Written by: 10K Team
The annual report is divided into two parts
This part shares our thoughts on 2024
This part mainly covers the 2024 part, including:
(1) The impact of ETF
(2) DEX vs CEX
(3) Application chain
(4) Stable calculation vs on-chain asset management
(5) Has the industry entered the PE moment?
1.1 BTC ETFs have seen a large net inflow in one year, and pricing power has shifted to North American institutional investors
After the BTC ETF was approved this year, North American BTC ETFs began to increase their holdings on a large scale. As of December 25, North American ETFs held a total of about 1.19 million BTC, accounting for 5.66% of all BTC. When it was first launched, there were less than 670,000 BTC, and a substantial increase of 525,600 BTC in one year.
Observing the net inflow and outflow of BTC ETFs, it can be found that this year's BTC volatility and the net inflow and outflow of ETFs have been highly positively correlated, and pricing power has gradually shifted to North America.
This trend is further reinforced by the following factors: large CEXs have become more picky about VC-backed teams (while charging teams high listing fees), and on-chain liquidity is growing with the development of better tools (such as CLOBs, launch platforms, front-end tools such as Moonshot).
1.2 ETH ETF progresses relatively slowly and is currently in the stage of turnover from insiders to outsiders
In general, the net inflow of ETH ETF is slower than that of BTC ETF. November 29th of this year was the dividing point, and ETH ETF began to have a large net inflow, with a net inflow of 300 million US dollars on that day, which was twice the cumulative net inflow of the previous 4 months. For a period of time thereafter, ETH ETF began to have a continuous net inflow, but we also observed that crypto native old OGs such as Justin Sun began to sell Ethereum. The current trend is that the insiders sell and the outsiders increase their holdings of ETFs. As of December 26, the ETF holds 3% of ETH in total.
We believe that ETH will also gradually change hands, and the pricing power will move from crypto native to North America, but this conversion process may be longer than BTC. If ETH can still have a new narrative from institutions next year, it may be that the ETH ETF can earn interest by staking and is not considered a security.
2.1 The ceiling of on-chain spot may be gradually approaching the limit
In the new round of 4-year cycle starting from 2024, we can clearly see that the market share of on-chain spot/derivatives is constantly expanding.
But dex/cex trading volume may have a certain ceiling. This is because the large transaction volume in the blockchain world still comes from mainstream coins such as BTC/ETH/SOL/XRP, and the transaction volume and best transaction depth of mainstream coins are still in CEX. But as the answer to why crypto is - the biggest role of Crypto is to use tokens to incentivize mid- and long-tail users/project parties. The recent large volume of on-chain transactions is all memes, which are mid- and long-tail project parties relative to mainstream coins.
If mainstream coins such as BTC/ETH are still hot in the market in the future (most likely), and Meme does not occupy the majority of trading volume, then the ceiling of on-chain spot trading may soon be seen. In other words, Meme is cannibalizing the trading volume of VC coins in the middle and tail of CEX.
From the market share of DEX on the chain, thanks to the emergence of Pumpfun, Raydium's market share has greatly increased, and once occupied 28% of the market share of the entire chain DEX. Due to the relatively sluggish performance of the Ethereum ecosystem this year, Uni's market share has dropped from 42% at the beginning of the year to 33%. The biggest dark horse this year is Aerodrome. Thanks to the active Base ecosystem, Aero's market share has increased from 0 at the beginning of the year to 10% now, becoming the leader on Base (Long Aero=Long Base).
2.2 Hyperliquid stands out
Limited by the small market size of the original on-chain derivatives track, thanks to Hyperliquid's take-off in November, the dex/cex futures trading volume in November has increased significantly, and its market share has increased from 4% to 8% on its own.
We often say that the competitive characteristics of perp dex are:
1. Institutions prefer Orderbook, and retail investors/whales prefer Pool mode
2. The trading volume of market makers/takers is greater than that of retail investors
3. In the orderbook mode, MM/Taker brings trading volume and liquidity from 0-1, and relies on gameplay (airdrop + pull) to bring 1-10 retail investors 4. Although the threshold of Pool is low, the gross profit of MM is also low; the threshold of Orderbook is high, and the gross profit of MM is also high
The LP Pool model represented by GMX/Jupiter represents the dydx derivatives 1.0 model. GMX/Jupiter allows retail investors to add pools to trade with traders. Betting can earn commissions on one hand and liquidation fees on the other hand, bringing the original CEX MM business model to retail investors in a decentralized manner, creating a new paradigm for on-chain perp dex. GMX and Jupiter performed very well in the bear market, and GMX's market value even doubled against the trend in the bear market.
However, after the bear-bull transition, institutions rushed into the market again, and liquidity began to be abundant again. The trading depth and profit margin represented by Pool can no longer meet the needs of institutions, and the derivatives trading track has returned to the 3.0 model of orderbook. You may think that it is simple to build a high-performance derivatives exchange, but it is not. Buying a garbage trading engine from Chainup is completely unable to meet the needs of high-performance trading. Hyperliquid took two years to build the product online. Not only did it build its own trading engine and tell a L1 story, it also used the Orderbook model to match transactions and used HLP to attract retail investors to add liquidity. Hyper is currently the perfect integrator of perp dex.
But at the same time, we think there is still room for improvement in perp dex, and the improvement may lie in the license - the top market makers still tend to MM in compliant/secured perp dex.
3.1 Pump.fun contributes half of Solana's transaction volume
Every time we ask the top Infra/public chain companies, what kind of ecosytem ecology do you want to create. We have always adhered to the fact that if a real Infra/public chain company wants to stand out, it must have a unique project/track in the ecology.
DeFi/Ethereum, Stepn/Solana+BSC, GameFi/BSC, DePIN/Solana, Payment/Tron. This time, Pump, as the leading dapp, once again turned the tide for the Solana ecosystem, earning $300 million this year. Solana's Payfi and DePIN tell stories to traditional investors, and everyone is willing to pay. However, retail investors may not recognize Payfi and DePIN. After all, Yu'ebao with a few percent APY, supply chain finance, wifi base stations, and collecting map data are still too far away from pure gambling retail investors. In the carnival of the bull market, retail investors like excitement. A big positive line/negative line stimulates the brain to secrete dopamine. Secondly, Pumpfun's website design is also very magical. The high-frequency flashing and pop-up windows can magnify the greed in the user's heart by 200%. Pure gambling, the ultimate enjoyment.
Solana's development path is now very clear.
On the 2B side, Foundation tells stories that can serve the web2 enterprise side, such as Payfi. After all, cross-border payments/payfi are currently happening gradually from the bottom up on the enterprise side. DePIN's service to the enterprise side is no longer so sexy, and it is found that the promotion speed of DePIN is not satisfactory. After all, in such an efficient chain world, it requires a real industrial chain + supply chain + transportation to all parts of the world, and only after a certain scale is formed can it serve the 2B side, and the speed will not be too fast.
On the 2C side, there is no better story than a casino + lottery with a very low threshold to make money.
In addition, let me add a little about the auxiliary trading tools of GMGN-type "broker" products. As the leading product in the track, it has earned more than 20 million US dollars in revenue in less than 3 months. This provides a new entrepreneurial idea for web2 product managers to enter the cryptocurrency circle. Compared with products such as Dune and Tokenterminal seen in the last cycle, the commercialization ability is at least 2 orders of magnitude stronger, thanks to the direct entry of auxiliary trading products into transactions in this round.
We will also continue to observe equity investment in similar products and opportunities for revenue sharing. The financing model of this type of product is mostly equity financing + revenue sharing opportunities, but from current observations, this type of investment model is not very cost-effective for investors (it is actually very good to do it yourself). Usually the first round of valuation is 10-20m, and investors hold about 20% of the shares, which means that if the company relies on dividends to recover its investment, it must at least achieve 10-20m in revenue during its life cycle, which is very challenging. The leading effect of blockchain is too significant, and the life cycle is usually very short.
3.2 Solana Memecoin One general's success is the result of the sacrifice of thousands of people
The most successful theme this year is Meme coin. A large part of Meme's trading volume siphoned off the trading volume of mid- and tail-end VC coins. Pump.fun in October and November pushed the meme craze to its peak, with dozens of plates issued on pumpfun every 10 seconds around the world. This year, memes such as ai16z, bonk, bome, spx6900 have reached a circulation market value of more than 1 billion US dollars.
The meme market provides a huge range of fluctuations, and the intraday fluctuation can be as high as a thousand times, but the extremely high returns are accompanied by extremely high risks, and many memes will instantly return to zero.
From the following data, it can be seen that 99% of memes cannot break through the 1M market value. The meme that can break through the siege of hundreds of thousands of memes is also a one-man show with the sacrifice of thousands of people.
3.3 AI Agent leads Base to prominence
In our October monthly report, we have highlighted the rise of the Base ecosystem. Two months later, Base is currently far ahead of other Ethereum ecosystems in terms of both DAU and TVL.
In the current Base ecosystem, Virtual and Clanker are the most likely representative projects of Base besides Aerodrome. Virtual is product-driven, emphasizing the connection between AI and Web2 users, and gradually building a set of "usable" tool systems. Former Google CEO Eric Schmidt and Marc Andreessen pointed out the unique advantages of the Virtual team in high-frequency trial and error. From PathDAO to Virtual Protocol, the team took three years to cross GameFi, AI+DApp, and completed the miracle of increasing the market value from US$10 million to US$3 billion. In addition to the practicality of the AI Agent itself (for example, Luna can interact with users), since Virtual has released its token, the gameplay will be more diverse than pumpfun. As the only platform that uses tokens, Virtual uses new IPOs and other gameplay to replicate the gameplay of Pumpfun/sol.
Interestingly, many projects this year have more or less innovations in Tokenomics, truly realizing the flywheel effect of business + token.
3.4 Apart from Tap2Earn, what is the breakthrough point of Ton?
We published a research report on Ton in the middle of this year, in which we mentioned that we are not particularly bullish about the Ton ecosystem. The main reason is that we are not optimistic about the new user acquisition system under the Tap2Earn system. Tap2Earn is different from the payment system of DePIN and GameFi. The story told by the DePIN project is that when there are more long-tail suppliers, the demand side will pay for the entire long-tail suppliers and ecosystem, such as Render rendering and Mobile mobile communications. GameFi talks about the fun of games, and users will pay for the platform and gold farmers because of entertainment needs.
But the story told by Tap2Earn is that when I have enough users, there will be advertising commercial value. But the problem is that these tap2earn users are pure wool parties, and the commercial value is very low, or the commercial value that exists is to be sold to the exchange at one time. After half a year, we think that Tap2Earn's business model of attracting new users + advertising is unlikely to survive in the long run. Rather than saying that Tap2Earn is a business innovation, it is better to say that the hamster /catizen/DOGE half a year ago has completed a new wave of blockchain missions.
So where will Ton's next breakthrough point be? For example, we have recently seen sahara's current alpha test data annotation products, which are mainly long texts. If a company can get actual orders, distribute them through TG, and annotate them for users, it may be a very sexy "web3 data Foxconn". But such companies need to seriously consider the quality issues after crowdsourcing distribution.
In addition, after detailed communication with friends from Ton Foundation, we also deeply realized the problem of Ton ecosytem - Ecological projects usually regard the issuance of coins as a short-term opportunity. The conspiracy group will end after issuing a wave of coins and start the next project, such as DOGE/Hamster, etc. The exchange has gained new users of these projects and has nothing else to ask for. The following six months proved that these users will not bring too much value to the exchange, and will not bring higher TX to Ton (after all, they will withdraw after the wool is finished, and the penetration rate of the chain is too low). The TG team is basically indifferent to the price of the currency and is in a Buddhist state. Therefore, we are cautious about the subsequent TON opportunities.
Stablecoin company income = AUM*Interest Rate.
The underlying interest rate of the stablecoin industry is usually anchored to government bonds. The new on-chain stablecoins that came out of this cycle are mainly USDE and USD0. There are two ways to play, one is to increase AUM, and the other is to increase Interest Rate. Ethena and USUAL have adopted two completely different ways of playing.
4.1 Ethena - Extremely Maximizing Yield
Ethena maximizes risk yield through extreme delta neutral + eth native staking + governance currency standard subsidies, thereby attracting TVL. We have analyzed too much of Ethena's business model, so we will not make too many additions here. But it is worth mentioning that ETH OI has started to grow significantly recently. Compared with September, OI has increased by 2.5 times, and ENA's ceiling has gradually opened. ENA is probably the token with the most violent rise and fall in the trend market.
Things that can open ENA's ceiling in the future may include: 1. Changes in ENA Token utility, such as revenue sharing, repurchase, etc., but this may be strongly related to macro policies; 2. Start to do BTC (already cooperating with solv)/Solana/aptos/sui/ton short operations.
4.2 Usual——Decentralized Fiat Currency Collateral
Usual can be seen as the web3 version of the dividend-based Fiat Currency Collateralized Stablecoin. The stablecoin yield is guaranteed by decentralizing part of the treasury bond income to the community + Token subsidies. The team's approach is very much in the style of the old-school DeFi. TVL is subsidized through extremely exaggerated yields similar to those during the DeFi summer.
First, let’s popularize the difference between APY and APR. Simply put, APR is the return for the next year without considering the impact of compound interest. APY takes into account the impact of compound interest, resulting in APY usually being much greater than APR. The formula is as follows: APY = (1+APR/n)^n-1.
On December 19, Usual’s currency-based APY reached an astonishing 22037%. In the context of daily compound interest, APR is equal to 543.65% in the formula, and the daily interest rate is less than 1.5%. Considering that Usual’s emissions are negatively correlated with protocol growth, the problem of excessive token dilution can be avoided. At the moment when USD0 has grown to 1.7 billion USD TVL, the protocol has an annualized revenue of 68.94 million USD, 500 million USD in circulation, and 4.5 billion USD FDV. While FDV/Revenue (65, usually DeFi's PF is around 5-20) is ridiculously high, there are also a large number of Usual tokens subsidized to Usualx staking, USD0++ staking, and USD0/USD0++ pools, so we think that at this price, Usual is relatively overvalued.This model is very similar to the model of using governance tokens to subsidize TVL in the DeFi summer of 20-21. However, Usual's token utility is better than ENA, at least there is revenue sharing.
The team raised the token price, and currently the Usual token is sold at 20% off.
A large-scale OTC model began to appear in 2023. The project party will give OTC team/consultant/ecological tokens to investors, and the OTC money will be used to pull the market or build an ecosystem. After all, if there is no pull, there will be no ecosystem:). The medium- and long-term stable pull is the best marketing cost, which not only attracts retail investors, but also developers. In addition, as the public chain currency is rising, TVL is rising. It will lead to the growth of retail investors/developers/TVL, and the most important three-ring spiral of the public chain will rise.
Currently, the most successful OTC deals that have started to exit may be Pendle/Ton/Solana. Solana is an exception, after all, it is to clean up the mess for FTX. Looking back now, OTC deals are usually profitable (of course, there are also money-losing deals). But at the moment of making a decision, it is usually very, very painful. Because the fundamentals were relatively poor at the time, the business was not good, the valuation was high, and the unlocking might not be friendly, so the decision would be relatively difficult. Our performance this year is good for Solana OTC (very optimistic about the fundamentals + the accounts can be calculated), and the regrets are mainly ENA OTC (not optimistic about ENA as a mining coin's utility).
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