Article by: Ignas
Translated by: Yangz, Techub News
I have a feeling that something big is about to happen in the cryptocurrency industry. I don’t know exactly what, but it should be some very good news.
Interest rate cuts have begun, Ethereum spot ETF has been approved, funds flowing into Bitcoin spot ETFs have increased, and Stripe has introduced stablecoin payments…
Just like an army setting up its formation before a decisive battle, major cryptocurrency companies and TradFi are preparing for the upcoming bull market.
Meanwhile, the internal machinery of the cryptocurrency isn’t stopping. Despite the downturn in the market, new narratives and trends continue to emerge constantly, and the market is changing accordingly. Just as MakerDAO was launched before the term “DeFi” appeared, new trends are currently emerging in the market, but these trends are still too small and have not formed a narrative.
Here are 7 emerging trends that could have a significant impact on the market.
1. Repackaging
Old coins are boring, but new coins always bring a fresh perspective. What if the project were to rebrand, change the token code, and start fresh with new charts?
This is exactly what Fantom did with the upgrade to Sonic. Sonic is a brand new L1 that can be cross-linked to Ethereum through native L2. Sonic has a brand new Sonic Foundation, Sonic Labs, and a completely new visual identity. More importantly, the new S token is compatible with FTM and can be exchanged 1:1.
Fantom’s move was wise, as it sparked market speculation rather than simply calling it “Fantom 2.0,” and allowed it to leave behind the Multichain’s past and start fresh.
Similarly, Connext is rebranding as Everclear.
Rebranding in the cryptocurrency field is not something new, 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 wanted to convey not just a simple rebrand, but a significant technological progress.
After both teams announced the news, the NEXT token price rose by about 38% (although it didn’t hold), and the trading of Fantom’s FTM also picked up again, with an increase in mentions on CT.
In my opinion, there will be more protocol rebranding to adapt to the 2024 market trends and technological advancements in the future. For example, IOTA is building real-world assets (RWA) on L2.
In addition to rebranding, protocol mergers will also become more common, such as the merger of FETCh ai, Ocean protocol, and SingularityNet into the Artificial Superintelligence Alliance (ASI).
2. Clear cryptocurrency regulation
Cryptocurrency regulation has always been a big issue, especially in the United States, where the SEC has set its sights on major players such as Coinbase, Kraken, and Uniswap. Despite some victories for Ripple and Grayscale, and the approval of Bitcoin spot ETFs, the regulatory environment remains tough.
Fortunately, the situation has changed: Trump’s support for cryptocurrency has forced Democrats to change their anti-cryptocurrency policy. Biden has started accepting cryptocurrency donations, and the SEC has ended its lawsuit against Consensys, stating that “the sale of Ethereum does not constitute securities trading.”
The short-term prospects for the cryptocurrency industry will depend on the election. I strongly agree with the views in an analysis by Hartmann Capital. The article points out that if Gensler is removed from power, or if his power is balanced by the courts and Congress, cryptocurrency assets are expected to rebound significantly by more than 30%, followed by a sustained bull market. If he continues to hold power, the market is expected to experience a long period of depression, law firms will benefit from it, and cryptocurrency and taxpayers will suffer losses, with only Bitcoin and memecoins relatively unaffected.
Clear regulation may bring the biggest bull market so far and change the digital asset market through the following aspects:
– Shifting from narratives to product-market fit: Cryptocurrency projects will focus on creating value-driven products, not just speculation, leading to higher quality development.
– Clear success metrics: Valuations will depend more on the market fit and returns of actual products, reducing speculation and highlighting strong fundamentals.
– Easier financing environment: Stronger fundamentals will make digital assets easier to finance, reducing the cyclical rise and fall of altcoins.
– Prosperous M&A market: Well-funded projects can acquire undervalued but valuable DeFi protocols, driving innovation and closer adoption, with some Layer1s shifting to public goods to increase network value.
3. Bitcoin arbitrage trading: Bitcoin spot ETF + Bitcoin shorts
Leverage always finds its way into the system in new ways. Whether it’s the “widowmaker trade” at Grayscale (referring to potentially catastrophic losses), or unsecured lending at CeFi (Celsius, Blockfi, etc).
Each cycle’s mechanism is different. But where is the leverage hidden now?
It is obvious that ETHena is using the Delta-neutral strategy (as long as the funding rate is positive, everything is fine, but what will happen when the funding rate is negative and the USDe position needs to be liquidated?), followed by re-collateralization using LRT, and finally, buyers of Bitcoin spot ETFs.
Bitcoin spot ETFs have seen net inflows for 19 consecutive days, with the Bitcoin held in ETFs accounting for 5.2% of the total circulation of Bitcoin (although the current upward trend has been broken). But why hasn’t Bitcoin skyrocketed yet? The reason is that hedge funds are rapidly shorting Bitcoin through CME futures at record speed. And the possible explanation for this behavior is that hedge funds are buying spot ETFs and shorting Bitcoin at record speed to achieve a Delta-neutral strategy of 15%-20%.
This strategy is similar to ETHena’s. But as Kamikaz ETH points out, “What if low funding’s large-scale leverage is this cycle’s leverage and already exists? What happens when the funding becomes negative (investors no longer go long and close their long positions)? What happens when these positions need to be liquidated? Will Ethena (dominated by retail investors) and spot BTC + CME futures shorts (dominated by institutions) cause a major collapse?”
This is scary. But perhaps the easier answer is that institutions are arbitraging through Bitcoin spot and futures.
In any case, we need to closely monitor these new dynamics brought by the Bitcoin spot ETF, as “risk-free” arbitrage often turns out to be “riskier than initially thought.”
4. Gamification of points
Protocols can use points to attract initial user groups. Points also help increase adoption, thereby increasing valuation. However, the addiction to points has become increasingly serious, and given that there is currently no better alternative, gamifying points may add an additional element to boring point strategies.
For example, Sanctum has launched the Wonderland game, which allows users to level up by collecting pets and earning experience points (EXP). Then they can team up with the community to complete tasks.
This is no different from other points projects, as airdrops still depend on the accumulation of SOL, but… the community really likes this mechanism! In reality, Sanctum completed the first season of its promotion in just one month.
I hope to see innovation from 0 to 1 in airdrop mechanisms. We are tired of points. I hope more projects will try to gamify points and bring some fun to airdrops.
5. Resisting low circulation, high FDV issuances
Almost everyone hates the issuance mechanism of low circulation, high FDV tokens, except for venture capitalists, teams, and airdrop hunters.
Even Binance, which used to buy hot new tokens, recently adjusted its listing strategy due to user resistance to low circulation, high FDV token issuances, deciding to list tokens with moderate valuations and prioritize community rewards over internal distributions.
At this point, we still need to take practical action, but at least we have taken a step in the right direction.
Venture capital firms are also to blame for low circulation and high FDV token issuances. Venture capital used to be seen as a positive signal, but the cryptocurrency community now sees it as a form of value extraction. People are worried that the purpose of venture capital firms is to profit by selling large amounts of tokens obtained at the lowest cost.
In addition, project teams must take action to avoid a situation where the token continues to fall.
The project team can also try more. For example, Ekubo on Starknet distributed tokens evenly among users, the team, and DAO within two months. Nostra (also on Starknet) launched NSTR with 100% FDV, 25% distributed through airdrops, and 12% sold in liquidity bootstrapping pool activities. In addition, there is also the experiment of FriendTech’s 100% airdrop, as well as the community’s free minting of Bitcoin runes (although runes also allow pre-mining), and so on.
The impact of these token issuance methods is still uncertain, but please pay attention to new token issuance models. A new successful issuance method may become the new foundation of this bull market.
6. “McKinsey” in DeFi
The emergence of DeFi has helped achieve financial sovereignty, allowing people to own and effectively use their assets without being restricted by national borders. However, as we hope to squeeze every penny of profit, DeFi strategies have become increasingly complex. Therefore, consulting companies similar to TradFi have emerged to help protocols handle security, governance, and optimization issues, such as Gauntlet, which can charge clients millions of dollars annually.
More importantly, DeFi protocols are also adjusting, allowing the “McKinseys” in DeFi to manage user assets and externalize risk management. For example, Morpho Blue’s permissionless lending allows the “McKinseys” in DeFi to create markets with any asset and risk parameters without relying on governance. The most popular treasury is managed by Gauntlet, Steakhouse, RE7 Labs, and others.
Similarly, Mellow protocol has introduced LRT managed by “curators,” allowing “depositors to manage their desired risk exposure more flexibly while benefiting from the liquidity of staked assets.”
I believe that as the complexity of DeFi increases, this trend will become more and more obvious and will further push “DeFi” towards “on-chain finance,” transferring power from token holders to professional companies. As to whether this will make tokens more popular, I don’t know yet.
7. Web2-like entry barriers in DeFi
Although Friend Tech may have problems, it has successfully popularized Privy, allowing people to create and manage wallets using Web2 accounts.
To be honest, during the NFT craze, I would rather buy NFTs for friends directly on OpenSea than teach them how to use MetaMask because it’s really inconvenient. Now, with Privy, we can create a wallet with an email and 2FA code on OpenSea in just one minute.
And this trend is not limited to Privy. Infinex, developed by Synthetix, allows users to create wallets using Passkeys, so users only need a password manager for their wallets. Coinbase has also launched Smart Wallet, which can pay Gas fees on behalf of users, support batch transactions, and allow users to create wallets using Web2 tools.
Complex user logins are no longer an excuse for the lack of adoption of cryptocurrencies. What we need are unique consumer applications.
