Author: Alex Xu, Lawrence Lee, Mint Ventures
Introduction
As one of the oldest tracks in the crypto sector, the DeFi sector’s performance during this bull market has been somewhat disappointing. Over the past year, the overall DeFi sector has seen a modest increase of 41.3%, significantly lagging behind the average gain of 91% and even behind Ethereum’s 75.8% increase.
Data Source: artemis
Looking specifically at the data for 2024, the DeFi sector has also struggled, experiencing an overall decline of 11.2%.
Data Source: artemis
However, in the author’s view, amidst the peculiar market backdrop where altcoins have collectively declined after BTC hit new highs, the DeFi sector, particularly its leading projects, may be facing its best strategic moment since inception. This article aims to clarify the current perception of DeFi’s value through exploring several key questions:
1. Reasons why altcoins significantly underperformed BTC and Ethereum in this cycle.
2. Why now is the optimal time to focus on DeFi.
3. Some DeFi projects worth special attention, including their sources of value and risks.
This article represents the author’s phased thinking as of the publication date and may evolve in the future. The viewpoints expressed are highly subjective and may contain errors in facts, data, or logical reasoning. Critiques and further discussions from industry peers and readers are welcome.
Below is the main text.
The Mystery of Altcoin Price Slumps
In the author’s view, the underperformance of altcoin prices in this cycle can be attributed to three main internal reasons within the crypto industry:
Insufficient growth on the demand side: Lack of compelling new business models has postponed the Product Market Fit (PMF) for most tracks.
Excessive growth on the supply side: Further infrastructure improvements and reduced barriers to entry have led to an oversupply of new projects.
Continuous unlocking: Tokens from projects with low circulation and high Fully Diluted Valuation (FDV) continue to unlock, exerting significant selling pressure.
Let’s examine the background of each of these three reasons separately.
Insufficient growth on the demand side: First-cycle bullish market without innovative narratives
In an article written by the author in early March, “Preparing for the Main Bull Market Wave: My Phase Thinking of This Cycle,” it was mentioned that this bull market lacks the scale of commercial innovation and narrative seen in DeFi in ’21 and ICOs in ’17. Hence, the strategy was to overweight BTC and ETH (benefiting from incremental funds due to ETFs) and control the allocation ratio of altcoins.
As of now, this view appears to be accurate. The absence of new business narratives has significantly reduced inflows of entrepreneurs, industry investments, users, and funds. More importantly, this situation has suppressed overall investor expectations for industry development. When the market fails to see narratives like “DeFi Will Consume Traditional Finance,” “ICO is a Brand-New Innovation and Financing Paradigm,” and “NFTs Disrupt the Content Industry Ecology,” investors naturally vote with their feet towards places with new stories, such as AI.
However, the author does not support overly pessimistic views. Despite the lack of compelling innovations this cycle, infrastructure continues to improve:
Significant reduction in blockchain space costs, applicable to both L1 and L2.
Gradual improvement in cross-chain communication solutions, with a rich selection available.
Enhanced user-friendly wallet experiences, such as Coinbase’s smart wallet supporting quick creation and recovery without private keys, direct access to cex balances, and no need to recharge gas, making user experience closer to Web2 products.
Solana’s Actions and Blinks features enable publishing interactions with Solana’s chain to any common internet environment, further shortening the user’s usage path.
The above infrastructure is akin to electricity, water, and roads in the real world—they are not innovations themselves but provide fertile ground for innovations to emerge.
Excessive growth on the supply side: Excessive issuance of projects + continuous unlocking of high market cap tokens
In fact, despite many altcoins hitting new lows this year, the total market capitalization of altcoins has not plummeted compared to BTC.
Data: Trading view, 2024.6.25
So far, BTC has fallen by about 18.4% from its peak, while the total market capitalization of altcoins (shown as Total3 in the Trading View system, representing the total crypto market value excluding BTC and ETH) has only fallen by -25.5%.
Data: Trading view, 2024.6.25
The limited decline in the total altcoin market capitalization is due to the background of a significant increase in the total number and market value of new altcoins. From the chart below, we can visually see that this bull market has witnessed the most rapid increase in token quantity.
New Tokens by Blockchain, Data Source: https://dune.com/queries/3729319/6272382
It should be noted that the above data only includes token issuance data on EVM chains, with over 90% issued on Base chains. In reality, more new tokens are contributed by Solana, whether Solana or Base, most of the newly issued tokens are memes.
Among them, the high-value memes appearing in this bull market include:
dogwifhat: 2.04 billion
Brett: 1.66 billion
Notcoin: 1
