Written by: pillarbear, Four Pillars
Translated by: Yangz, Techub News
Article Summary
The rules of the narrative game that drives the cryptocurrency industry are beginning to shift, and market participants are developing a meta-awareness of the narrative game itself.
The cryptocurrency industry is in urgent need of applications that can bring block space demand.
The biggest advantage of cryptocurrency is that it can give economic value to any idea and provide a trading platform. Recently, some new experimental forms that take advantage of the attention economy and speculative characteristics have emerged in the market, such as memecoin, social trading, and prediction markets. More diverse on-chain applications and business models are likely to emerge in the future.
Speculation is one of the most powerful features for on-chain applications. The increasing social demand for speculation can attract "degens".
In the long run, the industry’s goal should be to provide value beyond speculation. It is necessary to transform users attracted by speculative demand into users who truly appreciate the core value of the service, build a sustainable token economy, and ultimately provide social graphs and product value beyond speculation.
As Paradigm co-founder Matt Huang said, we are like building a casino on Mars. From redefining currency to reshaping interactions with applications, the systems and mechanisms built by society are being reimagined to adapt to a new paradigm called "Crypto." It goes beyond the scope of technological innovation and embodies different cultural and social significance. For libertarians, cryptocurrency provides a path to free markets and autonomy. For cypherpunks, it provides a censorship-resistant, permissionless network for value exchange. For entrepreneurs, cryptocurrency is the foundation for building the next generation of the Internet. For traders, it is a source of endless dopamine and potential profits. Depending on your personal point of view, the casino built by cryptocurrency will be very different. What do you think about the future shaped by cryptocurrency?
2024 is already halfway through, and looking back, this year has been full of energy, highlighting the multifaceted nature of the cryptocurrency industry. Bitcoin has gained institutional recognition through ETFs. Ethereum has successfully implemented the Dencun upgrade, including EIP-4844. Rollup has been deployed to numerous projects and has become a mainstream solution for launching new chains. Solana has had an amazing revival after a difficult period, and the bull run that began last year has also sparked investors' craze for memecoin and celebrity coins. In terms of applications, we have seen significant developments in the cryptocurrency space. Over time, mainstream DeFi protocols have matured and grown steadily. At the same time, tracks such as SocialFi and narratives such as re-staking and artificial intelligence have emerged, attracting attention and speculation. Compared with the previous bear market, the market has clearly recovered. However, with the recovery, there has also been an unprecedented polarization in the industry.
In the case of memecoin, on one hand, opponents call it pointless speculation, while supporters see it as innovation that is “going to market” and is an example of an emerging model for the attention economy. In addition, when it comes to narrative, the industry is also divided between those who praise the new narrative and the evolution of infrastructure, and those who are tired of the elitism of the field. Since the creation of Bitcoin in 2008, the cryptocurrency industry has traveled a more turbulent path than any other industry, undergoing multiple cycles of growth and recession to become what it is today. When public interest shows signs of waning, the industry will make a dramatic comeback, triggering new narratives and hype. Similarly, the future development of the cryptocurrency industry also contains countless scenarios and possibilities. This article reflects on the narrative games that have driven the development of the cryptocurrency industry to date, explores the latest trends in the changing industry landscape, and considers the direction of the industry.
Narrative Games
It all started with Bitcoin. Since its inception, the cryptocurrency industry has undergone countless developments and changes, but Bitcoin remains the benchmark for the entire industry. As of writing, Bitcoin's market capitalization has reached $1.2 trillion, ranking tenth among all asset classes. And with the approval of spot ETFs, Bitcoin has further consolidated its position as "digital gold." The reason why Bitcoin can achieve a market capitalization of $1.2 trillion is not that it is a business based on operating profits, but that it is regarded as an asset with scarcity and legitimacy. Even Visa and Mastercard, the world's most widely used payment networks, have a market capitalization of less than half of Bitcoin.
Bitcoin was not viewed as "digital gold" from the beginning. In the early days, most people believed that Bitcoin was a new electronic currency or a low-cost payment network. In the early 2010s, Bitcoin was also widely believed to be a darknet currency. However, over time, Bitcoin gradually gained legitimacy, and its narrative shifted from a medium of exchange to a store of value. The second half of the above chart, around 2018, clearly shows that public opinion is more inclined to view Bitcoin as an asset class rather than a payment network. Although the above chart does not show data after 2018, the argument that Bitcoin is "digital gold" has not only persisted, but has also continued to strengthen.
Satoshi Nakamoto’s insight into Bitcoin is that the essence of money stems from social consensus. The blockchain is just a cryptographic implementation of social consensus between participants. The value of such a network depends on how the participants value the network. If Bitcoin was viewed simply as a payment network or darknet currency, rather than a narrative of value storage, it would have been difficult to achieve its current value. Bitcoin’s success set the standard for subsequent protocols and tokens. Like Bitcoin, most tokens in cryptocurrencies have both commercial and asset characteristics. In addition, the censorship resistance and permissionlessness of the blockchain provide the basis for anyone to issue tokens and allow others to trade tokens. In order to increase the value of the token, each protocol needs to get more people to identify with its vision and believe that its token has value.
As a result, a unique culture of “narrative gaming” began to prevail throughout the cryptocurrency industry. Emerging industries often value future potential more than immediate actual benefits to users. In the cryptocurrency space, however, this narrative-driven approach has taken hold. Marketing strategies based on compelling stories have been effective since the dawn of the ICO craze, when people rushed to publish white papers, and even today. In the cryptocurrency space, the most influential figures have always been philosophers, researchers, and thought leaders. The tendency to idolize these figures has become one of the industry's most defining characteristics.
Additionally, narrative games are particularly effective because the majority of participants in the cryptocurrency market are investors and traders. The success of crypto narrative games is about more than just effective marketing campaigns. Their biggest advantage is their permissionless nature and ownership model, which allows anyone to tokenize any idea and give it economic value. How convincing and engaging the narrative a project can present will be a key factor directly tied to its market value. As token prices rise and trading volume increases, traders will constantly look for the next fascinating story, and projects create an endless cycle to provide these narratives. The cryptocurrency industry maintains its growth in a cycle of new narratives emerging and disappearing.
The memecoin craze since the beginning of this year has exposed the narrative game nature of the cryptocurrency industry. The fact that these tokens that offer little actual utility or vision are sought after in the market fully demonstrates that narrative games are still the dominant force driving the development of the cryptocurrency market. The rise of memecoin is not just due to speculation. It also reflects a criticism of the elitism of pursuing complexity in cryptocurrency and the market imbalance between retail investors and VCs. As the industry matures, truly innovative narratives are becoming fewer and fewer.
More and more projects are using subtle differences to label themselves as the next "blockchain revolution." This has led to oversaturation of platforms, excess block space, and fatigue with repetitive narratives. In addition, mainstream projects can obtain exaggerated valuations from VCs even before launch and try to control prices through limited circulating supply. This situation makes it difficult for many retail investors to participate in the narrative game.
The meaning of cryptocurrency narratives and the way practitioners consume these narratives are changing. It is unclear how long the old routine of creating new stories to justify high market capitalizations can continue. But we also cannot expect new technological innovations or business models to emerge every week. The cryptocurrency industry has always been based largely on narratives based on technological breakthroughs and capital efficiency. Now, investors and users seem to have a meta-awareness of the narrative game itself. The narrative game of cryptocurrency seems to be developing in a polarized way. One side complains that new innovations and narratives are not as good as before, while the other side continues to hype up newly emerging memecoins and popular projects, and then watch them burst like a bubble. In the near future, we may see this change become more obvious.
Where are we now?
Since its inception, the narrative game of cryptocurrency has undoubtedly played a vital role in building the foundation of the industry. More than just maintaining token prices, the cryptocurrency industry needs goals and visions to prove its existence and potential, especially in the face of fraud, speculation, and regulatory pressure. Many people have embraced the vision of blockchain and Web3, and they are committed to promoting the development of the industry and have played an important role in shaping the current form of the industry. However, the technical limitations of blockchain and Web3 are obvious. For everyday applications, the network speed with sufficient security and censorship resistance is too slow and too expensive. During the DeFi and NFT Summer, the single transaction fee on Ethereum easily exceeded US$100.
Fortunately, thanks to the efforts of engineers and researchers, blockchain technology has steadily moved forward. Now, a secure and scalable blockchain space has become a reality. Most L2 or high-performance chains have transaction fees of less than $0.01 and speeds comparable to traditional applications.
Looking back, Bitcoin has been around for 16 years and Ethereum has been around for 9 years. Over the years, the cryptocurrency industry has gone through several cycles of infrastructure and application development, with both technological advances and decline caused by greed. In the initial stages, the industry developed relatively slowly due to a lack of demand and the resources required for research and development. With the DeFi and NFT Summer of 2020, the demand for applications began to explode, but there were insufficient systems to support this demand. At that time, we deeply felt the need for stable and scalable infrastructure.
The crypto winter after 2022 marks a period of rapid development of blockchain infrastructure. Rollup, data availability layer, and ZK technology have entered the commercialization stage from the research stage. The market has actively adopted these innovative technologies. Integrated chains such as Solana have attracted new users with their low-cost and fast transactions. High-performance chains such as Sui and Monad have also attracted people's interest and are expected to launch more applications in the foreseeable future. The development of infrastructure and applications complement each other. There is no saying that one is more important than the other and one needs to be developed first. Applications stimulate the demand for infrastructure. In turn, advanced infrastructure lays the foundation for new applications.
YouTube was born in 2005 instead of 1995 because of the widespread availability of broadband infrastructure, which in turn was made possible by the success of early web companies like Amazon and eBay.
There is still a lot of room for improvement in blockchain technology. We look forward to seeing wider adoption of networks that provide better user experience and security. However, it is undeniable that the narrative of the cryptocurrency industry has focused too much on technological improvements and ideological concepts. Now, it is time for crypto industry applications to inspire the development of infrastructure. Most importantly, we need applications that can bring block space demand.
As mentioned earlier, there has always been a market demand for new narratives in the cryptocurrency industry, and this tendency is particularly strong in the Web3 environment where value accumulation is concentrated at the protocol layer. Therefore, almost out of inertia, the industry continues to show a preference for platforms and infrastructure, the emergence of applications is relatively lagging, and the impact on users is also underestimated.
Following the Ethereum Dencun upgrade earlier this year, Vitalik Buterin gave his thoughts on the future direction of the cryptocurrency industry. Today, I would like to say that we are clearly on the right side of this S-curve, the deceleration period. As of two weeks ago, the two biggest changes to Ethereum, the switch to proof-of-stake and the re-architecting of blobs, are a thing of the past. Further improvements will still be important, but will not have the same drastic impact as proof-of-stake and sharding. Ethereum's first decade was largely a "practice" phase, with the goal of getting Ethereum L1 off the ground and applications mainly used by a small group of enthusiasts. Until a few years ago, we were setting a low bar for ourselves, building applications that were obviously not going to be used at scale, as long as they worked as prototypes and were reasonably decentralized. Now, we have most of the tools we need to build cypherpunk-style, user-friendly applications. We should just go for it, and developers have no excuses.
If broken down by track, tokens as stores of value (such as Bitcoin) and stablecoins as a means of payment have entered a mature stage. Stablecoins have become on-chain reserve currencies and are actively adopted by countries with unstable currencies such as Latin America or Africa. The DeFi field has also emerged from the disillusionment stage, and the business of mainstream projects has stabilized. Token Terminal data shows that MakerDAO generated $3 million in revenue in the first quarter of 2024, an annualized rate of approximately $12 million. However, the token has a market value of only $20 billion and a price-to-earnings ratio of approximately 16. Even compared with traditional fintech companies, this does not seem to be overvalued. On the other hand, for a wider user base, applications in some areas are still limited. NFT seems to be experiencing a "disillusionment."
After the bull market in 2021, except for a few core IPs, most NFT projects have failed to gain social favor. In addition, even though the market has high hopes for games, the performance of this track is not optimistic and has been greatly neglected by users. As for other tracks, such as artificial intelligence, DePIN, and social, they have either not yet reached the peak of hype or are just in the starting stages of innovation.
The cryptocurrency industry has passed a critical threshold. Despite various challenges including the Terra and Luna incidents, the collapse of FTX, a severe macro environment and regulatory pressure, cryptocurrencies continue to move forward. Even in extreme hypothetical scenarios, it becomes extremely unreasonable to imagine the collapse of the entire industry. But it is undeniable that the application of blockchain is still mainly limited to the financial and trading fields, catering to a limited user group and lacking mainstream appeal.
The current cryptocurrency industry is at a crossroads and is likely to continue in its current state, with only incremental improvements in mature areas such as tokens as a store of value or DeFi. This does not mean that there is no point in continuing to play the role of a currency market, but that if it continues, the cryptocurrency industry will only be an enthusiast-driven market, just like the poker or marijuana industry. Cryptocurrency has huge potential as an application layer. Ideally, by leveraging this well, we may well usher in the adoption of mainstream applications and the emergence of new business models.
Tokenizing Everything
Traditionally, only those individuals or businesses with capital and labor have leverage. However, the popularity of software and media has broken this situation. Software enables any individual with very little capital to develop applications and services, which has brought innovation and the birth of numerous platforms and SaaS products. The widespread use of platforms such as YouTube and Instagram can expand personal influence, triggering a "Cambrian Explosion" of influencer markets and small media. The greatest value provided by cryptocurrency is the ability to assign economic value to any idea and provide a trading platform. In traditional systems, the formation of markets requires the intervention and permission of intermediaries to maintain economic value and mutual trust. However, blockchain technology provides the basis for tokenization, allowing users to exchange economic value with others and form markets through the Internet without having to trust others or obtain permission from others.
The term "meme" was first proposed by Richard Dawkins in his book "The Selfish Gene". It is a concept similar to genes, which transmit genetic information through physical means. In society, meme is a cultural unit that can represent a certain idea, trend, fashion taste, etc. Later, meme adapted to Internet culture and was widely used with its current meaning. Meme, like genes, spreads through social interactions and continues to evolve in the process of copying, modification and reproduction.
Recently, Michael Rinko of Delphi Digital highlighted in his article “Attention is all you need” that cryptocurrencies give economic value to people’s ideas and interests, allowing users to own and profit from their interests. On Instagram, we follow brands and influencers. But the most I can do is retweet and share that content with my friends. 100% of the value of our attention is earned by others. Unlike cryptocurrencies, cryptocurrencies democratize attention and allow us to own it. If you find yourself spending a lot of time on a few topics, you can truly own your attention and profit from it. This is obvious and seemingly stupid, but it represents a major shift in internet economics. Memecoins take the “attention is value” framework to an extreme. They offer the purest way to buy a token because you think it will attract attention in the future.
It’s important to understand that memecoins themselves are not the most important thing. They are ultimately just a meme, and once they become boring, they will quickly fade from people’s sight. What memecoins show is the raw potential of tokenization, hinting at the possibility of new types of applications. From identity to data to the maker economy, the ability to assign economic value to attention paves the way for unprecedented markets and applications. This is particularly evident in the first half of 2024. The cryptocurrency market has become active again, and applications that convert people’s attention into speculative demand have grown rapidly.
Solana’s pump.fun became the primary platform for launching memecoin, generating the highest fees of any protocol at one point.
Friend.tech and Fantasy.top integrated social trading features linked to Twitter and generated strong speculative demand, achieving $65 million in fees and over $36 million in trading volume, respectively.
Farcaster-based Scenecoin DEGEN has attracted a large number of users and activities through innovative airdrops and community incentives, contributing to the success of the Farcaster ecosystem.
Polymarket saw a significant increase in activity and trading volume during the U.S. presidential election, with $100 million in trading recorded in June alone.
TON’s Hamster Kombat has achieved 100 million users thanks to its simple functionality and seamless integration with Telegram.
While this list is not exhaustive, the launch and experimentation of applications both large and small continues. Although the industry has existed for more than 10 years, the work of developing applications that leverage the unique characteristics of cryptocurrency has just begun. The range of unique user experiences that on-chain applications can provide is still undetermined. We should attach greater importance to these initiatives because they provide meaningful experimental results for how cryptocurrency applications can meet user needs and adapt to the market. We look forward to more experiments in the underexplored areas of cryptocurrency social, gaming, NFTs, and prediction markets.
Speculation is a feature, not a bug
Blockchain is a backend technology. In addition to application-specific chains, most networks provide a general execution environment and database for applications to run. In principle, most applications we use daily can run on blockchains. Just as software no longer uses its ability to run on mobile devices or use the cloud as a marketing keyword, cryptography should not be a vocabulary to describe application functions. Eventually, "blockchain" or "cryptocurrency" will no longer be used to describe applications, and users should be able to use applications without knowing the underlying chain or wallet. When someone wants to launch a product or service, no one asks why they should release it online. Because deployment costs are lower, it is faster, and except for special circumstances, customers can enjoy greater convenience and accessibility than offline. Similarly, it is foreseeable that running applications on the chain will eventually be seen as a natural thing. As the use of wallets in permissionless markets and interconnected application ecosystems becomes common, we will no longer question why applications need to run on the blockchain. However, in the current limited blockchain environment, such an assumption is nothing more than a hope. The current blockchain development environment is still challenging, and users are not only unfamiliar with wallets, but also tend to avoid them. Except for a small number of enthusiasts, most users need strong motivation to use on-chain applications. It’s not just a matter of increasing adoption by 10% or 20%, we need user experience and functionality that can only be achieved in an on-chain environment.
Most users in the industry are airdrop "hunters" and traders whose main purpose is to meet speculative needs. People who pursue cryptocurrency ideals believe that such speculation goes against the essential purpose of cryptocurrency and try to distance themselves from these practices. However, we need to re-evaluate the role these "degens" play in the industry. It is no exaggeration to say that the cryptocurrency industry is built on the injection of capital through speculation. The fact that most on-chain transaction volumes are based on speculative demand, arbitrage or MEV profits cannot be ignored. Infrastructure without users is worthless, and there is no doubt that Degens are an important pillar of the cryptocurrency industry.
During the NFT Summer of 2021, many companies and brands teased and excitedly entered the cryptocurrency industry. However, it was not Disney that ultimately succeeded, but Pudgy Penguins. Cryptocurrency has reached a level where it can sustain growth on its own. Compared to external entities entering the cryptocurrency industry, outward expansion through successful products within the industry may be a more likely way to achieve mainstream adoption. Ultimately, Degens are the early adopters and basic user base of all on-chain applications, and meeting their needs should be the first step in verifying product-market fit.
The preference for speculation is not limited to cryptocurrencies; it is a social phenomenon. Rising economic inequality and shortened attention spans due to social media have led to an increasing risk tolerance for investment assets. In the 1970s, the average American held a stock for five years, but by 2020, that number had dropped to 10 months. It would be a mistake to accuse Generation Z of being unfocused or a gambler simply because of their high risk appetite. In most major countries today, it has become more difficult for younger generations to live better than their parents. With a clear understanding that labor income cannot exceed capital income, many investors invest with the philosophy of "nothing to lose". They don't have much chips, but if they don't bet actively, their chances of surviving at the table will become increasingly slim. While the current situation is undoubtedly dystopian, the high volatility of tokens is also seen by many as an opportunity to reverse their fortunes.
Easily accessible speculative assets like memecoins have proven to be a major means of attracting new users to the cryptocurrency industry. Driven by the Solana ecosystem memecoin craze, Phantom Wallet ranked third in the US App Store's utility rankings with 7 million monthly users. Users attracted by speculative demand will unconsciously learn about digital ownership, wallets, and markets while using the app, thereby integrating into the culture and potentially converting into organic traffic.
While most on-chain applications have attracted a lot of attention in the short term by leveraging unique user experience and speculative demand, their lifecycles are often short due to their crude design and highly speculative nature. However, it would be too hasty to conclude that on-chain applications cannot achieve structural retention. The reasons for the short lifecycle of on-chain applications include: most of the user base consists of degens and traders, who have very low product loyalty; very little time and resources are allocated to product development compared to infrastructure development; and most products are overly focused on short-term speculation rather than long-term utility. In the end, I would like to say that if speculation is the only use of cryptocurrency, then I will not contribute to this industry. However, in order for cryptocurrency to realize the vision of Web3 and make general applications such as games and social platforms within reach, we must consider not only the goals but also the feasible paths to achieve them. Given the current industry and social environment, speculative demand seems to be the most powerful tool that cryptocurrency can use. However, in the long run, users attracted by speculative demand must be converted into users who truly appreciate the core value of the service, so as to establish a meaningful funnel and promote interactions beyond speculation. In addition, a token issuance and distribution framework needs to be developed that can withstand short-term fluctuations in price and demand, ultimately providing social graph and product value that goes beyond speculation.
End of the Prologue
People's emotions fluctuate even more violently than token prices. When prices fall, everyone will sentence the market to death. Bitcoin has passively "died" every year since its birth. I believe that the cryptocurrency industry has developed to a level where it can operate and develop without outside interference. However, the next two to three years will be a critical period that determines whether the industry can realize the Web3 vision and become mainstream. If the fit of important products and markets cannot be verified within this cycle, then there is no excuse.
It’s been 10 years since the launch of Ethereum, the first general-purpose blockchain. Despite extensive research and development over the years, and the ups and downs of the industry, it’s only recently that Ethereum has evolved into a technology that can be reliably used by real users. While token prices and narrative games have always driven the industry, now more than ever, the focus should be on the product and its impact on real users.
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