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Themes to Watch and Value Traps to Dodge
(This report was intially published on Substack, written in 6 parts. Part 1 that discussed Bitcion ETF approval and the halvening was published before the BTC spot ETF was approved last Wednesday. So the beginning of the report may feel out dated. Bear with me, I’m not living under the rock. You can read the initial report here; Part 1, Part 2, Part 3, Part 4, Part 5, Part 6.)
It’s that time of the year when everyone tries to predict what the year is going to look like. They consult their crystal ball and rebalance their portfolio as they get ready for the year ahead. I’m going to take a jab at it too, although I don’t have a crystal ball to look into, I will try my best regardless. If you are that serious about outperforming the market this year, you must have at least read a couple of reports, highlighting what’s going to make for a better investment or not. If you aren’t that into weeds, you must have seen those “Top 10 coins to buy this 2024” tweets. If you haven’t, I can send you links. I have seen lots of them, and to be frank I’m tired.
From the reports I have read, there is stuff I don’t agree with, which I’m going to discuss later in the value trap section. This isn’t an in-depth 150 IQ report, neither is it the 60 IQ reply guy thereadbois on CT. This is something in the middle.
So why am I writing this? To begin with, it’s for accountability purposes on my end. I see a lot of things that I think are going to happen in the future, I tweet about it, then totally forget about it. It then comes to fruition and I somehow end up fading it, something I saw before time. So I’m going to revisit this countless times this year, as a reminder so I don’t fade the same narrative I predicted. Still, for accountability purposes, I want to know how good I am at predicting the future. Would love to run an investment firm sometime in the future. This is just me training my muscles, and getting prepared for that time.
Secondly, I’m writing this because I get lots of “what should I buy”. “Should I buy this or buy that” “What do you think of this token, or that token”. Most times my answer varies, today I think it’s Sol, and tomorrow I will think it’s Ethereum. Other times I do not have an answer. I’m writing this as a guide, something I can send to people when I get those kinds of questions.
I’m also writing it for my bags, most of the tokens here, I’d be investing in, if I already don’t have positions in them. Learned from Authur Hayes, that the best way to check your investment thesis is to write about it. It helps you think through your positions objectively as you write about them. So yeah, I’m shilling my bags — maybe a little. I’m probably going to sell and you won’t know, because I won’t write about it. But I promise you that you aren’t going to be my “exit liquidity” because I don’t have the financial capacity to move the markets (I’m not a millionaire yet). Also, the coins I’d be talking about are very liquid. At best you’d be someone else’s exit liquidity, but not mine. If you are reading this in December or you read it in January and followed my lead, and a narrative didn’t play out as expected, have peace in knowing that I was wrong too and probably lost money on that trade.
I do not have a framework for how this article goes. It’s a muse, my unfiltered thoughts, will just write as I think.
That’s aside, of course, I’m going to start with Bitcoin (it’s what everyone starts with). We are going to get a BTC spot ETF on January 10th, I think it’s a done deal at this point. An approval wouldn’t mean sudden inflows into the market, it will probably take months before an actual product is rolled out to retail. So hold your horses bro, we wouldn’t see a $14B inflow on January 10th. It will happen over a while. I know there has been a comparison to the Canadian Purpose ETF, which has seen lacklustre performance since it went live over 2 years ago. That thought process is half-baked because 1) US financial markets are multiple times bigger than the Canadian market. 2) It’s the United States of America, bro. It’s like comparing USD to CAD, lol.
There’s also talk that everyone who wants to buy Bitcoin can just do that on Coinbase today. Well, that’s true if you are a retail investor. ETFs are more for institutions than retail investors. Institutional investors can’t just ape in on Coinbase, there are laws prohibiting them from doing that (laws I don’t have the brain cells for). Or they are simply just doing their jobs by not buying Bitcoin. As a crypto person, it’s hard to imagine something like that happening, but that’s the reality, sadly.
Okay, so what happens next if an ETF does get approved, buy the “rumour sell the news?” very unlikely, we will just pivot to the next narrative — the halvening. Even if the ETF fails to go through, the halvening narrative will be there to support it. The halvening is guaranteed to happen, so there are no “what ifs” here. The halvening can never be priced in like I have written previously in the past. Just to make a small recap. Assuming there were 20 coins and 5 people needed one each, there’d be enough supply to go around. Even if they needed an extra 2, there’d be enough supply to go around and remain. In a scenario where the supply gets cut in half — to 10 coins, and each five of them needed an extra 2 coins. 3 coins per user would require 15 coins in total for the 5 of them, but only 10 coins are circulating. Price goes up to account for that disparity. The more demand there is than supply, the higher price goes to account for the disparities, bringing it to equilibrium. With the ETF around the corner, there’s no way the halvening is priced in. We have increasing demand via ETFs and shrinking supply via the halvening. That’s a surefire way to make prices go higher.
The other angle to the halvening narrative is how much significance the halvening still has on price. If you had say 1 litre of water and you slapped your fist on it, you’d get a massive ripple effect. You can think of the 1 litre of water as Bitcoin’s circulating supply, and the halvening as the slap of the fist on the water. The smaller the water (circulating supply) the larger the impact of the slap on the water (the halvening). The greater the water (circulating supply), the smaller the impact the slap (halvening) can have over the water. If you add an extra litre of water, you need twice the force of the slap to cause the same ripple waves. The halvening has had less effect on price action as more supply came into the market and I expect that to be the case going forward, as you can’t do two halvening in one.
This is a muse and by default should be short. This is what I think of bitcoin concerning the ETF and the halvening. Still have opinions on ordinals and its security budget problems. But I will save that for later.
In Part 1 of this ongoing series, I talked about the potential Bitcoin ETF and the halvening. I’m still going to talk about Bitcoin here again, but this time concerning Ordinals. Ordinals were the breakout tech in crypto last year, alongside zkEVMs. But ordinals were more user-facing so generated lots of buzz than zkEvms. Ordinals originated on Bitcoin but have since transcended into other blockchains, and I consider them to be spammy on PoS-enabled chains. Just a little recap (for those off CT), Ordinals are second-layer Inscriptions, which are ways to inscribe data to individual sats on the Bitcoin blockchain. This is oversimplifying what Ordinals are, but don’t want to dive into the nuances here.
Standing on my two tentacles, Ordinals on PoS-enabled chains are ngmi. Why? They are spammy and there’s no need for it. PoS has smart contracts enabled which can and has been used to create NFTs since their inception. Bitcoin doesn’t have native smart contract capabilities, hence the need for inscriptions. Anything can be inscribed into sats, from texts to images to audio, and even videos in rare cases. The Ordinals’ frenzy initially started with image-based inscriptions being the hot thing. Text-based inscriptions rose to prominence later on and have since been the dominant form of inscriptions. An example of image-based inscriptions is the famous Taproot Wizards headed by Eric and UDI. Text-based inscriptions gave birth to the BRC-20 token standard (a way to create coins on Bitcoin). BRC-20 tokens have since exploded in price with $ORDI having a market cap of over $1B. $ORDI does nothing for Ordinals inherently, but somehow the market decided to place value on it. There are other upcoming BRC-20 tokens like $SATS with $1.5B in Market Cap. Can’t tell exactly what these tokens do, but that hasn’t stopped them from having such high valuations.
When there’s a Cambrian explosion of new tech, garnering users’ attention and eyeballs. People think they are cool and want to experiment with it. There’s a small window between this experiment stage and the product providing actual value. If the product is good, it will live on after the experiment stage, if it doesn’t it becomes a fad. A recent example of an experiment stage not providing actual value at the end is Friend. Tech. Product teams have to iterate fast and ship good products during this window to remain relevant. I think that’s the stage where Ordinals are going into 2024. It’s no longer a meme, it’s now a question of “Show me what you got”. Jpegs on the blockchain are not enough to use case, neither is minting new shitcoins every day via BRC-20s. If we don’t see more innovative solutions built with inscriptions, we can as well call it a day and add it to the list of fads alongside Friend.tech.
I think we will see more innovation with Ordinals. We are just scratching the surface with what we can do with this inscription tech. This year will be a pivotal moment for Ordinals. $ORDI, $SATS and other BRC-20 tokens should continue to do well, alongside Taproot Wizards, assuming the hype sustains, which shows no sign of slowing down at the moment. Bitcoin will also benefit from this hype in $BTC price appreciation and the generation of more transaction fees for miners.
Moving away from Ordinals to NFTs in general, I think they are going to make a strong comeback, so strong that “NFTs are dead” talking heads are going to have to pivot. No, it’s not going to come back on Solana, it’s going to be on Ethereum. I know this is hard to imagine now, seeing the Solana ecosystem has been on fire lately. Sure, NFTs will still exist on Solana like they already do, but the one that captures all of CT’s attention will be on Ethereum.
Most people think we are done with PFPs. I tend to differ. NFTs’ biggest use case as of today is PFPs and I expect it to remain that way for the foreseeable future. We will see the launch and rise of another PFP project, like we saw with Milady and Pudgy Penguins last year.
Opensea is done for, and Blur will be the biggest winner when we get another NFT boom this year. Blur launched at the peak of the bull market back in October 2022 and is yet to experience a proper bull market. They have been building and shipping upgrades since then — they even launched Blend (an NFT peer-to-peer lending platform). Both Blur and Blend have been doing insane numbers since they launched (despite it being in a bear market). What’s commendable is how Blur was able to eat Openseas’s lunch in a bear market and Blend other NFT lending platforms. They are the biggest in their respective categories, and they achieved this in a bear market. Truly, they are a force to be reckoned with, and most of y’all seem to be fading Pacman.
$BLUR will likely do well, as it’s considered an index for the NFT market. We have never had a token worthy of speculation when it comes to NFTs. The only way to gain exposure in the past was to trade the actual NFTs. I think that’s about to change with $BLUR. $RARI, and $X2Y2 both went to zero because the actual platforms themselves went to zero. Blur is currently the leader by volume in marketplaces and the lending space (with Blend), hence $BLUR doesn’t go to zero.
“This year is for gaming” — is a long-running meme, you are probably tired of hearing. Gaming as a narrative keeps coming back every cycle. We thought it’d happen last cycle, but that didn’t come to fruition. At least we learned one thing — play-2-earn games don’t work. The games aren’t fun to play and their tokenomics suck. This is not the cycle where crypto onboards the 3.5 billion gamers worldwide, nor is this the cycle where onchain games become a thing. Onchain games are games that have both their logic and state onchain. We will see new crypto games hit it big this year, like Dark Frontier, Shrapnel, Parallel Colony, Illivium, etcetera. $IMX will probably be the biggest winner here, as it’s the go-to chain for game developers. Illivium is currently the biggest crypto game and hence $ILV should do well too. $BEAM, and maybe $PRIME will ride the gaming narrative too.
You’d see lots of games launch their tokens to play along with the narrative. History suggests that investing in the leaders proved the safest bet and provided the best return in the gaming category. Be wary of investing in the 597th token by market cap because it has a game. Building a game is hard, most will suck at it and see their native token to zero, you don’t want to be left holding the bag. Gaming is also a “winner takes most” market, so I don’t expect to see 30 crypto games all make it big this year.
This article will be on L1s generally. You probably already know my opinions on L1s by now — I think modular blockchains win over monolithic ones in the long run. That doesn’t mean monolithic chains stop being a thing, they will exist alongside modular chains. In the fullness of time, we’d have a big modular blockchain and a large monolithic chain.
That aside, what happens this year with L1s? We’d get another L1 war like we do every cycle. This time the battleground would be on parallelization. Sorry to say this (my Solana fans), but Ethereum is the gold standard when it comes to L1s. Yes, Bitcoin is an L1, but it’s not often mentioned when talking about L1s because it lacks native smart contract capabilities. That leaves Ethereum as a yardstick when it comes to smart contract enabled L1s. L1s are all in competition with themselves, regardless of whether they are modular or monolithic by nature
My bad, L1 stands for Layer 1 and L2 Layer 2. I can’t tell you how they function or what exactly they do. This isn’t the right article for that.
Enter Solana, the leading L1 outside Ethereum. It had a monstrous year in 2023, up over 900%. I think that performance continues to happen. The ecosystem has seen a huge uptick in volume, Devs, dApps and more importantly users. Solana is where ETH was back in 2020, as ETH recovered from its $80 moment. Lots of people will attempt to do the “reversion to the mean” trade with solana, only to have their shorts blown out. The price of $SOL is quite overstretched now, and a pullback or sideways price action wouldn’t be out of place.
Think the best way to gain exposure is by being long other coins in the ecosystem as beta plays to SOL. $JTO, $PYTH, and $ORCA seem to be the hot things on Solana right now. We’d also have new token launches in the ecosystem as the year goes by — coming from Jupiter, MarginFi etcetera. Will be on the outlook for the next interesting thing on Solana.
Ethereum has always been the main competition to other L1s. Back in 2020, we had the rise of different alternative L1s, and what was their selling point against Ethereum? “Ethereum is slow, we are fast”. They achieved this by having high TPS and using the DPoS consensus mechanism rather than a slower PoS. That became table stakes for L1s, you had to have a high number of TPS and use DPoS for consensus mechanism or another variant — anything but vanilla PoS. And it worked, if you had a high TPS and DPoS you raised a lot of money from VC and the coins of the respective blockchains were pumped massively. Despite everything pumping we had three outstanding winners — Solana, Luna, and Avalanche hench the meme — SOLUNAVAX.
What’s the meta this time around for L1s, what’s the stable stake, what’s that thing L1s can point to Ethereum and say “Look, Ethereum doesn’t have this, and we have it, therefore we are better”. Whether they are truly better than Ethereum isn’t the issue here, the crux of the matter here is that there’s something they can point to that Ethereum lacks. It will be even more pronounced if it gives them an edge over Ethereum to an extent. Last time it was high TPS, this time it’s Parallelization and Local Fee Market. I have written extensively on both topics in the past, so wouldn’t go in-depth. But what you should know is that blockchains (whether modular or monolithic) process transactions sequentially (i.e. one after the order). Parallelization will process transactions simultaneously (if they don’t touch the same state or memory). Parallel Execution will enable faster transactions than sequentially ordering transactions.
To be fair, last cycle’s high TPS were all theoretical or on testnets. Parallel Execution is bringing all those high TPS to reality. So, it’s still a play on “we are faster than Ethereum” but this time under another label — parallelization (I love this industry). The local Fee Market makes transaction fees cheaper. Chains without a Local Fee Market (LFM) all share a general fee market. That means a rollup user will be affected by a surge in transactions fee caused by a new NFT mint. With LFM, each use case could have its fee market, and as a result, won’t be affected by exogenous factors.
PE and LFM are two key technological innovations that Ethereum currently lacks, both on the L1 and L2s. Although there’s a plan to bring PE to Ethereum via L2s. That’s what the team at Eclipse are building. Only Solana has a functioning PE and LFM to a large extent (now you know why $SOL prices were up that much last year). Other blockchains that have PE to an extent are Aptos, Sei, Sui, Neon and Monad (although it isn’t live yet). $SEI and $NEON have done extremely well in recent weeks, and I expect that trend to continue, while $SUI and $APT have only begun to pick up steam. I’m bullish on any L1 that has PE and LFM. Fantom and Near are other L1s that have parallelization (although via sharding). $FTM and $NEAR might turn out to be great investments based on the parallelization narrative, but it’s not something I’d like to own as they are old tokens, and they are just trying to pivot into a narrative. I love new shiny stuff and would rather stick to the likes of $APT, $SEI, $SUI, $SOL, and $NEON.
There’s also a meme that can be born out of these “ASSS” (Aptos, Sui, Sei, and Solana). Just like we had SOLUNAVAX last cycle. Maybe this comes out in another way, but regardless I expect parallelization to be part of the play. Parallelization is difficult to engineer, unlike high TPS which was relatively easier and more of a marketing gimmick as it was all theoretical. As a result, the high TPS trade got crowded quickly. In the fullness of time, most L1s will have PE and LFM, but it will take some time before it’s commoditized giving an edge to chains that already have it.
A year ago, I wrote a research piece on liquid staking, more like my bullish case for that narrative — using Lido as a poster child. Since then a lot has changed in that sector. The ecosystem has grown larger than I could have envisioned. We have seen the rise of restaking platforms. I hope to write part 2 of the research piece I put out a year ago on liquid staking. There I will dive deep into the intricacies. But for now, let’s do a high-level overview of why I think that narrative is going to perform well this year.
To back up a little, liquid staking increases efficiency in PoS blockchains. In a PoS-enabled blockchain, you stake the native token to secure the blockchain, hence the name Proof-of-Stake. There are lots of challenges with this approach, the first being that it has a steep learning curve, not everyone will (and not everyone should) have the technical prowess to stake their ETH to secure Ethereum. Other blockchains solve this by using a variant of PoS — Delegated Proof-of-Stake (DPoS). Here you delegate your coin to a validator who stakes it on your behalf while passing the yield back to you. Ethereum uses vanilla PoS, so there’s no one to delegate your ETH to, to stake on your behalf — unlike Tron’s DPoS.
Another issue that plagued PoS-enabled blockchains (and their variants) was its capital inefficiency issues, where you do only one of the following — stake your coin to secure the blockchain, or use the coin in DeFi which drives value to the blockchain. Staked assets are usually idle and don’t do much economically for the blockchain. Enter liquid staking — here you can delegate your ETH to validators to stake on your behalf and they pass the yield afterwards to you. At the same time, you can still use your ETH in DeFi to earn more yield or drive value to the underlying blockchain. When you stake your ETH with a liquid staking provider (Lido for instance), you get issued an IOU representing your staked ETH with Lido (stETH). stETH works exactly as vanilla ETH, you can take it to DeFi and do whatever you want. The problem of capital inefficiency is more pronounced on blockchains that have burgeoning DeFi ecosystems like Ethereum and Solana. Ecosystems with little or no DeFi presence can worry less about liquid staking as most of the token will be used to secure the blockchain. Also, that’s where you can get the most yield in the ecosystem.
Ethereum underwent the Shapella upgrade (allowing for staked ETH withdrawal) last April. Since then the amount of ETH staked has almost doubled moving from 15m to 30m ETH, with a good chunk of that done through liquid staking. Most PoS-enabled blockchains have a high percentage of their tokens staked, why? 1) They don’t have a functioning DeFi ecosystem. 2) Most of the tokens have no use case other than staking it to secure the network. So there’s not that much to do with the token. ETH, on the other hand, has both a functioning DeFi ecosystem and use cases other than securing the network. The amount of ETH staked won’t get to the 60% average for most PoS-enabled blockchains, and if that were to be the case, Ethereum would be overpaying for security, and those ETH would have to be put to work somewhere else. There’s no way to speculate on restaking at the moment, other than being long the LSTs themselves ($LIDO, $RPL). Not only are Lido and RPL the biggest providers of LSTs, but stETH (Lido) and rETH (Rocketpool) constitute a large chunk of LSTs in Eigen Layer, being used to secure other blockchains.
Talking about use cases, ETH is being viewed as money, both inside and outside Ethereum. Enter restaking, which aims to export this Ethereum’s moneyness. A small amount of ETH is needed to be staked to secure the network since each ETH has value. What then do we do with the remaining ETH? We use it to secure other blockchains. Restaking is exporting Ethereum’s economic security to other chains. This can also be referred to as shared security. The Cosmos ecosystem has ICS, while Polkadot has Parachain, but for one reason or another, both have refused to pick steam like restaking on Ethereum has. To know more about shared security, I employ you to read Julia’s piece here.
Eigen Layer is at the forefront of restaking. Again, to learn more about Eigen Layer, read Julia’s piece. Eigen Layer restaking is being powered by liquid staking (now you are seeing the connection). You can tap into Ethereum’s security by being an Actively Validated Service on Ethereum. The reason why a chain will want to share in Ethereum’s security is beyond the scope of this muse, and once again, employ you to read Julia’s piece here, and here.
The first AVS to go live on Eigen Layer is EigenDA, which is a data availability layer tapping into Ethereum security. DA solutions are places where rollups post data. Call data cost is the biggest expense for rollups. ~90% of transaction fees users pay are being used to post call data back to Ethereum. DA layers solve this — they offer more space and cheaper cost for rollups leading to cheaper transactions for the end user. To put it in one sentence, “DA scales rollups”. While EigenDA isn’t live, Celestia is. Let me just throw in some stats to show you where Celestia is when compared to Ethereum. It costs $0.10/mb to post data on celestia. At $140.54 per 231kb, it’d cost $623/mb on ethereum. Celestia has a data capacity of 576,000 MB/day, while L2s on ethereum combined posted a total of 300 MB/day throughout the entirety of 2023. If you are bullish on the modular architecture for blockchains, you should be extra bullish on DA layers.
DA layers are pretty new concepts and have value for now. Mapping your L1 benchmark would make DA layers like Celestia look very overvalued at the moment. The market seems to like the ideas of DA, as $TIA is up over 300% since its inception. There’s also an opportunity for airdrop farmers on DA layers, as protocols that leverage these solutions will likely airdrop tokens to the people that secure these platforms (stakers). Staking early on DA layers might get you eligible for countless airdrops later in the future. We also have other DA solutions like Polygon Avail, and I’m sure we will see more come online this year, I expect the respective tokens of these blockchains to do extremely well.
Now, if you have followed me for a long time, you probably already know my stance on Ethereum and L2s generally, but I’m taking a jab at it once again, for those who don’t know. I’m also going to tackle it from another angle.
It’s not news that ETH underperformed BTC and the rest of the market last year. Not going to lie, I was surprised by that outcome. Going into 2023, expected ETH to outperform BTC since it had a lower market cap, and the merge upgrade in 2022 (which made ETH deflationary). Thought a deflationary asset coupled with an increase in demand, would send ETH higher, at least that’s what we were promised with the Merge. As always when your thesis doesn’t play out as expected, it’s paramount you go back to the drawing board to assess what went wrong.
To be fair, ETH was 82% in 2023, by tradfi standard that’s a lot, whereas in crypto that’s chicken change. ETH remains deflationary and gas fees went up, as we were promised, yet the price didn’t manifest as it should have. Don’t get me wrong, fundamentals haven’t deteriorated they have even gotten better. We are going to get everything Authur Hayes promised us in 2022, but we just have to wait a little longer. So what went wrong? Narratives. The Ethereum narrative got fractured around different layers. Bitcoin had Ordinals and the BTC spot ETF going for it, and Solana had parallelization going for it. What did Ethereum have? L2s, LSTs? etcetera. While these narratives had their day in the sun in 2023, they happened off Ethereum. You believe the Ethereum scaling roadmap, rather than speculating about $ETH, you pick beta plays like $ARB or $OP. You believe LSTs will be a force to be reckoned with, you long $LDO, and $RPL instead of $ETH.
But I think that’s all about to change this year. All the fractured narratives across layers will come together soon and that will be bullish for Ethereum.
Firstly, the long-awaited Ethereum spot ETF is poised for imminent approval, following closely on the heels of the Bitcoin equivalent. This institutional gateway will unlock a vast pool of previously inaccessible capital, injecting much-needed stability and legitimacy into the Ethereum ecosystem. The influx of institutional investors represents a paradigm shift, signalling a transition from speculative frenzy to measured, long-term investment.
Secondly, the advent of Eigen Layer in Q1 2024 marks a turning point in Ethereum’s interoperability capabilities. This innovative protocol facilitates the seamless transfer of Ethereum’s monetary value and decentralized application (dApp) functionality to other blockchains. This effectively expands Ethereum’s reach and influence beyond its network, unlocking entirely new avenues for user acquisition and adoption.
Furthermore, the continued maturation and integration of L2 solutions like Optimism and Arbitrum offer a compelling value proposition for developers and users alike. These scaling solutions address Ethereum’s current scalability limitations, enhancing transaction speed and reducing gas fees, ultimately fostering a more user-friendly and cost-effective environment. As L2 adoption continues to rise, we can expect a corresponding increase in demand for $ETH, the key fuel that powers the entire Ethereum ecosystem.
I have written articles about the DenCun upgrade, so won’t go into the nitty gritty. To learn more about what it is, read my articles here and here
Beyond these immediate catalysts, the Ethereum network continues to evolve at a rapid pace. DeFi innovation reaches new heights, NFTs redefine the boundaries of art and ownership, and DAOs pioneer novel forms of decentralized governance. Each of these advancements strengthens the Ethereum ecosystem, solidifying its position as a cornerstone of the Web3 landscape.
This marks the last part of my ongoing series of “Investment Themes in 2024”. You can read various parts of the series here, here, here, here, and here. I have discussed narratives from Ordinals to Restaking to Gaming etcetera. I’m going to iron out some issues in this article — value traps. These are investment themes that people think are going to do well, this year, which I happen to be bearish on. I’ve read probably a dozen reports on investment themes in 2024 and saw a lot of constants across those reports. Perhaps everybody is just copying everybody else, or it’s the consensus trade, i.e. you can never be wrong investing in ETH for example. I will discuss some of those here, the ones that seem very popular. I’m not saying those analysts are wrong per se, I’m just sharing my opinion on the subject matter objectively.
Even if you were living under a rock in 2024, you probably heard of the AI craze last year. I followed the AI movement closely last year, and there were lots of technological advancements made. I’m not an AI researcher and in no position to give you a recap of AI advancements last year. But something that stood out to me last year was the proliferation of consumer-facing apps. Of course, crypto can never let any hype go to waste, we latched on to the AI hype and rode it coattails. Read lots of Crypto x AI intersection reports, and what I found to be off was the focus on infrastructure and the lack of consumer-facing apps. For a long time, crypto has always been an infrastructure play so I wouldn’t blame crypto researchers for not being able to step out of their bubble. Most crypto is still an experiment so you can’t know what’s going to work or not, hence the fat app, fat protocol thesis. The AI movement is still an experiment, but we already have a jerk for what’s working and what’s not.
When you hear about AI what do you think of? ChatGPT, Bard, MidJourney, CharacterAI etcetera. These are all consumer-facing apps. There was recent research carried out by Writerbuddy where they estimated a total of 24 billion visits to the top 50 AI tools. ChatGPT, CharacterAI, and Bard had 14.6 billion, 3.8 billion, and 241.6 million visits, respectively. Let that sink in for a moment, these aren’t small numbers by any standard. So why aren’t crypto products threading these parts? Why aren’t we building consumer-facing apps? Why are we so hung up with infrastructure play? Trying to decentralize the training of AI models. Don’t get me wrong, I’m not saying these aren’t important, they just shouldn’t be our focus for now. Guess I’m not speaking for the industry, but if I were a VC, would never fund a team that had a pitch deck with infrastructure play.
Render, Akash, FET etcetera, all infrastructure plays, aren’t even mainstream in crypto yet. It’s a very subset of crypto users that interfaces with these products as they have a steep learning curve. I’m not surprised by this as infrastructure plays are always B2B rather than B2C. Honestly, I can’t tell why we picked this battle to fight. The irony in all of this is that the crypto tokens of these infrastructure plays did extremely well last year, that if I wrote this in 2022, and for one reason or the other you heeded my advice, you ended up fading one of the most popular narratives in 2023 and missed out on a chance to make life-changing money. I don’t know why this happens, but it just happened to be reality, the discrepancy between fundamentals and price action. While I’m bearish on the Crypto x AI intersection won’t hurt to buy one of the tokens, just in case. For the record, I’m bearish on the movement, not the tokens themselves. Because I can imagine a scenario where someone will try to call me out in 2025, after the AI tokens 10x this year. It’s also possible that reality begins to set in, and these tokens fail to do well this year, or there’s another angle to speculate on with regards to AI, whatever the outcome is, you have been warned.
This is another infrastructure play, unlike the AI one I just discussed, this one is bollocks, has zero substance, it’s all prototype. Don’t know how people can think this will work, let alone be a big hit this year. It’s giving me the 2021 Metaverse vibes. I was a critic of the MV movement then, it’s still the same reason I’m sceptical of DePIN today. The tech isn’t just ready yet, and even if it was, it still doesn’t make sense as of today. Back in 2021, people thought all we needed was VR glasses and we were in the MV. VR glasses for MV are high throughput chains for DePIN, folks think that’s all we need to make DePIN work. While I can’t give you the specifics on what exactly is needed, I know for sure high TPS chains aren’t the golden goose as Crypto Twitter is making out to be.
It’s also part of the Only-Possible-On-Solana (OPOS) meme, which I think is a narrative play and will subsidize as time passes. Not only is believing in the movement wishful thinking, but buying the respective tokens is probably worse. I get it, the tokens have been pumping in recent weeks. That’s how it works, you see token prices going up, you get sucked in, believing the hype, and the rest is history. That’s how it played out with MV tokens, and I expect a similar trajectory for DePIN-related tokens. We will look back from 2025, and laugh at ourselves for thinking that DePIN would be a force to be reckoned with in 2024.
This isn’t purely an infrastructure play like the two I just discussed. RWA lies somewhere in infrastructure and consumer-facing apps. RWA can take various forms from tokenized debts to real estate. Real Estate has failed to work since the “let’s put houses on the Blockchain’’ era back in 2017. It keeps coming back every cycle (but under different names). It’s going to come back again, and when your favourite influencers start shilling you real estate on the blockchain, tell them that you have seen this movie before. There are lots of reasons why this doesn’t work today, one of them being no standard. Houses are non-fungible to start with, unlike equities or debts that can be easily tokenized and traded. To know more about the hurdles this movement will face, you can read the recent Authur Hayes piece. Buying any token in this category will be a surefire way to lose money in 2024.
The most popular form of RWAs is stablecoins. But there’s a variant of this — tokenized debt. Like stablecoins, only that they pass the yield from the debt to the end users. US Treasuries are the popular vehicle for this trade. The stablecoin issuers take in deposits from users, purchase United States Treasuries (UST) and pass the yield on to the users. This trade has worked so well in the past two years but appears to be coming to an end as the Fed is set to start cutting rates sometime this year. Yet I still see protocols pursuing this growth strategy, and users looking for ways to earn native yield on their dollars. I don’t know man, but this trade has come to an end. Protocols following this strategy must go further out the risk curve to generate more yield, they must keep the juice flowing and the users must keep drinking. They will either reduce the yield or take more risk; whatever path is followed doesn’t end well. If the first option is followed, token prices will fall, or underperform the market. If they go for the second option, the token price will do well in the interim, but they’d be setting themselves up for a Terra Luna-style blow-up, which will be bad for both the protocol and the token. Maker is the poster child for this, but I don’t expect such an outcome for them. It’s more likely going to happen with new protocols taking more risk. Won’t be surprised if we see a protocol blow-up trying to play this playbook. Tokens in this category should poorly perform this year, regardless of dozens of reports written in favour of it. You can read more on this topic and the risks associated with this Authur Hayes piece.
As a research analyst, you show your audience the facts and let them make up their minds. Unfortunately, I can’t adhere to that in this piece. I’m going to feed you on this one and tell you that these are all value traps you should be aware of in 2024. On the other hand, I can be wrong and this narrative turns out to be a hit this year, with their respective tokens going to the moon, literally. Well, time will tell. Will also write a follow-up, should I change my mind on any of the narratives I discussed in this entire series, most especially in this value trap section.
Will revisit this in 2025 and check how right or wrong I was, till then, peace.
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