Written by: Ignas
Translated by: Yangz, Techub News
I have a feeling that something big is going to happen in the cryptocurrency industry. As for what exactly will happen, I don’t know, but it should be some very good news. Rate cuts have begun, Ethereum spot ETFs have been approved, Bitcoin spot ETFs have seen an increase in capital inflows, Stripe has launched stablecoin payments... Like an army squaring up before a decisive battle, major cryptocurrency companies and TradFi are preparing for the coming bull run. At the same time, the internal machinery of cryptocurrency has not stopped running. Although the market has fallen, so what, new narratives and trends will continue to emerge, and the market will continue to change with them. Just as MakerDAO was launched before the term "DeFi" appeared, new trends are currently emerging in the market, but these trends are too small to form a narrative. Here are 7 emerging trends that could have a significant impact on the market.
1. Repackaging
Old coins are boring, but new coins are always refreshing. What if a project could rebrand, change the token code, and start over with a new chart? This is exactly what Fantom did with the Sonic upgrade. Sonic is a brand new L1 that crosses to Ethereum through a native L2. Sonic has a new Sonic Foundation, Sonic Labs, and a new visual identity. More importantly, the new S token is compatible with FTM and can be redeemed 1:1. This is a smart move by Fantom, which will generate more market hype than simply calling it "Fantom 2.0" and allows it to put Multichain's past behind and start over. Similarly, Connext is renaming itself Everclear. Rebranding is nothing new in the cryptocurrency space, but the emerging trend of repackaging major upgrades into new products can send a stronger signal to the market than a simple v2 or v3 upgrade. After all, people won't be too excited about another "V4" upgrade.
By switching from Connext to Everclear, the team is saying that this is more than just a simple rebranding, but rather represents a significant step forward in technological advancement. Connext has moved from being a simple cross-chain infrastructure to a clearing layer. It is itself built like a chain, in the form of Arbitrum Orbit Rollup (via Gelato RaaS), and connected to other chains via Eigenlayer ISM and Hyperlane. This move is not only aimed at connecting any chain, any asset, but also at enabling the future of modular cryptocurrencies. After the two teams announced the news, the price of the NEXT token rose by about 38% (although it did not hold), while Fantom's FTM trading was hot again and the number of mentions on CT also increased. In my opinion, there will be more protocols rebranding in the future to adapt to market trends and technological progress in 2024. For example, IOTA is building L2 for real world assets (RWA). In addition to rebranding, protocol mergers will also become more common, such as Fetch ai, Ocean protocol, and SingularityNet completed the merger of the Alliance of Artificial Super Intelligence (ASI).
2. Clear cryptocurrency regulation
Regulation of cryptocurrencies has been a big issue, especially in the United States, where the SEC has targeted major players such as Coinbase, Kraken, and Uniswap. Despite some wins for Ripple and Grayscale, and the approval of a Bitcoin spot ETF, the regulatory environment remains tough. Thankfully, things have changed: Trump’s support for cryptocurrencies has forced Democrats to change their anti-crypto strategy. Biden has begun accepting crypto donations, and the SEC has closed its case against Consensys, saying it “will not allege that the sale of Ethereum constitutes a securities transaction.” The short-term outlook for the cryptocurrency industry will depend on the election. I strongly agree with the views of an analysis article from Hartmann Capital. The article states that if Gensler is ousted or his power is checked by the courts and Congress, crypto assets are expected to rebound sharply by more than 30%, followed by a sustained bull market. If he remains in power, a long-term downturn is expected in the market, from which law firms will benefit, while cryptocurrencies and taxpayers will suffer, with only Bitcoin and memecoins relatively unaffected. Regulatory clarity could lead to the biggest bull run to date and transform the digital asset market in several 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 measures of success: 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, thereby reducing the cyclical rise and fall of altcoins.
Thriving M&A market: well-funded projects can acquire underfunded but valuable DeFi protocols, driving innovation and closer adoption, with some Layer1s transformed into public products to increase network value.
3. Bitcoin arbitrage trading: Bitcoin spot ETF + Bitcoin short
Leverage always finds new ways to slip into the system. Either it’s a “widowmaker trade” in Grayscale or unsecured lending in CeFi (Celsius, Blockfi, etc.). The mechanics are different in every cycle. But where is the leverage hiding now? The obvious ones are Ethena’s Delta Neutral strategy (all good as long as the funding rate is positive, but what happens when the funding rate is negative and the USDe position needs to be liquidated?), followed by re-collateralization using LRT, and finally Bitcoin spot ETF buyers. The Bitcoin spot ETF has seen 19 consecutive days of net inflows, and the Bitcoin held in the ETF accounts for 5.2% of the total Bitcoin in circulation (although the current upward trend has been broken). So why hasn’t Bitcoin soared yet? The reason is that hedge funds are shorting Bitcoin through CME futures at a record pace. A possible explanation for this behavior is that hedge funds are buying spot ETFs and shorting Bitcoin to achieve a 15%-20% Delta neutral strategy.
This strategy is the same as Ethena. But as Kamikaz ETH points out, “What if massive leverage with low funding is leverage for this cycle and already exists?” What happens when funding turns negative (investors are no longer bullish and close long positions)? When these positions need to be closed, will Ethena (led by retail) and spot BTC + CME futures shorts (led by institutions) cause a major crash?
That’s scary. But perhaps the lighter answer is that institutions are arbitrage trading Bitcoin spot and futures.
Regardless, we need to keep a close eye on these new developments with Bitcoin spot ETFs, as “risk-free” arbitrage often ends up being “riskier” than initially imagined.
4. Gamification of Points
Protocols can use points to attract an initial user base. Points also help increase adoption, thereby increasing valuations. But the phenomenon of point addiction has become increasingly serious, and considering that there is currently no better alternative, point gamification may add an extra element to the boring point strategy. For example, Sanctum launched the Wonderland game, which allows users to level up by collecting pets and earning experience points (EXP). Then the community teams up to complete tasks. This is not much different from other point projects, because airdrops still depend on accumulated SOL, but... the community likes this mechanism! The fact is that Sanctum only took one month to complete the first season of promotion.
I hope to see innovation from 0 to 1 in the airdrop mechanism. We are tired of points. I hope more projects will try to gamify points and bring some fun to the airdrop.
5. Resist the issuance of low circulation and high FDV
Except for venture capitalists, teams, and airdrop hunters, almost everyone hates the low-circulation, high-FDV token issuance mechanism. Binance, which used to buy popular new tokens, recently adjusted its listing strategy due to user resistance to the issuance of low-circulation, high-FDV tokens. It decided to list tokens with moderate valuations and prioritize community rewards rather than internal distribution.
There is still some work to be done on this, but at least we have taken a step in the right direction. Venture capital firms are also to blame for the low circulation and high FDV token issuance mechanism. Venture capital was once seen as a positive signal, but the cryptocurrency community now sees it as a value extraction. The concern is that VC firms aim to profit by selling large allocations of tokens that they obtained at minimal cost.
In addition, project teams must also take action to avoid a situation where tokens continue to fall. Projects can and do have more attempts. For example, Ekubo on Starknet distributed tokens evenly to users, teams, and DAOs within two months. Nostra (also on Starknet) launched NSTR with 100% FDV, of which 25% was allocated through airdrops and 12% was sold in liquidity bootstrap pool activities. In addition, there are experiments with FriendTech's 100% airdrops, and the community's free minting of Bitcoin runes (although runes are also allowed to be pre-mined). The impact of these token issuance methods is still uncertain, but keep an eye on new token issuance models. A new and successful issuance method may become a new primitive for this bull market.
6. The McKinsey of DeFi
The emergence of DeFi helps to achieve self-sovereignty, where people can own and effectively use their assets without being restricted by national borders. However, as we hope to squeeze every penny of profit, DeFi strategies are becoming more and more complex. As a result, consulting firms like TradFi have emerged to help protocols deal with security, governance, and optimization issues. For example, Gauntlet charges clients millions of dollars in fees each year. More importantly, DeFi protocols are also being adjusted to allow the "McKinsey" in DeFi to manage user assets and externalize risk management. For example, Morpho Blue's permissionless lending allows the "McKinsey" in DeFi to create markets with any assets and risk parameters without relying on governance. Among them, the most popular treasuries are managed by Gauntlet, Steakhouse, RE7 Labs, etc.
Similarly, Mellow protocol launched LRT, which is managed by “curators”, giving “depositors more flexibility in how they want their risk exposure while benefiting from the liquidity of the staked assets.”
I believe that as DeFi increases in complexity, this trend will become more and more obvious, and will further push "DeFi" towards "on-chain finance", transferring power from token holders to professional companies. As to whether this will make tokens more popular, I don’t know yet.
7. Web2-like DeFi entry barriers
While Friend Tech may have had issues, it has successfully popularized Privy, enabling people to create and manage wallets using Web2 accounts. To be honest, during the NFT craze, I would rather help my friends buy NFTs directly on OpenSea than teach them how to use MetaMask because it was really troublesome. Now, with Privy, we can create a wallet on OpenSea with an email and 2FA code, and the whole process only takes a minute.
And this trend isn’t limited to Privy. Infinex by Synthetix allows wallets to be created using Passkeys, so users only need to use a password manager for their wallets. Coinbase has also launched Smart Wallet, which pays gas fees on behalf of users, supports batch transactions, and allows wallets to be created using Web2 tools. Complex user logins are no longer an excuse for the lack of adoption of cryptocurrencies. What we need are unique consumer applications.
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