With the huge changes in market structure, which tracks deserve special attention?

Original author: Meng Yan, co-founder of Solv Protocol

Editor's note: On August 23, Federal Reserve Chairman Powell sent a strong signal of interest rate cuts in his speech at the Jackson Hole Annual Meeting, and market sentiment rebounded significantly. However, the crypto market has been facing the problem of insufficient liquidity in this round of market conditions, and the interest rate cut also hides the hidden worries of the US economic recession. The current market is facing a strange situation: the coin price and total market value are still good, but the industry is depressed and lacks a strong main narrative. Under the structural changes, Solv Protocol co-founder Meng Yan analyzed the future direction and potential tracks of the crypto market on X. BlockBeats reproduced the full text as follows:

The current state of the Web3 industry and the Crypto market, in a nutshell, is that the coin price is OK, but the industry is deeply bearish. This situation has never appeared in this industry before. Previously, both volume and price rose or fell. This serious divergence between volume and price is the first time in more than a decade in the Crypto market.

Although the situation looks strange, the reason is not complicated. It is still insufficient liquidity. Many people are asking why the price of the currency and the total market value seem to be okay, but the industry is so depressed? In fact, this question is asked in reverse. Don't forget that the current US federal funds rate is still at a historical high, and macro liquidity is in a tightening cycle. In this cycle, the stock market and the currency market should have been a bear market. So what is really strange is why the price of the currency is still okay when the industry is in a deep bear market?

1. Structural changes

There must be something wrong when things are abnormal. Under the appearance of the divergence between the price of the currency and the industry, there is a huge change in the underlying market structure. Few people realize that the Crypto market has undergone a fundamental and structural change at the beginning of this year. The passage of the Bitcoin ETF marks the emergence of a digital currency market with almost completely independent liquidity outside the originally free-flowing crypto market: the U.S. stock market. This is actually a watershed event in the history of Crypto development. The current divergence between the coin price and the industry is a new phenomenon that has emerged under this new market structure.

Because two markets have emerged, two seemingly contradictory scenes have emerged. The "okay" coin price was created in the U.S. stock market. And the "not okay" industry occurred in the Crypto market.

The rise of Bitcoin since the second half of last year has been mainly driven by ETFs. The funds that entered the ETF basically remained in the hands of Wall Street and did not enter the free Crypto market, let alone nourish innovative Crypto projects. On the contrary, the Crypto market is still in a shortage of funds caused by high interest rates and AI oppression. The lack of external liquidity injection will inevitably lead to industry involution. The various embarrassing scenes that have appeared in the Crypto industry now are all manifestations of the shortage of funds.

The real bull market will only come when liquidity becomes loose. Conversely, when liquidity is loose, funds will be re-injected into the Crypto market in large quantities, and the bull market will surely come.

More and more signals indicate that the Fed's interest rate cut cycle is only a few months away. Federal interest rates are currently at a historical high. Optimistic estimates suggest that this interest rate cut cycle may last for a long time, providing a long period of constant era for industry development. Pessimistic estimates suggest that after a period of interest rate cuts, inflation will soar, and the Fed will be forced to raise interest rates again, confirming the era of chaos. I personally hold a cautiously optimistic attitude towards the future, but even in the era of chaos, 2025 will most likely be a good year.

In the long run, there will be a big battle between the two markets, but it will only be a showdown, and the two will coexist for a long time.

2. Four tracks with great opportunities

Now many people are guessing what themes will emerge in the next round of bull market. I also give some of my own opinions and reasons here, which do not constitute investment advice and are not responsible for the results.

BTCFi

Appoint the best without avoiding relatives. Now Solv Protocol and Babylon are listed as the two leading companies of BTCFi. If we break it down, Babylon is the first BTCFi on the native BTC stack, and Solv is the first BTCFi on the EVM stack. The two have a good cooperative relationship. So as one of the co-founders of Solv, I am optimistic that BTCFi is listed as the first of the four major opportunity tracks. It must be self-promotion. If you don’t make a little sense, you will definitely not be convinced.

Let me explain why BTCFi will be one of the most anticipated tracks in the next round.

First of all, BTC is the only consensus asset that can span the two markets of US stocks and Crypto in the next cycle. ETH is not good enough for the time being, and the others have to rank behind. Only BTC has the potential to connect the consensus and liquidity of the two markets.

Secondly, BTC is very large. As long as BTCFi mobilizes 5% of BTC assets in the next cycle and adds some derivatives, the scale may reach hundreds of billions.

Third, the infrastructure problems that have long hindered the development of BTCFi have been basically solved. Whether it is the lightning network, side chain, BTC L2, or bridging BTC to the EVM chain through a cross-chain bridge, whether it is a multi-signature wallet or a BTC Script smart contract, the current technical level is no longer the same as the previous round. Now in BTCFi, basically there is nothing that cannot be done except what you can't think of.

Fourth, the mentality of the BTC community has changed. Solv realized in the development and operation of BTCFi that BTC hodlers and ETH fans are two completely different groups, with very different growth paths, concepts and mindsets. In the past, BTCFi could not develop, largely because BTC hodlers had no interest in it at all. However, with the outbreak of the Inscription Ecosystem last year, two changes occurred in the BTC community. One is that a group of active members who have been baptized by DeFi joined the BTC community, and the other is that among the originally very conservative BTC hodlers, a small number of people began to change their mindsets and were willing to actively participate in the construction of BTCFi.

In addition to the above four reasons that are easier to understand, I have another deep reason to be optimistic about BTCFi.

People who have been in this industry for many years still remember that before 2018, many project financing was directly carried out in BTC, and the liquidity and activity of BTC at that time were very sufficient. However, with the tragic collapse of the ICO bubble in 2017-18, especially the rise of stablecoins, BTC has basically retreated to the position of digital gold, and its activity has greatly decreased, so that many people think that BTCFi may be a false proposition. But those who are familiar with the history of world currency and finance know that this is actually a problem that humans have faced and solved perfectly in history.

During the hundreds of years of gold standard, gold, as the standard currency, also faced similar contradictions. The core problem is that on the one hand, gold is credible because it maintains value and resists inflation, which is the consensus basis for it to become the standard currency. But it is precisely because of this consensus basis that the public tends to store gold in reserves. And currency is to be circulated, and illiquid currency is not a good currency. In other words, there is a contradiction between the characteristics of gold as a value reserve of currency and its characteristics as a transaction intermediary. What to do?

In September 1717, Newton, as the director of the Royal Mint of the United Kingdom, proposed to link gold to the pound. This is actually another great contribution of Newton that goes down in history besides mathematics and physics. It is ridiculous that those economically illiterate people fail to recognize this and slander Newton for doing nothing in the second half of his life. Newton actually created a elastic reserve for gold. On the one hand, it satisfies people's desire to properly preserve naked gold, and on the other hand, it uses the active pound as a voucher, and gradually forms a two-tier currency creation system, which not only meets security but also meets liquidity, driving the economy and trade to operate at high speed. During this golden age of human economic history, gold rarely appears directly in economic activities in naked form, but economic activities cannot do without gold.

I think BTCFi is currently at such a historical turning point. If this round of BTCFi can develop well, it will be able to become the stabilizer of the entire Crypto economy. On the premise of solving its own safe storage, it will actively and actively participate in the Crypto economy in the form of "vouchers", and strongly and continuously promote the growth of the Crypto economy. This is the fundamental reason why I am optimistic about BTCFi.

As an aside, many people asked me how Solv positioned itself. In fact, if you understand the deep reason I mentioned above, then Solv's thinking will be very clear. Solv's goal is to create a flexible reserve for BTCFi, so that BTC can truly activate the Crypto economy as digital gold.

Meme

People who know me know that I am not a fan of memecoin. This is determined by my personal values. But even so, I still want to list meme as one of the four tracks I am most optimistic about.

This is not because meme has almost become the only track that is still creating stories in the bear market, but because the underlying logic of meme has shown an increasingly strong advantage in the moral dilemma of the Crypto world.

Meme coins have two advantages.

The first advantage is easy to think of, which is the low entry cost.

The second advantage is relatively profound, that is, meme coins put fairness and transparency before value commitment.

What is the biggest difference between Meme and so-called value coins? It is that value coins first promise value, while meme coins first promise fairness and transparency. I am not saying that meme coins are really fair. In fact, there are many tricks behind them, but in comparison, the information asymmetry of meme coins is generally better than that of value coins.

Which is more difficult, value or fairness? Wang Yangming said that it is easy to get rid of thieves in the mountains, but it is difficult to get rid of thieves in the heart. It is relatively easy to give value to an asset, but it is much more difficult to distribute value fairly. Value coins are easy first and difficult later. Since the regulatory mechanism of this industry has not been established, for every value coin team, once the value emerges, the team will face the temptation of opportunism. This is the real test and challenge. Those who can pass this level are rare. Once the team of a value coin breaks its promise, the coin will become neither fair nor valuable. On the contrary, a meme coin can be valueless and behave completely as a gambling game, but it can make information symmetric relatively in place through some rules from the beginning. On this basis, it is even possible to give value to meme coins through secondary development, which is to do the hard thing first and then the easy thing, which is much easier than restoring fairness to a garbage value coin.

Please don't get me wrong, I firmly advocate that Crypto should move towards value creation, and I work hard to make a good value coin. But I must also admit that favoring meme coins is a rational choice for many people.

Therefore, I think that in the next cycle, although the probability of an individual betting on a meme coin is still low, the meme coin sector as a whole will continue to be popular. Moreover, I think that there will be some value creation in the meme sector, that is, some third-party teams will develop applications around existing meme coins to inject value into meme coins.

Stablecoin Payment

Does blockchain have no applications other than currency speculation? Many people think so, but they are actually wrong. The largest application on blockchain is payment, and the fastest growing in the payment track is stablecoin payment.

Strictly speaking, I am cheating by putting stablecoin payment in one of the four tracks. Because the outbreak of stablecoin payment is not in the future tense, not a guess, and there is no need to risk any judgment, but it is an established trend. Previously, in the Crypto industry, stablecoins have been widely used as the main token assets for investment and incentives. The new trend that has emerged recently is the gradual penetration of stablecoins in cross-border trade. Especially in the past one or two years, a large number of small and medium-sized cross-border traders have begun to use stablecoins for B2B settlement in their supply chains. In this field, the advantages of blockchain payment and settlement, minute-level clearing and settlement, and lifelong traceability of transaction records are fully reflected. As long as you are familiar with it, you can't stop, and there is no need to spend time persuading.

The only obstacle at present is regulation.

There is a common misunderstanding in the Crypto circle that major countries will suppress and crack down on stablecoin payments for a long time. As the design team of the ERC-3525 digital ticket standard, we have had in-depth exchanges and cooperation with central banks and multinational financial organizations in many countries in the past two years. I can tell you that this is not the case at all. From the International Settlements Bank to the World Bank, from the central banks of some countries in Southeast Asia and Africa to some international commercial banks with huge cross-border business, they have fully recognized the advantages of stablecoins. Most of them know that this is an unstoppable trend, so they are taking a positive attitude to learn and accept it.

This round is not about the wolf coming, nor about Ye Gong’s love for dragons. It is based on relatively mature theoretical thinking and certain practices. The main problem they are facing now is how to implement anti-money laundering, anti-terrorist financing and other regulatory obligations that any country under the rule of law and responsible financial institutions should fulfill while generally accepting stablecoin payments as a legal means of payment. A large part of the major research in this field that we are currently exposed to revolves around this issue. Once a breakthrough is made in this issue, stablecoin payments will be like a flood that will sweep the entire financial industry.

Stablecoin payments must be the first successful sector among RWAs. Many people believe that RWA will become popular in the next wave, but I think it is not yet ripe in general. Only when stablecoin payments, as the pioneer sector of RWA, have achieved great development can other RWA assets gradually gain momentum, which will take at least another cycle. However, there is no problem with the overall upward trend of the RWA track, and patient capital should gradually begin to lay out RWA.

Web3 Social

The next wave will see the emergence of a leader in the Web3 social track, which is my boldest prediction. This topic has been hyped for a long time, and each attempt has failed. Why do I think the breakthrough point is in the near future?

It is mainly because new ideas and solutions have emerged, and representative cases are Solana Blink and TON.

First of all, we must understand that the so-called Web3 is the Internet of Value, and the so-called Web3 social network is actually a social network that can perform value operations. In other words, compared with Web2 social, Web3 social is mainly an increment, not a re-start. From a functional point of view, Web2 social networks have done a good job in content, and there is no need to start a new Web3 social network. If you create a new social platform and use 99% of the resources to repeat what Web2 social networks have already done to perfection, and convince users to give up the social assets accumulated over the years and transfer all the social relationships and data assets to the new platform, this is not only very difficult, but also very stupid. Why not add a value layer to the existing Web2 social network, allowing everyone to perform value operations such as payment and transaction in the existing social network?

This idea is so simple and natural, but entrepreneurs in the entire Web3 social track could not think of it for several years. Fortunately, with the emergence of TON and Solana Blink, this window paper was finally broken. What do TON and Solana Blink have in common? It is to add a value layer to the social network in the prime location of the Web2 CBD that has been built, instead of going to the wilderness to rebuild the building and expecting everyone to move collectively for such ideology and value propositions. In other words, let Web3 run to find traffic, instead of letting traffic run to find Web3. Many people only see the trees but not the forest, only look at the current situation but not the trend, and are obsessed with analyzing data all day long. Sometimes they accuse TON of having traffic but no value, and sometimes they laugh at Blink for making a lot of noise but not doing anything. These accusations are all right when viewed individually, but they are ignorant of the general trend and fail to see the great significance of the paradigm shift in the construction of Web3 social networks. I am not saying that TON and Blink will definitely succeed, let alone that they will be the final winners. Just like there was Mi Chat before WeChat and http://Musical.ly before Douyin, they don’t have to succeed in them, but they have opened up the right direction and will attract more outstanding innovators later, which is the most important thing.

Social networking must be the king of all applications, which was true in the Web2 era and will be true in the Web3 era. There is no logical problem with Web3 social networking. The reason why it failed in the past was that the way of thinking was wrong. Now that this window paper has been broken, it will surely usher in the great development of Web3 social payment and social transaction products, which will largely determine the basic pattern of the Web3 industry in the next ten years. I have strong confidence in this.

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