How I Saw Value In Ethereum

My conviction in Ethereum is forever. A lot of tourists in the crypto space speculate and leave, but my faith and conviction in Ethereum is unbreakable. Some might find this to be an “annoying maxi” statement, but I figured it might be interesting to share my personal story and the events in my life that led me to this level of conviction.

I knew I always wanted to be an investor hybrid entrepreneur, but I wasn’t always sure how I’d find my path. I got lucky meeting an early mentor of mine named Mary Lou Song, the 3rd employee of eBay and eBay’s first product manager, who gave me a real life crash course on what Silicon Valley was. My high school Harvard-Westlake introduced me to Mary Lou via its journalism class and I’m infinitely grateful it happened. Silicon Valley sounded like a magical place that was way too good to be true, where visionaries built what was in their minds while being massively rewarded for it. I knew it was exactly where I wanted to be one day.

After spending a summer at a journalism program at Northwestern Medill with Mary Lou, and I came back to my senior year in high school knowing that I wanted to build on the web. I came up with a few promising ideas around that age, such as a mobile and desktop messaging app for the workplace (it was 2008, so years before Slack). A couple friends and I also happened to build the second biggest Korean pop music blog in the world. The blog grew virally because we took advantage of the Facebook newsfeed before Facebook started to heavily filter it. I also built a number of iPhone apps when the App Store came out, and took advantage of the brand new platform which had tons of easy distribution.

Another early mentor of mine was Aaron Levie, founder of Box.com, because we both went to USC and I cold AIM messaged him. I was pitching him some startup ideas in Palo Alto when he agitatedly threw out all of them because he said those ideas could only scale linearly. He told me I would have to look for platform plays, because they scale logarithmically. It wasn’t fun to hear this feedback, but I took this advice to heart.

These early projects and mentors taught me the valuable lesson that I would have to be early to an application platform for entrepreneurship to be a whole lot easier. I knew if I was just a little late, the platform would get crowded instantly and growth would be impossible. That’s when people start telling you, “just arbitrage CAC against your LTV to scale for growth,” but it was never that easy when the platforms were already saturated. I struggled a ton when I shipped apps to platforms that were years past their infancy, but having reflected on the apps that did work for me, I firmly knew in my gut by now the secret was platform timing. I knew I had to find the next platform.

With these experiences and wisdom in mind, I was determined to figure it out so I could be early and dominate the platform before everyone else took their piece of the pie and would leave only crumbs left. I had a few contenders in mind around 2014: I thought it could be blockchain, but I also considered VR, AI, mobile social, web SaaS and wearables.

I asked one of my most informed friends around me in 2014 if it was possible to build applications on blockchain. He happened to be a lead blockchain researcher at a major consulting firm. We discussed blockchain apps, and I learned that blockchain databases were slow, had massive fees and couldn’t store much data. Instead, he started to tell me about how interesting of an innovation Monero was. This was pre-Ethereum, so I shelved this thought for a couple years, only to return to it again years later via another route.

I found Ethereum when it was first announced because I was working as a writer and researcher for Jason Calacanis. I was scouring the news everyday to find the next big trend or investable idea, and would report my findings in a paid VC and angel audience newsletter called the LAUNCH Ticker. The day the Ethereum whitepaper came out, I knew it was going to be massively important for me to understand what it was. I read the whitepaper from front to back that entire day multiple times. It was such a unique and visionary concept, but it took a lot of time and thinking to understand its potential, and it was really hard to grasp what it could be used for. The narrative at the time was a “world computer” and “unstoppable applications,” and my first reaction was how it was a suspiciously huge promise for such an early stage concept with nothing, and I felt skeptical. There was no shortage of doubters and fake news about Ethereum on Bitcointalk as well. Having seen many alt coin ideas die before then, I admit I was a stubborn Bitcoin maximalist. I still concluded Ethereum was worth a very small punt, but I was waiting to see use case validation before I was further convinced. I was most worried if Ethereum would ever launch and felt it was risky. Bitcoin, on the other hand, had utility in my eyes because I used it to avoid remittance fees. I used BTC to pay developer contractors around the world, which they hated due to the price volatility: “It’s like we’re gambling every time we wait for the payment to confirm,” they would say!

It wasn’t until early 2017 when another friend of mine started to tell me about how Ethereum was going to be the back-end for all of the world’s finance activities. It was at that point it started to click in my head how the perfect use case for smart contracts were financial transactions. My thesis at the time was thinking it would replace accountants, CFOs, financial institutions and investment banks — I was eventually wrong, Ethereum would inspire its own financial ecosystem, not become a back-end for existing corporations. It was that moment in time where my conviction in Ethereum exploded and I knew we were looking at the next big platform and I had to go all in on the blockchain space with all of my time. I tweeted about it here: https://twitter.com/alee/status/929456053565104128

And later in 2019, I started to witness the early seeds of DeFi and had another aha moment. I blogged about it here: https://andrwlee.medium.com/why-i-think-this-is-the-eth-btc-bottom-e68f263e689 Finally, I felt, my thesis in Ethereum was materializing in early validated use cases and traction, which was DeFi. I also reported about the early beginnings of DeFi here: https://twitter.com/alee/status/1097804823561269249

From then on, we’ve only seen massive developer network effects around Ethereum and the user community is growing at a pace so fast it’s truly hard to even quantify. In my eyes, it’s the worst time ever to be pessimistic about Ethereum’s potential.

So what is Ethereum’s moat?

I believe Ethereum was successful because it was not only first but it was also the right team to build the project. So, the core team was moat in the early days as they had an unfair advantage by being the right minds to build Ethereum. I think the network effects started when people started to mint tokens using the ERC-20 standard on Ethereum, which was an infinitely better UX than trying to use Colored Coins on Bitcoin. After there were assets minted on Ethereum during the ICO boom in 2017, DeFi made a lot of sense so you could do trading things with those assets. And once DeFi applications were born, it made even more sense that the developer network effect would stay on Ethereum due to composability. In addition, Ethereum has stood the test of time and has many years head start against new smart contract protocols. Ethereum will always have a moat for being the most secure settlement later and I believe it has very defensible developer network effects as well, which is very hard to attract even with war chests of funding. For now, I feel Layer 2s are much more like swappable utility infrastructure tools, but I see long-term moats for Ethereum and BTC as Layer 1s.

Today, I feel extremely convinced that Ethereum is going to be a massively useful platform that will change the behavior of internet users forever. It’s been a very unpredictable path to get here, but I’m convinced that we’ve only seen <5% of what it can do and how people will use it. I believe one day we’ll see Ethereum being worth trillions USD market cap and will be #1 or #2 next to Bitcoin as the largest market cap assets in the world.