Author: David Hoffman, Bankless; Translated by: Song Xue, Golden Finance

2023 started with some of the most pessimistic sentiment and ended with the most optimistic expectations we have ever seen.

As we head into the 2024 bull run with renewed anticipation, it’s time to focus on some of the key investment themes that will shape the new year. Stay ahead of the investing world by understanding these six narratives that will dominate in the coming months!

1. Re-staking and Liquidity Re-staking Token (LRT)

The meta message of re-staking is already getting louder and louder, and EigenLayer hasn’t even entered the mainnet yet. With over $1 billion deposited in EigenLayer contracts today, the competition to become a significant player in the EigenLayer ecosystem is already fierce.

So the Liquid Stake Token (LST) war is about to restart once again, but this time, it will be the LRT war. Liquid re-staking tokens will have all the benefits of native ETH staking plus additional benefits generated by adding the re-staking network. Why would anyone settle for 5% LST yield when they can earn more with LRT yield?

What are LRTs, you ask? They are like LSTs, but contain the yield generated by EigenLayer inside. EigenLayer makes AVS (Active Validation Services, the EigenLayer network) possible, all of which generate some yield or fees for people who re-stake their ETH. People who re-stake may re-stake their ETH to multiple AVS to maximize the productivity of their staked ETH and increase their yield.

That being said, being able to perform this task securely and efficiently as a service will be valuable to non-technical users like me, because we know that others can do it better. And this is where LRTs come in. LRTs aggregate user deposits, re-stake them on the EigenLayer network, capture all the yield, and pass it on to the depositors.

Pretty compelling! However, beyond basic utility, one of the reasons I think LRT will be a hot topic in 2024 is that the latest wave of airdrops has already begun. In this wave, LRT projects are the "best of both worlds", a double airdrop hunting opportunity. For example, Swell is currently offering their "Pearls", which I guess is a placeholder spot for the final Swell token, and there is also an EigenLayer spot, which I think is also a placeholder.

Frankly, I think EigenLayer is gearing up for one of the biggest airdrops ever, and the race to become the dominant LRT token on Ethereum will be just as fierce as the race to become the dominant LST token.

Admittedly, I am not familiar with all the LRT strategies of all the current LRT teams. However, there are two projects that caught my attention because I have close connections with both teams, either as an angel investor or through Bankless Ventures, which are the previously mentioned Puffer and Swell.

It is worth noting that Puffer has a unique advantage in its partnership with SGX - additional penalty protection - as an additional layer of defense against capital loss. This mechanism, coupled with Puffer's collaboration with Justin Drake on Smoothing Commitments and Andrew Miller of Flashbots on Remote Attestations, enables the project to unlock efficiencies and opportunities that other LRTs may need to catch up to.

As for Swell, it was once an LST project, but turned to liquidity staking when it saw a trend change. When EigenLayer opened the deposit channel, Swell's ETH TVL was already close to the top in its system. Now, Swell ranks first among EigenLayer's LRT projects and ranks second in LST deposits, second only to Lido.

However, there are some projects worth watching right now, including:

  • David Hoffman Rio Network

  • EtherFi

  • Renzo Protocol

  • Kelp DAO

Keep track of the LRT battleground with this excellent EigenLayer Dune dashboard.

Solana

Does the meta information now include “Bitcoin, Ethereum… and Solana”?

Solana is currently suffering from the hype. This happens when a coin rises 900% in a year. This attracts capital and attention from venture capital firms, while also making the community who believed in it before it became hot again more confident.

To be sure, the launch of Jito has just sparked a DeFi summer on Solana similar to Ethereum’s 2020, and it’s now clear that the network’s application layer has risen from the ashes of the 2022-23 bear market.

With Solana’s SOL having just entered the top 5 crypto assets, all eyes are on whether Solana can achieve what all of its biggest supporters believe it can: become the place most likely to host breakout consumer crypto applications in the coming bull run.

Let’s assume that Solana will live up to its potential here. In that case, it will need to attract more novel founders who build more novel applications that are not just shinier versions of the same thing Ethereum already has. Solana will need to develop new kinds of applications that crypto has never seen before, applications that are uniquely enabled by the properties provided by the network.

DePIN appears to be a prominent early contender here. However, I think the jury is still out as to whether there is anything substantial here. We shall see though, and either way the sector is worth tracking closely in the meantime.

Meanwhile, the massively tokenless Solana protocol still has to airdrop its tokens in 2024, which means that at least until they do, the hype and attention around Solana will continue. It remains to be seen whether Solana’s version of DeFi Summer can continue to keep people’s attention after it ends.

Internally, Solana’s attention has turned to its economics. With some of Solana’s thorniest issues in the past, it’s time to turn to the next low-hanging fruit in the project, which is its native fee market and overall economic structure. Can Solana solve its economic problems? Only time will tell, but its community is more excited than ever about the opportunities it brings.

3. Games

Gaming seems to be the most promising category of crypto apps in the near future. Mainly because we know that many highly anticipated games are currently in development, with some set to hit the market by 2024.

If the game is fun, players will play it. If game developers know what they are doing, they will introduce crypto elements subtly as needed, rather than using them as an overwhelming element of the game. Gaming content is a huge industry in itself, and through the gaming sector, crypto will be able to gain a huge distribution channel.

The best thing about the contemporary crypto gaming industry is that it is moving away from an explicit focus on crypto-native gamers. Many new games are being developed for those who are agnostic about cryptocurrency.

There are about 3.2 billion gamers in the global gaming industry right now. If we can build a game that appeals to people who don’t care about crypto, it will be one of the earliest breakthrough examples of crypto serving people who aren’t interested in crypto.

In the meantime, gaming ecosystems like Immutable and its IMX token can be seen as representative of the excitement in this space. Immutable is building a zkEVM chain designed for gaming on Polygon and is currently valued higher than Arbitrum!

4. DA War

The war for data availability has also begun, starting with a two-punch run from TIA airdropping at a $2 billion valuation, followed by a chart that will only go up, directly to a $14 billion FDV.

So why is everyone obsessed with data availability right now?

Suffice it to say, it can be assumed that DA (Data Availability) is the bandwidth layer of Web3, and a cheap DA layer will enable crypto to move from slow and expensive to fast, cheap, and plentiful, without sacrificing decentralization in the process. Indeed, DA is the main bottleneck that prevents chains from releasing the brakes on resource costs and throughput levels. Therefore, any DA chain that can meet these requirements is likely to see long-term sustainable value flows in the crypto economy.

I am keeping an eye on the upcoming launch of EigenDA, the first AVS to be launched on EigenLayer, which will also be the first additional source of income for the aforementioned LRT token.

EigenDA is built differently than Celestia and has some unique network properties. Since EigenDA is secured by staked ETH rather than an alternative L1, this makes EigenDA's DA properties closer to Ethereum, reduces some security assumptions, and may make it an easier choice for Rollups that still need more DA than Ethereum L1 can provide.

Celestia and EigenDA are the two main contenders right now, but others have joined the DA wars. For example, NEAR added DA functionality on its chain, which also has some unique properties due to the sharding research NEAR has done over the past few years. I’m sure there are more that I haven’t heard of yet, or are secretive, that will be available in 2024 because the bounties for the DA race are so large now.

5. Parallel EVM

Solana has sparked the urgency of building an optimized virtual machine for Web3. I recently asked Solana founder Anatoly Yakovenko, “What is the most critical component of Solana?” He responded, “Parallelization of the SVM.” This unique feature that Solana introduced to the market is the ability to process multiple transactions simultaneously, as long as those transactions do not touch the same state as each other.

This is a big advantage of SVM and a big weakness of EVM. Now, the parallel VM war is going on on Ethereum L2 and the new L1. For example, the Eclipse project is taking SVM and building a Rollup based on Ethereum (using Celestia for DA), and it is not the only project doing so.

Monad is another project that has been working on parallelizing the EVM for some time. Rebuilding the EVM from single-threaded to multi-threaded is no easy task, but the rewards in terms of successful execution are huge. Imagine the scale, speed, and low cost of Solana, but with the ecosystem of Ethereum. Monad aims to achieve bytecode equivalence for the EVM, meaning that any snippet of code written in the EVM environment can be immediately migrated to Monad at no cost.

The “Solana speed but Ethereum distribution” strategy is not just shared by Monad and Eclipse. It’s also being adopted by Sei, as demonstrated by their recently announced move to a parallelized EVM chain.

Since Monad is not live yet, SEI has been the only way to gain exposure to the parallelized EVM narrative, and its token has appreciated accordingly.

While Monad seems to intend to maintain an independent L1, I predict that the Monad EVM will become the target of EVM alternatives on Ethereum L2. If Monad open sources its EVM, it will become a very hot software in Web3. It may also be a viable strategy for Monad to build an Ethereum L2 in addition to its independent L1 to ensure that as much of the competitive landscape as possible is filled.

Last November, I had a conversation with Ansgar, and he expressed interest in finding a new VM specification to design for L2 that was more optimized for execution than simply copying the L1 EVM as L2. The thought process was that if we could find a more optimized L2 VM, we could encourage L2s to standardize on that instead of the traditional (and slower) EVM. This shift would require coordination, but it would greatly improve the Ethereum L2 space.

6. Airdrop

My very conservative prediction for 2024 is that $2 billion will be airdropped to users. EigenLayer could even achieve this on its own.

Airdrops are not new in 2021, but the retroactive Uniswap airdrop did spark a new paradigm for what airdrops mean and how applications can take advantage of them. Fast forward to today, and some of the largest projects in the space have been fine-tuning their token issuance plans for years.

Well, the time to act is now. For example, both StarkNet and LayerZero recently confirmed upcoming token launches, both of which I expect to occur in Q1 2024.

These airdrops will force others to accelerate the launch of their tokens. Once a new airdrop season begins, its overall momentum will be hard to stop. After all the major projects launch their tokens and put billions of dollars into the hands of users, subsequent projects will quickly develop their "apps" and release their "tokens" to catch this wave.

Once this happens, you know we are approaching a market price peak and it is time to start selling rather than buying. Be careful here. The trap of an airdrop may suck up most of your capital to maximize gains, but this is likely to happen at a time when you would be rational to withdraw your capital.

For example, Alameda started out by risk-free Bitcoin arbitrage between exchanges, and ended up fully levered in illiquid shitcoins as the bull market progressed. What you want to do is the opposite. You want to start fully levered in illiquid shitcoins from the beginning, and then sell them into USD, Bitcoin, Ethereum, and other less risky positions as the bull market progresses.