Author: IGNAS | DEFI RESEARCH
Compiled by: TechFlow
I feel that the cryptocurrency market is about to undergo a major transformation. I am not sure what will happen, but major changes are happening in the market. For example, interest rates are starting to fall, ETH ETFs are approved, BTC ETFs are seeing an increase in inflows, Stripe is launching stablecoin payments, and so on…
Just like an army deploying before a decisive battle, major cryptocurrency firms and traditional financial institutions (TradFi) are preparing for the coming bull run.
Here's more about that "feeling":
Even though crypto prices are falling, the crypto machine inside has not stopped turning. Markets are always changing, new narratives and trends are constantly emerging and influencing the market as they grow.
Just like MakerDAO was launched before the term “DeFi” was coined, there are new trends emerging in the market right now, although they are not yet enough to form a coherent story.
Here are 7 emerging trends that could significantly impact the market:
1. Brand repackaging
Old coins are boring, and speculators want something new.
Wouldn’t it be more exciting if you could change your brand name, create a new token ticker, and start over with a new chart?
Fantom → Sonic
That’s exactly what Fantom does with the Sonic upgrade.
Sonic is a new L1 with a native L2 bridge to Ethereum. It will have the new Sonic Foundation and Labs, as well as a new visual identity.
What’s more, the new $S token “ensures 1:1 compatibility and migration from $FTM to $S.”
This is a smart move, as the Sonic migration will generate more market heat than simply calling it “Fantom 2.0.” This allows Fantom to move past its Multichain bridge issues and start from scratch.
Connext → Everclear
Likewise, Connext is rebranding as Everclear.
Rebranding is nothing new in cryptocurrency, but an emerging trend here is repackaging major upgrades as new products.
This sends a much stronger signal to the market than just another v2 or v3 upgrade. People won’t get too excited about just another “v4” upgrade.
By switching from Connext to Everclear, the team showed that this was more than just a simple rebrand; it represented a significant step forward in technological advancement.
Connext has evolved from a simple bridging infrastructure to the first clearing layer. It is like a chain itself, built as an Arbitrum Orbit rollup (via Gelato RaaS) and connected to other chains using Hyperlane and Eigenlayer ISM.
Connect any chain, any asset, and get ready for the modular future of cryptocurrency.
NEXT token price rose by about 38% after the announcement (but failed to hold). Fantom’s $FTM was hot again and their interest in X increased.
I expect more protocols to be re-branded to align with market trends and technological advancements through 2024.
For example, IOTA is rebranding as L2 for real-world assets.
Additionally, mergers may become more common, such as Fetch.ai, Ocean Protocol, and SingularityNet merging into one $ASI token, creating a new chart for a crypto super AI project.
The key is to watch the price performance of new branded projects and new token tickers if they launch. While it’s still early, initial price performance of FTM and NEXT, as well as FET, AGIX, and OCEAN, is bullish. If the market starts to rise again…
Are there more repackaging/rebranding coming?
2. Support the regulation of cryptocurrencies
Regulation has been a significant pain point, especially in the United States, with the SEC targeting key players such as Coinbase, Kraken and Uniswap. Despite the victories for Ripple and Grayscale and the approval of a Bitcoin ETF, the regulatory environment remains hostile, focusing more on legitimate projects than outright scams.
But things have changed: Trump has verbally supported cryptocurrencies, forcing the Democratic Party to change its anti-crypto strategy. Biden has accepted cryptocurrency donations. And now, the SEC has dropped its lawsuit against Consensys, effectively recognizing that ETH is a commodity.
The future of cryptocurrencies in the short term will depend on the election. I like Felix (Hartmann Capital)’s analysis and here are the main points:
If Gensler is removed or his power is checked by the courts and Congress, expect a sharp 30%+ rally in crypto assets, followed by a sustained bull run. If he remains in power, expect a prolonged downturn, with law firms benefiting, cryptocurrencies and taxpayers suffering, with only Bitcoin and memecoins relatively unaffected.
Regulatory clarity could lead to the biggest bull run in history, changing the digital asset market in multiple ways:
Shift from narrative to product-market fit: Crypto projects will focus on creating value-driven products rather than just hype, leading to higher quality development.
Clear success metrics: Valuations will rely more on actual product-market fit and revenue, reducing speculation and highlighting tokens with strong fundamentals.
Easier funding environment: Stronger fundamentals will make it easier for digital assets to obtain funding, reducing the cyclical ups and downs of altcoins.
Thriving M&A market: Well-funded projects can acquire underfunded but valuable DeFi protocols, driving innovation and closer adoption, with some Layer 1 blockchains turning acquisitions into public goods to increase network value.
(See Hartmann Capital Research article for details)
3. BTC arbitrage trading: BTC ETF + BTC short
Leverage is always finding new ways into the system. Whether it’s Grayscale’s “widowmaker trades” or CeFi’s (Celsius, Blockfi, etc.) uncollateralized loans.
The mechanics of each cycle are different. So where is the leverage hiding now?
The obvious target is a delta neutral strategy for Ethena. As long as the funding rate is positive, all is well, but if/when the funding rate goes negative, the USDe position needs to be closed?
Another is the re-pledge of LRT.
But another target is our beloved BTC ETF buyers.
Spot Bitcoin ETFs have seen positive inflows for 19 consecutive days, with 5.2% of all BTC in circulation held by ETFs (although this streak has now been interrupted).
So, why didn’t BTC surge?
It turns out that hedge funds are shorting Bitcoin via CME futures at a record pace.
“If massive leverage with low funding is leverage for this cycle, and it already exists” - Kamizak ETH
A possible explanation is that hedge funds are buying spot and shorting BTC with a 15%-20% delta neutral strategy.
(See tweet for details)
The strategy is the same as Ethena. "If a lot of leverage with low funds is leverage for this cycle, and it already exists" - Kamizak ETH
(See tweet for details)
What happens when the funding rate turns negative (because speculators stop being bullish and close their long positions)?
Can Ethena (mostly retail users) and spot BTC + short CME futures (mostly institutions) cause a major crash when positions need to be liquidated?
(See tweet for details)
That’s scary. But maybe there’s a simpler answer: institutions are arbitrageurizing the positive prices between different BTC spot and BTC futures (which are 2.3%).
(See tweet for details)
Regardless, these new dynamics brought on by spot ETFs require close attention, as “risk-free” arbitrage is often “riskier” than initially thought.
4. Gamification of Points Farming
Our points addiction problem is getting worse and worse, but we don’t know how to stop. The protocol needs points to attract the initial user base and increase the valuation by increasing adoption.
(See tweet for details)
We are tired of points, but there is currently no better alternative.
However, I've noticed a trend towards gamification of points, which adds an extra element to the boring points farm strategy.
Sanctum introduces Wonderland, where you can collect pets and level them up by earning experience points (EXP). As a community, you'll need to band together to complete quests.
This isn’t too different from other points programs, as your airdrops are mostly based on deposited SOL, but… the community loves it!
(See tweet for details)
Sanctum only ran its Season 1 event for a month, which also boosted people's favorability towards it.
I'd like to see 0 to 1 innovation with airdrops, but even with points fatigue, our reliance on them is too strong.
Instead, I’d like to see more attempts at gamification to bring some fun to the airdrop.
5. Counter-trend of low circulation and high FDV issuance
No one likes low circulation, high FDV issuance except VC (venture capital) and the team. And there are also people who take advantage of airdrops, and they get more money in airdrops.
But what about retail investors? No. 26 of the 31 tokens recently listed on Binance are down.
Binance used to be the place to buy the hot new token, but that is no longer the case. CEX (centralized exchange) listings have become a “sell the news” and “cash out” event.
Unsurprisingly, Binance recently announced that it would prioritize community rewards over internal allocations, listing tokens with modest valuations.
We are still waiting for this statement to turn into action, but it would be a step in the right direction.
VCs are being blamed. Large VC investments, once seen as a positive sign, are now viewed by the crypto community as value extraction. The concern is that VCs are profiting by selling large allocations they received at minimal cost.
The project team must also take action to prevent the price chart from falling forever.
There are also more experiments on the protocol side. For example, Ekubo on Starknet distributes 1/3 of the tokens to users, 1/3 to the team, and 1/3 to be sold by the DAO within two months.
While not everyone likes the two-month sell-off, it is a bit like the ICOs (initial coin offerings) of the past, dumping tokens to the community.
Similarly, Nostra (also on Starknet) launched NSTR at 100% FDV, with 25% allocated via airdrops and 12% sold during liquidity bootstrapping pool events.
They called it the fairest launch in DeFi, but it introduced initial issues that led to low circulating tokens (teams and VCs cashed out early and exited). Nostra said team and VC tokens will be marked on-chain.
If you see them selling, it's best if you sell too.
We also conducted a 100% airdrop experiment with Friendtech, where Bitcoin Runes were mostly minted by the community for free (although pre-mining of Runes is also allowed).
What will be the outcome? I don’t know. But there is hope.
6. McKinsey enters DeFi
DeFi makes self-sovereignty possible, allowing you to own and effectively utilize your assets regardless of national borders.
But DeFi is getting really complicated! There are so many strategies available, and they are growing in complexity as we try to squeeze out every last percent of yield.
Furthermore, governing these increasingly complex protocols requires specific knowledge.
As a result, consulting firms like TradFi have sprung up to help protocols deal with security, governance, and optimization issues. The most famous example is Gauntlet, which charges its clients millions of dollars per year.
More importantly, DeFi protocols are adapting, allowing the McKinseys of DeFi to manage user assets or/and outsource risk management.
Morpho Blue’s permissionless lending allows the McKinseys of DeFi to create markets with any assets and risk parameters without relying on governance.
The most popular vaults are managed by Gauntlet, Steakhouse, RE7 Labs, and more.
Similarly, Mellow Protocol launched LRTs managed by “curators” to give “depositors more flexibility in their desired level of risk exposure while still benefiting from the liquidity of the staked assets.”
I believe that as DeFi increases in complexity, this trend will grow and further push “DeFi” towards “on-chain finance”.
What are the possible effects of this? One is a migration of power from token holders to professional firms. Will it make tokens less attractive? Or more attractive, as the McKinseys of DeFi help protocols grow in a professional way and increase revenue for DAOs. I don’t know yet.
7. Getting started with Web2-style DeFi
I like this very much.
While Friend tech may have had its issues, it successfully popularized Privy, making it possible to create and manage wallets using Web2 accounts.
During the NFT craze, I helped friends buy NFTs on OpenSea. Teaching them how to use Metamask was such a pain.
But now, you can create a wallet on OpenSea with just your email and 2FA code. Seriously, go ahead and try it, it only takes you a minute.
Fantasy Top is leveraging Privy and other user-facing apps. This trend extends beyond Privy.
Infinex, developed by Synthetix, allows wallet creation using Passkeys, so you only need to use a password manager to manage your wallets.
Coinbase has launched Smart Wallet, which pays gas fees on behalf of users, supports batched transactions, and allows wallet creation using Web2 tools.
Now, complex user onboarding is no longer an excuse for lack of crypto adoption, we just need unique consumer apps.