Why be bullish on DeFi?

Original author: Ignas, Stacy Original compilation: Luccy, BlockBeats Editor's note: In this cycle, the most active areas of degen are airdrop mining and meme coins, corresponding to which DeFi tokens seem to be dying. But Pendle remains well insured against the staking narrative, up around 750% in the same period, and Uniswap’s fee switch could be the tipping point for other DeFi protocols to follow suit. DeFi researchers Ignas and Stacy discuss recent trends, arguing that there hasn’t been any game-changing altcoin season yet. But Ignas is still bullish on DeFi, and BlockBeasts compiled the original text as follows: OG tokens in the DeFi (decentralized finance) space appear to be dead. But the market is about to undergo a major shift, and a new wave of FOMO is about to hit DeFi. Here’s why DeFi is about to rise: DeFi tokens are far behind ETH. The DeFi Pulse Index (DPI) has declined relative to ETH for three consecutive years. And ETH itself has lagged behind BTC during this cycle. DPI includes tokens such as UNI, MKR, LDO, AAVE, SNX, PENDLE, etc.

DeFi OG Tokens with Airdrop Mining and Meme Coins

The only exception is PENDLE, which is up around 750% in the same period.

Why Pendle? The answer is multifaceted. They managed to find a strong product market fit (PMF) during points meta.

Airdrop mining and meme coins are the most active areas of degen in this cycle.

Airdrop mining has reached a turning point: low-circulation project launches are sell-off airdrop events, and high FDV means more tokens will continue to be dumped onto the market. But no one wants to buy these tokens! And, for every successful meme coin, there are 99 that go to zero.

DeFi OG tokens are the antithesis of airdrop mining and meme coins:

First of all, a large number of DeFi OG tokens are already circulating in the market. Take the market cap/fully diluted valuation (MC/FDV) ratio as an example:

• SNX - 1
• MKR - 0.95
• AAVE - 0.93
• LDO - 0.89
• UNI - 0.75

This is how it works for holders There is less selling pressure. The opposition continues in token issuance: in just 6 months, we have minted over 540,000 new tokens. Traders' attention and capital are spread thinly. However, only a handful of DeFi OG tokens have solid businesses and revenue streams. If money starts flowing in.

The Regulatory Outlook of Meme Coins

Meme coins thrive in a financial nihilism and repressive regulatory environment. However, regulatory clarity is likely to create the biggest bull run, driven by:

1. Shift from narrative to product market fit (PMF)
2. Clear indicators of success
3. Easier access to funding
4. Booming mergers and acquisitions (M&A) Market

Reference Reading

Tweet from @FelixOHartmann, Managing Partner of Hartmann Capital:

If regulations are clear, the digital asset market could transform in a way that kicks off the biggest bull market to date. A few predictions stand out:

· Shift from narrative to product market fit

Since there is currently no way for crypto assets to be compliantly denominated, most crypto asset issuers don’t even bother to create ways to capture value The product. Ironically, the ability to capture value is a good litmus test for whether the product itself actually warrants enough funding for consumers to part with their hard-earned money. Instead, cryptocurrency founders often build things that consumers care little about, and they have to pay users tokens to use them. So something happened. Construction quality improves, and...

· Projects will have clearer metrics to measure success

Currently, many digital asset valuations appear to be free-floating numbers based purely on emotion and compensation. While most markets are certainly inefficient, as even stocks tend to trade far removed from their returns, the stock market does do a pretty good job of lifting the cream to the top. As a result, the tokens with the most substantial product-market fit and benefits may begin to dominate conversations and investment portfolios more frequently. This in turn leads to...

· A looser digital asset financing environment

Funding for digital assets is mainly biased towards the private equity market, and the ability to raise funds after a token is issued is often based on the market system in which the founder is located Instead it becomes a roll of the dice. This leads to cyclical ups and downs in "alternatives," with each new cycle bringing a new batch of projects that raised fantastic rounds when privately funded and often ran out of money or failed to capitalize appropriately. The next bear market, sometimes even if they actually build a great product. Private Markets then rotates to the next cohort. With this rotation, quite a bit of duplicate cost and value is thrown away. Therefore, stronger fundamentals will enable protocols to raise capital more easily while enabling...

· A booming M&A market

Throughout 2022-23, we have witnessed many DeFi projects being put on the back burner that would have been prime acquisition targets for more well-funded DeFi projects. For example, a well-funded Uniswap or a fairly well-capitalized AAVE might expand their offerings and become a DeFi super-application by acquiring some of the many well-functioning but undercapitalized players in the on-chain perpetual contracts and options markets, or by Gain more substantial access to real-world assets by facilitating token swaps with one of the leading real-world asset (RWA) protocols, which trade at approximately 1% of Uniswap’s market cap. The maturation of individual crypto assets and the overall market may open the door for truly savvy traders and operators to build value in ways we have never seen before in digital assets and materially accelerate product development and innovation, which in turn will Coming over again brings us closer to adoption. For example, some Layer 1 blockchains might use mergers and acquisitions to acquire a much-needed product and turn it into a public good. This would reduce costs for users while increasing usage and gas spending on the chain itself, driving the value of the network’s tokens (the fat protocol argument expresses its concerns).

DeFi’s PMF

DeFi has the clearest product market fit (PMF) in crypto: we trade on decentralized exchanges (DEX), lend on the lending market, use DeFi stablecoins or LST As collateral, etc. In addition, established DeFi teams have large financial reserves - they can continue to develop and build for many years without selling off their tokens.

The Problem with DeFi Tokens

DeFi Tokens lack real utility. However, things are starting to change and Uniswap’s fee switch could be the turning point, with UNI surging on the news. Additionally, regulatory clarity may accelerate the revenue-sharing trend.

Another problem is that DeFi 1.0 is so boring. But new things are always interesting, as long as the price goes up. However, DeFi tokens have stood the test of time. They experienced the COVID-19 crash in 2020 and the centralized finance (CeFi) crash in 2022. As @sourcex44 said, “The only true audit is one that stands the test of time.”

I believe DeFi tokens are a good choice for reverse trading right now. There are currently very few people holding original DeFi tokens, just like we accumulated ETH during the bear market, only to see SOL rise. So if the trend changes, only a handful of OG tokens will be able to attract 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 established DeFi tokens? I think they have a lot of potential to break out.

This post is a response to Stacy’s question about DeFi tokens. Most of these tokens are boring, but with a solid business, good financials, and with regulatory clarity and token utility increasing, DeFi has the potential to rise again.

Are DeFi Tokens Wrong?

You can blame Mt. Gox, miner rewards, or any other black swan event for the decline in your portfolio value. But they are just noise, and the real problem is more fundamental:

• Every market represents some kind of value that is redistributed among its participants. At some point, different markets converge. The ETH and BTC spot ETFs are a prime example. New capital flows in, but doesn't go much further; capital gains from trading ETFs stay on traditional exchanges.
• Meanwhile, existing crypto users benefit from new capital inflows into spot ETFs, with their gains typically being reinvested, which logically should lead to altcoin season — but this time, things are different .

• Since March 2024, we have seen several major trends:

  • A series of airdrops and points programs from top protocols
  • Tier-2 protocols rushing to announce their token sales and TGE
  • Meme Coins Becoming one of the major meta
  • TON adding norms to its ecosystem

• The few DeFi protocols showing good growth are obviously related to the trends listed above. Now, we have this setup:

  • Bitcoin and Ethereum gains are only partially settled in cryptocurrencies.
  • Given the yuan, most of these earnings are reinvested in new tokens or memecoins, or used to farm points (locked into the new protocol).
  • Other DeFi protocols are not experiencing any price movement and holders are starting to lose hope.
  • Few new protocols are trending upward after TGE, partly due to selling pressure from airdrop recipients and lack of new funding.
  • Alts keep bleeding.
  • The meme coin craze continues to attract more and more investors, once again fragmenting potential new funding for DeFi tokens.
  • Bitcoin and Ethereum are least affected as spot ETF investors.
  • TON has something up its sleeve with its canonical onboarding and mini-app. Its ecosystem is not yet part of broader DeFi.

• Meanwhile, there is no next big dollar in DeFi. User experience improvements and efficiency fixes are important — but they don’t attract new users, similar to early days of DeFi, NFTs, or even GameFi.

  • Airdrops are not new.
  • Stablecoin yield is not new.
  • GameFi is not new.
  • FDV for most Web3 protocols is already pretty fair, but new dApps appear every day with more lucrative terms, which increases the supply of the protocol without stimulating new demand.
• When the Ethereum spot ETF starts trading (probably early July), we will see some new money pouring into Ethereum, and crypto-native ETH holders may start reinvesting proceeds into DeFi - but The overall picture won't change much. New money will enter trending metas (AI, RWA, DePIN, memecoins) and DeFi OG will struggle to at least compete with ETH.

It doesn’t matter. The new season has its own new heroes. What makes DeFi great again? Basically two things: a new (completely new) narrative and marketing.

DeFi has a total market cap of $90 billion, including LSTs like stETH ($3.2 billion) and DeFi stabilizers like DAI ($5 billion). By comparison, ETH has a market cap of $404 billion.

DeFi has many advantages compared to traditional finance, 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 becomes as easy as using a classic banking app, and DeFi starts to be promoted as the norm – we will finally see a new DeFi season. Alternatively, we need a new meta that will inject new capital into DeFi — similar to early GameFi, NFTs, or even DeFi itself.

This new yuan will get the most attention, and some of the capital will flow to broader DeFi. Similar to how Hamster Kombat or Notcoin mania fueled the broader TON ecosystem. But do we have something similar now? Recently, I had a chat with Ignas and we discussed current trends. Have we had any game-changing altcoin seasons before? No.

I know this post may be disappointing. Bullish content gets the most traction on CT because people want to believe money is going to be in their pockets, I know that feeling.

I have a lot of DeFi tokens bleeding out in my portfolio, but I want to be realistic. I doubt DeFi tokens will reach their ATH this year. If I'm wrong, I'll be happy.

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