Token Advice - #4 📈

Hey everyone,

👋 Welcome to another monthly edition of Token Advice!

❓ So what is Token Advice? In short, Token Advice is a curation of what the 401 Financial team is reading, writing, listening to, and thinking about at the intersection of crypto, financial planning, and traditional finance. We didn’t see a newsletter that consistently combined these 3 topics, so we created one for you.

Our normal newsletter layout includes 4 insights, 1 bonus, and a curation of links at the end. As we sunset 2022 and look to 2023, we’ll be doing a special edition of Token Advice laying out 3 key themes we see going into the new year. We hope you enjoy!

Before we dive in, here is a quick update on 401 Financial!

🟪 401 Financial

Tyrone joins Yahoo Finance to discuss the state of crypto and where the space goes from here. 💡

Tyrone & our good friend Adam Blumberg of Interaxis join Marc Nichols on Arbor Digital’s podcast to talk all things crypto adoption. 🌱

Peter Tuchman, the most iconic trader on Wall Street, joins Tyrone for the latest episode of Queue and A. 🔥

Personal Finance Articles, Tips, & Tools 💳 🧰

• Taking a Sabbatical 📖

• Investment Mistakes to Avoid 📖

• Money Tips 🧵

• Frameworks for Spending Time & Money 🎧

• Tax for Remote Workers & Digital Nomads 🧰

👇 Now let’s dive in.

3 Key Themes for 2023 👀

🏦 Self-Custody + Wallet Infrastructure/UX

On January 3, 2023, Bitcoin will celebrate it’s 14th birthday of the genesis block. Yes, Bitcoin is still just a teenager! A highly volatile one that’s experienced multiple boom and bust cycles throughout it’s 14 year life. It’s important to note that while the price of Bitcoin has been volatile all these years, the underlying core technology has remained steady. Block by block, Bitcoin continues to give anyone with an internet connection access to a global financial system. This was the genesis of crypto, to allow people to opt out of the traditional gatekeeper financial system and into a new open and transparent system. Over the last 5 years or so, we’ve witnessed an explosion of development on blockchains such as Ethereum to expand crypto use cases further than peer-to-peer payment. One such area we’ve noticed SIGNIFICANT improvement is wallet infrastructure.

Self-custodial wallets have come a long way in recent years, especially with the emergence of decentralized applications (dapps) that require users to connect a wallet. In the past, wallets were mainly used for storing crypto, but not necessarily for interacting with various protocols such as Aave or Uniswap. Now, wallets serve as a central hub for interacting with the decentralized web, or what some would refer to as “web3".

Some of our favorite wallets:

• Coinbase Wallet

• MetaMask

• Ledger

• Safe

• Argent

Will 2023 be the year the “everyday user” begins to self-custody their cryptoassets? Will the FTX catastrophe that transpired in November speed up the shift? In our view, the answer to both of these is yes. Once people don’t even realize they’re using the blockchain, that’s when mass adoption occurs.

The focus on user experience is taking hold in crypto and we believe this “win over the customer at all costs” mentality will likely lead to “wallet wars” over the next few years. Builders we’ve spoken with in this area are hell bent on creating intuitive, easy-to-use, secure wallet applications that can be setup in less than a minute. A big reason centralized exchanges still dominate most of the market share today is because the user experience is friendly. Once decentralized UX catches up, we believe users will choose a trustless environment on-chain over a trust-based one off-chain. We’re keeping an eye on companies such as Magic that are driving this shift, allowing users to create a self-custodial wallet using only their email or phone number. This *feels* more like the online environment people are used to.

As of today, the vast majority of web3 applications are built for desktop users. However, the focus has now shifted to developing mobile-friendly solutions that can help bring decentralized technologies to the masses which in our view will have a significant advantage over desktop-based solutions. Per Bankmycell, over 6.6 billion people have a cell phone. It’s no secret that the vast majority of people prefer to take care of things on their phone. It’s easy and convenient. The web3 world is catching up in this area and we believe we’ll see protocols and wallets prioritizing this in 2023 and beyond.

We couldn’t bring up wallet infrastructure without talking about security and it’s barrier to self-custody. Historically, wallets have used a seed phrase (a series of random words that can be used to restore a wallet) as their standard practice for securing self-custodial assets. However, the reliance on a single seed phrase to secure a wallet has been problematic from a user experience standpoint as it puts the burden on the user to protect the phrase. In 2023, we expect developers to continue to explore alternatives such as “account abstraction”, which allows users to create multiple accounts within a single wallet, each with its own seed phrase and set of keys. This enables users to compartmentalize their assets and reduce the risk of loss or theft, while still maintaining a convenient and user-friendly experience. If you would like to read more on how account abstraction could change the game, check out Argent’s article here.

Lastly, one of the major challenges facing the adoption of decentralized finance is the lack of seamless and convenient fiat on and off-ramps. Currently, most users seeking to enter the world of DeFi do so by going through centralized exchanges or through a costly middleman such as Ramp or Moonpay. Once someone experiences the ease of transacting on a centralized exchange they may never take the next step of moving their cryptoassets on-chain. This can lead to missed opportunities, such as staking or lending the assets, and also could be detrimental in the event an exchange fails. The great news is that many companies are building solutions for this!

To name a few:

Stripe

Juno

Overall, the future of wallet infrastructure looks bright, with a focus on improving user experience, security, and accessibility. As DeFi continues to mature, it is likely that we will see new solutions emerge that we haven’t even thought of at this point in time. Who knows, we may not even be calling them “wallets”, “web3”, or “DeFi” in the future. One thing we do know is that innovation is continuing unabated regardless of price. We’ll be keeping a close eye all the way through.

📱 Real-Time Interactive Financial Planning

2022 was a groundbreaking year for 401 Financial as we launched the firm and built an entirely new client experience that consists of tools the RIA space hasn’t used prior. We’re beyond excited to continue building in this area and providing our clients an elite mobile, interactive financial planning environment. We believe the majority of the RIA space will push forward in this area as well, creating a truly collaborative environment with clients. At 401 Financial, the two main tools we utilize to provide this experience are Kubera and Notion.

Within each section of a client’s financial plan in Notion, they have the option to track progress, set to-dos, make adjustments, interact with embedded websites (i.e. search for high yield savings accounts on Bankrate directly within your plan) and interact with us in a mobile-friendly environment. Similar to what we discussed above, we know that mobile solutions are necessary to provide the best client experience possible. Kubera & Notion have best-in-class solutions for this, allowing clients to check their financial plan and real-time net worth from the front page of their smartphone or tablet.

Aside from building on the client side, our Notion wizard Amber has also streamlined other firm processes in Notion as well. We anticipate 2023 to be a year that more companies utilize embeddable, customizable UX to drive productivity. Here are some of the additional areas that 401 Financial uses Notion for:

Finally, financial planners are beginning to meet new clients where they are versus only having a physical location for them to walk into. We believe the rise of remote-first and asynchronous work will lead to remote-first and asynchronous financial planning as well. Heck, even the 401 Financial team has only met in person a few times! We’re in a new era. Given that many within younger generations are spending more of their time online, we believe it will be crucial for advisors to look to new channels.

Over the last few years, we’ve seen the rise of individuals on “FinTwit” sharing their knowledge day-to-day. The networking and learning opportunities are immense and Twitter has served as a great prospecting tool for many, including us. In 2023, we believe more firms and individuals will get involved in meeting clients and prospects where they are. At 401 Financial, we’re taking steps to expand online, such as setting up a Pinterest page, a Discord channel, and a Podcast (we know, ANOTHER podcast 😉) to name a few.

In summary, we’re excited about the future of financial planning. By embracing new technologies and engaging with clients in new ways, our industry can help the upcoming generations achieve financial freedom, purpose, and fulfillment.

➕ Consolidations & New Entrants

During bear markets as valuations plummet, companies that have excess liquidity go shopping and build for the potential next bull cycle. Additionally, companies are often more likely to pool resources and come together in order to survive. In 2023, we are anticipating more of this activity to take place.

It’s no secret that large traditional finance players have been interested in the crypto space for quite some time. Regulatory concerns over the classification and custody of cryptoassets have left many on the sidelines. However, in November we saw a huge leap with Fidelity rolling out their crypto offering in the U.S.

We believe it’s likely that more traditional finance companies will make inroads into crypto in 2023 and see the FTX fallout as a potential catalyst for new entrants to thrive in an increased regulatory environment.

In addition to financial firms, consumer brands are beginning to embrace the unique advantages that blockchains can have on customer loyalty programs. In 2022 alone, Polygon added Nike and Starbucks among others to build out on-chain rewards.

This is an area we’ll continue to watch closely throughout 2023. In hindsight, bear markets have historically offered ample opportunities for companies to step in and build the future they hope to see.

That’s a wrap for our key themes to watch in 2023 across crypto, financial planning, and traditional finance! We wish you a healthy, happy, and prosperous 2023!

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This newsletter is copyrighted by 401 Financial, LLC. It is published and provided for informational and entertainment purposes only and not for individualized investment advice.  Please go to our website, www.401financial.co for additional information.