1 Great Reason Why DeFi and Crypto are Such a Revolutionary Investment Opportunity | by Henrique Centieiro | Dec, 2022

Crypto and DeFi is the 5th industrial revolution. I’m extremely excited about this idea.

Asymmetric opportunities come from disruptive technologies. All the big fortunes were generated from investing in the early stages of technologies that were revolutionizing the world.

These technologies have something in common: efficiency. At any point in time, new technologies that are better, faster, and cheaper create a new wave of innovation.

In this article, I will give you ONE single indicator to spot disruptive technologies. We can spot these new waves of innovation by looking at one important indicator: NIPE — Net Income Per Employee OR Revenue Per Employee.

Let’s take a look at some examples of innovation leaps that significantly improved the Revenue Per Employee (and efficiency) of certain industries:

• Engines allowed the industrialization of agriculture and the creation of factories, where 1 machine operated by 1 person can do the work of 100 people. Happened 200 years ago.
• Electric production lines allow 1 factory operator do the same work as 50 manual workers. Happened 100 years ago.
• Computers and software allow 1 person to do work that before would require hundreds of people. Happened 40 years ago.
• AI and Big Data are also replacing repetitive jobs like factory operators, cashiers, insurance underwriting, drill operators and even farm labor. Happening for the last 10 years approx.
• DeFi and crypto is ____________________________. Happening right now.

You can fill in the blanks, but you better continue reading. I wanna show you part of my DeFi investment thesis.

The biggest fortunes ever created were generated by entrepreneurs spotting early innovation cycles. That was true 200 years ago and it’s true now.

The list is big, but John D. Rockefeller spotted the need for oil and fuel in the rapidly growing industrialization back in the 1800s. Andrew Carnegie, with the steel and railroad revolution. Henry Ford created the production line that allowed to reduce the time to build a car from more than 12 hours to only 1 hour and 30 minutes. Elon Musk has a tech company that builds autonomous electric vehicles. They were all early in the respective innovation cycles.

These are all innovations that brought significant efficiency to the world. They are faster, better and cheaper.

Faster, better and cheaper ways to do things generally can be measured by a better NIPE — Net Income Per Employee OR Revenue Per Employee. Disruptive innovations always bring more efficient ways to do things. That also means that humans are replaced by machines, computers, AI or smart contracts.

Better NIPE not only means that these new disruptions are very interesting for investors but also for people that work in these industries. It means better salaries and better working conditions.

(side note: I’m really not afraid that AI, machines, or smart contracts will make everyone’s job obsolete and unemployed. That’s not how it works. 220 years ago, 75% of the population worked in agriculture. Thank God and thanks to innovation, people have been switching to jobs that are better for our spirit and that don’t break our backs as much. AI will replace many jobs, yes, especially the repetitive ones. This will liberate us and allow us to dedicate our time to bigger and more interesting problems/industries.)

As we said before in this article, disruptive technologies are the ones that generate big fortunes. First movers and risk-takers are the ones that hit the home runs.

If you want to have a low-risk (also low-return) investment, businesses in the textile sector, railroads, and utilities (water, electricity, or waste management) are great options. You can’t expect great returns, but they are low risk.

On the other end, you have very new industries. The ones that still need to be matured. If you are early into these technologies, you take big risks. But the returns can also be exponential! These new early technologies also offer better NIPE. More on that later.

If you believed in early-stage disruptive technologies…

• If you believed in Apple Computers and bought the stock in 1985 (when I was born), it would have returned 131 000%.
• If you believed in Google in 1999 like Shaquille and other angel investors believed (yes, Shaq is one of the greatest investors alive), investing at a $100 valuation, the return would be 11600x of your initial investment. The average Google angel investor invested $50 000, which is now worth $75 million.
• If you invested in Tesla pre-IPO in 2006 at a $250 million valuation, the multiples on investment would be 1600x.

The same is happening in the crypto and DeFi space. The good news is that it’s very easy to get exposure and invest in this market. Most people would not have access to invest in Apple in 1985, Google in 1999, or Tesla in 2006. But anyone can invest in crypto and DeFi. It’s permissionless and public. All you need is a crypto wallet and an exchange. But before talking about returns, let’s look at some numbers.

If there’s a good indicator of a disruptive technology that can bring investors amazing returns on investment, I would say it’s the Revenue per Employee or Net Income per Employee — NIPE (whichever is available).

If you are looking at investing in individual businesses, looking at the NIPE, and understanding how many employees they have to produce x revenue is a great indicator. The FANG companies above, the bit-tech companies, present amazing NIPE numbers when compared to traditional sectors. 20 years ago, the chart above would look very different. How will it look in 10 or 20 years? What businesses will be able to scale even better?

Understanding what the top NIPE companies will be in 20 years will definitely help you to place your bets in the industries and projects that will give you those outlandish returns.

Can we have some clues?

Crypto, blockchain, smart contracts, DeFi. They create a ton of efficiency leaps!

The top examples in the chart above: dYdX, Uniswap, Yearn, Aave, and Compound are DeFi applications whose operations rely 100% on Smart Contracts rather than humans. That’s why they have amazing NIPE.

Considering what we see above, can we start calling DeFi, crypto and smart contracts on the blockchain the 5th industrial revolution?

Compared to traditional businesses and traditional financial institutions, Smart contract-based applications are way less reliant (or zero-reliant) on staff for their operations.

The nature of DeFi applications allows them to run 24/7 with an almost real-time settlement anywhere in the world. Smart contracts on the blockchain fully automate blockchain applications and Decentralized Finance.

1. What happens if, one day, no one shows up to work in a bank? Clients can’t transact at all. Everything stops. Cataclysm!
2. What happens if no one shows up to work on a DeFi application? Business as usual. Users will not notice.

DeFi applications won’t skip a bit. They are autonomous, thanks to smart contracts. They can process millions of dollars every day without the need for employees and operations.

Of course, DeFi applications (and generally crypto applications) continue to need some staff: they need marketing staff, community managers, developers to improve the platform, etc., but for sure, they don’t need operations staff.

Considering that DeFi applications are automated by smart contracts, they are hyper-scalable. Even more scalable than SaaS models.

In traditional SaaS models, when the company that sells software X grows, it will still have to hire more people and increase its OpEx (Operational Expenditure). They will need to hire more engineers and architects, need to provision more robust infrastructure, servers, etc..

However, a DeFi application running with 10 people can process a daily volume of $1 million, $10 million or $100 million, almost with no need to increase their costs! It’s magic and revolutionary.

There are cases where a smart contract developed by a single developer processes billions of dollars worth of transactions. DeFi has the potential to be many times more scalable than the traditional financial industry and more scalable than traditional SaaS models.

So, this is why I’m bullish on crypto, blockchain and smart contracts. It’s not AI who is going to take bank clerks’ jobs. It’s blockchain and DeFi. DeFi is faster, better and cheaper.

Today, most financial products are already present in DeFi: exchanges, lending, central banks, currency, asset management and even insurance. They can also do it infinitely more efficiently and scalable.

This is why DeFi and crypto are the next innovation cycle and can be a revolutionary investment opportunity.

There are other big adoption drivers for DeFi and crypto. The fact that it’s decentralized with no single point of control, censorship-resistant, permissionless, super transparent and offers composability. But I will leave these characteristics for another article.

DeFi-related tokens and crypto are very risky investments. Just like the cars were a risky investment 100 years ago. Just like the internet was a risky investment 30 years ago. BUT one thing we can be sure about: DeFi provides huge efficiency leaps. We can measure it with NIPE. and it’s happening.

Not financial advice, but it looks like a clue!

If you’re interested in Blockchain, Crypto, NFTs, Metaverse, Fintech, and DeFi, don’t forget to check out my highly-rated and super fun courses:

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