Atlas. One application
of note is Serum, which is a decentralized on-chain order book that was facilitated by Sam Bankman-
Fried. This supplies liquidity for every token that launches on the network and will be an important
infrastructure piece as Solana develops further, and will likely play a role with the FTX exchange at some
point.
In addition, the performance and low fees has brought many new users to the network, which allowed
its DeFi ecosystem to flourish, and compelled many new NFT projects to choose Solana over Ethereum
for their mints. This resulted in Solana’s Phantom wallet achieving over a million users in a short amount
of time. Anyone who has interacted with Solana applications has been aware of the heightened user
experience when compared to Ethereum, and this is where Solana separates itself from others.
But despite its stellar yearly performance, it has run into some slight issues. In September, the entire
blockchain went down for a period of more than seventeen hours and has seen many periods where it
required a temporary slowdown. This highlights that the Solana network is currently in beta and is a
piece of experimental tech rather than a truly robust network at this point in time.
However, Solana is showing great promise as a highly powerful and scalable Layer 1 blockchain.
Anecdotal evidence suggests that developers are choosing Solana as their most desired chain at the
moment, which is a great indicator of future growth. This will certainly be a chain to keep an eye on
over the coming years.
Avalanche
In addition to Solana, Avalanche is another Layer 1 that has seen parabolic growth in the latter half of
2021. Avalanche is a Proof of Stake blockchain that uses its own complex mode of consensus that allows
for robust security and extremely high throughput. Avalanche actually has three blockchains, the
Exchange (X) Chain for the creation and trading of tokens, the Platform (P) Chain for customizable
blockchains called subnets, and the Contract (C) chain for smart contract capabilities. On the P-Chain,
Avalanche can have thousands of subnets all running at the same time, and each can reach up to 4500
TPS, which makes the blockchain very scalable and very fast. Similar to Binance Smart Chain, Avalanche
is EVM compatible, allowing Ethereum developers to bridge over their applications very easily.

The chain kicked off their exponential growth with an ecosystem fund of over $200 million in August of
2021. This incentivized developers to take advantage of funding and new users rushed in to farm these
high rewards. In addition, the Avalanche team created a bridge from Ethereum that was extremely user-
friendly, and even gave away a small amount of AVAX so that users could pay fees once their assets
bridged over. This experience sparked a large amount of social media buzz and enticed many others to
try the bridging process for themselves. The user experience of the blockchain as whole has contributed
to a large growth in the number of daily users on the platform and is outperforming every other chain
by this metric.
While there were some Ethereum projects who simply deployed their projects over to Avalanche,
including Aave and Curve, the chain also saw large growth in brand new developers and applications
on the network. This spawned many popular protocols, including the decentralized exchange Trader
Joe, the borrowing and lending platform BENQI, token launchpad Avalaunch, and play-to-earn game
Crabada.
Avalanche currently sits at $11 billion in TVL and has one of the fastest growing user bases in the space.
In addition to Solana, this is another chain that is attracting a serious amount of developer talent. It will
be interesting to see, once incentives run out, whether there is enough excitement to sustain this level
of activity in the future. Many in the industry would be willing to bet that it does.
Terra and Cosmos
Another Layer 1 that has achieved meaningful adoption throughout the year was Terra, a Proof of Stake
smart contract platform built on Cosmos, a network which calls itself the “Internet of Blockchains”.
Cosmos allows anyone to build its own Layer 1 blockchain on top of its SDK, and through Inter-
Blockchain Communication (IBC) each of these Layer 1s are able to seamlessly send and transact value
between one another.
Terra is very different from other Layer 1s in that it has native algorithmic stablecoins along with its
native asset LUNA. The most widely used stablecoin is UST, which is pegged to the US Dollar.

How the stablecoin keeps peg is not through cash reserves like centralized stablecoins USDC or Tether,
but rather through the fact that LUNA and UST are directly convertible through burning and minting.
For example, if UST is trading at $0.98, arbitrageurs can buy 1 UST for a discount, burn it to mint $1
worth of LUNA, and sell it to make 2 cents, which pushes the UST back to $1. If UST is above $1, say at
$1.02, arbitrageurs can buy $1 of LUNA, burn it to mint 1 UST and sell it to make 2 cents, which also
drives the price back to $1.
Therefore, the more there is demand for UST, the more LUNA is burned from the circulating supply,
which makes the asset more scarce. The UST market cap started at $180 million on January 1st and has
since grown close to $10 billion, an increase of over 5000%, which in turn created downward pressure
on LUNA’s supply. The reason for this growth was due to the demand for the stablecoin to use
applications on the network. This includes flagship protocols Anchor, a savings protocol with a fixed
interest rate of close to 20% yield, and Mirror, a synthetic asset exchange where users can buy and sell
tokens that mirror real world assets 24/7 from anywhere in the world.
Due to the demand for Terra’s stablecoins and programmable nature of Anchor and Mirror as base level
“lego blocks” in their DeFi ecosystem, the blockchain has seen a frenzy of recent developer activity. Over
150 projects are currently building on the network, and some notable protocols include Astroport, a
decentralized exchange, Mars, a money market allowing for uncollateralized lending, Prism, a unique
protocol giving users the ability to split up and tokenize the principal and yield of their investment, and
Nebula, an exchange for algorithmically rebalanced ETFs.
However, it’s important to understand that algorithmic stablecoins are still in their experimental phase,
as the inherent reflexivity could cause what people call a “bank run” if enough people are both selling
LUNA and exiting UST at the same time. UST temporarily lost its peg during the cascading liquidation
event in May but has since recovered and has yet to see any destabilizing since. Despite these concerns,
UST has become the largest decentralized stablecoin by market capitalization, is growing its presence
across many different chains both in Cosmos and beyond, and will soon be offering payment solutions
around the world, which paves the way for even more adoption.
Cosmos itself is also seeing the rise of other Layer 1s being built on its infrastructure. This includes
THORchain, a decentralized exchange allowing the transfer of native assets across different chains,
Secret, a privacy-by-default smart contract chain, Oasis, a blockchain focused on data tokenization and
privacy, Crypto.com, a centralized exchange’s solution for better payments and DeFi, and many more.
Cosmos was certainly ahead of its time in facilitating a multi-chain world with easy transfers of value
from one ecosystem to another and will be an interesting network to keep up with as new chains deploy
and grow.
Fantom
Although not as widely used as the previously mentioned chains, Fantom also saw a fairly large
explosion in its ecosystem over the later months of 2021. A little bit more complicated in design as well,
Fantom is a smart contract DAG rather than a blockchain, which uses a slightly different mode of
recording transactions. This allows for much higher scalability because it is not bound by blocksize, and
they give each application its own chain so the entire network never becomes clogged. Similar to BSC
and Avalanche, it is EVM compatible and has an easy-to-use bridge to and from Ethereum.
Fantom has focused much of their efforts on building a DeFi ecosystem, enterprise solutions, and the
creation of Central Bank Digital Currencies, with the first two areas seeing some success. Much of their
growth in DeFi has been due to the introduction of a $300 million ecosystem fund, which attracted
many qualified developers and users looking to take advantage. Notable protocols include
SpookySwap, a decentralized exchange and bridge; Geist Finance, a money market protocol, and Tomb,
a stablecoin protocol with a peg to the FTM token...

What’s also of note is the many governments and companies around the world that are building on
Fantom in one way or another as part of their enterprise solutions. This includes the Afghanistan
Chamber of Commerce and Investment, DABS electricity company, and Royal Star Pharma that have
been publicly announced. The magnitude of these partnerships is not taken into account if looking at
just TVL metrics. For CBDCs, nothing official has been announced, but the Fantom Foundation pitched
their infrastructure to the UN and the Stanford Digital Currency Global Initiative so there is likely
momentum in this lane as well.
As of now, Fantom has a TVL of around $5 billion dollars, putting it in the top 8 of all blockchains. While
it has enjoyed great success in the latter half of the year, it hasn’t had the same mind share in the crypto
community as the others mentioned but, given its interesting technology and growth to date, it is
certainly not far off from eclipsing others if there are enough opportunities coming soon.
Other Potential Competitors

While the chains mentioned above are those that achieved meaningful adoption and excitement over
2021, this is not an exhaustive list of chains that could prove to be widely used in the coming years. A
few more Layer 1s that have received a large amount of attention this year, despite not being fully
deployed, are Polkadot and Cardano, which were both launched by previous cofounders of Ethereum.
Polkadot, similar to that of Cosmos, allows for many different Layer 1s to build on top of its network
and has value flow easily from one chain to another. These Layer 1s are called “parachains” and they all
use the same Polkadot relay chain, which heavily reduces the cost to use the network. Another core
feature of the network is its native programming language Substrate, which allows for very easy
development of applications.
Cardano, another Proof of Stake Layer 1, has taken a more academic approach to its building, making
sure every step of the process is heavily peer reviewed before implementing. So far, Cardano has
secured many partnerships with government and academic institutions, and NFTs on the network have
done a significant amount of volume, but DeFi is not yet ready for deployment.

Other Layer 1 names with some level of heavy investment or excitement would include Algorand, NEAR,
Elrond, Tezos, Harmony, Kadena, and Moonbeam. There are what seem like a never-ending list of novel
Layer 1s that show promising technology, so what can often be the differentiator is where the bulk of
developers and users decide to spend their time.
While many of these alternative Layer 1s have achieved a very large amount of growth this year, none
have really been sufficiently stress tested. So, we do not know whether they can handle billions of users
all interacting and transacting at the same time. Once anyone begins to calculate the throughput and
blockspace needed to sufficiently handle this much load they begin to understand that most monolithic,
or standalone, chains will likely not be able to keep up. So, while Ethereum has run into scalability
problems in the short term, the team’s long-term vision will likely be similar for other chains in one form
or another. If a chain fails to reach sufficient scale, or carve out their specific niche, they put themselves
at risk to be outcompeted by better technology and user experience found elsewhere...
Ethereum Layer 2 and Blockchain Scalability

As we touched on previously, scalability is an extremely important issue when it comes to smart contract
platforms, because the ones that survive will ultimately need to find ways to seamlessly handle billions
of daily users. With this long-term vision in mind, Ethereum has done its best to approach its ability to
scale in the most fundamentally sound way possible.
Ethereum’s thesis for scaling is that chains will need to rely on modular blockchain design as opposed
to monolithic blockchain design. Let’s try and break this down as simply as possible.
Monolithic blockchain design, where there is one central chain that processes every single transaction,
likely cannot sufficiently scale because it is bounded by the computing power of a single node, which is
by default limited. In addition, having one central blockchain means all transactions are competing for
the same blockspace. This means that there could be applications with extremely high demand that
cause problems for all the other applications on the network, whether through delayed transactions or
extremely high transaction fees. Users who have tried to transact on Ethereum’s Layer 1 during any
major NFT or application launch can attest to gas fees that have reached as high as thousands of dollars.

Modular blockchain design, on the other hand, is a lot more efficient because it is able to split the work
and validation among many nodes at once. This helps spread out the necessary computation, prioritizes
decentralization and security, and allows for the even distribution of network resources and transaction
fees.
This can be extremely easy to understand, as modular design in many different industries has allowed
for an exponential increase in efficiency. Let’s take cars as an example, which are split up into many
different parts as opposed to coming in one set unit. This allows supply chains to be extremely efficient
by giving focus to individual parts, and end users can replace one part at a time as needed as opposed
to the entire car all at once. The same goes for computer processors, which began with a monolithic
design before shifting to the tiled versions you see today, which exponentially increased computing
power while also drastically decreasing manufacturing costs.
One of the ways in which Ethereum will carry out this thesis is through a process called sharding which
will be introduced with ETH 2.0. Instead of having one single chain where all transactions are processed,
sharding creates a large number of smaller chains so that transactions and resources can be adequately
split up to reduce overall network load. While this does add the overall modularity of the blockchain,
the more exciting developments are happening at the Layer 2 level.
While there are a few different methods to create a Layer 2 on top of Ethereum, one type has stuck out
as being the most efficient and scalable, and these are called rollups. Without getting too technical,
they have become popular because they are able to keep some data on the Layer 1, which allows them
to prioritize intense computation.
There are two types of rollups, optimistic and zero knowledge (ZK). The former is “optimistic” because
they assume that all transactions are valid by default. If a validator suspects after the fact that a
transaction was fraudulent, it can be challenged, but by having this default setting more transactions
can be processed while maintaining security. ZK rollups are able to bundle a large number of
transactions by intense computation and, through zero knowledge proofs, are able to translate this to
the Layer 1.
Optimistic rollups, while an improvement in efficiency from the Layer 1, still have their fair share of
problems. Despite being a solution for high gas fees, the average transaction fee is often in the tens of
dollars. This is great compared to the hundreds of dollars seen on the main chain, but when compared
to separate chains like Solana or Avalanche these are still not very competitive. There is also a waiting
period of one week if you want to bridge your assets back to the Layer 1, giving users less flexibility. But
since they are still an improvement, we can expect these solutions to still get significant adoption.
ZK rollups, on the other hand, are extremely powerful. Each individual rollup can do thousands of TPS,
and there can be thousands of these rollups on the same chain or spread out across different shards at
the same time. They also provide almost immediate bridging to and from the Layer 1 and have fees that
are astronomically low. Before this year, many developers thought that innovations for this method of
scaling were still many years away from being fully developed and usable by the public. Given the
advantages to this method, the Ethereum team has prioritized ZK rollups as the main long-term solution,
and Optimistic rollups as the temporary solution until they are fleshed out. However, an insane amount
of progress has been made in the zero-knowledge space, and certain solutions are either deployed in
smaller batches or getting ready to deploy soon.
Now that we’ve gone through all the really technical information, let’s explore how the Layer 2s have
been adopted to-date.

Optimistic Rollups – Optimism and Arbitrum
Optimism, the first optimistic rollup for Ethereum, launched its mainnet in July of 2021. However, any
builder that wanted to deploy their app needed to go through an exclusive whitelisting process, so the
chain took several months to pass ten launched projects and $100m in TVL. Some well-known projects
that can be used with Optimism are Synthetix and Uniswap, but many Ethereum projects that could
have chosen to bridge their projects to the network have yet to do so. It currently sits at the number 21
spot for TVL at around $300 million, and the solution will be soon open to public developers in the near
future.
Arbitrum, another optimistic rollup, launched its network in September of 2021. Many projects
immediately began offering their products on the network, including Curve, SushiSwap, and
Abracadabra, bringing the network TVL to $1.8 billion in less than two weeks. Just like many launches,
it wasn’t without its issues. The entire network went down for about an hour as someone launched as a
result of a sequencer bug, and many anonymous teams tried to launch scam projects hoping to lure
excited users of the new platform. But ultimately it has been a success, currently hosting close to fifty
projects and sitting around $2bn in TVL, the ninth most by any chain.
However, despite these being solutions to Ethereum scaling, many users have instead chosen to use
alternative Layer 1s as opposed to these options. The user and transaction growth pale in comparison
to the likes of Solana, Avalanche, and Terra. This may be because users like the experience of these
chains better, or are waiting for ZK solutions instead, but this is ultimately a development that should
be very much considered.
ZK-Rollups – StarkWare and zkSync

As we have discussed earlier, ZK rollups are the most highly anticipated Ethereum scaling solution, and
there has been a lot of buzz surrounding these developments. One of the very promising ZK rollups
being built on Ethereum is StarkWare. So far, they have built out only single-application rollups, which
they call “Planets.” The most notable applications built on this infrastructure has been dYdX, a perpetual
trading protocol. Due to the power of StarkWare’s technology, dYdX has been able to attract a large
number of users, achieving $1.5 billion in volume in six months.
Other notable applications currently launched include Immutable, a high volume NFT platform, and
Sorare, a fantasy sports protocol. The overall TVL for StarkWare is around $1.2 billion, which is incredibly
successful for a product with only application specific solutions. The next step in their roadmap involves
StarkNet, where there will be multi-application rollups and eventually fully decentralized rollups, both
of which will be much anticipated.
Another promising ZK rollup solution is zkSync. How this solution sets itself apart is that it is EVM
compatible, similar to many of the Layer 1s discussed earlier. This sets itself apart from all other ZK
rollups in development, as most have their own new programming language, so Ethereum developers
can easily ship their protocol as soon as the solution is ready. They are currently only in testnet, but
developers have signaled that they hope to launch within three months, so this will certainly be a chain
to keep an eye on in the near future given its intense capabilities and the ability for many projects on
the Layer 1 to immediately deploy at launch.

Polygon
Another solution to Ethereum scalability that has garnered a lot of attention is Polygon, which has
become very popular over the course of 2021. While each of the other Layer 2 protocols fall into one
explicit category, Polygon has provided a large number of different scalability solutions, so it is hard to
put it under any one category.
The solution that has received large adoption this year is the Polygon sidechain. This is its own
monolithic blockchain with Proof of Stake consensus which allows users to easily bridge their Ethereum
assets and take advantage of extremely small fees and high throughput. Polygon’s sidechain gained a
very large amount of adoption in the spring of 2021, ultimately reaching a peak TVL of over $10bn in
June. As value spilled into other emerging Layer 1s and new Ethereum scaling solutions, the TVL has
since dropped to $5bn and sits at the seventh most of any chain.
While the sidechain has been the only current scalability solution for Ethereum to have launched, they
have a lot of development in their upcoming roadmap. They are currently building, and have acquired,
many ZK rollup solutions, each with their own focus and target customer. They are looking to be the
“Internet of Blockchains” for Ethereum, bridging many Layer 2 solutions with one another. As they build
out multiple different solutions it will be exciting to see how Polygon fares against other Layer 2s and
emerging Layer 1s.
Given that many of the ZK solutions haven’t been fully built out to this point, many suspect that 2022
could be the year in which ZK Layer 2s achieve a large amount of adoption across the board. With ETH
2.0 and these capabilities right around the corner, if all goes well it looks as though Ethereum will be
solving a majority of its scaling issues sooner than most originally expected, but we must wait and see
whether users and developers choose these options rather than alternative Layer 1s.

What does the future look like?
It’s becoming obvious to many that these Layer 1 and Layer 2 smart contract chains are the core
infrastructure in which the entirety of Web 3.0 will be built. But with so many different options, it
becomes difficult for anyone to entirely keep up with the differentiations and developments of each.
The opportunity comes in discerning which ones will be around for the long term and capture a
significant market share as the whole space grows exponentially.
While Ethereum has gone for a modular approach to its scaling, other chains have chosen a different
approach or have yet to work towards solutions. Solana can be seen as the antithesis to this modular
thesis, which can scale along with the overall bandwidth requirements of the network, as opposed to
being bound by the block size at the Layer 1. And while ZK rollups are the main scaling solution for
Ethereum, there is absolutely nothing stopping the same or similar technology from appearing on any
other chain given the right requirements. So which approach will ultimately win in the end? This will
become clear only with time and experimentation.
In addition to scalability, one of the very important innovations required in a multi-chain world is the
ability to seamlessly transact value across different chains. Cosmos and Polkadot already have this built
into their design and there are many direct bridges to Ethereum, but there is still a lot of room to grow
in this area. Some applications working on such solutions include Wormhole, which provides a bridge
across many different Layer 1s, THORchain, which allows users to swap their native assets from one
chain to another, and LayerZero, which enables sending messages across chains. Similar to how free
trade and a globalized economy has proved to be a net benefit to society as capital was able to flow
more efficiently, so too will this free flow of capital be enriching to the entire user base while amplifying
the value capture of the most well-designed chains and applications.
Given the somewhat competitive nature of these smart contract platforms, the space has once again
been plagued by tribalism. In the same way that Bitcoin “maximalists” have pushed back against
Ethereum development for years, now Ethereum “maximalists” argue against the merit of other chains
based on their level of decentralization, security, or relevance. In just a short amount of time, tribes for
these new chains have begun to form as well, with their own cultures, identity, and even ideals. However,
many of these newer communities, unlike those we have seen in the past, don’t represent as much of a
maximalist view, or believe that “my chain only will win.” There is becoming a shared understanding that
the pie can be shared, and we are headed towards a multi-chain world, where a rising tide lifts all boats.
While we are still early in the development of these new ecosystems, two questions will ultimately lead
to a better understanding of which chains will stick around for the long term: where are the developers
choosing to build their applications, and where are users choosing to spend their time?
Developers will be the ones incentivized to think long term about which chains are optimizing for the
best security and performance, and which satisfies their specific needs. The users are the ones
incentivized to think short term about which applications give them the best experiences, the highest
potential for returns, and that most suit their interests. Developers don’t want to build where there are
no users, and users don’t want to go where there are no applications to use. Chains that are able to
cultivate developers that correspond to long-term growth while also building up a community of users
that enjoy using their platform is the recipe for successful network effects. We have seen this with
Ethereum for years now, and many of these other chains are showing great promise.
While there is much to be decided in terms of specifics, the future of crypto will almost certainly be
multi-chain, with many winners, and possibly many losers. In an industry built entirely on network
effects, it is extremely important that these chains adequately attract developer talent and a strong user
base in order to have a lasting impact. The entire space is about to grow exponentially on the back of
smart contract platforms as the necessary infrastructure piece, now it’s time to watch this future unfold.

M2 – A Framework for the
Internet of Value
By
Santiago Velez
Santiago Velez, Co-Founder & Division Lead of Research & Development at Block Digital Corporation,
a company dedicated to Web 3.0 hardware infrastructure development.

Executive Summary
The implementation of Decentralized Ledger Technology and incentive-based networks has led to an
emergence of shared state community networks. This development, in conjunction with cross-network
interoperability frameworks, is leading to the emergence of a global Internet of Value (IoV) in which
value and property are approaching a state of complete digital fungibility.
The IoV in the aggregate can be expressed as the compounded growth of the underlying networks
according to the square of Metcalfe’s Law (M), the shorthand being defined as M2. Coincidentally, this
nomenclature is tangentially related to M2 (the velocity of money stock according to the Federal
Reserve) as an approach to measuring the net purchasing power and economic activity of all parties in
an economy. M2 is a generalization of this concept to supranational networks that include traditional
geographically defined fiat networks as they relate to emergent online digital communities.
Investment frameworks need to be constructed in order for investors and practitioners to benefit from
this emergent topology in a pragmatic and agnostic way. The conclusions of this summary can be
distilled into two broad categories:
(1) measuring the relative growth rates of the underlying networks and respective native digital
assets, expressed as fiat purchasing power in conjunction with continuous position trading for
alpha.
(2) exposure to platforms that provide for business abstraction layers that facilitate network
agnostic adoption by communities, brands, enterprises and nation states.
Takeaway 1: Invest in projects that connect networks!
Takeaway 2: Measure the flows (relative rates of growth) between networks, in lieu of fiat-
denominated charts, to maximize long-term purchasing power.
The Internet of Value will make for money and assets what the Internet did for information. What is
ultimately required is a set of protocols and standards to enable interoperability across value networks
in an asset agnostic way. DLT, smart contracts, and interoperability standards will enable programmable
value & near frictionless transfers, lowering transaction costs and friction. The net effect will give rise to
seamless transactions between persons, institutions, DAOs, and machines (IoT). The upper bound
valuation of the IoV is limited only by the growth rate of the underlying networks, value / asset switching
costs, and ultimately global GDP.

1. From Metcalfe’s Law to M2
A quick review of Metcalfe’s Law is appropriate as it is a useful framework for the valuations of individual
networks in proportion to the square of the number of nodes (users), or in the context of this
presentation, constituents, in the network:
Metcalfe’s Law tells us that if all links of a communication network with N users are equally valuable,
the total value of the network is proportional to N (N - 1)/2, that is, roughly, N2. If a network has N = 10
nodes, there are a maximum of 45 different possible connections between them. If the network doubles
in size to N = 20, the number of connections doesn’t merely double but roughly quadruples to 190, a
phenomenon called network externality in economics.
Two issues limit the validity of Metcalfe’s Law that should be understood before generalizing to the IoV:
1. Most real networks are sparse, which means that only a very small fraction of the links are
present and active in expressing value or are limited by the properties of the network in their
reach with respect to other nodes in the network. Hence the value of the network does not
grow like N2 but increases only linearly with N until the properties of the network encourage
value expression to the full potential allowed by the network design.

2. As the nodes, and by extension the connection between nodes, have weights, not all links are
of equal value. Some links are used heavily while the vast majority of links are rarely utilized.
For example, most value expressions on decentralized networks do not occur between P2P, but
rather between individual wallets and value aggregation nodes like exchanges. This is likely to
change as digital assets become ubiquitous forms of payments for goods and services and for
settling debts and obligations.
What happens when networks begin to interoperate? If each individual network is a facilitator of value
expression between nodes, then interoperability frameworks act as bridges between all of the nodes in
one network and all of the nodes of another network. The number of possible network connections,
and by extension valuation, increases exponentially as M2 or [N (N-1)/2] ^2. This resolves to a
staggering ~ N4!!
Takeaway 3: Isolated valuation frameworks for network adoption using Metcalfe’s Law are likely to
break down with inter-network composability. The IoV, and investor positioning, must be viewed as
a whole!
The above graphical representation is a gross over-simplification but should not be discounted based
purely on the productive historical evidence that was the Internet of Information. The dominant
companies in the modern economy were predicated on network effects in primarily closed networks in
which most of the value accrued to a few stakeholders. The Internet of Value represents a potential
paradigm shift in terms of both network participation (financial inclusion) and egalitarian ownership of
the network itself. This framework was not directly possible in the Web 2.0 architecture since the network
topology of information-based networks had no inherent monetization component beyond the
traditional capital market asset model (limited and delayed access to the public).

2. Individual Network Constituents
To understand the overall framework for M2 valuation, a construction of the IoV from the “constituent”
perspective is necessary. Constituents are defined as those constructive elements that comprise the
individual networks in part or in whole, which when connected, make up the overall “network of
networks” topology. This type of fundamental analysis is distinct from some of the technical or
sentiment analyses that are ubiquitous in the industry, focusing primarily on inter-network valuations
and flows. Ultimately, it’s about relative, not absolute, change. The end goal is either an increase or
preservation of purchasing power commensurate with the risk tolerance and time horizon of the
investor. Ideological alignment with individual network values has a high probability of inhibiting the
potential overall alpha in an investment strategy.
The primary constituent element is generalized from a “node” to a network participant, because “nodes”
as terminology is a simplification that betrays the importance of distinct actor types on the network (a
wallet holder vs. a mining pool or exchange for example). The network participant may be defined as
follows into general classes:
• An individual wallet (for a DLT-based system) on a public/permissionless network

(Bitcoin, Ethereum, XRP, Solana, etc.). An individual human or organization may have
multiple wallets, therefore the upper bound is not representative of single identities or
groups.
• An account in a private or permissioned network (traditional financial institutions, Virtual

Asset Service Providers (VASPs), or corporate asset trading platform (STOs, NFTs, etc.).
• In Proof of Work systems, a hashing provider (miner), a hashing aggregator (mining

pool), and historical nodes (transaction history to genesis blocks).
• In Delegated Proof of Work systems, a validator (processing current transactions),

historical node, and or individuals/groups staking against the aforementioned for
governance and yield (note that this is distinct from an individual wallet as custody and
control of the private keys are enforced via algorithm versus individual agency).
• In community networks, the influencers, brands and fans that use digital assets to
express rights, privileges, claims, and properties across the community and into the
future (monetary policy).
• Developers for either PoW, DPoS, BFT, or Gossip Networks which make the technological
decisions impacting network monetary policy (inflation/deflation, issuance schedule,
expiry, cryptographic lockups, airdrops/burns, signatory powers, application layers,
composability, consensus algorithms, code commits, and programmability).
• In fiat networks, the central banks and fiscal treasuries that instantiate public currencies
via a mandated monetary policy in order to facilitate controlled GDP growth, trade &
commerce.
The aforementioned network constituents each play a distinct role in how the network attracts, retains,
delivers, and facilitates values both internally and with external networks. For example, a network that
utilizes Proof of Work as the security consensus algorithm has internalized the value priorities of
developers, miners, and node operators with a premium towards security and therefore has by implicit
design restricted the expressive capabilities of individual wallet holders. This manifests itself as block
space limits, transaction queues, and fee escalations.

The end result may or may not yield further network growth depending on how those internal values
compare to competitor networks that have chosen a different set of values (technical tradeoffs).
In the short run the network constituents that decide the network expressive rules have the balance of
power in terms of how value is expressed but, in the long run, it is the wallet holders that decide the
growth rate and maturation of the network, or lack thereof.
Takeaway 4: There are many factors that impact network growth rates. The changes in growth
rates can be anticipated by measuring internal network parameters.
Takeaway 5: Incentives from competitor networks can be used to predict in/out of network flows.
3. Individual Network Topology
Visualizations are an important tool for demonstrating the internal topology of a value network. What
is clear is that value tends to concentrate in specific constituents, like mining pools or exchanges,
precisely because there are economies of scales, mitigated risks, or liquidity advantages that make the
value expression more economically efficient in one form or another. These “super-node” constituents
are natural aggregators of value and therefore concentrate political power when viewed in the
community framework.
The following visualizations are examples of different decentralized value networks:
Visualization of the Ethereum Network (Google BigQuery)

Visualization of the XRPL Network (Google BigQuery)
High value density network constituents typically obfuscate actual value transfers and inflows/outflows
from other networks because of their account-based nature. For example, Coinbase as a large VASP
uses an internal account-based system to credit their users with inflows from the fiat networks and
exchanges into the individual digital assets that are fully custodied in wallets whose private keys are
entirely controlled by Coinbase. The only instance in which the value expression is detected from an
individual network view is if the account holder decides to withdraw their digital assets to a private
wallet or another exchange. All internal transactions have no measurable impact on the internal network
activity of the L1, essentially making VASPs act like interoperable counterparty Layer 2 network provider,
or value router/connector on the IoV.
With the emergence of Decentralized Finance (DeFi), the importance of aggregating liquidity, in
conjunction with the utilization of Automated Market Makers (AMMs), creates other network topologies
that are distinct from VASPs in that they are not account based, and therefore more directly measurable
from a network value expression standpoint. Decentralized Exchanges (DEXs), DeFi, and AMMs yield
distinct topologies from account based VASPs.
Takeaway 6: The manner in which a network organizes itself can be a leading indicator on future
inflows/outflows based on changes to the prevailing narrative.
Takeaway 7: Internal network topology can be a forward indicator for regulatory attack!

The following graph shows the logos of prominent DeFi protocols. The cluster of colored dots
surrounding individual protocols shows the number of addresses that have interacted with just that
protocol within the specified time. In the figure we see that Uniswap (in pink) had the largest number
of DeFi users (as of 2020 when the graph was constructed), demonstrated by the dense pink cloud
around the Uniswap logo:
Ethereum DeFi Network Graphs (Overlap of DeFi Users Between Prominent L1 Protocols)
Another recent trend in individual network growth activity is the emergence of property rights/claims
in the form of Non-Fungible Tokens (NFTs), which originated on the Ethereum network as a code
standard (ERC721). The name NFT is a bit of a misnomer as the network topology suggests that the
tokens are indeed highly fungible, both from the community perspective (as in the case of Bored Ape
Yacht Club) or from the perspective of composability with other digital assets in the same ecosystem
(ETH, USDC, ERC20, etc.).
The following is a network visualization of the world’s first NFT ecosystem, CryptoKitties, which
eventually spawned off from the Ethereum ecosystem to yield the Flow blockchain network run by
Dapper Labs (of the NBA Top Shots fame).

CryptoKitties Network Visualization (ERC721 NFT Standard)
Takeaway 8: Nascent networks for assets with little fungibility or liquidity can be used to anticipate
short squeeze or short duration opportunities.
Takeaway 9: Maturation of nascent networks represents that highest risk/reward ratio. The
downside risk may be ameliorated by further inter-network “bridging” to bring liquidity
(opportunity) in the system.
The prior representations of network topologies focused on Layer 1 and associated constructions (DeFi
platforms, NFT communities, etc.). The natural concentration of value is intuitively obvious as
expressions seek economies of scale and efficiency, however on Layer 2 networks the tradeoffs between
security and throughput shift to allow for more counterparty risk but less concentration. The following
is the visualization of the topology of the Lightning Network, a Layer 2 framework for expressing value
on the Bitcoin network:
Visualization of the Lightning Network by 1ML

An underappreciated fact in the decentralized digital asset communities is the recognition that the
largest global consensus networks are nation-state fiat currencies. The legal systems of each
geographical jurisdiction establish the fiscal and monetary policies behind the native currencies, and by
extension the relative strength and purchasing power from a Foreign Exchange (FX) perspective to other
fiat networks. The US $ as the world’s hegemonic reserve currency retains a unique property in that it
has emerged as the predominant consensus value network in the world and continues to expand even
into the digital asset space in the form of stablecoins.
The ubiquity of demand for US $s is a testament to the strength of network effects despite the excesses
of the Federal Reserve in terms of accommodation. This is likely due to the fact that both the petro- and
Eurodollar markets are ultimately driven by $ denominated debts, which is the superpower of fiat and
a significant vulnerability to excessively deflationary digital assets.
Simplified Network Topology of the US Economy
With the above visual framework of individual network topologies, we can start to stitch together what
an Internet of Value might look like and then determine wherein insights might be derived for proper
investment positioning.
Takeaway 10: Digital asset networks remain highly dependent on fiat networks for
inflows/outflows for the foreseeable future, due in large part to their relative sizing.
Takeaway 11: Network adoption in the short term remains highly correlated to “risk off” moves in
the overall global market. Despite this, the long-term secular trend is that the value gradient favors
online digital networks over traditional fiat networks.

4. Internet of Value Topology
The vast majority of development in the digital asset space is presently around individual ecosystem
growth, building networks that meet the needs of the internal constituents. There remains significant
competition in the Layer 1 space for transaction volume and Total Value Locked (TVL), primarily because
many of the attributes of some of the larger smart contract platforms (like Ethereum) are counter to
network growth (e.g., fee escalation in the face of demand). Category winners are likely to emerge from
this competition as the environment for the networks is defined from both a regulatory and technical
perspective. The next logical stage of development and the focus for forward-looking investors, will
likely be the “bridges” that tie these networks together. The emergent topology is therefore greater
than the sum of the parts per the M2 framework.
In the following graphical representation, we have a simplified set of examples of how existing L1s,
facilitated by L2s, VASPs, and interoperability frameworks, will lay out a larger tapestry for global value
expression. The basic representation is so rudimentary it does little to express that pathfinding nature
of value in terms of “multi-hop” network travel, but is presented for illustration purposes:
Anticipated Network Topology of the Internet of Value

Some of the anticipated characteristics and implications of the Internet of Value:
1. Switching costs between value networks will approach zero.
2. Physical and digital assets will approach 100% fungibility as information abstractions allow for
as yet unexpected opportunities in trade, finance, and business and will likely include
micropayments and machine to machine payments.
3. Value will route across multiple networks (multi-hop) comprised of both centralized and
decentralized communities spanning a cross section of human domains (geographic, cultural,
political, supranational, individual/enterprise, DAOs, etc.).
4. Composability will rise on open networks to the point that they become materially
indistinguishable for all intents and purposes.
5. The constraints on individual value expressions will approach zero, leading to a value agnostic
non-hegemonic system, constrained only by market supply & demand for digital value
abstractions, commensurate with the services rendered to and by constituents.
6. Businesses will focus on tools that abstract the underlying blockchain semantics so that only
business logic is required. This is to avoid the platform risk associated with infant networks while
offering the maximum flexibility to end customers for the manner in which value is programmed
and routed.
7. Global gradients will collapse at unforeseen rates as supranational digital assets seek the path
of least resistance and the maximum arbitrage opportunities, likely accelerating the world into
peak globalization.
8. Asset agnosticism is the highest probability outcome as it allows for individuals, institutions,
and governments to compete on merit for self-interest and positioning on a level playing field.
Any hegemonic alternative favors incumbents or early entrants disproportionately, which the
technology has no tolerance for, as the nature of the underlying systems reward unincumbered
community building with almost no deployment cost.
Although exposure to the underlying networks will yield significant alpha with respect to fiat networks
as monetary and fiscal policies drive outflows and incentivize risk, the rate of growth is limited to M,
while investment in projects that facilitate the interoperability between networks are likely to see the
highest growth since their prospects are anticipated to rise by M2.
Prior to the full realization of the aforementioned characteristics will be a tumultuous maturation phase
in which the transition to a fully realized IoV will be challenged by incumbents. The reason for this is
that incumbents face a significant amount of disruption equivalent to a reorientation of the global world
order. Nevertheless, the period of volatility is likely to present significant opportunities for arbitrage of
information and the leveraging of existing purchasing power in whatever form investors provide.
Takeaway 12: The formation of the IoV is in the infancy stage. Growth relative to individual
networks is likely to remain small in the short term until M2 effects begin to take hold. Positioning
should be commensurate with a 5 – 10-year horizon. The basis for this time horizon is the
maturation period of the Internet of information in the current form (Web 2.0).

5. Considerations for Investing in Interoperability
Inter-network flows and facilitations thereof are multivariate, therefore close attention must be paid to
those factors that have the greatest impact on the rates of flow (things likely to accelerate/decelerate
adoption). The following are factors for consideration that individually demand detailed frameworks
which can then be rolled up into a macro thesis for actionable positioning:
Factors Impacting Flow
1. Narrative is #1 during the speculation phase but will decrease during the utility phase.
Measuring narrative should be done via a combination of sentiment monitoring tools
(social network & search monitoring) as well as unified community campaigns to
promote key values.
2. Quality of service to internal constituents (fees, throughput, composability, etc.).
3. Value alignment of communities & willingness to build bilateral value agreements with
other networks.
4. User Experience/User Interface (UX/UI) to facilitate use of the underlying networks in a
multi-network composable manner.
5. Relative size of value networks that are made interoperable establishes the gradients
which determine rates of flows. Large value networks tend towards progressively
smaller value networks as risk incentives increase and liquidity seeks paths of greatest
risk/return.
6. Availability of fiat onramps/offramps into natively digital asset ecosystems (VASPs, FIs,
Brands via e-Commerce, etc.).
7. Facilitation of cross-border fiat interoperability via supranational digital currencies for
FX, corporate treasury optimization, remittances, and global trade financing & supply
chains.
8. Regulatory barriers and/or friction supporting or precluding fiat onramps/offramps.
9. Adoption of digital assets for the purchase of goods & services and the settling of debts
and obligations, including acting as legal tender or settling of tax liabilities.
10. Path dependencies for multi-chain routing of value (friction, security, liquidity, etc.).
6. Investment Ideas (Examples)

A fully mature IoV is likely to take another ten years of development in the face of regulatory headwinds,
technical complexity, R&D, and competition in all the pertinent verticals. In the interim, positioning for
individual network growth is challenging and is further compounded by positioning in IoV-related
technology (routing, interoperability standards, business abstraction). Despite this challenge the
outsized opportunities demand a continuous examination of the space for opportunities. The following
section attempts to highlight some areas wherein positioning may be appropriate until new information
presents itself.
Facilitators of Global Fiat Value Transfer:
1. BTC via Lightning Network (Remittances) & Strike.

2. XRP via RippleNet enterprise On-Demand Liquidity (ODL) products (Remittances / FX).
3. ISO 20022 Compliant Digital Assets – XRP, XLM, XDC, IOTA, ALGO, QNT, HBAR, ADA.

Note: The International Organization of Standardization (ISO) is behind the creation of the ISO 20022
standard. The organization introduced ISO 20022 to have one standard method of developing messages
between financial institutions. ISO 20022 would consolidate all these messaging formats into a single
language – Extensible Markup Language (XML). The Society for Worldwide Interbank Financial
Telecommunication (SWIFT) put its support behind the standard in 2018. The organization is migrating
its members to the ISO 20022 standard. The Federal Reserve Board (FRB) is planning that Federal
Reserve Banks will adopt the standard in late 2023. The backing of FRB and SWIFT gives ISO 20022
significant support.
Facilitators of Inter-Network Value Transfer:

1. QRDO via QREDO Network Using Multiparty Computing (MPC) Layer 2 for Custody and
multi-sig functionality for VASPs and FIs.
2. QNT via the Overledger Network to facilitate cross-chain value interoperability, legacy
network integrations, as well as business abstracted multi-chain applications (MAPPs)
[QRC-20] vs. single chain DAPPs [ERC-20].
3. FLR via the Flare Network which is bringing EVM compatible smart contracts to non-smart
contract networks (BTC, LTC, Doge, XRP, XLM, ALGO) while utilizing FTSO signal providers
as oracles and the Avalanche gossip network as the consensus protocol (high throughput).
DeFi, AMMs, & DAOs on Flare will bridge these networks uniquely.
4. KAVA – IBC Cosmos Interoperability.
5. Celsius X – Cross-chain Interoperability between DeFi/CeFi for yields & hybrid stablecoins.
Project omission is not an endorsement of the aforementioned in higher regard, nor a negative for
those projects not listed. The above projects are presented as examples and there are many quality
projects not listed herein which have equal or great potential alpha in an interoperability focused
portfolio.
Takeaway 12: The formation of the IoV is in the infancy stage. Growth relative to individual
networks is likely to remain muted in the short term until M2 effects begin to manifest. Positioning
should be commensurate with a 5 – 10-year horizon.

APPENDIX
ROUTING:
Physical distance plays a key role in determining the interactions between the components of physical
systems. For example, the distance between two atoms in a crystal or between two galaxies in the
universe determine the forces that act between them. In networks distance is a challenging concept.
Indeed, what is the distance between two webpages, or between two individuals who do not know each
other? In value networks, what is the distance between constituents, and furthermore, the distance
between constituents across different networks? What is the proper metric to express the routing of
value (speed, slippage, cost, vulnerability, number of hops, etc.)?
Two constituents may be geographically separated on the opposite sides of the globe, yet have an
expressive value link to each other on a network like XRPL that make transfer near zero cost. At the
same time, two constituents may be located in direct physical proximity next to one another, yet would
need a multi-hop path across multiple networks for exchanging value if the sender and recipient are
using different digital assets. In value networks, physical distance is replaced by path length. A path is a
route that runs along the links of the networks. A path’s length represents the number of links the path
contains.
The following graphic demonstrates how value may transfer between multiple networks along different
path-walks, originating and ending at the same locations:
COMPARISONS:

Different projects are approaching the Internet of Value differently, taking mostly a responsive versus
proactive approach (seeking liquidity bridges or addressing scalability issues), however some projects
have a longer view in terms of the general problem being solved. The following matrix is a good primer
for the projects / problem sets:

FUTURE:
The Bank for International Settlement is doing extensive research into interoperability between CBDCs,
RTGS systems, etc. in a redefinition of the global monetary system:
Early visionaries of the Internet of Value projected the following roadmap using information available
at the time. This roadmap has thus far proved to be prescient in its accuracy:

The following is a competing interoperability vision for the Internet of Value as envisioned by the
W3C, Ripple, R3, and SBI Asia using the Interledger Protocol (ILP):
Follow Santiago Velez on Twitter – @Santiag78758327

NFTs: Market Cycles and
the Road Ahead
By
Sergio Silva
Sergio Silva is an NFT collector and founding member of NEON DAO, a decentralized autonomous
organization focused on supporting, building, and serving as a community hub for the open
metaverse. Professionally, Sergio is a Sales Director at Fireblocks, the leader in digital asset &
cryptocurrency custody, transfer and issuance technology where he leads the company's expansion
into the Latin American market. Follow Sergio Silva on Twitter – @sergitosergito.

Raoul’s Note:
Sergio is at the epicentre of NFT investing and understanding. It is an extremely fast-moving world in
terms of new projects and new applications, and as it’s extremely important, we really need to stay on
top the subject. I think you will all find his perspective useful.
The explosion in the value and activity levels of the Non-Fungible Token (NFT) market took everyone
by surprise and the world by storm in 2021, with close to $10bn of trading volume over the last twelve
months. While the concept of blockchain-verified unique tokens has been around since the mid 2010s,
it wasn’t until early last year that NFTs broke into the broader crypto scene and are now closing out as
the hottest crypto area of interest for mainstream consumers, companies, and brands. NFTs have rapidly
become the most efficient on-ramp for new people to blockchain due to their combined financial,
cultural, and technological appeal.
This report will seek to explore the themes and trends that we witnessed in the NFT market in 2021,
examine the setup into 2022, and lay out a framework for analyzing current and future NFT projects.
Given that NFTs are blockchain smart contracts, they provide certain features that decentralize and
disrupt the traditional royalty model on content of all types, because the tokens can be programmed
to pay out a percentage of secondary sale prices as royalties, back to the original creator. By
empowering artists/creators to be rewarded for the value of their work into perpetuity, NFTs unlock
multiple new means of monetization and incentivize secondary trading. This programmability and
eventual composability will propel the disruption of most industries in the coming years, though we will
focus on digital art and collectibles for this report as these were the two categories that captured most
of the mainstream attention last year. It is important to add that Gaming is widely expected to be the
largest NFT category in the near to medium future.
While the technology is still in its early stages, the NFT market certainly experienced a wave of multiple
cycles that played out in similar forms on different segments of the space through the year. I believe it
is important to understand these cycles as they can help guide investments in the new year.
The NFT Market Cycle

Back in late 2020 and early into 2021, the NFT market saw its first iteration of what would become the
standard NFT project cycle.
The COVID lockdowns made many people find new forms of entertainment online and one of the
projects that caught the public’s attention was Dapper Labs’ “Top Shot”, an NBA-licensed marketplace
where collectors can buy, sell, and trade video highlights of their favorite basketball players as NFTs on
the Flow blockchain. The concept behind Top Shot “moments” is very similar to that of traditional sports
trading cards: collectors can buy new packs and open them to find a random assortment of different
moments. Each moment is part of an edition series of varying size, with rarer or lower-float moments
usually trading at a higher valuation than more common ones.
Top Shot grew from a niche part of the internet to a mainstream brand in record time. According to
data from NFT-tracking site cryptoslam.io, there were 910 unique buyers on the Top Shot marketplace
in December of 2020, a month that saw $870k of sales over 32k total transactions. Just a couple of
months later in February ‘21, Top Shot did $224mm of sales volume over 1.2mm transactions between
80k unique buyers. As you can see overleaf, the average sale shot up from $27 to $181 over that three-
month period...

Top Shot was a huge success in the first half of Q1 2021 mostly due to two main factors: American love
for sports memorabilia and the walled-garden ecosystem under which the marketplace operated until
March ’21. The latter point has mostly been forgotten but back during Top Shot’s Q1 rally, collectors
were largely unable to cash funds out. Withdrawals were very limited in size and frequency so a lot of
the profits were just reinvested right back in. As new entrants came into the market and the flywheel
effect kicked in, valuations shot up attracting more new capital and setting the whole cycle into
overdrive. To meet the overwhelming demand, Dapper Labs started releasing more new packs and
moments via frequent drops that often saw 40-50k people queue up for a chance to buy one.
Then one day the music stopped.
Once Top Shot enabled withdrawals late in Q1, collectors started taking out funds that would’ve
previously been recycled back into the market. This happened concurrently to the supply of moments
dramatically increasing as DapperLabs raced to meet speculative demand. As valuations dropped,
holders became sellers racing each other undercutting floor prices on the way down. The convexity that
had powered the market to extreme valuations had a similar effect on the way down, leaving an ocean
of late-entrant bag holders.
The Top Shot cycle described above has played out a few times this year in different parts of the NFT
market. A lot of the money that was made in Top Shot moved on to the digital art marketplace called
Nifty Gateway (and other art-focused sites such as Foundation and MakersPlace) in late February and
early March. A leader in NFTs on the Ethereum blockchain, Nifty Gateway introduced the concept of
“Open Editions” which are similar to physical prints in the traditional market as they allow collectors to
buy as many editions of an artwork as they would like during the primary sales period. Similar to what
happened with Top Shot, overwhelming speculative demand chased valuations higher. While the Top
Shot market had largely inflated due to captive capital, the digital art market saw its own spring inflation
driven by external catalysts, mostly in the form of auction announcements by traditional art houses.
Eventually though, the market dynamics played out almost the same.
Early adopters of NFT art were handsomely rewarded by inflated valuations as newcomers rushed in to
buy the latest drops while existing collectors “diamond-handed” their pieces, creating an artificial supply
shock. Buyers suffered from fear of missing out (FOMO) on the rally, while holders feared missing higher
returns if they sold too early. Meanwhile, artists and marketplaces reacted to the new wave of demand
by increasing the supply of tokens via larger editions and more frequent drops, just as Top Shot had
done previously.

All this combined with lofty expectations for auction house results as NFT collectors were betting that
traditional art investors would come in droves to participate in this new paradigm, thus validating the
nascent space.
But just like before, the music stopped, again. Again, and again.
We can look back at multiple occasions during the year where art NFT valuations got ahead of
themselves as auction house results brought the market back to reality following massive rallies. The
days leading up to Christie’s Beeple auction in March, Phillips’ Mad Dog Jones auction in April, Christie’s
CryptoPunks sale in May, Sotheby’s Pak auction in May, Christie’s Bored Ape Yacht Club auction in
September, and Christie’s Art Blocks auction in October, all marked local tops for each individual market
as speculative runs leading into these events were followed by massive drawdowns of up to 90% in
some cases. Most of the valuations have recovered since, but we would be remiss to not flag the cycle
that marked so many of the different periods in NFTs’ breakout year as the market has repeatedly
exhibited Minsky’s bubble model.
Understanding the NFT market cycle will be key for collectors and investors going into 2022. Trading
unique tokens in a fully transparent ledger presents participants with a slightly different market than
they might be accustomed to. In NFTs the whole order book is public, with both buyers’ and sellers’
transaction history available for everyone to see. Identifying points in a project’s lifecycle can be a
valuable tool and a significant source of alpha when choosing to deploy or remove capital.
Innovations through the cycles
While the majority of NFT projects have exhibited a similar pattern to that of traditional technology
adoption with their own periods of exuberance and fear, there have been a lot of innovations that have
come out of the different cycles. Studying these primitives can give us a good indication of where the
NFT space can go next as we start thinking about the coming year in the space.
“Utility”
It is no secret that parts of the NFT market suffered from massive oversupply as creators minted larger
and larger collections to meet the record demand that we saw earlier in the year. Some projects also
saw copycats or derivatives launch to capture some of the demand, and while the original project
might’ve not inflated its own supply, these alternate NFTs acted as such. The majority of early NFT
projects didn’t promise to be anything other than pure art or collectibles, yet given market dynamics
(and falling prices) many participants started looking for explicit utility from their tokens. Most NFTs
already come with the implicit utility of being social tokens in that holders of the same project, or
collectors of the same artist, immediately become part of a community that seeks to see their project
succeed. However, in response to market demands, creators started introducing new mechanics through
which collectors could receive extra benefits by taking action with their tokens.
The earliest examples of these were mechanics known as “burns”. During a burn, a collector redeems
one or more existing pieces for a new, different limited token. This process is usually managed by the
original creator with the intention to reduce some of the supply of older tokens. By lowering outstanding
supply, one would expect the value of remaining tokens to appreciate or at least hold a certain level
following the burn.
As collectors started valuing projects with utility, more creators started embracing and including
different mechanics to reward collectors by doing things like requiring a certain number of holdings to
qualify for subsequent drops of NFTs or real-life merchandise. Projects also started having ‘token-gated’
group chats where only holders of certain NFTs could enter and participate.

The concept of utility thus materialized the implicit perks that holding an NFT can avail. Creators can
and will usually continue developing and providing new models of utility for their token holders. One
such way has been to airdrop (or gift) new NFTs to existing holders. For example, when Larva Labs, the
creators of CryptoPunks, released their new “Meebits” project in late April, they gave one free mint per
existing Punk (10k total) to current holders before releasing the rest of the 20k items for public sale via
a Dutch auction that settled around 2.5 ETH (~$4k at the time). Multiple project creators have adopted
this model since, and many collectors fully expect this kind of utility from their NFT. Companion NFTs
have been airdropped by all leading profile-picture projects this year: Bored Ape Yacht Club, Gutter Cat
Gang, Clone X, Cool Cats, Sup Ducks, and Robotos, amongst others.
“Tokenomics”
As more NFT projects launched and started competing for collector attention and capital, new forms of
utility have been introduced. Crypto investors are familiar with the concept of tokenomics, which is the
explicit financial framework under which tokens operate. When it comes to NFTs, different projects have
innovated the inclusion of tokenomics for their use cases. The most common approach has been to
create NFTs that generate fungible tokens through time. These resulting tokens are then used for
specific actions within the individual project’s ecosystem.
One of the first projects to incorporate this concept was Hashmask. Each Hashmask NFT generates 10
$NCT tokens per day. Collectors can redeem 1830 $NCT to change the name of their Hashmask to
whatever they would like and store that on the Ethereum blockchain. While the mechanism seems very
simple, it seeks to create demand for the fungible tokens associated with the NFT, as the $NCT tokens
are burned with each name change. This lowers the supply of $NCT and should theoretically increase
the value of both the fungible and non-fungible tokens.
A similar use case was developed by the CyberKongz, a collection of 1000 pixelated gorillas which yield
10 $BANANA per day for the next ten years. By burning a certain amount of $BANANA, owners can give
their CyberKongz characteristics like a unique name and biography, as well as breed and incubate one
of 4,000 randomly generated Baby CyberKongz NFTs with different traits and rarities. As the market
price of $BANANA started to rise given collector demand for its utility in breeding BabyKongz, the floor
price for CyberKongz moved along with it. Given the nature of this dynamic, collectors can theoretically
value the token-yielding NFT using a more traditional cash-flow pricing model.
Looking ahead, one of the most widely expected developments in the NFT space for early 2022 is the
release of tokens by leading projects such as Bored Ape Yacht Club’s $APE token and Cool Cats’ $MILK
tokens. Though we don’t have much more information, Bored Apes and Mutant Apes, both BAYC
projects, have seen a significant rally since the $APE token was announced as part of the BAYC Roadmap
2.0 in late September. The average sales price of a Bored Ape went from 45eth on September 28th to
72eth as of December 23rd, a 60% rally during a period of weakness in the broader NFT market, as
measured by the Nansen Bluechip Index which was down 37% over the same period.
NFT projects have continued to experiment with different tokenomics into year-end. For example, new
mechanics incorporate the use of staking, which require collectors to lock their NFTs into smart contracts
for a certain amount of time in order to qualify for reward tokens. This dynamic reduces the available
supply of items and tends to create a supply shock which leads to price appreciation during the staking
period. While a lot of these concepts are circular in nature, they are the primitives upon which future
projects will build and innovate and thus it is important to understand where things have come from in
order to make a better assessment of what might come next.

“DAOs and financially-empowered communities”
Moving beyond direct and financial utility, many NFT projects have also tapped into the community-
investing approach that we have seen play out in other different markets. Back in college, I had the
privilege of attending Berkshire Hathaway’s annual conference twice and vividly remember the collective
feeling that permeated the air during the so-called “Woodstock of Capitalism” in Omaha Nebraska. It
was a beautiful weekend gathering of thousands of like-minded folks who shared an investment in
common. More recently, we have seen the tribal approach to stock and option investing play out in the
retail space as Reddit crowds have rallied around meme stocks like GameStop and AMC.
In a similar manner, some NFT projects have set aside a certain percentage of their primary sales and
secondary royalties into community funds. These funds are then used in a similar fashion to a corporate
treasury or an investment vehicle and the community actively decides how to best deploy them. While
Decentralized Autonomous Organizations (DAOs) pioneered the use of blockchain technology to
manage pooled funds on-chain, NFT projects have taken the concept one step further by turning the
NFTs into equity proxies combined with the appeal of unique-identifying art.
We will continue to see the NFT market thrive on these and new innovations as more intellectual and
financial capital comes into the space. I fully expect some of the largest projects (both existing and new)
to develop their own economies at scale, with NFTs powering the personal, financial, and social layers
of larger and larger communities.
Looking at the future

This year has seen the birth of NFTs as an asset class within the crypto ecosystem and, as we move
forward in time, we’ll see formal segmentation of the NFT market itself. NFT technology will be
implemented in projects beyond the wave of art and collectibles that have dominated the action this
year. Many in the industry are expecting gaming projects to flourish as play-to-earn gets introduced
either to existing video games or via new blockchain-specific games. Fungible tokens related to play-
to-earn projects such as Axie Infinity saw large rallies in Q3 of last year. However, the actual penetration
of these games within the broader community paled in comparison to that of collectibles and art. I
expect this to change in 2022 and will be looking out for games which are able to integrate the three
innovations we identified earlier with engaging gameplay.
Another area that has seen a lot of interest and funding this year has been music, with projects seeking
to disrupt content monetization (royalties) and/or distribution channels by integrating NFTs to the
ecosystem. Like gaming, 2021 saw a lot of VC investment in this space but we didn’t see any consumer
projects actually launch at scale. I expect this to also change next year and will be looking to deploy
capital into music NFTs in 2022.
Overall, the NFT market had a very strong year with art and collectible projects building on each other’s
innovations and creating value that rewarded early adopters. The space has seen strong reinvestment
cycles though given the illiquidity of the market; drawdown periods have also seen dramatic moves
compared to more traditional alternative assets. Having said that, new investors and collectors looking
to enter the market in 2022 can look at what we learned this year and use it as a roadmap. The NFT
market cycle seems to be a constant across the space, so understanding where one might be at any
given point in time is very important. Additionally, projects with strong communities, talented
developers, and innovative utility should continue to perform well over the medium- and long-term.
The importance of doing some research into these three aspects cannot be overstated. However, with
the transparent nature of blockchain putting everything out in the open, it only takes some time on
Twitter, Discord, and Etherscan (or other relevant block explorer) to get a good understanding of what
each project is trying to build and keep a tab on their progress.
Good luck!

The Future of Gaming
By
Joe Begonis

Raoul’s Note:
The Gaming world is like a looking glass into the future. It has led everything from gamification to AR/VR
and even digital assets. All these worlds are now merging so I think it valuable to get a gamer’s
perspective on how they see it playing out. Joe works with me at Real Vision and writes an internal note
on gaming, so I jumped at the opportunity to ask him to write something for GMI.
Life imitates art.
I believe this slice of philosophy is true. When it comes to video games, my experience tells me creators
are often inspired by other forms of artistic work. Art is imagination and artists or storytellers aim for
some level of plausibility with what they convey to their audience.
Art connects us as people. It grants us a shared experience. Video games have always been about shared
experiences and connections. My earliest encounters with this were talking about a secret level in Super
Mario Bros with my friends in school or visiting an arcade to figure out combos in Mortal Kombat with
dozens of other players. We were connected. The internet has changed those connections from local to
global. More people know how to code and customize games than ever before. Games shifted from
console to mobile and the demographics expanded from young men to everyone. Everyone is a gamer
now, anywhere.
What I want to talk about in this article is the ways in which art, cryptocurrencies and blockchain
technology will change the nature of video game creation as well as the way we experience them. I
believe cryptocurrencies, NFTs, DAOs and the Metaverse will all play a role in changing the way we
connect and interact with the world. Video games could be the medium that leads to mass adoption of
the technology and a large-scale culture shift.
Game Development
The cost of video game development is not inexpensive. For an independent developer making a small
game, the cost can range between $50K and $750K. For bigger studios, games can run into the hundreds
of millions.
Deadlines often prove to be a troublesome subject in the game industry. They are missed when
development encounters a problem or can lead to crunch culture – a frequent issue in the final stages
leading up to product launch. During a crunch, many people work 80-100 hours in a week (sometimes
not paid for all the overtime hours) and this can last for weeks and even months. Burnout is a common
side effect of crunch, leading some developers to leave the studio altogether.
Once a game does deliver, there is a window of time where some studios will fix discovered bugs or
make enhancements based on requests from their consumers. However, this window is often short
before the developers move on to another project, or in the case of a big budget game like Grand Theft
Auto, focus is shifted to new revenue streams over patches that would aid player enjoyment.
That’s normal. Any good business looks for new revenue streams to grow and remain competitive. What
if technology offered a better solution? What if blockchain technologies offered additional paths to
acquire new customers and retain existing ones?
I believe DAOs are the perfect entity to solve many of the issues game development faces today.

DAOs and Modders
Modders are as good – if not better – than many studio developers. They are fans of a game, active in
online gamer forums and improve games where the studio developers cannot dedicate time or
resources.
Just because a game has been shipped and is in the consumer’s hands does not mean it is complete.
Many games have a variety of bugs and glitches or elements that were cut in order to meet a deadline.
Sometimes these are small features, others can be hours’ worth of content.
Some aspects of the game are just conducive to a good gaming experience. That could be a visual
feature, competitive balance or something that just adds more depth to the original work or the game.
For example, Rockstar Games (subsidiary of Take-Two) recently remastered the Grand Theft Auto
trilogy. In spite of the studio working on the game, there was an issue with the release where in-game
rain would ruin the visual fidelity. After a few tweaks of the game code (for PC versions) the modding
community released a fix...
Modders have a pulse on the needs of the individual games’ community. This might be a rather
simplistic example of the work modders can do, but they were able to deliver this fix relatively quickly.
One of the most famous examples of a mod is known as Defense of the Ancients. This mod of Warcraft
III: Reign of Chaos, spawned a brand-new game franchise, DOTA. By using the in-game editor tools,
players of the game were able to create a new style of game within an existing game. The mod was so
immensely popular, game developer Valve purchased the intellectual property rights in 2009 and
created a franchise around DOTA2 in 2013.
DOTA2 is still popular today and considered one of the upper tier esports titles. It generated over $400M
in revenue in 2017 and its premier tournament, The International, boasted a $40M prize pool in 2020
for the teams, largely funded by fans purchasing tickets.

I believe the DAO structure will change the way consumers interact with a published game. Communities
are often spread out over multiple social media sites or gaming forums. By pooling resources, ideas and
talent in a self-organized way, it will grant the consumers greater strength when communicating needs
with developers and publishers. Furthermore, should a DAO form that is focused on fixing bugs in the
game or completing unfinished parts of a game, a studio could contract or compensate the labor for
their efforts.
It can go even farther than that. A DAO focused on marketing can execute social media and guerrilla
marketing strategies that target the intended audiences rather than the mass market shotgunning
approach.
DAOs also have the potential to change the way that games are developed. Kickstarter campaigns to
crowdfund game development have had some success. Communities form around the idea of a game
and, should it be successfully published, the contributors can receive a benefit in the form of a discount
or access to merchandise.
Now, imagine a DAO that no longer needs Kickstarter as an intermediary or needs to rely on venture
capital. Developers from all over the world can join as they are needed and the consumers are actively
participating in the creation process, then ready to purchase on launch. A DAO does not need many
developers to create a successful game either; one of my favorite games, Stardew Valley, was created
by one person!
So long as a DAO has a strong governance structure that establishes the rules and guidelines of what
members of the community can do, I believe they can thrive in the gaming space. Shared ownership in
the DAO, appropriate compensation and accolade will incentivize creativity and improve the overall
quality of gaming.

Esports
Esports is a slight variation on gaming. Where gaming is about the experience you or a group of people
enjoy together, esports is about spectators viewing a player or players wearing a team jersey in a
competition.
Some of the most popular esports at the moment are League of Legends, Counter-Strike, Call of Duty,
DOTA2, Rainbow Six and Rocket League, in addition to fighting games like Mortal Kombat and Street
Fighter. Billions of dollars are generated each year from people watching esports and purchasing in-
game items.
For the companies, this is a wonderful opportunity that has developed over the past fifteen years.
However, esports is treated primarily as a marketing arm of these businesses. Decisions are quite often
made that promote the audience purchasing a new character, item or skin over competitive balance.
Only recently have studios introduced a franchise model that gives team owners a say in the health and
direction of a league.
Unlike traditional sports, these leagues do not have players’ unions and they are rife with stories of
exploitative contracts and unfair negotiations. Keep in mind, many of these competitors are under 25
and player representation is not common as in the NFL, NBA, MLB and NHL.
Many of the top competitors don’t make their primary source of revenue through esports as it is. They
make a large percentage of their money streaming on Twitch or YouTube. By creating content direct to
their fans, they are able to monetize that audience in the same way that anyone in the creator economy
does.
On the surface, this may seem fine. Esports is a growing business. Younger millennials, Gen Z and
Generation Alpha (born after 2010) are digitally native and play these games, so the audience pool
should grow, right? The games mentioned above have longevity and won’t become stale, right? The
companies that have centralized control over the game development won’t make a mistake or lose
talent, right?
If I can circle back to DAOs, I think one of the most exciting propositions would be if a game developer
DAO decided to create an esport. Everything about esports is about community. I have seen many of
the top esports athletes used as consultants for competitive games. Fans of the game are often active
consumers of the esport. I foresee a scenario where a properly structured DAO has different levels of
governance in the way the game is designed as well as how competitive balance is maintained that
involves all of the abovementioned parties. If there is a coin associated with the esport DAO, all of the
parties could have ownership and the value could increase as more people consume and watch
competitions. Sub DAOs could be created for teams so that they have proper management structure.
However this were to play out, I believe this would be revolutionary for esports. Esports OGs have long
desired authenticity in their games, I cannot think of a better possible way to maintain that than through
a DAO.
NFTs
NFTs are about identity. This year, NFTs exploded in popularity, but there is a misconception that they
are just art or avatars. Anything can be an NFT. What makes the NFT valuable is that the current and
prior ownership can be verified on a blockchain. This unique thing – whatever it may be – is a one-off
and has provable authenticity.

The easiest thing game developers can do is distribute NFTs of skins, weapons and items for players to
customize their character. Ubisoft has announced they plan to fully embrace NFTs and recently
announced Quartz, granting consumers the ability to buy cosmetic items. This isn’t ground-breaking,
as limited-edition cosmetic items have been around for years.
What may make them special is that Ubisoft can offer the owners of those NFTs recurring value. This
opens up the path to a customer loyalty rewards program. Discounts, exclusive events, priority feedback,
anything can be incentivized for holding the NFT, it would be up to the issuer to decide what value they
wish to offer.
The right of ownership for a consumer in the form of an NFT is ground-breaking. As more games moved
to digital in recent years, players are subject to the servers remaining active for as long as they wish to
play the game. Once the server is down, all or most of the game features are rendered inoperable. What
I think makes this different, is that if I were to put hours of my time into a game, any collected NFT items
would live on on a blockchain. Even if the game were to be shut down, these items may still hold value
depending on the market and even be usable in a future game from the studio. From this perspective,
I believe NFTs now add value to time invested in a game.
What’s more, the value of these NFT assets is the powers that ownership can offer. A person could
collateralize their items, loan them out or exercise different protections. Once the potential of NFTs is
fully realized, many people will begin to appreciate their benefits.
Fashion and furnishing companies will likely think up NFT strategies in the next 12-24 months. Gaming
and the Metaverse are a visual medium of expression. It would be prudent to create virtual clothes and
home items. Customization has been a huge demand in gaming over the past fifteen years. Now, name
brands have the opportunity to create new revenue streams for a market eager to express themselves.
Imagine: a group of friends scattered around the world finish playing a game where they complete a
dungeon raid for rare NFTs. They decide they want to watch a football game. They transfer out of the
game, into the Metaverse, where one person owns a digital home filled with West Elm furniture and
they watch on an LG TV because LG gave one person an NFT with their recent real-life television
purchase.
I am sure there will be more to come and I will be looking for companies that understand network
effects as a part of their NFT strategy.
AR vs VR
Augmented reality (AR) or virtual reality (VR). Augmented reality takes the real world around you and
through your phone, special glasses or other device creates a photorealistic projection. Virtual reality,
presently, requires goggles or a headset to immerse you in a video game-style environment.
I am confident that AR has more potential and is more likely to be readily adopted by a mass audience.
I was fortunate to work at a media studio several years ago that had a Virtual Reality set-up as well as
Augmented Reality technologies. While VR games can be fun, they are the ONLY task you can do at one
time. In a world where multitasking has become the norm, I do not believe people will be compelled to
put on a headset and earphones that takes them out of the real world. Case in point, this happened to
my colleague as he was playing Arizona Sunshine: https://www.youtube.com/watch?v=dq9Z2VeCAMc
(We can see the game because we had a camera that captures the game footage and superimposed
him over a green screen, known as Mixed Reality.)

Augmented Reality on the other hand, can be achieved with a cell phone, camera or special eyeglasses.
For example, this bus shelter converted one of their billboards into an AR feature. This tech demo using
Magic Leap showcases the possibilities that AR can do in your real-world environment by interacting
with your email: a video starting a robot hunting game, in your office...
Yes, something like Minority Report or Tony Stark moving light objects will be possible
I believe people would be much more inclined to use AR in their everyday lives because there is less
friction. I also believe the games for AR do not need to be as immersive or high fidelity the way a VR
game might need to be to compel someone to wear a headset. AR games feel similar to many mobile
games that can be picked up, played for a few minutes before returning to your day.
Amazon has been promoting their Echo glasses recently. As I understand them, they are regular glasses
with micro earphones that allow you to take calls, listen to music and connect to the internet via your
phone. Given how fast technology evolves, I do not think it will be very long before similar styles of
glasses are created that have cameras capable of AR.
Now, I am not totally against VR. I do believe that there is a technology that will make Virtual Reality
adoptable to a large-scale consumer audience: holograms. We have already seen the first generation
of this application in the form of concerts headlined with artists such as Tupac and Whitney Houston.
This is likely farther off and will require quantum computing to achieve in real time at scale. However,
wouldn’t you like to hear a message from Princess Leia many planets away or have your own adventure
in the Holodeck?

Which Companies
Activision Blizzard (ATVI), Electronic Arts (EA), Take-Two (TTWO), Valve, Epic Games, Ubisoft, Riot and
TenCent are the biggest players in the space today when it comes to large budget games and esports.
As I mentioned earlier, Ubisoft has just launched their first step into the NFT space after stating they
wish to become a leader by integrating blockchain technology into their games.
Jason Citron, the CEO of Discord, a popular social media platform for gamers and crypto participants,
teased Ethereum integration to allow creators to monetize their channels. Shortly after, they walked
back the announcement due to displeasure from their gamer clients. Discord did then announce the
ability for creators to monetize their channels. I believe the Ethereum setback is only temporary as
education of consumers grows.
Valve announced that they would ban all blockchain games from their marketplace. Shortly after, their
rival, Epic Games (the studio behind Fortnite), announced they are ‘open’ to blockchain games. My
interpretation is that every one of these companies is interested in blockchain, launching their own
cryptocurrency and/or creating NFTs, but they are timing the market. In spite of the vocal minority of
their user base, there is little downside to integrating these technologies into games.
Why does this all matter?
At the heart of all of this is cryptocurrency. Gamers are some of the smartest, diverse and engaged
communities I have come across. They collaborate, share ideas and have the ability to execute
objectives. What they have lacked is value for the time they put into games.
Many have a strong understanding of economies and the principles of trade. Many games have tried to
incorporate these elements but control was centralized within the game and under the discretion of the
developer. Blockchain technology decentralizes these elements that gamers have previously embraced
but takes the burden of responsibility and point of failure away from the game studio.
This dynamic adds more free market elements into games where players who spend hundreds of hours
farming for currency or items, can sell to those who wish to purchase a shortcut.
I can see scenarios where DAOs dedicated to exchanging NFT items from games on a blockchain,
facilitate global trade and play-to-earn jobs. Perhaps you are not a consumer of the game but merely
a fan, you can purchase an NFT of an item from a game, then wear that on your Metaverse avatar while
in a work meeting or share it on social media through an AR filter.
Everyone is a gamer these days and I believe we are about to enter a gaming renaissance.

The Most Interesting Charts
in the World

I always begin with a chart. Charts give me perspective and aid understanding and they are the best
source of ideas. If you see an interesting pattern emerging it leads you to ask why? And, what does it
mean?
Obviously, each month I have the Charts That Make You Go Hmmm... section but for this special
publication I wanted to highlight some longer-term charts that might frame narrative changes for 2022
and 2023...
Let’s go!
Volkswagen
I have been following VW for a while. It is my belief that they are next behind Tesla in their understanding
of technology and EVs. I don’t think they can catch Tesla, but I expect that investors will look at them
as a Tesla/EV value play.
The chart is very close to breaking out of a giant wedge pattern. VW will likely be a good performer in
2022. I’m not yet ready to pull the trigger but watching closely...

The Euro
The Dollar is the Big Daddy of macro. It drives everything. The macro backdrop to me is much like
2011/12 and – back then – the dollar rallied 14% and the Euro dropped 17%.
I don’t know if the Euro chart I featured earlier is a 2022 event or a 2023 event, but I cannot stress
enough how important it is...
Back in 2011, I sold all my Euros (I lived in Spain and the Euro was my base currency), changed GMI
billing to Dollars (it was priced in Euros) and bought property in the US and Cayman to get long-term
dollar exposure. My read of the chart back then was a long decline to 80c versus the dollar. I still think
this is on the cards, eventually.
Reliance Industries
Reliance is the big daddy of Indian Exponential Age plays and will end up as one of the most important
companies in the world as they build out digital India from data to 5G, from internet applications to EV
energy.
If I had to own only one large stock in the world, it would probably be this one...

This decade’s Alibaba? I think so.
AT&T
If there is one company that could spark a crisis, it is AT&T. This chart is simply awful. It happens to be
the most indebted company on earth. These things tend to play out slowly, then all at once...

Oil
As ESG squeezes out investment from the energy markets, it is clear that it will cause a supply shock for
a while to come. The chart suggests the same. This is not good for global growth...
Copper
Copper is the flip side of the ESG trade. More EVs = more need for copper. The problem is, like oil, there
has been a decade or more underinvestment. It should be an exponential trend and therefore we are
oversold on the log chart...

Uranium
Same story as copper...
Cannabis
Using my Bombed-Out markets thesis, when a sector or market is down 80%+, I begin to pay attention.
No one owns Cannabis names, yet they have huge free cash flow and giant margins, and the market is
growing (quite literally!) ...

Emerging Markets
It is crunch time for emerging markets. They either hold here and begin to get traction and give us an
easy buy-and-hold, or they fail to hold as the dollar rises and another few years of underperformance
looms. I really don’t yet know which way it will go...
ARK
If growth slows and the inflation narrative eases, all long-duration growth trades will work well. If this
inflationary environment sticks around, then they will continue to come under pressure.
ARK is the poster child. It looks like it has more downside – much like bond yields have more upside –
but that may change during the year and I want to be ready...

Ethereum
For easy money to be made in digital assets, we need ETH to continue its uptrend. It feels like it’s close
as I have discussed earlier.
If ETH doesn’t bounce, then we will see more rotations within crypto and it will require much more
homework to find the right opportunities...

“YOUR” Exponential Age

This article first appeared in Macro Insiders, but I think it a perfect for the GMI January Think Piece!
Although an extremely driven person (whilst running Real Vision and GMI, I am also co-founding two
more businesses, both in the Digital Asset space), I have spent a large part of my life seeking balance. I
guess we all do.
Sometimes I succeed and sometimes I fail – sometimes massively – but overall, by making quality of life
my focus, I have made some very good choices that have offset the many bad choices I have also made!
Back in the early 1990s when I had just started working, the mother of my then-girlfriend lived in
Mallorca. We would fly over for long weekends and holidays. It was those long weekends, when I’d leave
London on a Thursday afternoon and be sipping a gin and tonic under an olive tree by 10pm, ready for
a late Spanish dinner of tapas followed by grilled fish and fresh salad, that my eyes were opened.
On one such trip to Mallorca, my girlfriend and I went to a small, quiet cove to swim and get some sun.
A few local fishermen had set up an old oil-drum grill and were cooking breathtakingly fresh sardines
on the beach. Whilst eating sardines, washed down with a very chilled, crispy glass of Spanish white
wine, I glanced over to a small peninsular that was jutting out from the garden of an old house and
where, shaded by pine trees and palm trees, a noisy group of sixteen or so people were sitting at a long,
rustic table enjoying the typical Sunday lunch of the region – Paella. There were grandparents, parents,
parent’s friends, kids, dogs and the whole caboodle, all laughing, arguing, and sharing the joys of life,
plus wine and lots and lots of food.
That scene changed my life. I realised that for me, the true joy of life was in its simplicity – sun, sea,
nature, friends, deep conversation, laughter, simple food cooked perfectly, and probably some wine...
On returning to work the following week, I kept that image as my True North. That was what I wanted
from life – or at least was a big part of what I wanted out of life. I held that image in my head to help
focus on my goal: to opt out of the rat race and choose life on my own terms.
I’ve talked about part of this story in the past. I first concentrated my efforts on buying a house in Spain
to use for weekends and holidays. It proved to be super cheap at the time, so I was lucky enough to
buy in cash. This took maybe seven years from that first beach scene but once achieved, I realised I had
won the game of life. I could lose my job or quit at any point, and I could live a simple life in the
Mediterranean on my terms.
My god was that liberating. It gave me the strength to hyper-focus on my career at Goldman Sachs and
then run a hedge fund, which was a major ambition I had wanted to fulfil.
When I understood that hedge fund life was sucking the life force out of my soul and that the money
didn’t compensate for the stress, I sold my place in London, bought a bigger house in Spain debt-free,
quit my job (on great terms – I’m still very close friends with my old boss), moved to Spain and began
writing GMI.
The idea behind GMI evolved from something I learned from running a hedge fund and advising many
of the world’s biggest hedge funds: that longer-term investing using the business cycle and secular
trends would outperform over time. You see, the hedge fund business had moved from the world of
20% returns with 15% volatility to 7% returns with 5% volatility. It had thus become all about the amount
of assets under management and not performance.

Performance could be low, but if it was steady, you still got more assets. That was not the game for me.
I believed in the old world of macro – high vol, high returns, long-term views.
I figured that if I could prove this idea out in GMI, I might get a few subscribers. Goldman and GLG
backed me and I began my new journey. I was one of the very, very few independent research services
that actually had experience in managing a large hedge fund and I had also been in and around the
hedge fund business longer than almost anyone else.
GMI went from being a way to not spend my capital (I always talk about the importance of income over
capital, as you know) to something much bigger. I was lucky that the performance of my recommended
portfolio did really, really well, especially over the twin crises of 2008 and 2012 (the EU crisis) although
I had an horrific 2009, when I totally screwed up by remaining too bearish and overriding my own
analysis with emotion...
So, I now had a business that surprisingly was generating significant income because I had attracted an
incredible client base of the world’s most famous hedge funds, bank prop desks, family offices and giant
asset managers by word of mouth, but most importantly, the trade-off in terms of the time needed to
create GMI each month was limited. Sure, I had to follow markets closely, but my time (my most
important asset) was under my control. I could really enjoy Spanish life and still create value for GMI
members.
Whilst living in Spain, I began to understand other parameters that are key to quality of life – longevity
of life – and especially longevity of a healthy life. I did a lot of research to try to better understand why
the Spanish seemed to be immortal (they are in the top five longest living populations on earth). We all
know that lower stress and, more importantly, how you manage stress, is a key driver of this and
Mediterranean people understand this at core. They live their lives accordingly. A decent, free healthcare
system helps too.
But two things puzzled me: why the US has the highest per capita spend on healthcare on earth and yet
are only the 40th longest living people, in line with a country like Ecuador, and also why a few apparently
stressful countries like Japan and South Korea lived so long.
The latter led me to realise that if you group the longest living nations together, they are either sunny
countries or are nations that eat oily fish: the Mediterranean, Australia, Norway, Iceland, Japan, South
Korea etc.
It was then I discovered the wonders of Vitamin D, which is created by converting sunlight or via fish
oils. Study after study have shown that if there is one miracle to life it is Vitamin D.
Now, I am not going to play the all-knowing doctor but I’m pretty damned good at understanding the
relationships between different data sets and all the work I did on this was clear. It is the wonder drug.
This is well worth a read on the topic of Vitamin D:
https://www.outsideonline.com/health/wellness/sunscreen-sun-exposure-skin-cancer-science/
And when you also look at body mass data for countries using WHO data sets, you realise that countries
that have high levels of vitamin D and also a low Body Mass Index really excelled in living longer lives.

BMI is generally low in South-East Asian countries (except the Philippines which has a more US-style
diet) due to their practice of restrictive eating, along with the high quality of food.
The Mediterranean has a higher BMI, but the food quality is arguably even higher, with much less focus
on processed foods and seed oils and a higher consumption of olive oil, garlic, fish, and vegetables.
Finally, it is well known that all the longest living nations tend to move their bodies more, walking up
and down hills, working in the garden growing stuff, strolling after dinner, and generally being more
active.
Thus, the blindingly obvious guide to life began to crystalise in my mind: lower your stress, get sun on
your skin but not too much, enjoy nature (= sun, + it lowers stress), lower your body fat, and do some
exercise. A decent night’s sleep helps massively too.
All of this is supported by endless scientific studies. It is not that complicated.
Applying these simple things can offset the worst habits we all have – smoking, drinking too much, or
getting too stressed sometimes. I’ve done all these with some flamboyance my entire life! However,
following these guidelines, I am rarely ill and maybe get a cold once every two years.
Living the good life in Spain also meant that my weight was higher than I ideally liked. I wasn’t heavily
overweight but carried more than I should have.
Although living in Spain was one of the best times of my life, I found that I needed something more –
intellectual capital. They say you are the friends you keep and living in a beach town in Spain offered
limited access to daily intellectual capital, and so my restless ambition left me wanting something else.
I ended up moving to the Cayman Islands (I still have a place in Spain), which offers both quality of life
and more intellectual capital. This freed up my mind to be able to exercise my ambition to do more. I
knew I was capable of more than just writing GMI so, after looking into numerous ideas, I decided to
start Real Vision.
I started it in the idyll of Little Cayman with very little stress, but it was not possible to build a business
from there, so I moved to Grand Cayman.
Then my quality of life absolutely tanked.
To build the business I worked sixteen hours a day, seven days a week. We never knew if we were going
to survive or crash and burn, and I had to dig really, really deep into myself to keep going and to never
accept failure, no matter how certain it seemed.
I smoked too much, drank too much, stopped exercising and put on weight. I was on a plane every
week and my life had become nothing but stress. I knew however, that this was temporary and that to
achieve what I wanted to do, I was going to have to sacrifice my quality of life for a period of time. It
proved harder than I could ever have imagined but I knew that Real Vision was something special. Four
years ago, I realised that the toxic stress of start-up life was still not going away, I had more dues to pay,
but I was running out of energy... fast.
Mark Hart introduced me to Tim Ferriss, who I interviewed on RV and then was so impressed I started
reading all his books and devouring his podcasts. Tim was someone who spoke my language – go be
an entrepreneur but balance it with your health.

I began to go to the gym, this time not to hit the treadmill but to do weights. I grew stronger, although
genetically I’m not someone who puts on muscle mass easily. However, strength training and putting
your body under physical stress has been scientifically proven to extend a healthy lifespan.
I used a personal trainer for the subsequent two years, as I have on and off for many years, with so-so
results. It helped at the margin but I certainly wasn’t losing weight and my energy levels were still quickly
sapped.
Then I tried the ketogenic diet, and it literally changed my life. I abandoned carbohydrates in the main
part (except wine!) and kept my carbs under 30 grams per day, compensated by eating more protein
(as opposed to fat which is highly calorific but is good for you). My weight plummeted from 210lbs to
the 178lbs it is now (still 6 lbs. from target).
Keto is fucking magic...
I’m not hungry and I lose a little weight every almost month despite never thinking about calorie
restriction. I almost never eat processed food and cook everything from scratch, with the bonus that I
find cooking a creative outlet that lowers my stress.
I also killed the cigarettes and switched to vaping, reaping the benefit of no coughing and much better
skin, and eventually I have pretty much stopped vaping although do have relapses... no one is perfect.
My BMI is now down to 22, which is pretty close to ideal, even though I doubt I’ll ever have a six-pack...
Then Covid hit and my life took another turn for the better.
RV finally got the traction it deserved so the work stress of the toxic kind was replaced by the kind of
high-quality adrenaline that gives you endless energy. My keto lifestyle gave me a clearer head and
more energy too, but something was still lacking. The sad fact is that we are all flawed humans and will
never be perfect, and we shouldn’t aim for that either...
For the pandemic, I moved back to Little Cayman and that gave me endless access to nature, boosting
my stress management and preferred exercise of walking. And then I recommenced yoga, going from
three days a week to five.
Yoga has really helped. I’m 53 years old and was getting stiffer over time, occasionally groaning when I
got up. Yoga is hugely underrated as a form of exercise. It not only builds a lot of strength, especially in
all those non-vanity muscles that stabilise your body, but it is also the antidote to modern life. Much
emphasis is placed on undoing all the hunching, stooping and sitting we all do too much of, and you
rediscover what it is like to be flexible. There is a huge amount of natural resistance training in yoga, so
it puts your body under considerable stress. It also encourages correct breathing techniques, which is
another life hack, along with meditation. Oh, and you sleep better.
All this makes you feel younger and helps reverse aging at a cellular level. Again, all of this is scientifically
proven.

Like keto, yoga is magic. Unlike keto, yoga is not easy. It takes a lot of time to make your body feel
young. I’ve been doing it for eighteen months now and every week I make progress. It is still hard, but
less hard each time, and when I think I’ve got it cracked, my instructor ramps it up! I discovered the
benefits of doing regular yoga over zoom during lockdown. My instructor is an English friend based in
Spain and using zoom means I can do it at home and still be held accountable, which I need. I have
pretty good willpower but never enough!
This year, I have started to get more serious in the pursuit of longevity of life. Again, I am flawed and
will never be the perfect example as I will do things that are unhealthy and enjoy them, but I do them
less frequently.
I began to read books, listen to podcasts, and put in the hours to learn. Quality of life is THE goal in life
so we should all spend as much time on this, if not more, than we do on our work lives or investing
lives.
The genetic science of aging is now very clear on why we age and how we can slow it down at worst, or
partially reverse it at best. It is far too deep a subject matter to go into in this article and I’ll give you all
resources at the end to help you, if you are interested. But they key discovery by scientists is that aging
can be thought of as a preventable disease and that we need to put our bodies under certain types of
stress to force the replenishment of faulty, broken, or worn-out DNA, in essence. There is a lot more to
it than that, but you’ll discover this in due course as you dig in yourselves.
On top of all the things I learned in Spain about food, sunlight, weight, exercise and stress, add in keto
and yoga and you are getting closer, but two additional important hacks are something called
autophagy (where fasting induces the body to clean up all the wounded DNA) and supplements that
both simulate autophagy and other processes that reduce aging such as with the insulin response.
Overactivity of the insulin response system is one of the key factors in aging. Sugars and carbohydrates
cause insulin spikes that have huge knock-on effects in our bodies. Stopping these spikes via keto and
supplementation has dramatic effects on health and longevity and leads to a massive reduction in
inflammation.
So, we can add fasting to our list, along with certain supplements. Fasting is thought to be the single
most powerful addition to a health span protocol. I am now experimenting with fasting; trying
intermittent fasting such as not eating for 16 hours, and also longer fasts such as one meal per day, and
two to three-day fasts. So far, I find that one meal per day or two-day fasts work really well for me and
give me a HUGE burst of energy, especially as my body doesn’t have glycogen stores from carbs, so I
burn ketones naturally and don’t get sugar cravings when I fast. This means that I am I generally not
that hungry when I fast as my body effectively lives off its own fat stores for energy, as opposed to sugar
stores.
Being in ketosis also allows the autophagy to activate faster than if I had glycogen stores.
Another thing I discovered is magnesium. Magnesium is used for an incredible number of cellular
functions and is vital for life itself. We get most of it from leafy greens, but it has a particular bit of magic
about it – it resets your sleep clock and gives you a much higher probability of a full, deep eight-hour
sleep. As we get older, it is harder to sleep through the night and most drugs just make you feel dull in
the morning, but magnesium seems to offset the degradation in our aging sleep patterns without side
effects. A good night’s sleep makes a huge difference and is another biomarker for longevity.

The science shows that the sooner you transition your life towards these longevity goals, the more likely
you are to live a longer and healthier life. People who start in their twenties will benefit the most but
those of us later in life can still make dramatic gains. The aim is not to live forever, but to live longer
and healthier.
This brings me back to why Americans live shorter lives. It is a sad story of bad dietary guidelines where
excess calories, endless carbs (sugars and flour), processed food, excess meat consumption and seed
oils combine with a car culture and high stress with long working hours and huge periods of inactivity,
to create literally the worst possible health outcome. Add to that a medical system that prefers treating
things with high-cost drugs versus lifestyle changes and you have the recipe for diabetes, heart attacks
and aging diseases of the brain. The food and drug lobbies have essentially codified early death into
the US system.
Again, you don’t need to be perfect when you begin this journey; health gains are all incremental and
nothing is the silver bullet but combining many of the things in this article WILL help. Anything is better
than nothing. Homeostasis will kill you, literally.
Again, I am no saint. I can’t get it all right either. I try really hard and fail really hard too. But I can see
and feel the benefits and I will keep learning and adapting. After all, investing in our health and longevity
is the most important investment you or I will ever make and, like investing, it is all about learning from
our mistakes.
It is time to invest in your own Exponential Age.
I hope you have found this article helpful or even just a bit interesting, and I hope it spurs your own
learning journey to better and longer health.
We can only find out the scores of how we did at the end, but we can get measurements along the way
if we are on the right path. Getting a regular health check-up and full blood tests every six months will
give you a progress report and allow you to adapt your regime accordingly.
My next step is to try to also reduce my digital diet. We all spend far too long scrolling twitter and
reading articles and it scrambles your mind and ruins your sleep. I have begun to leave my iPad out my
bedroom and replace it with a kindle. That has helped me read a lot more books and reduce my hyper-
stimulation of the online world.
I probably need to drink less wine in the evening to help me relax too, but hey, one thing at a time! I
have however transitioned to drinking more champagne and sparkling wine which is lower in alcohol
and much lower in carbohydrates, leading to lower insulin spikes and better sleep. Big, modern red
wines might have resveratrol, but they have a lot more carbs and lower your sleep quality.

Food
I eat a very low carb diet (keto). I found the r/keto group of Reddit immensely helpful when I first started.
Make sure you check out the FAQ section as it’s vital.
https://www.reddit.com/r/keto/wiki/how_to_start
No processed foods. Absolutely no sugars. Lots of leafy greens and cruciferous vegetables and try to
eat seasonally. I have cheat days once or twice a month, so I am not “that guy” at dinner parties or
amazing restaurants, but I save it for when it really matters.
I take electrolytes from time to time as you lose them easily on keto and this can make you feel like
crap.
I’d prefer to eat less meat and transition off full keto, eventually taking in more pulses and legumes, but
I want to drop the last few pounds first and then stabilise.
Supplements
After extensive reading I’ve started taking my supplements more seriously. I’m still learning and testing
but this is my current regime:
• Fish Oil
• Vitamin D (from the sun – a few hours of direct sunlight each week but never burning)
• Magnesium
• Berberine (a natural replacement for Metformin)
• Turmeric
• Low dose aspirin (81mgs)
• Resveratrol
• NMN
• Vitamin B12 (IV)
• Glutathione (IV)
I’ll leave you to read the books and articles to find your own dosage and what format of supplement is
best for you if you are interested, and also to learn why many scientists take them.
Reading Materials
• Lifespan: Why We Age–and Why We Don’t Have To – Dr David A Sinclair (the leading genetic
scientist of aging at Harvard). This book is essential reading.
• (You might want to start here... David Sinclair on the Joe Rogan Podcast)
https://open.spotify.com/episode/55UlxYWPfV46f7puMkZPeD
• Stop The Clock: The Optimal Anti-Aging Strategy – P.D. Mangan
• Breath: The New Science of a Lost Art – James Nestor
• The 4-Hour Body – Tim Ferriss
• The Origin (and future) of the Ketogenic Diet – Dr Dominic D’Agostino and Travis Cristofferson

BACKGROUND
Raoul Pal has been publishing Global Macro Investor since January 2005 to provide original, high quality,
quantifiable and easily readable research for the global macro investment community hedge funds,
family offices, pension funds and sovereign wealth funds. It draws on his considerable thirty-two years
of experience in advising hedge funds and managing a global macro hedge fund.
Global Macro Investor has one of the very best, proven track records of any research service in the
industry, producing extremely positive returns in thirteen out of the last seventeen years.
Raoul Pal retired from managing client money at the age of 36 in 2004 and now lives in the tiny
Caribbean Island of Little Cayman in the Cayman Islands.
He is also the founder of Real Vision Group a world-renowned financial and crypto media platform:
www.realvision.com
Recently, in 2021, Raoul co-founded Exponential Age Asset Management: www.EXPAAM.com, which is
a fund of hedge funds in the digital asset space.
Previously he co-managed the GLG Global Macro Fund in London for GLG Partners, one of the largest
hedge fund groups in the world.
Raoul moved to GLG from Goldman Sachs where he co-managed the hedge fund sales business in
Equities and Equity Derivatives in Europe. In this role, Raoul established strong relationships with many
of the world’s pre-eminent hedge funds, learning from their styles and experiences.
Other stop-off points on the way were NatWest Markets and HSBC, although he began his career by
training traders in technical analysis.
Should you wish to receive information about membership please email us at

info@globalmacroinvestor.com. The number of members is STRICTLY limited; only a few spaces are
available each year as the membership is essentially full. A waiting list will apply if there are no spaces
currently available.
Except for use granted to the named subscriber, this publication may only be reproduced, stored or
transmitted in any form or by any means, with prior permission in writing from the publishers.
Raoul Pal, Global Macro Investor, Cayman Islands

6th January 2022

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• Carbon, my other decent-sized bet was also a killer – up 91% in 2021.

• Gold was a small drag -3.8%.

• GDX was my worst position -16%.

© Global Macro Investor 2022 4

The ECRI has been slowing fast...

... and that will continue to drag on IP...

© Global Macro Investor 2022 5

Freight Shipments seems to be leading ECRI...

© Global Macro Investor 2022 6

© Global Macro Investor 2022 7

This is confirmed by the LEI...

© Global Macro Investor 2022 8

... and we see the same using Core CPI...

© Global Macro Investor 2022 9

© Global Macro Investor 2022 10

© Global Macro Investor 2022 11

© Global Macro Investor 2022 12

Macro Big Picture

© Global Macro Investor 2022 13

The Dollar is THE key macro variable to watch in 2021.

© Global Macro Investor 2022 14

© Global Macro Investor 2022 15

© Global Macro Investor 2022 16

© Global Macro Investor 2022 17

Staking for ETH 2.0 kept rising...

© Global Macro Investor 2022 18

© Global Macro Investor 2022 19

© Global Macro Investor 2022 20

© Global Macro Investor 2022 21

... and ETH looks to be consolidating...

© Global Macro Investor 2022 22

And BTC looks cheap versus Metcalfe’s Law valuations...

© Global Macro Investor 2022 23

© Global Macro Investor 2022 24

© Global Macro Investor 2022 25

© Global Macro Investor 2022 26

Why Gold Lost Its Mojo

© Global Macro Investor 2022 27

© Global Macro Investor 2022 28

© Global Macro Investor 2022 29

When moving sideways is a success

© Global Macro Investor 2022 30

© Global Macro Investor 2022 31

• Central bank interest

© Global Macro Investor 2022 32

© Global Macro Investor 2022 33

© Global Macro Investor 2022 34

© Global Macro Investor 2022 35

© Global Macro Investor 2022 36

© Global Macro Investor 2022 37

© Global Macro Investor 2022 38

© Global Macro Investor 2022 39

The trigger event for the 10-Year “Bear Market”

© Global Macro Investor 2022 40

Securitization Takes on a “Pivotal Role”

© Global Macro Investor 2022 41

© Global Macro Investor 2022 42

Current Supply/Demand Outlook

© Global Macro Investor 2022 43

© Global Macro Investor 2022 44