Podcast #3: Investing in the Bull Run - Emerging vs. Established Categories

Yoni Ben Shimon Podcast - featuring Ellis Osborn

In this podcast, I cover my successful investment framework as a ten-year crypto veteran: 

1. Focus on category, team, clout, token, and product

2. Finding category leaders in bear vs. bull markets

3. Divesting: when and why 

Following the previous article, "Imbalanced Memes", I will expand and elaborate on how to invest based on the same idea.

The basic idea is that investors want to get exposure to topics. Some topics have winners, and some still need winners. These discrepancies, which are misalignments between supply and demand, are where lucrative opportunities exist. 

The best-performing assets invent categories and become the leaders of these categories.

Some examples are:

1. ETH of India - $MATIC

2. Play to earn - $AXIE

3. Monolithic that scale - $SOLANA

4. NFT trading - $BLUR

5. DEX - $UNISWAP

How to Spot Monopolies:

90% of the category value usually goes to the category winner.

Now, there is something tricky here: there are established categories and non-established categories. Let's expand.

1. Established Categories:

   a. L1s- $ETH

   b. zk rollups - $STRK / $ZKS

   c. optimistic rollups - $OP / $ARB

   d. ETH of India - $MATIC

   e. Play to earn - $AXIE

   f. Monolithic that scale - $SOLANA

   g. NFT trading - $BLUR

   h. DEX - $UNISWAP

   i. LSD - $LDO

   j. DAG POW blockchain - $KAS

   k. Cross-chain DEX - $RUNE

   l. Metaverse V1 - $SAND / Decentraland

   m. Decentralized perps - SNX / DYDX

   n. Lending protocols: $AAVE

   o. Fiat-Backed Stablecoins - $USDT

   p. Algorithmic Stablecoins - $FRAX

   q. Bribing protocol for stable coins - $CVX

2. Non-Established Categories - Someone Else Can Become the Leader

   a. AI L1 - $TAO

   b. DEPIN $HNT

   c. RWA - $CFG

   d. FHE - Unknown

   e. Restaking - EigenLayer

   f. Modular blockchain - $TIA

   g. Identity - $WLD

   h.Separation of yield and principle - $PENDLE

   i. Payments - Gnosis Pay

Where to build sub-categories (blue ocean ecosystems/categories)

1. Subnets in Bittensor - Bittensor may create a new ai l1 and a new ecosystem; hence, building on top could be lucrative.

2. AVS on EigenLayer - EigenLayer enables a new frontier of dApps that get ETH scale. Creating such dApps is an opportunity.

Sub-categories :

Another thing that is important to understand is that every time there is an ecosystem around a category, there are categories. For example :

1. DEX in a new chain

2. Meme coin on a new chain

3. bribing protocol for a new chain

How to value a category and the associated risk of new categories

1. Value of a category - Most category leaders get a value of 2B USD in a bull market if the category has product-market fit and 30B USD if the category is the hot topic of the day.

2. New categories have the highest return but also the highest risk because this category may not be big or not get validated as people think it will, and then you might lose money.

Investing in Beta Assets:

Another topic to talk about is investing in beta assets. A beta asset is an asset that correlates with something else but usually moves more aggressively. Beta assets are valuable to double down on your conviction.

For example, if you are bullish on Solana, investing in Bonk is a good idea because it has a high Beta. 

Investing in Second Best Assets:

There is a common mistake of wanting to invest in second-best assets. The second-best assets are copycats and usually get less than 15% of the category market cap. It's only worthwhile investing in the second best if you think the category will become more valuable than 30B USD.