Crypto Infrastructure, DePIN, and Identity: Insights from Austin Barack of Relayer Capital

In a recent episode of Unlayered, host Saul sat down with Austin Barack, formerly of Coinfund and now the founder of Relayer Capital, to discuss the evolving landscape of cryptocurrency infrastructure, decentralized physical infrastructure networks (DePIN), and digital identity. The conversation provided deep insights into the current state and future prospects of various blockchain ecosystems, with a particular focus on Solana and Avalanche.

Relayer Capital: A New Venture in Crypto Investment

Austin Barack recently launched Relayer Capital, a new fund that aims to capitalize on the growing opportunities in the cryptocurrency space. The fund employs a hybrid liquid venture strategy, focusing on fundamental, thesis-driven investments in key verticals and ecosystems. Barack's approach is to double down on areas he finds most exciting, building on his experience from his time at Coinfund.

Solana and Avalanche: Complementary Ecosystems

One of the most intriguing aspects of Barack's investment thesis is his bullish stance on both Solana and Avalanche. He sees these two ecosystems as complementary rather than competitive:

"Solana is this monolithic chain where everything is moving at the speed of light, everything is incredibly cheap and all interactions are entirely composable. And then Avalanche with a parallel scaling via parallel chains and having incredibly customizable, flexible and very levels of permissioning app chains that are really suitable for tri-fi applications, asset tokenization, loyalty engagement, gaming and others."

This perspective highlights the diverse approaches to blockchain scaling and how different architectures can cater to various use cases.

The Solana Advantage

Barack's enthusiasm for Solana is particularly noteworthy. He points out that Solana's technical architecture enables a wide range of applications that are simply not feasible on other networks. The phrase "only possible on Solana" has become somewhat of a meme in the crypto community, but Barack argues that it's grounded in reality:

"When you look at the number of deep in applications that are building on Solana or migrating to Solana because of the throughput and capacity, you know, lack of limitations on Solana, what we're seeing with compressed NFTs and how that makes it so much easier for builders of a number of different applications beyond just like PFPs and art to develop NFTs, what we're seeing with novel DeFi systems, that really was evidence to me that we would see this massive growth later on because we had this pipeline of builders and we had such a robust tech stack."

This technical superiority has translated into real-world adoption, with Solana recently surpassing Ethereum in DEX trading volume, a significant milestone for the ecosystem.

Avalanche's Unique Value Proposition

While Solana excels in high-throughput, composable applications, Barack sees Avalanche as particularly well-suited for applications requiring customization and permissioning:

"There are going to also be applications where the level of composability that's required isn't necessarily as high. But also applications are looking to have distinct tokenomics that they're for their specific blockchain. They're looking to have different levels of permissioning, different levels of KYC, custom VMs."

This flexibility makes Avalanche attractive for traditional finance applications, loyalty programs, and other use cases that require more control over the blockchain environment.

The Evolution of Layer 2 Solutions

The conversation also touched on the development of Layer 2 solutions, particularly in the Ethereum ecosystem. Barack discussed the importance of shared sequencing and decentralized sequencing in improving interoperability and composability across different Layer 2 networks:

"With the shared sequencer what that allows for is transactions to be ordered across multiple environments often in a decentralized way and that what that would permit is composability across these different environments because they're being ordered in a shared way."

This advancement could potentially address some of the fragmentation issues currently facing the Ethereum ecosystem as it scales through Layer 2 solutions.

DePIN: Decentralizing Physical Infrastructure

Decentralized Physical Infrastructure Networks (DePIN) represent an exciting frontier in the blockchain space. Barack highlighted projects like Helium and HiveMap as examples of this trend. These networks aim to create decentralized alternatives to traditional infrastructure services, potentially disrupting established industries.

However, Barack also acknowledged the challenges in fully decentralizing services that involve physical assets and human interactions, such as ride-sharing:

"There's the decentralized network that matches cars with drivers and drivers with riders and all of the routing. But on the other hand, you need to do quality checks. You need to make sure that you have safety guarantees that you have the right drivers on the network. That's something that's a lot easier to do on the network. That's a lot easier to do on the centralized side."

He suggests that a hybrid model might be the most practical approach, where decentralized protocols handle core functionalities like matching and payments, while centralized entities provide value-added services like safety checks and customer support.

The Impact of Bitcoin Spot ETFs

Looking ahead to 2024, Barack is particularly excited about the potential approval of Bitcoin spot ETFs in the United States. He draws parallels with the introduction of the first US-based spot gold ETF in 2004:

"I think we could see pretty similar, if not faster inflows, than what we saw with GLD in 2004 with what we could see with the Bitcoin spot ETFs. And there we saw $1 billion in the first few days."

This influx of institutional capital could have a significant impact on the broader cryptocurrency market, potentially driving Bitcoin to new all-time highs and benefiting the entire ecosystem through the "wealth effect."

Predictions for 2024

Barack shared several predictions for the cryptocurrency space in 2024:

1. Increased adoption of parallelization strategies by blockchain networks.
2. A focus on sub-cent transaction fees, enabling new use cases.
3. Growth in ecosystems that address tokenomic friction points.
4. Active monetization of oracle services.
5. Experimentation with user onboarding and incentive design systems.
6. Targeted airdrops for Solana ecosystem participants, potentially exceeding $25,000 in value.
7. Evolution of on-chain derivatives trading, potentially capturing a larger share of the overall crypto derivatives market.

These predictions paint a picture of a maturing industry that is addressing technical challenges, improving user experience, and creating new economic models.

The Importance of Network Effects and Developer Ecosystems

Throughout the discussion, Barack emphasized the critical role of network effects and robust developer ecosystems in the success of blockchain platforms. He noted that while technical innovations are important, the ability to attract and retain developers is equally crucial:

"You need to build a developer network effect and you need to build all of the tooling that makes it easier for developers to build. And you need to have indexing and you need to have oracles and you need to have all of these primitives and systems in place so that you don't necessarily have to chew glass."

This observation underscores the importance of comprehensive ecosystem development in addition to core protocol improvements.

The Future of Digital Identity and Privacy

The conversation briefly touched on the evolving landscape of digital identity and privacy. Barack recounted a recent experience at an airport where facial recognition technology was used for identity verification:

"I was going to show the person my identity. I was going through security checks and I was going through my ID. My boarding pass. I don't need that. The camera scanned my face and said you're good to go."

This anecdote highlights the rapid advancement of biometric technologies and raises important questions about privacy and data security in an increasingly digital world. The cryptocurrency industry, with its focus on decentralization and user sovereignty, may play a crucial role in shaping the future of digital identity systems.

Conclusion: A Bullish Outlook for Crypto in 2024

As the conversation concluded, Barack expressed a decidedly bullish outlook for the cryptocurrency market in 2024. He cited the potential approval of Bitcoin spot ETFs, maturing DeFi and NFT ecosystems, and the emergence of new use cases as key drivers for growth. His prediction that the market could reach new all-time highs this year reflects a growing confidence in the fundamental value proposition of blockchain technology and its potential to disrupt traditional financial systems.

The insights provided by Austin Barack offer a comprehensive view of the current state and future prospects of the cryptocurrency industry. From the complementary strengths of Solana and Avalanche to the potential impact of Bitcoin ETFs and the evolution of DePIN networks, the conversation painted a picture of an industry on the cusp of significant growth and maturation. As we move further into 2024, it will be fascinating to see how these predictions and trends unfold in the dynamic world of blockchain and cryptocurrency.

Facts + Figures

• Austin Barack recently launched Relayer Capital, a hybrid liquid venture strategy fund focusing on key verticals in the crypto space.
• Solana and Avalanche are highlighted as complementary ecosystems, with Solana excelling in high-speed, composable applications and Avalanche offering customizable, flexible app chains.
• Solana recently surpassed Ethereum in DEX trading volume, indicating growing adoption and liquidity.
• Less than 2% of crypto derivatives trading currently happens on-chain, presenting a significant growth opportunity.
• The first US-based spot gold ETF (GLD) saw $1 billion in inflows in its first few days in 2004.
• Barack predicts that Bitcoin spot ETFs could see similar or faster inflows compared to the gold ETF launch.
• The value of airdrops for Solana ecosystem participants in 2024 is predicted to potentially exceed $25,000.
• Barack forecasts that the crypto market could reach new all-time highs in 2024.
• Parallelization of blockchain execution is becoming a major trend, with multiple networks adopting this strategy.
• The importance of sub-cent transaction fees is emphasized as enabling new use cases in crypto.
• Oracles are expected to begin actively monetizing their services through OEV (Oracle Extractable Value) and revenue sharing.
• Hybrid models combining decentralized protocols with centralized value-added services are proposed for DePIN applications like ride-sharing.
• Shared sequencing is highlighted as a crucial development for improving interoperability and composability in Layer 2 ecosystems.
• Facial recognition technology is being deployed in airports for identity verification, raising questions about privacy and digital identity.

Questions Answered

What is Relayer Capital?

Relayer Capital is a new fund launched by Austin Barack, employing a hybrid liquid venture strategy. It focuses on fundamental, thesis-driven investments in key verticals and ecosystems within the cryptocurrency space, with a particular emphasis on Solana and Avalanche.

How do Solana and Avalanche complement each other?

Solana and Avalanche complement each other by addressing different needs in the blockchain space. Solana excels as a high-speed, low-cost monolithic chain with full composability, making it ideal for DeFi and other applications requiring rapid, cheap transactions. Avalanche, on the other hand, offers customizable app chains with flexible permissioning, making it suitable for traditional finance applications, asset tokenization, and use cases requiring more control over the blockchain environment.

What is the significance of Solana surpassing Ethereum in DEX volume?

Solana surpassing Ethereum in DEX volume is a significant milestone that demonstrates the growing adoption and liquidity of the Solana ecosystem. It validates Solana's technical architecture and its ability to handle high-throughput, low-cost transactions, which are crucial for decentralized exchanges. This achievement also suggests that Solana is becoming increasingly competitive with Ethereum in the DeFi space.

How might Bitcoin spot ETFs impact the crypto market?

Bitcoin spot ETFs could have a substantial impact on the crypto market by providing easier access for institutional investors. Based on the historical precedent of gold ETFs, there could be rapid and significant inflows of capital into Bitcoin, potentially driving up its price. This influx of institutional money could also have a "wealth effect," benefiting the broader cryptocurrency market and potentially pushing it to new all-time highs.

What are some key predictions for the crypto space in 2024?

Key predictions for 2024 include: increased adoption of parallelization strategies by blockchain networks, a focus on sub-cent transaction fees, growth in ecosystems addressing tokenomic friction points, active monetization of oracle services, experimentation with user onboarding and incentive design systems, valuable targeted airdrops for Solana ecosystem participants, and evolution of on-chain derivatives trading to capture a larger market share.

What is shared sequencing and why is it important?

Shared sequencing is a method of ordering transactions across multiple Layer 2 environments in a decentralized way. It's important because it allows for improved interoperability and composability across different Layer 2 networks, potentially addressing fragmentation issues in the Ethereum ecosystem as it scales through various Layer 2 solutions.

How might DePIN networks evolve to handle physical world interactions?

DePIN networks may evolve towards hybrid models that combine decentralized protocols with centralized value-added services. For example, in a decentralized ride-sharing service, the core matching and payment functions could be handled by a decentralized protocol, while centralized entities could provide additional services like safety checks and customer support. This approach balances the benefits of decentralization with the practical needs of managing physical world interactions and safety concerns.

What challenges do new blockchain platforms face in attracting developers?

New blockchain platforms face challenges in building comprehensive ecosystems that make development easier and more attractive. This includes creating robust tooling, ensuring proper indexing, integrating reliable oracles, and establishing all necessary primitives and systems. Without these elements, development can be difficult and time-consuming, making it harder to attract and retain talented developers. Successful platforms need to focus not just on core protocol improvements, but on creating a developer-friendly environment with strong network effects.