Four Years of DeFi Education

Level 3 - Virgin DeFi Analyst

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It’s hard to believe how fast time flies, but we have officially been publishing DeFi Education for four years.

We thought it would be a good time to reflect on what has happened in the crypto industry and how it has evolved over time. The hope is that us reflecting on the last four years will help update your decision making and frameworks.

A lot has changed and many of our initial predictions have come true (although some things took a couple of years longer than we wanted!).

2021: Craziest market in 20 years and the inception of DeFi Education

The DeFi Team - with previous careers in Wall St. and software - went “all in” on the crypto industry in 2021. At the time there was a severe lack of credible, high integrity research content in the crypto space. Crypto was seen as too “icky” for serious people. Almost all participants were unsophisticated when it came to financial markets.

We wanted to bring an institutional mindset to the crypto markets.

What happened in 2021 in markets was more akin to a mental institution.

The value proposition of DeFi? Replace expensive, slow, and error prone banking processes with efficient software code. This cuts overhead (offices, workers, etc) and makes financial markets accessible to anyone.

The combination of extremely accomodative macro conditions with interest rates near historic lows, rising inflation, trillions of dollars in fiscal stimulus and ongoing Fed liquidity fueled a risk-on frenzy. Crypto went “mainstream”, major institutions and corporations embraced digital assets, and Coinbase went public. DeFi and NFTs were dominant themes. Digital artist Beeple sold an NFT at Christie’s for $69 million.

Through it all DeFi Education maintained a steady hand and focused on our core principles. These principles may seem obvious today but were unpopular in 2021 when there were no “rules”. These seven core principles still form the basis for our research and analysis on crypto assets today:

1. Path to sustainability

Back when we started, crypto applications almost exclusively used token incentives to bring in users, liquidity and pay them directly for desired behaviors. There is nothing inherently wrong with this approach - applications need users and early users deserve to be rewarded for contributing to the advancement of the network or application. However, protocols were not thinking about life beyond the token. We wanted to push for an industry where protocols are built with a path to sustainability in mind with the goal of removing reliance on token incentives in the long run. Even if incentives are necessary for bootstrapping, the business model should be able to function without them in the long term.

2. User-first mindset

There is a graveyard full of of technically interesting crypto “infrastructure” projects that received massive funding and flopped in a big way. We wanted crypto to produce projects people want (ideally need) to use and are easily able to use. The starting point needed to delivering value added services to targeted users instead of other crypto developers and DeFi autists (unless those are the sole intended users).

3. Token Value Capture

Our vision for crypto from day one was that it would allow for the creation of entirely new ways for value to be distributed across assets and markets. Entirely new vehicles could be created by taking advantage of permissionless yield, onchain borrow/lend, and DeFi composability. Regulations have held crypto back from value capture and distribution until more recently.

4. Privacy / Anonymity

Since crypto can be stolen irrevocably and often untraceably, the absolute best defense against crime is staying anon. We believe in the right to financial privacy. Requiring or tracking user information by DeFi apps is a hard no for us.

5. Free Software

“Free Software” is software which respects the rights of users and the community - the freedom to run, copy, distribute, study, and improve the software. We don’t agree with making certain parts of a DeFi platform - like the frontend - non-free software. Products released under restrictive licenses (no forks) aren’t DeFi.

Without free software rights you can’t verify if the code is error-free, run it without the permission of the original author, or release your own improvements. In other words you can’t have effective control of your digital assets when using non-free software. And. By asking you to accept a restrictive license, the publisher is asking you to submit to their centralized legal system. Might as well use a bank then.

We also insist on using only free software on our personal crypto devices, usually some flavor of Debian Linux. In 2022 we customized existing flavors of security-enhanced GNU/Linux to build LizardOS, an operating system designed specifically for the needs of crypto users who want to keep their real life and crypto identities separate. During the AI boom we’ve eschewed commercial solutions in favor of Venice.ai, a crypto powered alternative with better privacy.

6. Decentralization

Software isn’t free if we are forced to trust your servers. Free software can be run by anyone, and a decentralized network allows anyone to become a validator (subject to reasonable anti-Sybil protections to stop people abusing the network). If only privileged nodes controlled by a centralized entity validate transactions, it isn’t DeFi.

7. Technical Quality

Writing secure software is hard and typically requires engineers with many years of experience. The best coders have a talent, the same way a singer or an athlete would. Not everyone will have the ability to design and implement software which can be trusted to control hundreds of millions of dollars worth of client funds. Pair programming is desirable and thorough peer review is essential. We’re particularly skeptical of teams where there is no senior software developer (e.g. 10 years full time professional experience) because no matter how talented, most new coders simply don’t know what they don’t know about security. The DeFi/crypto space is filled with young and highly intelligent developers, but experience takes time and iterations to build up. We look for strong technical backgrounds and evidence of good software development practices. And we dig around to confirm this - reading GitHub commits and asking questions in Discord, not just taking the audit results at face value.

Although we don’t load personal, private, or proprietary information into “the cloud”, including AI platforms, we’ve found for code reviews of existing public codebases Claude Cocde can be helpful at pointing out “code smells” and assessing quality. This is an excellent tool for both technical and non-technical users to rapidly understand a DeFi software codebase and make inferences about software quality. Remember that a certain amount of knowledge is a prerequisite to use these tools successfully - garbage in = garbage out.

As a protocol gains some initial traction and acquires resources (treasury) we look to see a commensurate investment in retiring technical debt and implementing best practices. This can be costly - external audits run into six figures. Additional headcount for security professionals can be seen as costly and also (if they are doing their job) distracting to the core dev team. But. Cutting corners is all well and good until your protocol gets hacked for 9 figures, resulting in lawsuits, business failure and loss of customer funds. Losing admin keys or API keys is so 2021.

Technical quality does have to be balanced with pushing for innovation. After all, senior developers were junior developers at one point. But we think it’s fair to say that in general, experienced developers are going to build more secure protocols and should get bonus points for their capabilities.

Personal Reflections From 2021

• There was no data. DeFi team spent long nights hacking together SQL database queries on blockchain data loaded into the Dune Analytics platform to figure out protocol revenues and usage patterns. TheGraph’s GraphQL endpoints were tricky. Documentation was typically so poor that we had to reach out to teams via social channels to get key information on how the protocols actually worked.

• Tech wars - early competition to find edge. Tracking whale wallets (large buys and sells broadcast in real time) provided some edge before platforms like Nansen sold the tracking as a service and whales learned to disguise their behavior (or intentionally made transactions to create a desired narrative). Flashbots and MEV companies competed to earn money ‘front running’ transactions in the mempool. Being able to “land” (execute) a transaction on a popular NFT “mint” (initial offering) could be the difference between huge profits and a failed transaction which cost tens of thousands of dollars in “gas” (Ethereum transaction fees).

• Sentiment: “We’re pioneers” (but with little knowledge of financial history). MakerDAO is a bank issuing private credit. The roots of OlympusDAO (one of the most popular DeFi-adjacent projects of the year) go back to John Law’s capers in 18th century France. DeFi was destined to “speedrun” the lessons of Traditional Finance (TradFi) but by experiment rather than study of history.

• Second order thinking required. To perform well in 2021 you had to understand

  • 1. this project is fundamentally flawed and will eventually fail; BUT

  • 2. this project has a lot of attention, appears plausible to the average person not educated in finance, “whales” know this and will bid the project…

  • therefore the correct decision is to invest, but watch your risk and don’t be last to sell - this was counterintuitive but we got up the curve quickly.

• Late, but early. Towards November of 2021 our financial backgrounds and trading experience led us to predict that central banks would raise rates to dampen inflation and this would have negative consequences for risk assets, starting with those furthest out the risk curve (computer coins). Although we’d gone “all in” on the industry with a definite long term focus, we were one of the only publications to warn that the party may be over (for now). We exited our crypto positions between November ‘21 and January ‘22 and sounded the alarm for a bear market.

2022: Market Meltdown + Academy Launch

2022 was the year people were punished for the excesses of 2021. Global macro conditions tightened dramatically, inflation surged (peaked ~9% in the U.S.), and the Fed executed aggressive rate hikes lifting rates from near zero to 4.5% by year end.

Many high profile players in crypto were woefully unprepared. Some of the largest companies in the world toppled over and went to zero. These included:

• FTX/Alameda

• Three Arrows Capital

• Terra/LUNA

• Celsius

• BlockFi

• Voyager

• Genesis (DCG)

Celsius, BlockFi, and Voyager were “fake DeFi” (centralized) companies which we’d warned our paid subscribers not to invest with as early as February 2022, months before the problems with their business models and finances became clear to the legacy financial media, and well before the bankruptcies happened.

Our post mortem of the CeDeFi debacle is available for free here.

Source: BIS Quarterly Review, December 2021

“Comparing Centralized to Decentralized Finance” | Source

Crypto began to unravel when a TerraUSD (UST) lost its peg and imploded. Dominos kept falling and it felt like there was a blowup every other week for months. Although there was massive leverage in the system and some large hedge funds blew up - including the famous Three Arrows Capital - we hadn’t planned on the number 2 centralized crypto exchange actually embezzling customer deposits to the tune of ten billion dollars.

Reckless leverage, a lack of risk controls and systemic fragility in crypto resulted in a massive, self-inflicted crash that took out some of the biggest crypto players in the world. Through it all, DeFi held up under stress. Users began to re-evaluate custodial risk. Official bankruptcy documents revealed that the FTX creditors who got paid first, and got paid in full, was the DeFi lenders because they had FTX collateral locked in smart contracts. DeFi won.

Coincidentally, our DeFi Academy launched the same day as FTX crashed! The most dedicated crypto participants went through the course and many have joined crypto companies, led crypto initiatives inside their own firms, or used the knowledge to make huge gains in their portfolios. Receiving DMs months or even years after people take the course and find huge success in the crypto industry has been deeply satisfying for our team.

Remember, markets bottom on bad news. We not only released a course for people to get up to speed on crypto, we also called the bottom in November 2022 after warning all year that the bear market was probably not yet over (until a major fund blowup was front page news - but we couldn’t have guessed it would be FTX!)

After almost one year and a brutal bear market, DeFi team have started buying BTC the last few days from an average price of ~$16.2k. We’ll be DCA’ing into the majors (BTC, ETH) going forward, and we’ll post a specific update if we make any altcoin investments. - DeFi Education, November 29, 2022.

The prolonged bear market was over, but the scars from 2022 would not heal easily.

The big lesson from 2022? Crypto’s core value proposition was affirmed. Trust the code not the intermediary. Despite headlines calling for the death of crypto, all we saw was even more proof why actually decentralized protocols have a place in the world.

As FTX was collapsing we *knew* there would be a team forming to build the decentralized alternative entirely on-chain. Our mission was to find that team and invest. This idea paid off in spades only two years later - the biggest crypto airdrop of all time, valued in the billions of dollars, took place in November 2024 and DeFi Education readers had the chance to take part.

Personal Reflections From 2022

• We thought seriously about starting a computer company. Secure hardware, open firmware, specifically for crypto users, built on open source. After ruling this out we launched a customized Linux distribution based on some tooling we’d written to make our dedicated crypto computers more secure and easier to use. Although the niche market and customer support requirements made it challenging to scale, LizardOS was a success for the turbo autists and DeFi protocols who signed up. And we got paid for support in BTC, which went on to perform well. Win/win.

• We avoided being down on the year while everyone else was getting destroyed. Although we didn’t make much, it gave us confidence we could survive with multiple crypto-related income streams and a few high conviction trades.

• Responsibility weighs heavier. We’ve grown and have a credible track record more than a year long. People are starting to weigh our judgment: on the broader state of the market, on which protocols and technologies are secure, on which teams are apparently trustworthy. Meanwhile the golden boys of the industry are insolvent, seemingly overnight. Participants who confused luck with skill are seeing their fortunes evaporate. The reality for the average participant is hacks, scams, rug pulls, and tax debt. Some of the best investors kept most or all of their funds on FTX and are now out of the game, maybe permanently. The only bull market is in crypto crime and the regulators appear to be using this as an excuse to strangle the industry. We’re bullish on the long term but how do we navigate the short-medium term while keeping ourselves and our readers solvent? We couldn’t predict how long it would take the market to come back - though we were confident that it would - and we were *all in* with our careers and investments. Make no mistake: we took a risk at the end of 2022 and knew it.

• Much of our educational content was drawing on our career experiences to explain the playbook run by Wall St. adjacent firms with the Centralized “DeFi” products, hedge funds and leverage, and bankruptcy and restructuring

2023: Crypto Survives Again, with Battlescars

We as an industry entered 2023 a bruised reputation, evaporated retail enthusiasm (and capital), and frozen institutional capital flows. For those who stuck around and saw through the noise, 2023 as an inflection point that allowed you to pick up major crypto assets at discounts. It wasn’t easy though.

In Q1 a TradFi banking crisis caused leading crypto stablecoin USDC to depeg. From the DEX volumes it was clear that several panicked (or leveraged) crypto natives were puking their fully backed safe haven tokens at a 10% loss or worse. Even participants who had given up on risk assets entirely and were parked in cash were taking losses! Brutal. We fired up our TradFi news terminals and deposited tokens to ByBit (no KYC in those days) to buy USDC perpetual futures on the Fed bailout news. We were able to buy a dollar for 96 cents in decent size, which mattered after a slow year.

The bigger point is that the legacy financial system isn’t immune to systemic risks and mismanagement, as the 2008 crisis dramatically illustrated. FTX and the CeDeFi companies were more like banks than a genuine alternative. The Silvergate and SVB debacle just strengthened our conviction in the value proposition of DeFi.

U.S. regulators escalated their scrutiny, as expected. The SEC launched enforcement actions against Coinbase and Binance in June, alleging unregistered securities sales and failures in consumer protections. The SEC also labeled a wide array of tokens as securities, creating regulatory overhang across altcoins.

When the SEC served a Wells Notice on Coinbase, we again faded the doom and stepped in to buy a quality crypto-related asset at an unjustified discount. The stock climbed from $47 to $283 over the next twelve months and reached a record high at $444 two years later. One of our best investments of the cycle (2025 note: we have already exited COIN).

Although we were against buying COIN during the bull market, we update our analysis as new facts become available. We now think it’s risky not to have some COIN in your crypto portfolio!

COIN looks well positioned to achieve near monopoly status among whales and institutions as the safest most regulated crypto derivatives exchange. And it might be the only choice for retail users, as other leading exchanges refuse US customers.

By July, Ripple secured a partial legal victory, with a federal judge ruling that XRP’s secondary market sales did not constitute securities transactions. This was a big win in the SEC’s expansive interpretation of its authority. In August, Grayscale won its lawsuit against the SEC, with the court finding the agency had acted arbitrarily in rejecting a Bitcoin spot ETF while approving futures-based products.

2023 reframed the regulatory conversation. The sentiment wasn’t great but there were signs that legal precedent and legislative action would threaten the SEC’s aggressive stance. In the background institutions like BlackRock were building their crypto operations. BlackRock filed for a spot Bitcoin ETF in June 2023. JPM and Franklin Templeton began to pilot tokenization projects. Coinbase launched its own Ethereum L2.

2023 was quieter when it came to speculative mania, but set the stage for a blowout 2024. Q1 2023 was full of cynicism and PTSD. By Q4 people were optimistic again. The resolution of Sam Bankman-Fried’s criminal trial in October and Binance’s $4B DOJ settlement in November provided closure. Institutions were ready to make a real push into crypto this time.

We told everyone to prepare for the next bull run which was around the corner.

Legal clarity, institutional flows, regulatory shifts and technological maturity combined with crypto’s typical 4 year / BTC halving cycle were pointing to a fruitful 2024.

Personal Reflections From 2023

• This was our breakout year. The vast majority of our readers stayed with us and were beginning to reap their deserved rewards for surviving the crypto bear market. We’d been supplementing our income with consulting and advisory work for DeFi protocols and DCA’ing the majors religiously. We found useful and profitable things to write about even in “slow” market conditions. After two and a half years of hard work we’d survived the crash and the purgatory period. It seemed clear that changing careers was the correct call and we (and many of our dedicated readers!) were set to “make it” next bull market. What a difference a year makes!

2024: Regime Change, Bull Market, Institutions and Memecoins

In 2024 the macro environment flipped from hostile to constructive. After peaking rates above 5% in 2023, the Federal Reserve held steady through early 2024 as inflation moderated near target levels. By mid-year, the Fed pivoted to dovish signaling, and by Q3, the first rate cuts in years were priced in. The move away from restrictive policy helped increase risk appetite.

Importantly, this came without a hard landing. U.S. GDP growth slowed modestly, but unemployment remained low, and consumer spending held up.

The U.S. presidential election became a major catalyst, and we had the first pro-crypto administration.

2024 was arguably the year institutional integration of crypto became real. We saw true mainstream institutional acceptance, driven by events like the approval of multiple spot Bitcoin ETFs and the tokenization of real-world assets by major financial firms.

The Bitcoin halving occurred in April 2024. Solana took center stage with the rise of memecoin speculation and Pump Fun became one of the fastest growing startups in history. Hyperliquid farmers who traded perps throughought 2024 were airdropped billions of dollars in Q4. A U.S. election year and an unfavorable SEC stance towards crypto resulted in a volatile year. Post-election we had a major risk-on period through the end of the year. People began to speculate on ways AI could interact with crypto.

Institutional adoption has unlocked vast pools of capital and given the crypto industry a level of credibility that was inconceivable in November 2022. . At the same time, 2024 reminded us that crypto remains a high-volatility, sentiment-driven market. Even with greater institutional involvement, the popularity of memecoins that speculative excesses will remain. 2024 also showed just how political the advent of crypto has been.

Personal Reflections From 2024

• Putting the pain up front, our biggest error was being overweight ETH for most of the year. Although we cut a big chunk after the Ethereum ETF approval (ETH/BTC ratio around 0.05) we didn’t forecast how poorly Ether would perform relative to other opportunities. Although we had some farming returns we’d have been better off in BTC or farming Hyperliquid even more aggressively.

• Our biggest win was Hyperliquid exceeding all expectations, with each “point” being worth $20 at TGE and $100 by end of year. Some of our subscribers we know for a fact were able to farm in the 5-10,000 points range using the 4 strategies we shared in January (10 months pre TGE) and/or their own trading.

• At a certain point you genuinely get more satisfaction from others succeeding. This year we got a ton of messages from people who crossed the finish line.

• Multiple paths to make it and previous hard work pays off! Although DeFi wasn’t a leading sector in 2024 (until November, with the President-elect’s family being involved) we learned that our broad knowledge and intuition for crypto built over the prior 3 years served us well in adapting to new trends, particularly memecoins (sharing similarities with NFTs from last cycle). If you were good at NFTs you probably got rich on memes a few years later. If you learned how to trade perps (arbitrages, market making, delta neutral strategies - not punting based on technical analysis) you had the skillset to participate in the Hyperliquid airdrop. There was no VC round so the only way to obtain the token was to trade on the exchange. If your trading is grossly unprofitable there would be no way to sustain enough turnover and pay enough fees to qualify for a meaningful drop. Interestingly, even within the DeFi team we niched down into farming, trading, and memes according to our abilities. Lesson: stay in crypto long enough and try enough things to find what you’re good at.

Key Takeaways from Writing DeFi Education

Crypto has not been an easy industry to work in. The returns are phenomenal for those who stick around long enough, but we’d be lying if we said events like the FTX collapse and years of regulatory onslaught were “easy.” Seeing crypto reach mainstream adoption and have many of our predictions come true years later has been truly rewarding.

The strange part about being early is that once the world catches up, your job changes.

In 2024, when ETFs were approved and Bitcoin was on CNBC daily, we realized we were no longer writing to prove crypto mattered. It was no longer about trying to tell people “crypto is the future.” Today it feels more like we are analysts in “just another” market sector. The point of that statement isn’t to diminish what crypto is, it’s to show just how integrated the industry has become. That’s why we’re so hell bent on making all our readers better at asset selection. The market will get harder, but it will also produce more opportunity than ever before.

When we started writing in 2021 it felt like we were standing at the edge of a complete digital-first reworking of the way society functions. Things like DAOs, DeFi composability, digital art felt like being part of a future people hadn’t realized existed. Some of these things didn’t quite work out as expected. Others, like stablecoin adoption and the institutional embrace of Bitcoin went exactly as expected.

All in all, we’re more excited about the future of crypto than we’ve ever been. If you’d like to get our in-depth research, market insights, and access to our bi-weekly Q&As sign up to our paid substack below.

Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are opinions from an anonymous group of cartoon animals with Wall Street and Software backgrounds.

• We now have a full course on crypto that will get you up to speed (Click Here)

• Security: Our official views on how to store Crypto correctly (Click Here)