You have realized that you are in a bear market.
You may have lost more money in the past few weeks/months than you have been in a long time. As it turns out, not only is the loss figure going up, but if it sounds like a Ponzi scheme and tweets like a brash bastard, it might really be a Ponzi scheme.
When a bear market happens, everyone wants to talk about something, and the crash day of cryptocurrencies sends everyone into a panic and out of the industry. The most important thing is to understand that this is part of the game you get into the field early and make sure you have tangible lessons. Last but not least, make sure you are in a good mood personally. Investing is hard, it’s hard to weed out extrinsic (on the surface) factors, but you can always work, and there are more important things in life than having or not having money in the bank account.
One of the most important things I hope we get out of a bear market/downturn is the maturation of the industry as a whole. So what does this mean?
Here are some quick thoughts on what’s coming next:
Focus on transferring tokens to reflect the value capture of the network
It is likely that with the LUNA thunderstorm (Celsius now), we will get more crypto regulation (or at least scrutiny) sooner than we expected. Although I don’t like this on the surface, maybe it will free up various builders in the industry so that their tokens can be more constructive. The next cycle should be about improving token economics, enabling tokens to serve as a more direct form of value addition to a given protocol. We go from the utility token of the first cycle, to the worthless governance token, and the understanding of the token issuance speed and price in this cycle, and hope to evaluate the token (and therefore the regulations) in sync with the clear revenue model in the next cycle.
Cryptocurrencies continue to accelerate many dynamics, but one thing it has refused to accelerate so far is business model innovation. This needs to happen, and it will depend on how participants and users and developers think about choosing from core and copy/paste protocols, and how they think about open source moving forward. Come out of the bear market sometime in 2023 (see how optimistic I am that the bear market will only last for a year), hopefully we will see founders and DAOs willing to try a new form of Token + NFT structure (more about this structure another day) idea).
More loyalty to the Ethereum ecosystem
For better or worse, the competitive L1 narrative is dead. There will be new L1s coming out, but I think EVM compatible games mainly focused on accumulating TVL through Ponzi schemes will be dead near. The biggest opportunity is probably still in the gaming genre, where in addition to the protocol value (percentage of transactions on the platform maybe or more standard NFT-type economics), it will also create high transaction volume (and thus fee income for the network) ). That said, very few teams in the space currently have a clear understanding of how to build games, so I’m very bearish.
Now, FLOW, AVAX and MATIC (and a little SOL) best capture these markets. Time will tell if others do this, or if these actions are concentrated on one chain (I hope god we don’t have more chain shards for specific applications). Of course, we are bullish on Arbitrum and expect L2 to continue capturing more transaction volume for non-gaming businesses over time, although there may be fluctuations as gas costs come down on L1.
The second (obvious) prediction is that the new L1 will seek to replace Solana in a meaningful way. While I think the biggest attack vector is still programming language generality, assuming Solana fixes its uptime issues, I may not have considered other attack points. I’m still bullish on Solana at these prices.
Talent moat seen as authentic/return to brand as differentiator
I’ve always thought Yearn’s core moat has always been the level of talent of contributors (except for the early economies of scale associated with Curve release/convex bribes). People poured billions into Yearn because they knew it was managed by a complex, mitigating, tech-savvy team of strategists and engineering. In the open source world, few seem to understand how getting out of a bear market talent moat can increase market share through better product velocity, creativity, and risk management. I wouldn’t be shocked if the “baby boom” protocol has shown the ability to safely manage billions of dollars with a stronger moat than we once thought. The question is whether the teams of these protocols can be properly incentivized to stick with it instead of starting something new with a completely clean supply of tokens.
“It seems clear in the crypto space that narratives are exhausted and emerging narratives like ZK are not enough to drive the next wave of inflows. Small narratives like CRV wars or L1 rotations drive the shuffle but not the net New inflows. DeFi regulation is also an issue.”
While in theory this bear market was started by some combination of macro conditions and a crypto-centric crash, that doesn’t mean that once the world re-starts “adventures” on crypto, crypto will go up, as it There is the same downside. While I do think there are a lot of people who start trading stocks and think they know what they’ve been doing in the last two years, these people will realize that they don’t have alpha and may turn to crypto as a way to trade in less efficient markets. In this way, crypto bear markets are often about inactivity and lack of narrative.
Because of this, we have to consider what kind of narrative will emerge if/when we decouple from stocks to start the cycle. Outside of The Merge, there are a number of new stories that are likely to accelerate over the next 6-18 months. My gut tells me that the people who will pull us out of the bear market the most will be those who focus on sustainable income for the protocol, and those who tout a variety of new users who have never interacted with on-chain before.
The latter will populate the domain transfer of other web2 primitive ideas in distributed productivity/computing on the consumer side (e-commerce, gaming, super apps), enterprise or B2 B2 C side (think Livepeer, Helium, Render, etc.) , and institutional entry in DeFi. All will focus on abstracting away today’s crypto user experience in security and transactions.
While investors today are all back in love with infrastructure type investing, the other thing I would say is that after the above narrative emerges, I think we will see a massive influx of B2B software into crypto/web3 as a helpful To kill the second wave of the bear market. The next wave will join a bunch of brands, companies and institutions looking to contextualize on-chain data for a variety of use cases. I think this area is ripe for Web2 founders as it will require an understanding of enterprise SaaS GTM actions as well as on-chain familiarity to execute at a high level.
These are just some ideas, this is not really an authoritative post, but a quick glance at what else I might be doing today.
Two other random thoughts
Nouns and crypto fatigue
So I’m actually bullish on Nouns, but I do want to know that.
You are creating more value than diluting it (ie token release)…you should exit angrily, which will give you a floor price.
In effect, you are betting on the DAO’s ability to invest in growth.
Nouns typically rely on people’s ability to spread their brand and narrative in order to add more value to the DAO (thus exceeding the inflation that occurs on a daily basis). While the supposed anger exit creates a good “floor” similar to RFV dynamics, this ignores a fundamental problem in a bear market, which is that…people are going to get really fed up with crypto brands for a while.
Maybe only a year or so, but I don’t think Nouns are immune to crypto fatigue, so as a DAO I might think about how best to keep Nouns away from crypto and more towards short-term communities/movements. The low-hanging fruit is through some kind of entertainment brand, the next is a studio focused on supporting a certain kind of creator, and the last may be philanthropy. Or, of course, leverage the subDAO structure and build LilNouns for each of these use cases, with capable leaders and a percentage of funding for the core Noun DAO. Again, I’m just giving a half-baked idea here.
Cryptocurrency and the dictatorship of bear markets
At some point in every founder relationship I have (encrypted or not), I discuss the important dynamics of understanding when to effectively be a dictator within an organization. Doing this with a tighter labor market can be scary because for many, the line between being downvoted (but being heard) and being ignored (and making employees/contributors/communities feel heard) is very thin skills are rare). However, as the walls start to close around you and the market feels bleak, it’s often indecision and/or apathy that kills the team.
It’s a bit blasphemous to say, but I think full democracy is a negative for most crypto projects today. The vast majority of projects will see general apathy/failure in their communities and governance engagement will die in a bear market. Use this time to work on projects with the best leaders and bring them closer to dictators to deal with a down market. Inactivity will kill the protocol. I wrote in our most recent investor update:
As the bear market continues, what we will focus on is whether the agreements that have created material wealth continue to build, as they did in 2018. If we see a slowdown in development, we may value the network and sell projects that we have lost confidence in, as we did last year.
In any case, the best protocols will recognize that leaders sometimes need to leave leeway to make difficult but unilateral decisions, while keeping the wallets of those who will (somewhat inevitably) exit and try to take all their funds with them. Check and balance.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/what-will-happen-next-in-the-crypto-market-amid-a-bear-market/
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