Written by: Ignas
Compiled by: Yangz, Techub News
I have a feeling that something big is going to happen in the cryptocurrency industry. I don’t know what exactly it will be, but it should be some very positive news.
Interest rate cuts began, Ethereum spot ETF was approved, Bitcoin spot ETF capital inflows increased, Stripe launched stablecoin payments...
Like an army squaring off before a decisive battle, major cryptocurrency companies and TradFi are preparing for the coming bull run.
Meanwhile, the internal machinery of cryptocurrencies has not stopped turning. Despite the dips, 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" was coined, new trends are emerging in the market, but they are too small to form narratives yet.
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 the project could change the brand, change the token code, and start over with a new chart?
This is exactly what Fantom is doing with the Sonic upgrade. Sonic is a brand new L1 that can cross-chain to Ethereum through a native L2. Sonic features a new Sonic Foundation, Sonic Labs, and a new visual identity. More importantly, the new S token is compatible with FTM and can be exchanged 1:1.
This is a smart move by Fantom, which will generate more market hype than simply calling it "Fantom 2.0" and allow it to put Multichain's past behind it and start anew.
Similarly, Connext is changing its name to Everclear.
Rebranding is nothing new in the cryptocurrency space, but the emerging trend is to repackage major upgrades as new products, which 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 trying to say this is more than just a simple rebranding, but represents a significant step forward in technological advancement.
Connext has transformed from a simple cross-chain infrastructure to a clearing layer. It is like a chain in itself, built in the form of Arbitrum Orbit Rollup (via Gelato RaaS), and connected to other chains through Eigenlayer ISM and Hyperlane. This move is not only aimed at connecting any chain, any asset, but also realizing the future of modular cryptocurrency.
After the two teams announced the news, the price of NEXT tokens rose by about 38% (although it did not hold), and Fantom's FTM trading became popular again, with the number of times people mentioned it on CT also increasing.
In my opinion, we will see more protocols rebranding in the future to adapt to market trends and technological advances 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 the merger of Fetch ai, Ocean protocol and SingularityNet into the Alliance of 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 started accepting cryptocurrency donations, and the SEC has closed its case against Consensys, saying it “will not allege that the sale of Ethereum constituted a securities transaction.”
The short-term outlook for the cryptocurrency industry will depend on the election. I strongly agree with the view of an analysis article from Hartmann Capital. The article points out 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, the market is expected to see a long-term downturn, from which law firms will benefit, while cryptocurrencies and taxpayers will suffer losses, with only Bitcoin and memecoins relatively unaffected.
Regulatory clarity could lead to the biggest bull run to date and change 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.
A prosperous 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 Grayscale’s widowmaker trade (an investment that could result in large, potentially devastating losses) or uncollateralized lending in CeFi (Celsius, Blockfi, etc.).
The mechanics of each cycle are different. But where is the leverage hiding now?
The obvious ones are Ethena adopting a Delta Neutral strategy (as long as the funding rate is positive, everything is fine, but what happens if the funding rate is negative and the USDe position needs to be closed?), followed by re-hypothecation using LRT, and finally Bitcoin spot ETF buyers.
Bitcoin spot ETFs have seen 19 consecutive days of net inflows, and Bitcoin held in ETFs accounts for 5.2% of the total Bitcoin in circulation (although the current upward trend has been broken). But 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 investors) and spot BTC + CME futures shorts (led by institutions) cause a big 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 initial user groups. Points also help increase adoption, thereby increasing valuations. However, the phenomenon of point addiction has become increasingly serious. Considering that there is 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), and then form a community team to complete tasks.
This isn’t much different from other points programs, as airdrops still depend on accumulated SOL, but… the community loves this mechanic! The reality is that it took Sanctum only a month to complete the first season of promotions.
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 airdrops.
5. Resist the issuance of low circulation and high FDV
Except for venture capitalists, teams and airdrop hunters, almost everyone hates the token issuance mechanism with low circulation and high FDV.
Binance, which used to buy hot 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 over internal distribution.
We still have some work to do on this, but at least we’ve 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 venture capital firms aim to profit by selling large allocations of tokens that they obtained at minimal cost.
In addition, the project team must also take action to avoid a situation where the token continues to fall in value.
Projects can and should have more attempts. For example, Ekubo on Starknet distributed tokens equally 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 100% airdrops by FriendTech, and the community minting Bitcoin Runes for free (although runes also allow pre-mining), etc.
The impact of these token issuance methods is still uncertain, but keep an eye on new token issuance models. A new successful issuance method may become a new primitive in this bull market.
6. The McKinsey of DeFi
The emergence of DeFi helps achieve self-sovereignty, allowing people to own and effectively use their assets without being restricted by national borders. However, as we look to squeeze every penny of profit, DeFi strategies are becoming more and more complex. As a result, consulting companies 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 becomes more complex, this trend will become more and more obvious, further pushing "DeFi" to "on-chain finance", transferring power from token holders to professional companies. As for whether this will make tokens more popular, I don't know yet.
7. Web2-like DeFi entry barriers
While Friend Tech may have had its issues, it 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 is 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, developed 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 can pay gas fees on behalf of users, supports batch transactions, and allows wallets to be created using Web2 tools.
Complex user onboarding is no longer an excuse for crypto’s lack of adoption. What we need are unique consumer apps.
