How do you choose which tokens to invest in?How do you do your research?Are you just looking for alpha on x?
With so many tokens and narratives to consider, how do you assess which ones have the potential to surpass Bitcoin?
In my opinion, the success of any crypto ecosystem is driven by three key factors: technological innovation, token minting opportunities, and a compelling narrative.
These key criteria help assess the potential of a crypto project, as well as its ability to participate in and maintain a dedicated community.
In this post, I'll expand and organize my thoughts on these three pillars implied in previous blog posts and tweets about X.
Keep learning Xi using artificial intelligence generation**. Any ideas to improve my banner?Ha ha.
In addition, I will provide current examples to support my point.
Note: You can track the narrative and the performance of ecosystem tokens in this DUNE dashboard via Cryptokoryo. Learn how to use it Xi here.
Technological innovation is all about pushing the boundaries of what's possible. It is the driving force behind the excitement and momentum generated by a new project or upgrade.
The more innovative technology is, the more powerful it is at storytelling.
Bitcoin opens it all up with its distributed ledger. Then Ethereum launched complex transactions with smart contracts. I am not exaggerating to say that the bull market of 2017 started with the invention of ERC20.
However, the most important impact of Ethereum and ERC20 is not technical, it is social. Prior to ERC20, tokens were primarily considered as payment currencies or stores of value. But with ERC20, everything is possible. With the growth of cryptocurrencies, the use cases for cryptocurrencies have increased exponentially. - My thoughts came from the "echoes of past" blog post.
The last bull market was marked by the advent of DeFi, which included several technological innovations: AMM, lending protocols, algorithmic stablecoins, and more.
Every time there is a bull market, we have new technological innovations that are exciting. Without it, the industry would have stagnated and eventually disappeared.
Many of the innovative solutions were built during a bear market, so it's really worth staying and researching during difficult times.
Since the last bull run, exciting new technologies have emerged:
Optimistic rollup and ZK rollup, reduce TXS fees, and improve the speed of the execution layer.
Innovations in the data availability layer.
Account abstraction & the intent to improve the user experience.
Soulbound's tokens, non-transferable tokens, represent an individual's identity on-chain.
Real-world assets or on-chain tokenization.
A new generation of on-chain derivatives and DEXs
Ordinal number on BTC inscriptions and DeFi
restaking
Artificial intelligence is another technological innovation that has had a significant impact on crypto, even though it originated outside of the crypto ecosystem. I'm curious about what exactly crypto projects can do to decentralize AI.
However, not all technological innovations are created equal if we want to make money.
What sets them apart is the variety of opportunities for them to print money (token mining) and their potential to capture people's attention and become the dominant narrative.
Token minting, or as I like to call it, "money printing", is akin to a central bank injecting new fiat money into the economy. In cryptocurrency, this is achieved by launching new tokens in the ecosystem.
When Ethereum launched, the first thing we did was launch more tokens, thanks to the invention of ERC20. However, the rapid collapse of the 2017-2018 token, lacking substantial technological innovation, exposed the limitations of mere storytelling.
What's more, they didn't integrate the integrated flywheel effect, incentivizing users to hold tokens through project revenue, staking, and other mechanisms.
Lessons from the 2017-2018 Bull Market!
In 2020, AMM became a powerful mint machine along with the invention of the staking contract. Staking liquidity pool tokens (50% "Coins", 50% ETH) to earn more "Coins" is a powerful but unsustainable Ponzi ** that makes early entrants rich. But this is not sustainable.
Then, Curve invented VeTokenomics, which provides higher rewards and voting power for long-term staking. But this model is slowly losing support.
The opportunity to "print money" isn't just tokens.
With the popularity of the "Limited to 10,000" series of collections, NFTs exploded in 2021. Although ERC721 innovation launched CryptoKitties in 2017, the 1+1=3 CryptoKitties minting model is hyperinflationary and **suddenly**.
With the launch of hundreds of 10,000 sets, the "Limited 10,000" series also suffered bankruptcy, diluting users' attention and the amount of money per series. Bored Apes, represented by Yuga Labs, understands the need for the flywheel effect to stop the community by rewarding Bayc holders with new NFTs, tokens, and ongoing stories**.
Due to airdrops and high yields, DeFi is a profitable minting machine.
People can get thousands of dollars just by trying a protocol. But airdrops are becoming less generous, more complex, and more and more dependent on the depth of your pocket (transaction amount, stake amount, etc.).
While new tokens should be supported by the technological innovations described above, not all innovations offer equal opportunities to "print money".
Turning an "account abstraction" narrative into a profit is quite difficult, but the Soulbound token narrative is even more complex (SBT is not tradable!).)
RWA is also a strong statement, but if you're looking for a 100x opportunity, RWA's inherent low volatility may not be the best option.
So, what about the opportunity to print money now?
Many new (often free-minted) Bitcoin NFTs and BRC20 tokens are launched every day. This narrative is made possible by converting fungible satoshis coins into non-fungible satosos.
But ordinal numbers and BRC20 lack flywheel Ponzi genes. I'm worried that Bitcoin NFTs will suffer the same fate as Ethereum NFTs, as the TVL and attention of each collection will be diluted. BRC20 also lacks ERC20-like smart contract functionality.
However, I believe that the situation is changing. For example, if a BitMap Oral holder receives an airdrop of BMP tokens, the trend may pick up, so holding OG Oral may be rewarded.
But it's more about the need for technological innovation to implement flywheel tokenomics, and when it happens, I'll share my degen playbook.
Perhaps Stacks will be able to grasp this narrative and "tame it" by adding a Ponzi game to Bitcoin DeFi.
Seven months ago, I shared my Degen playbook with the zksync era ecosystem.
the defi degen's playbook for the zksync era ecosystem.
I believe that ZK Tech's technological innovation will be enough to attract developers and new funds into the ecosystem, which will drive the token's growth. However, this did not happen.
The story of ZK Tech proved to be compelling enough. There is also a lack of innovative dapps, as well as a lack of flywheel token minting opportunities. Since then, the story of airdrop mining has faded away enough to keep the hype going.
Now, there are some promising L1:
Injective offers the opportunity for INJ token investors to print money. The ecosystem is new, so so far, funding and user attention have been focused on a few protocols and NFTs.
Kuji is similar to Injective, but it emphasizes the flywheel effect of ecosystem project airdrops, and the actual yield potential of no new Kuji token issuance.
Solana's ecosystem was once destroyed, but it is being rebuilt. New tokens are being rolled out to loyal ecosystem users via airdrops. Solana also dominates the narrative of modular blockchains.
*Alanche is becoming RWA and forex chain, which is a more sustainable growth model.
Polygon's POL is transforming into a chain-within-chain, and new partners are choosing PolyGON to scale Ethereum (hopefully) flowing value back to POL.
Fantom like Solana has lost most of the DeFi ecosystem. But as Sonic upgrades, it's aiming for a modular blockchain narrative.
Celestia dominates in terms of data availability, but needs to launch more blockchains and reward stakers of $TIA tokens.
SEI is a low-cap competitor to SUI and Aptos, but as a new ecosystem, I expect them to reward SEI token stakers as the ecosystem expands. There may be a "nasty L1" rally.
I talked about it in a previous blog post. I think it will be one of the most exciting stories when Eigenlayer launches a full mainnet.
liquid restaked token (lrt) -a playbook for the new ponzitokenomics era.
Where's L2?!
From a tokenomics perspective, I'm more bullish on L1. The L1 token has native staking yields and ecosystem airdrops to stakers. As a result, L2 tokens may become more attractive if they are used for gas fees, staking, and if ecosystem tokens are airdropped to L2 token holders.
The Arbitrum DAO's recent vote, K, shows the uselessness of L2 tokenomics.
The power of storytelling in crypto is insane!Narrative plays a huge role in explaining why tokens are volatile.
Technological innovations are great, but their success often depends on how well the community communicates and understands them. No matter how important this innovation is, a complex narrative can cause people to lose interest.
Storytelling brings the technical dimension and token model to life, turning them into something that we can relate to, believe in, and be a part of. It inspires imagination and belief, creating a strong, engaged community.
Narrative is essential to sustain the value and demand of newly minted tokens. Without a compelling narrative and belief in the potential of these tokens, there will be little incentive for new users to join and invest in the ecosystem.
The narrative itself can drive the growth of the token, but with a plethora of technological innovations and token minting opportunities, the token can sustain the grid for a longer period of time. If there are no other elements, the token will be as fast as it is.
DeFi, for example, has all three key pillars. It thrives on technological innovations in smart contracts and self-custody, allowing for innovative token value creation, but also has a powerful narrative for creating a new type of financial system.
Terra's UST is a notorious example, but it also firmly grasps the three pillars with algorithmic stablecoin technology "innovation", a token flywheel effect (Ponzi**), and a passive income story with a 20% APY.
So, what is the narrative that matches the three pillars of a thriving ecosystem?
Restaking + LRT is one of them, which peddles the story of "Ethereum protection". Bitcoin's DeFi is another example, albeit with a weak value "taming" mechanism to prevent excessive inflation.
Modularity vs. Monolithic L1 was a highlight of this bull run, with Solana, SEI V2, and Fantom challenging the modular vision of Ethereum, Alanche, and Polygon. Which method will be successful?It's not easy to answer, but both methods may have a place in the crypto space.
AI is a powerful narrative, but there is currently very little technological innovation in AI and the chances of token minting are low. However, as I mentioned, AI tokens will and are increasing, but without real innovation and flywheel effect, they could be sold off as quickly as **.
Q: What is the ecosystem that meets these three criteria?Let me know in the comments!
I originally titled this blog post "The Three Pillars of a Thriving Crypto Ecosystem," but that's not accurate.
These three pillars drove the ecosystem to thrive, but as new competitors emerged, innovation slowed, new money was created within the ecosystem that outpaced the attention and TVL that came into the ecosystem to sustain **, and stories were replaced by more popular games on CT.
Axie Infinity is a great example of a "thriving" ecosystem. Games on the blockchain are a novelty, and Axie has successfully marketed the "play-to-earn" vision to the world.
Thousands of Filipinos believe they can earn money by playing games. However, as more and more NFTs and Smooth Love Potion tokens are minted, its growth relies on newcomers entering the ecosystem.
In the crypto space, we've been playing similar games. New innovations and narratives are monetized through the issuance of new tokens. Unless the ecosystem can remain innovative and self-reinventing, and token inflation is under control, the once-thriving ecosystem will shrink.
DeFi is "thriving" on liquidity mining, but we're still reinventing it. defi 1.Project 0 has made it past the initial hype phase and has finally entered the stage of sustainable growth.
why i'm bullish on defi 1.0
But the narrative I mentioned in this article hasn't flourished yet. Their ecosystem is young and there are new and exciting tokens to launch. Our mission is to find the ecosystems that build the most sustainable ecosystems.
It's a delicate balance, with each element reinforcing each other to create an environment conducive to growth and sustainable development. As we continue to see the development of this bull market, I believe these three pillars will help you find a thriving ecosystem from a declining ecosystem.