THE DIGITAL ASSET SPACE
Digital assets are positioned on the technology adoption bell curve where the internet was in the mid 90s. The total market cap of digital assets stands at approximately 2 trillion, representing a critical level of adoption and market proof while maintaining significant upside potential. Long exposure to digital assets presents an asymmetric and generational risk/reward opportunity. A handful of digital assets will dominate the enterprise blockchain solution ecosystem and the store of value asset space. The SWIFT system, clearing houses, centralized ledgers, contracts, and physical stores of value represent $200+ trillion in antiquated systems and networks ripe for disruption. The efficiency, security, and adaptability of the blockchain and trustless systems at large has led to its early adoption and aggressive growth within these spaces. Whereas the ability to invest in the internet is limited to its secondary applications (Search: $GOOGL; Social Networks: $FB; Retail: $AMZN), digital tokens allow investment in the technological protocol itself, the analogous equivalent of owning a share of the internet. Digital asset value increases in proportion to the square of the number of users. This network effect, ‘Metcalfe’s Law’, is exponential in nature, homologous with the internet.
INVESTMENT THESIS
Decimus understands blockchain’s disruptive potential as infrastructural not superficial. Whereas most ‘disruptive’ technology today comes in the form of faster, safer, or more comfortable ‘trains’, distributed ledger technology (‘DLT’ i.e. Blockchain) is poised to disrupt the ‘rails’ themselves. When Robinhood democratized trading, they did so via a gamified and user-friendly interface necessarily built upon the antiquated clearing house system. Despite Robinhood’s UI enabling instant trading of both securities and derivatives, the back-end still remained very much undisrupted, requiring two days for transaction settlement (‘T+2’) and culminating in their January 2021 liquidity crisis and Gamestop trading-halt fiasco.
Continuously innovating on top of antiquated systems not only exposes the weaknesses or obsolescence of those systems but also places an inherent cap on innovation-- much like inventing a train so fast it melts the rails. DLT is fundamentally and infrastructurally disruptive because it is a hard pivot from antiquated systems to one which, in our present conception, has no structural innovation cap. We’ve been breeding faster horses, creating more comfortable saddles and coaches, but what about the internal combustion engine? DLT will usher in a whole new era of technological disruption and innovation, a ‘Fourth Industrial Revolution’.
A common theme underpinning disruptive technologies is the eventual emergence of a ‘winner’-- one solution to an antiquated system or process which gains critical network traction, user adoption, and market dominance. The aim of Decimus is to determine and invest in ‘winners’ within given blockchain application spaces: Decentralized Finance, Digital ID, Supply Chain, Remittance, Interoperability, Smart Contracts, and novel applications.
This is more easily said than done. In November 2007, Forbes featured Nokia on its cover, captioned: ‘One billion customers-- can anyone catch the cell phone king?’ Today, Nokia’s share in the mobile phone space is negligible, while Apple and Google’s smartphone products dominate nearly 100% of the market. The concept of a ‘winner’ is fluid and Decimus’s successful execution of this strategy necessitates constant oversight of investment fundamentals and an ability to pivot between market leaders as they reach critical adoption inflection points.
Early investment in disruptive technologies comes with an inherent degree of volatility. Amazon saw a 90% retracement during the Dot-Com Bubble and has experienced several 30-50% draw downs since. Bitcoin has retraced 80%+ three times since its inception in 2009. Holding through the volatility would have yielded 189,000%+ and 1,000,000%+ total returns respectively.
Reasoning by analogy in these cases ‘ignores the graveyard’ and is logically fallacious. Decimus’s strategy does not consist of a hard-headed buy and hold approach. The lesson to be extracted from these examples comes not from analogy but from first principles: that despite adverse market conditions, the fundamental value propositions of these two disruptive smartphone solutions, unlike Nokia, went unchanged. Sometimes those value propositions, their relevance, or the system which they aspire to disrupt do change. In such instances, as with Nokia, pivoting to a new leader is necessary, and the information required for making that pivot is often available, if not obvious, before the decline occurs.
Our thesis is this: that distributed ledger technologies pose enormous disruptive potential; that their disruptive potential is not superficial but infrastructural; that winners will emerge in each given space; that yesterday’s winner may not be tomorrow’s; that fundamental changes in one winner’s product or application space is the cause to sell or pivot; and that an absence of those fundamental changes, despite adverse market conditions, is cause to hold.