Original Authors: Ignas, Stacy
Original translation: Luccy, BlockBeats
Editor’s note:
In this cycle, the most active areas for degen are airdrop mining and meme coin, which seems to correspond to the seemingly extinct DeFi token. However, under the narrative of staking, Pendle remains in good shape, having pumped by about 750% during the same period, and Uniswap’s fee switch may become a turning point for other DeFi protocols to emulate.
DeFi researchers Ignas and Stacy discussed recent trends and believe that the altcoin season, which changes the game rules, has not yet arrived. However, Ignas remains bullish on DeFi. The translation by BlockBeasts is as follows:
The OG token in the DeFi (Decentralized Finance) space seems to be dead.
But the market is about to undergo a major transformation, a new wave of FOMO is about to surge into DeFi. Here are the reasons why DeFi is about to pump:
The performance of DeFi tokens is far behind that of ETH. The DeFi Pulse Index (DPI) has been declining relative to ETH for three consecutive years. And during this period, ETH’s performance has also lagged behind BTC. DPI includes tokens such as UNI, MKR, LDO, AAVE, SNX, PENDLE, etc.
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The only exception is PENDLE, which has pumped by about 750% during the same period.
Why Pendle? The answer is multifaceted. They have successfully found a strong product-market fit (PMF) during the points meta period.
Airdrop mining and meme coins are the most active areas for degens in this cycle.
Airdrop mining has reached a turning point: the launch of projects with low circulation is a sell-off airdrop event, while high FDV means that more tokens will be continuously sold on the market. But no one wants to buy these tokens! And behind every successful meme coin, there are 99 that go to zero.
DeFi OG Token is the opposite of Airdrop Mining and meme coin:
First of all, a large number of DeFi OG tokens have already been circulating in the market. Taking the market capitalization/fully diluted valuation (MC/FDV) ratio as an example:
• SNX - 1
• MKR - 0.95
• AAVE - 0.93
• LDO - 0.89
• UNI - 0.75
This reduces the selling pressure on holders. On the other hand, in token issuance, we continue: in just 6 months, we have minted over 540,000 new tokens. Traders’ attention and capital are spread thin. However, only a few DeFi OG tokens have a solid business and revenue source. If funds start flowing in.
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meme coin has thrived in a financial nihilistic and oppressive regulatory environment. However, regulatory clarity may bring about the biggest bull market driven by the following factors:
• Shift from narrative to product-market fit (PMF)
• Clear indicators of success
• Easier access to funds
• Prosperous M&A market
Reference reading FelixOHartmann, Managing Partner of Hartmann Capital.
If regulations are clear, the digital asset market may undergo a transformation that could potentially lead to the biggest bull market to date. There are several prominent predictions:
· The transformation from narrative to product market fit
Due to the lack of compliant valuation methods for crypto assets, most issuers of crypto assets are even too lazy to create products that can generate value. Ironically, the ability to generate value is a good litmus test to determine whether a product truly needs enough funding to convince consumers to part with their hard-earned money. Instead, cryptocurrency founders often build things that consumers care very little about and they have to pay users tokens to use them. So something happened. The quality of construction improved, and…
· The project will have clearer indicators to measure success
Currently, many digital assets seem to be purely based on the emotion and compensation of free-floating numbers. Although most markets are certainly not efficient, as trading in stocks often falls far short of their returns, the stock market does a fairly good job of pushing cream to the top. Therefore, tokens with the most substantial product-market fit and returns may begin to dominate conversations and portfolios more frequently. This in turn leads to…
· The financing environment for digital assets is more relaxed
digital asset funds are mainly skewed towards private sale markets, and the ability to raise funds after token issuance often becomes a roll of the dice, depending on the market system in which the founders live. This has led to cyclical rises and declines in “alternatives”, with each new cycle bringing in a new batch of projects that raise a wonderful round of funding when privately funded, and often run out of money or fail to properly capitalize on the next Bear Market, sometimes even when they actually build a great product. The private sale market then rotates to the next queue. With this rotation, there are longest duplicate costs and values that are discarded. As a result, stronger fundamentals will allow protocol to raise capital more easily while making …
· Booming M&A market
Throughout 2022-23, we have witnessed many DeFi projects being sidelined, which could have been prime acquisition targets for more well-funded DeFi projects. For example, well-funded Uniswap or relatively well-capitalized AAVE may expand their product offerings and become DeFi super applications by acquiring some of the well-functioning but undercapitalized participants in the on-chain perpetual futures and options markets, or by facilitating token swaps with one of the leading Real World Asset (RWA) protocols to more substantially enter real-world assets, with the trading price of these protocols being around 1% of Uniswap’s market cap. The maturity of individual crypto assets and the entire market may open doors for truly savvy traders and operators to establish value in ways previously unseen in digital assets, and substantially accelerate product development and innovation, bringing us closer to adoption. For instance, some Layer 1 blockchains may use acquisitions to obtain much-needed products and turn them into public goods. This will drop user costs, while increasing the usage and fuel expenditure of the chain itself, driving the value of the network token (a fat protocol thesis articulates its rise).
DeFi has the clearest Product-Market Fit (PMF) in the encryption field: we trade on Decentralized Exchanges (DEX), borrow in the lending market, and use DeFi stablecoins or LST as collateral, etc. In addition, established DeFi teams have a large reserve of funds - they can continue development and construction for many years without selling tokens.
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The problem with DeFi tokens is that they lack practical use. However, this situation is beginning to change: Uniswap’s fee switch may become a turning point that other DeFi protocols imitate, and UNI has risen sharply after this news came out. In addition, regulatory clarity may accelerate the trend of profit sharing.
Another issue is that DeFi 1.0 is too boring. But as long as the price pumps, new things are always interesting. However, DeFi tokens have stood the test of time. They have survived the 2020 COVID-19 pandemic crash and the 2022 CeFi collapse. As @sourcex44 said, ‘The only real audit is the test of time’.
I believe that DeFi tokens are a good choice for reverse trading now. Currently, few people hold the original DeFi tokens, just like we accumulated ETH during the bear market but saw SOL pump. So if the trend changes, only a few OG tokens can attract capital inflows.
Timing is critical. We are at a tipping point, tired of the new L2, celebrity coins, and waiting to see what the next step will be. Maybe the “next step” will be the old Decentralized Finance Token? I think they have a lot of explosive potential.
This post is a response to Stacy’s question about DeFi tokens. Most of these tokens are quite boring, but if they have a solid business, good financial condition, and the situation where regulations are clear and the utility of the tokens is improved, DeFi may rise again.
Is there anything wrong with DeFi tokens?
You can attribute the decline in portfolio value to Mt. Gox, miner rewards, or any other black swan event. But they are just noise, the real fundamental problems lie in the following aspects:
Each market represents a certain value reallocation among its participants. At some points, different markets tend to converge. ETH and BTC Spot ETF is a typical example. New capital flows in, but does not go further; the capital gains from trading ETF remain in traditional exchanges.
Meanwhile, existing cryptocurrency users benefit from new capital flowing into spot ETFs, and their returns are often reinvested, which should logically lead to the altcoin season - but this time, things are different.
Since March 2024, we have seen several major trends:
• A series of airdrops and point plans from top protocols
• Tier-2 protocol is eager to announce its token sale and TGE
• Memecoin has become one of the main elements
• TON adds specifications to its ecosystem
It is clear that a few DeFi protocols showing good growth are related to the trends listed above. Now, we have this setup:
• The income from Bitcoin and Ethereum is only partially settled in cryptocurrencies.
• Given the yuan, most of these profits are reinvested in new tokens or memecoins, or used to brush points (locked in new protocols).
• Other DeFi protocols have not experienced any price movements, and holders are starting to lose hope.
After TGE, few new protocols have seen a rise, partly due to selling pressure from airdrop recipients and a lack of new funds.
• Alts keep bleeding out.
The frenzy of memecoins continues to attract more and more investors, further diversifying the potential new funds of DeFi tokens.
Bitcoin and Ethereum are least affected by spot ETF investors.
• TON, with its standardized onboarding process and mini-applications, stands on the sidelines. Its ecosystem is not yet part of the broader DeFi.
At the same time, there is no next big element in DeFi. The improvement of user experience and the repair of efficiency are important, but they cannot attract new users, similar to early DeFi, NFT, and even GameFi.
• Airdrop is not fresh.
• Stablecoin yield is not new.
• GameFi is not new.
• The FDV of most Web3 protocols is already quite fair, but new dApps emerge every day with more lucrative terms, which increases the supply of protocols without stimulating new demand.
When the Ethereum spot ETF starts trading (probably in early July), we will see some new funds pouring into Ethereum, and holders of the encrypted native ETH may start reinvesting their profits into DeFi. However, the overall situation will not change much. New funds will enter trend elements (AI, RWA, DePIN, memecoin), while DeFi OG will find it difficult to compete with ETH at least.
It’s okay. The new season has its own new heroes. What makes DeFi great again? Basically two things: new (brand new) narrative and marketing.
The total market capitalization of DeFi is 900 billion US dollars, including LST such as stETH (32 billion US dollars) and DeFi stabilizers such as DAI (50 billion US dollars). In contrast, the market capitalization of ETH is 4040 billion US dollars.
Compared with traditional finance, DeFi has many advantages, including more profitable passive income scenarios. But have you seen any well-known DeFi applications promoting their yield products to Web2 users?
When using DeFi is as simple as using a classic banking app, and when DeFi is starting to be elevated as the norm - we will eventually see a new DeFi season. Or, we need a new element, which will inject new funds into DeFi - similar to early GameFi, NFT, or even DeFi itself.
This new yuan will receive the most attention, and some capital will flow into a broader DeFi. How does the frenzy of games like Hamster Quick Attack or Notcoin drive the wider ecosystem of TON? But do we have anything similar now? Recently, I chatted with Ignas and we discussed the current trends. Have we had any altcoin seasons that change the game rules before? No.
I know this article may be disappointing. Bullish content gets the most attention on CT because people want to believe their pockets will make money. I know that feeling.
There are many DeFi tokens bleeding in my investment portfolio, but I want to be realistic. I doubt if DeFi tokens will reach their ATH this year. If I’m wrong, I’ll be happy.
I apologize for the clickbait behavior, but I do believe that DeFi has the opportunity for a major revival. The narrative in the encryption field changes rapidly, and the rotation of capital will leave many people on the sidelines.
Currently, meme coins are in the spotlight, and you may laugh at my optimism about DeFi. However, the fundamentals are solid. What matters is that others are starting to believe in its importance, and this belief may recover faster than you think. As long as DeFi outperforms other tokens for a period of time, others will experience FOMO.
