The Changing Cryptocurrency Order

Author: Ignas | DeFi Research, Translated by: Shaw Jinse Finance

I really like Ray Dalio's "Changing World Order" model because it allows you to step back from the details and see the big picture.

Don't get caught up in the day-to-day details of cryptocurrency X, but focus on the long-term trends. This is how we should view cryptocurrency as well.

It's not just about the rapid shift in narratives, but also about how the entire industry order is changing.

The cryptocurrency market is no longer what it was in 2017 or 2021.

I believe the following changes have already occurred in the industry order. The "Big Rotation" in Crypto Assets The launch of spot exchange-traded funds (ETFs) represents a significant shift. Just this month, the U.S. Securities and Exchange Commission (SEC) approved common listing standards for commodity exchange-traded products (ETPs). This means faster approvals and more assets will enter the market. Grayscale has already submitted its application under this new change. The launch of the Bitcoin ETF was the most successful launch in history. The Ethereum ETF got off to a slow start, but now holds billions of dollars in assets, even amidst market weakness. Buyers include pension funds, advisors, and banks. Cryptocurrencies are now considered part of the same portfolio as gold or the Nasdaq. Bitcoin ETFs manage $150 billion in assets and hold over 6% of the supply.

The Ethereum ETF accounts for 5.59% of the total supply.

All this happened in just over a year.

ETFs are now the main buyers of Bitcoin and Ethereum. They are shifting the ownership base from retail investors to institutions. You can see from my post below that whales are buying and retail investors are selling.

More importantly, old whales are selling assets to new whales. Ownership is rotating. Those who firmly believe in the four-year cycle are selling. They expect the same story to repeat itself. But things are changing. Retail investors who bought at lower prices are selling to ETFs and institutional investors. This shift pushes the cost basis higher. It also raises the floor for future cycles because new holders won't sell at the first sign of a small profit. This is the "great rotation" of cryptocurrencies. Cryptocurrencies are shifting from speculative retail investors to long-term investors. Universal listing standards usher in the next phase of this rotation. In 2019, a similar stock rule tripled the issuance of ETFs. We expect the same to happen with cryptocurrencies. New ETFs targeting a wide range of cryptocurrencies, including SOL, HYPE, XRP, and DOGE, are launching soon, providing retail investors with the exit liquidity they need. The key question remains: Can institutional buying offset retail selling? If macroeconomic conditions remain stable, I believe those who sell now, anticipating a four-year cycle, will buy back later at higher prices. The End of the Era of Massive Market Gains In the past, the cryptocurrency market rallied across the board. Bitcoin rose first, followed by Ethereum, and then all other cryptocurrencies followed suit. Small-cap coins rallied because liquidity flowed down the risk curve. This time, things are different because not all tokens are rising in unison. There are millions of tokens today. New tokens are launched daily on pump.fun, and so-called "creators" are shifting attention from older tokens to their own meme coins. Token supply has skyrocketed, while retail investor interest has remained constant. Because issuing new tokens is almost costless, liquidity is fragmented across too many assets. Tokens with low circulating supply and high fully diluted valuations (FDV) were once popular and suitable for airdrops. Retail investors have learned their lesson. They want tokens that can deliver a return on value, or at least have a strong cultural impact (for example, UNI's price has failed to rise despite strong trading volume). Ansem is right that we've reached the peak of pure speculation. The new trend is revenue, because it's sustainable. Apps with strong product-market fit and reasonable fees will thrive. Others will not. Two things stand out: the high fees users pay for speculation and the efficiency of blockchain infrastructure relative to traditional finance. The former has peaked, while the latter still has room to grow. Murad adds another good point that I think Ansem overlooked. The tokens that are still hot right now are often new, quirky, and easily misunderstood, but they're owned by people with strong beliefs. I'm one of those people who likes new and quirky gadgets (like my iPhone Air). Cultural significance determines survival or failure. A clear mission, even if it seems unrealistic at first, can keep a community alive until it reaches widespread acceptance.

I'd put Pudgy Penguins, Punk NFTs, and Memecoins in this category.

However, not every shiny new thing succeeds. Runes, ERC404s, and others have all shown me how quickly the novelty wears off. Narratives can rise, but they can also die before reaching critical mass.

I think these perspectives combined explain the new order. Yields filter out weak projects. Culture carries those that are misunderstood.

Both are important, but in different ways. The biggest winners will be the few tokens that can combine the two. The Stablecoin Order Gives Cryptocurrencies Credibility Initially, traders held USDT or USDC to buy Bitcoin and altcoins. This new inflow of funds was bullish because it translated into spot buying. Back then, 80% to 100% of stablecoin inflows ultimately went into cryptocurrency purchases. Now, that's changed. Stablecoins are entering the lending, payments, yield farming, treasury, and airdrop mining markets. Some of this capital has never been used to purchase spot Bitcoin or Ethereum. However, it has still boosted the entire ecosystem. Trading volume has increased on both Layer 1 and Layer 2. DEX liquidity has strengthened. Lending markets like Fluid and Aave have seen increased revenue. Money markets across the ecosystem have become deeper. A new development is the payments-first Layer 1 protocol. Tempo, developed by Stripe and Paradigm, uses EVM tools and native stablecoin AMMs to enable high-throughput stablecoin payments. Plasma is a Tether-backed Layer 1 network designed specifically for USDT, featuring new banking services and cards targeted at emerging markets. These blockchain networks are pushing stablecoins into the real economy, beyond just transactional use. We're back to the broader trend of "blockchain for payments." What this might mean (honestly, I'm still unsure). Tempo: Stripe has a massive distribution network. This helps foster widespread cryptocurrency adoption, but it could bypass spot demand for Bitcoin or Ethereum. Tempo could end up like PayPal: massive capital flows but little value accumulation on Ethereum or other blockchains. What's unclear is whether Tempo will issue a token (I think it will) and how much of the fee revenue will flow back into the cryptocurrency. Plasma: Tether already dominates USDT issuance. By connecting blockchains, issuers, and applications, Plasma can bring a large portion of payments in emerging markets into a closed ecosystem. This contrasts the closed Apple ecosystem with the open internet championed by Ethereum and Solana. This sparks a competition with Solana, Tron, and the EVM Layer 2 for USDT's default chain. I believe Tron has the most to lose from this, as Ethereum wasn't designed to be a payments chain. However, launching on Plasma by Aave and other projects is a significant risk for Ethereum... Base: The savior of the Ethereum Layer 2 network. As Coinbase and Base drive payments through the Base app and earn USDC, they will continue to drive up fees on Ethereum and DeFi protocols. The ecosystem remains fragmented but highly competitive, further expanding liquidity. Regulation is adapting to this shift. The GENIUS Act is spurring other countries to catch up with the development of stablecoins globally. The U.S. Commodity Futures Trading Commission (CFTC) has just allowed the use of stablecoins as tokenized collateral in derivatives. This adds to the non-spot demand from the capital markets, in addition to payment needs. Overall, stablecoins and new stablecoin L1 networks are lending credibility to cryptocurrencies. What was once a gambling den has now acquired geopolitical significance. Speculation remains the primary use case, but stablecoins have clearly become a secondary one. The winners will be the blockchains and applications that can capture stablecoin traffic and convert it into sticky users and cash flow. The big unknown is whether new L1 networks like Tempo and Plasma will become leaders in locking value within their ecosystems, or whether Ethereum, Solana, L2 networks, and Tron will be able to fight back. The next major transaction will occur on September 25th with the launch of the Plasma mainnet. DATs: New Leverage and IPOs for Non-ETF Tokens Digital Asset Treasurys (DATs) scare me. With every bull cycle, we find new ways to increase token leverage. This can drive prices higher than simply buying spot, but the liquidation process is always brutal. When FTX crashed, the forced sell-off of leveraged centralized finance (CeFi) assets devastated the market. The leverage risk in this cycle may come from DATs. If they issue shares at a premium, take on debt, and convert the proceeds into tokens, they can amplify gains. But the same structure can also amplify sell-offs when market sentiment shifts. Forced redemptions or the drying up of share buybacks could trigger significant selling pressure. So, while DATs broaden investment access and bring in institutional money, they also introduce new systemic risks. We used an example to illustrate what happens when mNAV > 1. Simply put, they send ETH to shareholders, who are likely to sell. Yet, despite the "airdrop," BTCS still trades at 0.74 mNAV. That's bad. On the other hand, DATs represent a new bridge between the token economy and the stock market. As the founder of Ethena wrote: My concern is that we've exhausted the native capital in crypto and are unable to bid for altcoins that exceed the peaks of previous cycles. If we compare the peak total nominal altcoin market capitalization in Q4 2021 and Q4 2024, they peak at roughly the same value: just under $1.2 trillion. Adjusted for inflation, the values ​​between the two cycles are virtually identical. Perhaps this is the limit of what global retail capital can sustain in bidding for 99% of the phantom world?

This is why DATs are important.

Retail capital may have peaked, but tokens with real businesses, real revenue, and real users can enter the larger stock market. Compared to the global stock market, the entire cryptocurrency market is minuscule. DATs open the door to new capital inflows.

Furthermore, since few altcoins have the expertise required to launch a DAT, those that do successfully shift their focus from millions of tokens to a handful of assets with consensus value.

Another point he makes is that arbitrage over the net asset value premium is unimportant…and that's bullish. With the exception of companies like Michael Saylor's Strategy, which leverages leverage to optimize capital structures, most DATs are unable to sustain a long-term premium over net asset value (NAV). The true value lies not in premium trading but in accessing investment opportunities. Even a stable one-to-one relationship between NAV and inflows is far better than having no investment opportunities at all. ENA and even SOL's DATs have been criticized for being vehicles for cashing out venture capital tokens.

ENA is particularly vulnerable due to its massive VC funding. However, due to capital misallocation, the size of private VC funds far exceeds the demand for liquid secondary markets, so exiting DATs is positive because VC firms can then allocate funds to other crypto assets.

This is important because venture capitalists have been hit hard during this cycle by being unable to exit their investments. If they can sell their assets and gain new liquidity, they can ultimately fund innovation in the cryptocurrency space and drive industry growth.

Overall, DATs are bullish for cryptocurrencies, especially those tokens that don't have access to ETFs. They allow projects with real users and revenue like Aave, Fluid, and Hype to transfer investment exposure to the stock market.

Of course, many DATs will fail, with spillover effects on the market. But they also lead to initial public offerings (IPOs). The RWA revolution means our financial lives can be on-chain. The total on-chain RWA market has just surpassed $30 billion, up nearly 9% in just one month. The chart is still rising. Government bonds, credit, commodities, and private equity are now tokenized. The pace of breakthroughs is rapidly increasing. Real-world assets (RWAs) are bringing the global economy on-chain. Some major shifts include:

• Previously, you had to convert your cryptocurrency into fiat to buy stocks or bonds. Now, you can continue to hold Bitcoin or stablecoins on-chain, transfer them into treasuries or stocks, and self-custody them.

• DeFi has broken free from the "Ponzi scheme-like cycle" that was the growth engine of many protocols. It has brought new revenue streams to DeFi and L1/L2 infrastructure.

The major shift is in collateral.

Aave's Horizon allows you to deposit tokenized assets like the S&P 500 and use them as collateral for borrowing. However, its total value locked (TVL) is still small, at only $114 million, which means that RWA applications are still in a relatively early stage. Traditional finance (TradFi) makes this nearly impossible for retail investors. RWAs ultimately make DeFi a true capital market. They set benchmark interest rates for government bonds and credit. They expand their global reach, allowing anyone to hold U.S. Treasuries without going through a U.S. bank (a key point of global competition). BlackRock launched BUIDL, and Franklin launched BENJI. These aren't fringe projects; they're bridges bringing trillions of dollars in assets into the cryptocurrency space. Overall, RWAs are the most important structural change currently. They connect DeFi to the real economy and lay the groundwork for a world run entirely on-chain. The most important question for the crypto-native market is whether the four-year cycle has ended. I hear people around me selling off, anticipating a repeat. But I believe the four-year cycle will recur as the crypto order changes. This time is different. I believe this is the case because: ETFs have made Bitcoin and Ethereum viable assets for institutional investors. Stablecoins have become a geopolitical tool and are now entering the payments and capital markets. DATs pave a path for tokens without ETFs to access equity capital flows, while also providing an exit path for venture capital and helping emerging companies secure funding. RWAs bring the global economy on-chain and create a benchmark interest rate for DeFi. This isn't the casino of 2017, nor the frenzy of 2021. This is a new era of structure and adoption, where crypto is merging with tradfi, while still driven by culture, speculation, and belief. The future winners won't be investors who blindly follow the trend and buy into every asset class. Many tokens may still experience the same four-year price crash. Choose carefully. The true winners will be those projects that adapt to macro and institutional changes while maintaining the cultural appeal of retail investors.

This is the new order.