1. Is there still hope for VC coins in this cycle, and what should the new investment logic be?
The bizarrely high valuation before launch, the lack of liquidity in the circle, continuous secret sales and establishment of mouse warehouses, and the disconnected narrative have all caused this round of VC coins to suffer greatly.
People are investing in more decentralized MEME, although it is a brutal battlefield, it's still better than the VC coins which have a much smaller chance of survival.
However, if the crypto world is truly just a realm of MEME, isn't that sad? Even casinos have about a 50% win rate, but in a MEME casino, anyone participating on-chain has less than 5% win rate.
Of course, as long as there's a golden dog, you can have anything. The survivors of sudden wealth summon gamblers to the table, and PUMP stores have opened branches on every chain.
Is there a problem here? Speaking of dogs, it reminds me of the 'Dog Walking Theory' proposed by the German securities master Kostolany. He likens the owner to the overall economy or a company's fundamentals, and the small dog to the stock market or a company's stock price. When the owner walks the dog, the dog sometimes walks ahead and sometimes behind the owner, just like stock prices can fluctuate wildly in the short term. But in the long run, stock prices ultimately return to fundamentals, just as the dog eventually returns to the owner's side.
The problem with MEME dogs is that it's hard to find a market-recognized Shelin point. The biggest MEME dog is Bitcoin, but at least it found a gold market cap to benchmark against.
What about numerous small MEME coins? WIF depends on the liquidity line from traders? BOME relies on opening price market cap? DOGE relies on how much money Musk has to pump it?
Isn't it all quite elusive?
Then for on-chain dirt coins, the value anchoring point is even harder to define.
This is the problem with MEME.
Of course, looking back at VC coins, most projects seem to have little value apart from the conceptual value of their narratives.
To have profits, there should be revenue; to have revenue, there should be traffic; to have traffic, there should be customers; to have customers, there should be innovation.
The ultimate measure of stock value is profit, while in the last cycle, the value of VC coins in the crypto space was mainly gauged by narrative, background, and exaggerating revenue. This cycle, MEME still employs this logic to predict future prices; it merely finds advantage in decentralization and lack of selling pressure.
However, in this round of VC coins, the selling pressure remains high. So why should I buy when you have selling pressure? The investment logic of VC coins must change! Narratives are just deception; if you're capable, talk about revenue.
Profit > Income > Customers/Traffic > Innovation > Background > Narrative ≈ Deception.
According to this logic, projects that can generate healthy profits on their own; those that may not have profits but have income; and those without profits and income, but are currently seeing a continuous influx of traffic, are poised to make money with just a little more effort. These are points that are easier to anchor, and they should become the main investment logic in the market once the bull market returns.
As for those with only narrative and background, their fundraising scale will not amount to anything significant.
Therefore, in this cycle, real value investment is not MEME, but VC coins with fundamentals, and the investment logic of VC coins must relate to revenue and the traffic that generates revenue!
2. Why is ENA the hope of the entire VC village?
First of all, Ethena is one of the few blockchain projects with income, and it is an extremely stable project.
Since income and profit are the most important, let's first list a few on-chain native projects in the crypto space that currently have revenue (excluding exchanges, mining machine manufacturers, traders, and KOLs).
There are Base, Lido, Aerodrome, Ethena, Solana, Maker, Tron, ETH, and some DeFi protocols like UNI and Aave.
We summarize the above projects into three categories.
The first category includes active public chains like ETH, Solana, and Base, which rely on charging GAS fees. In the future, as a massive influx of traditional internet users pours into WEB3, it will be a game changer, but the timing is uncertain.
The second category includes protocols that provide basic DEFI services and earn service fees, such as Lido, Aerodrome, Uni, and Aave, for example, Lido earns 10% of user staking rewards. The real explosion for these protocols will also have to wait until the first category of public chains surges, dramatically increasing the basic volume, before income can see qualitative leaps; currently, the ceiling is limited.
The third category is to provide stablecoin services as the main source of income, such as Tron, Maker, and Ethena. This type of income is characterized by being not only stable but also having a high ceiling.
Meanwhile, among these projects, according to TokenTerminal data, Ethena is currently the fifth largest income protocol, with an annual income of 93 million USD. After accounting for the costs paid from sUSDe earnings, Ethena's profit is 41 million USD. Other projects may have income, but not necessarily profit, such as Sol and Eth.
Secondly, Ethena is in the sector with the highest ceiling among the above businesses.
The above is a table of several projects' market values and annual incomes compiled by Golden Finance. It can be seen that in terms of income, besides ETH, which is at the ceiling level, the second and third places are occupied by two stablecoin business projects.
Moreover, TRX is not even the company with the highest stablecoin income. Tether's annual income is 6.2 billion USD, and after Binance, it earns the most.
Ethena is now the fourth largest stablecoin asset, with the top three being USDT, USDC, and DAI. Ethena's current stablecoin USDe has a market capitalization of 3 billion USD, while the first place, USDT, has 130 billion USD. What if it only captures 20% of USDT's market share? USDe would have nearly 10 times the growth potential.
Finally, and most importantly, it is currently the theoretically most perfect stablecoin model.
Among these stablecoin businesses, the mechanisms of USDT and USDC are proportionate dollar collateral. Not to mention the historical instances of accounting fraud from both companies, what other benefits are there for users apart from the so-called 'trust' that comes from being large?
You can stake idle USDT and USDC on AAVE or exchanges to earn less than 2% annualized returns. The annualized returns here are mainly due to the borrowing demand generated by a bull market, and most of the profits are taken by the Tether companies themselves, which can be said to bully customers. However, their mechanisms are also difficult to generate arbitrage profits.
The third-ranked DAI essentially belongs to the same category as USDe, as both are algorithmic stablecoins and are native to the blockchain. DAI can provide an annual yield of 8%, which theoretically encroaches on the shares available to the first two companies through arbitrage.
Normal people, if they don't use USDT, should convert it to DAI and then stake it on Maker to gain a significant price difference exceeding 2%. This is the grand strategy behind the increasing volume of DAI stablecoins.
After doing this in July 2023, a number of arbitrageurs quickly relocated.
Additionally, users holding ETH and stETH can earn staking rewards while minting DAI for excess returns.
But DAI is still not the most perfect; the main reason is that it conducts over-collateralization for asset safety, currently at about 170%. This means that if you want to mint DAI worth $100, you must collateralize $170 worth of ETH to prevent issues where the collateral cannot cover the debt in case of ETH price drops.
But this will result in inadequate capital utilization.
Then Ethena found a brand new breakthrough point: stable quantitative arbitrage profits under most market conditions. Many quantitative companies have this strategy, buying one Ether in spot while shorting one Ether, using the Ether's spot as collateral, which means they will never get liquidated. During most market conditions, there are more people going long than short, and at this point, the short position can receive funding rate compensation from long users. This profit is stable, consistently around 10%, and in bull markets, it often reaches 40-60% because there are even more long positions. The off-chain quantitative actions have simply been brought on-chain by Ethena.
Previously, Tether desperately wanted to hold enough dollars to anchor USDT and gain customer trust. DAI guarantees sufficient collateral through over-collateralization, while Ethena only uses a quantitative strategy to ensure that your deposited 1 USDT is always 1 U, increasing capital utilization and providing an annualized return of 13-30%!
An 8% annualized DAI yield is quickly surpassed, not to mention the 2% annualized USDT yield.
Its mechanism is nearly perfect, and unlike LUNA, which is bound to collapse due to its self-defeating structure, the mechanisms here, after research from various parties, currently show no signs of potential collapse. The only issue arises during bear markets, which can lead to decreased earnings and a substantive shrinking of stablecoin volume; we'll discuss this in the next post.
If you bought LUNA at a low point in 2020 and predicted its inevitable death spiral, cashing out in time, the price would have risen by 1000 times.
So what do you think about the high prices of ENA? Are there any ways to earn more beyond just buying in? We will discuss this in the next issue.
