By Regan Bozman

Compiled by: TechFlow

Leaving cold and rainy Brussels for sunny climes. The mood at ETH CC was generally positive - there were a lot of signs of optimism (hat tip to @megaeth_labs ), but there was definitely a lot of uncertainty (and probably a bit of boredom). Here are some of the takeaways from our time over waffles, lambic, and fries:

In my opinion, the most valuable part of crypto conferences is doing a vibe check. Is everyone excited? If so, what is the reason for the excitement? People can say they don’t care about crypto prices, but in my experience, vibes tend to have a strong positive correlation with prices!

The current market sentiment seems to be quite exhausted, and most people are in the following mood:

The biggest concern of every pre-launch founder is how to avoid the current terrible token issuance model. FYI, my opinion may be a bit biased because people seem to love talking to me about this topic.

All the founders I spoke to on ETH CC were frustrated with the current points and airdrop issuance strategy, but challenging the status quo is very difficult! Even if you don’t want to do points, if your competitors are doing it, you have to do it. The same is true for airdrops - crypto users expect them, and projects are afraid that users will leave without them.

Even founders who want to do things differently still use the airdrop strategy. In my opinion, permanently allocating 5% of tokens to weak hands is a stupid move, but the token issuance model is also difficult to change!

I’ve had dozens of these conversations over the past few weeks, and most founders want to do a token sale, realizing that it better aligns the community in the long run, but there are insurmountable challenges to doing so.

(A) Lawyers advise against token sales.

(B) Exchanges advise against token sales (because they believe this will bring increased regulatory scrutiny).

Exchanges are the kingmakers and it’s hard to go against the lawyers. This makes innovation in this category very difficult right now in my opinion.

The current market issues remain everyone’s primary concern - founders issuing tokens, venture capitalists, and limited partners.

People are now (correctly in my opinion) focusing on the supply-demand imbalance in terms of liquidity and the “wall of unlocks” rather than the low float/high FDV myth.

Interesting that founders are now attracting liquidity funds pre-launch to try to line up secondary demand. No one was doing this a year ago. This year is going to be a good year for @Arthur_0x.

This is a smart strategy because liquidity funds are probably the easiest lever to pull demand in the public markets, but they have a limit to what they can do. I don't want to pick on Arbitrum because they do a lot of great work, but taking $ARB's market liquidity as an example, there is $50-100 million unlocked per month. Assuming half of that is sold, that means there is $25-50 million of selling pressure. Even if all liquidity funds buy ARB, it may not completely offset this selling pressure, and this is just a token.

Limited partners (LPs) are realizing this and are allocating more capital to liquid funds. While this is still relatively small relative to the venture portion, it is clearly on a growth trajectory. There is room for VCs to innovate, and currently 20% of our portfolio is liquid assets (which is the industry standard). I think this could be increased to 40%, but LPs generally don’t like to go beyond the norm, so this is difficult to achieve.

My guess is that founders will get more creative here, and we may see some pre-token generation event (pre-TGE) deals where the fund also agrees to buy a certain amount of tokens on the secondary market, but I haven’t seen this yet.

On the product side, Ethereum’s focus right now seems to be on solving the current fragmentation problem through abstraction. This is a great direction! But in the short term, fragmentation still has clear economic incentives, so it’s a hard problem to solve. The trend in the Ethereum Virtual Machine (EVM) over the past few years has been fragmentation — different second layer (L2) solutions, zero-knowledge proofs (zk) with optimistic rollups, etc. There is a clear economic incentive to do this: building your own infrastructure can get higher valuations in the public market. But it also fragments liquidity and creates a bad user experience.

Now, the entire ecosystem, from wallets to L2, is pushing for abstraction and reintegration.

On the wallet side, teams like @rhinestonewtf and @safe have been pushing ERC 7579, aiming to achieve ecosystem-level interoperability for smart wallets.

This is one of many efforts by Ethereum to reverse fragmentation at the wallet level.

Polygon and zkSync are also promoting their own horizontal expansion solutions.

In the long term, I hope one of these schemes succeeds, but there are still a lot of economic incentives for fragmentation over the next few years.

I spoke with some LPs at the conference and found that the optimism that LPs had about returning to crypto in the first quarter has slowed.

To outside observers, Bitcoin reaching $100,000 seems far away. This, coupled with the lack of new market narratives, makes the market environment even more difficult.

Following the ETH Denver conference in February, I predicted that there would be a massive influx of money into crypto venture capital funds in the second half of this year.

But now I think that will happen as early as the fourth quarter, more likely in the first half of 2025.

There is a dislocation in the market and many crypto VC funds are in the last 25% of deployment, so more capital will be needed in the next six months, but LPs want to see allocations first.

VCs need the market to pick up before they can allocate. The macro backdrop could improve soon, we could break out to new all-time highs, or we could have a breakout app by the end of the year. I think at least one of these is fairly likely.

If not, I can foresee a slowdown in VC deployment as VCs have to extend their current funds.Finally, can we do away with these boring discussion panels?

No one likes listening to these discussion groups, it's the laziest form of content. Either focus on actually teaching people something, or create an environment where people can communicate freely!

Anything in between is a waste of time. I'm still looking forward to what's to come, there's a lot to be excited about.

Those who want to complain about Brussels on Twitter are not going to succeed (Not Gonna Make It).