Breaking bottlenecks and embracing transformation.
Author: Jesse Walden
Compiled by: Shen Chao TechFlow
In the past two years, the cryptocurrency industry has experienced a period I call the 'integration phase.' During this phase, the industry's focus has been more on optimizing existing technologies rather than new innovations from 0 to 1.
This integration and optimization is mainly reflected in three key areas of the cryptocurrency industry:
Infrastructure: Improvement and optimization of underlying technology.
Application scenarios: Clarifying and deepening existing core use cases.
Long-term winners: Emergence of projects and technologies with sustained competitiveness.
Infrastructure optimization: Moving towards 2024
The infrastructure of the cryptocurrency industry has been continuously optimized and is now mature, no longer a major obstacle to industry development. This maturity is due to ongoing technical optimizations rather than a completely disruptive architectural revolution. These optimizations lay the foundation for the industry to embrace the potential next round of 'bull markets,' in which:
The blockspace of blockchains is abundant, capable of accommodating more transactions.
Development tools are more refined, providing convenient support for developers.
Users' transaction fees are close to zero or even completely free.
The complexity of wallet usage has been effectively simplified, lowering the user threshold.
The user experience of on-chain applications can now match that of traditional Web2 applications.
In fact, the abstraction, performance enhancement, and reliability improvement of infrastructure in this phase have only developed over the past 12-18 months. For example, Ethereum L2s (Ethereum Layer 2 scaling solutions), improvements in the reliability of the Solana network, and wallet abstraction technologies have only recently reached production-level maturity.
Integration of application scenarios and long-term winners: Trends in 2024
Currently, two core application scenarios have entered maturity: speculation and stablecoins.
These two scenarios have existed since the inception of the cryptocurrency industry. Bitcoin has been the first speculative asset in the cryptocurrency industry since its launch in 2009. Stablecoins, on the other hand, are among the earliest realized token applications (e.g., USDT launched in 2014). Now, the development of these two fields is entering a golden phase, closely related to the optimization of infrastructure.
For example, Memecoin, as the most direct manifestation of speculation, has now become very low-cost and easy to create and trade. Similarly, the issuance and trading of stablecoins have also become more convenient due to advancements in technological tools. Tools like Bridge have greatly simplified the issuance and trading processes of stablecoins, making these operations easy and efficient.
In the extended fields of speculation and stablecoins, another integration trend is gradually emerging: those 'long-term winners' that have performed well recently are continuing to expand their advantages and achieve greater success. These projects include blockchains (like Solana and Ethereum), wallets (like Phantom), and decentralized exchanges (DEXs) (like Uniswap and Raydium). They not only benefit from the rapid growth of stablecoins and speculative markets but can also quickly adapt to popular speculative hotspots in the market (e.g., whether it’s Memecoin or NFT).
The next stage of the cryptocurrency industry: Breaking bottlenecks and embracing transformation
As infrastructure bottlenecks gradually become a thing of the past, the industry faces two major bottlenecks that urgently need to be overcome. These two bottlenecks are not only the reason for the integration-optimization phase but also hinder the industry's new innovations from 0 to 1.
The first bottleneck is a challenging and uncertain regulatory environment. However, this situation may be changing. The cryptocurrency industry may soon welcome a clear framework for regulation in the United States, which will provide fertile ground for outstanding projects in the industry while eliminating bad actors.
High-performance infrastructure and a clear regulatory environment are the two key factors driving the transformation of the industry, with the core of this transformation lying in addressing the last and most critical bottleneck: talent.
Since 2022, the number of new talents entering the cryptocurrency industry has significantly decreased. This phenomenon is not difficult to understand, given the negative public opinion environment and the risks faced by founders under uncertain regulatory frameworks, which have deterred many. However, the lack of new talent directly restricts the generation of new ideas within the industry.
I believe that as the industry environment improves, this trend will reverse next year and be divided into two phases:
Long-term winners that have performed well during the integration phase will continue to expand their advantages and achieve success beyond expectations. For example, Polymarket performed impressively during this election cycle, and similar cases will continue to emerge in the future. This trend will benefit from the mainstream application of on-chain technology, whether at the consumer or institutional level. Startups will face a wave of IPOs, and more projects will launch their own tokens. These developments will redefine people's perceptions of the influence of the cryptocurrency industry and inspire a new generation of builders to join this field, injecting fresh vitality into the industry.
A brand new group of entrepreneurs will enter the cryptocurrency field. They will start from the most basic principles (i.e., first principles), no longer constrained by traditional infrastructure and old concepts. Under clear regulatory rules, experiments around a new type of product experience centered on 'user ownership' will become feasible. This will bring a new wave of innovation to the industry.
Although the price fluctuations in the cryptocurrency market will continue, with new regulations, new talent, and new ideas emerging, we hope to clarify whether the cryptocurrency industry can transcend speculation and stablecoins in the next five years, providing more profound value. At the same time, we also look forward to 'user ownership' becoming the core of new products and networks, driving faster growth by aligning with users' economic interests. The successful validation of breakthrough applications will be the key pathway to reducing long-term market volatility. I personally look forward to witnessing the development of this process, as I believe the next few years will be a critical window for the development of the cryptocurrency industry.
At the annual meeting on Tuesday, I shared these views with Variant's investors. But I also need to add one point: My biggest concern is that before the industry shifts from the integration-optimization model to the 0 to 1 innovation model, there may be another rapid cycle of price volatility. If this happens, it could delay the pace of innovation in the industry—however, I still believe that the next five years will be an important window for the development of the cryptocurrency industry.
