How to correctly view the bear market? What will be the new narrative driving the next wave?
Original author:Michael Dempsey
Compilation of the original text: The Way of DeFi
Original author:
Compilation of the original text: The Way of DeFi
You have realized that you are in a bear market.
You've probably lost more money in the past few weeks/months than you've lost in a long time. As it turns out, not only are the loss numbers going up, but if it sounds like a Ponzi scheme and tweets like an arrogant jerk, it probably really is.
One of the most important things I want us to get out of a bear market/slump is the maturation of the industry as a whole. So what does this mean?
Here are some quick thoughts on what's coming next:
secondary title
It is likely that with LUNA storming (and now Celsius), we will get more crypto regulation (or at least scrutiny) sooner than we expected. While I don't like this on the surface, maybe it will free up the various builders in the industry to be more constructive with their tokens. The next cycle should be about improving token economics, enabling tokens to serve as a more immediate form of value-add for a given protocol. We go from utility tokens in the first cycle, to worthless governance tokens, with an understanding of token issuance velocity and price this cycle, and hope to evaluate tokens that are in sync with a clear revenue model in the next cycle (and thus Regulation).
Cryptocurrency continues to accelerate many dynamics, but the one thing it has refused to accelerate so far is business model innovation. This needs to happen, and it will depend on how actors and users and developers think about choosing between core protocols and copy/paste protocols, and how they think about open source going forward. Coming out of the bear market sometime in 2023 (see how optimistic I am that the bear market will only last a year), hopefully we see founders and DAOs willing to experiment with a whole new form of token + NFT structure (more on this for another day structure ideas).
secondary title
More loyal to the Ethereum ecosystem
Right now, FLOW, AVAX, and MATIC (and a little SOL) have the best of these markets. Time will tell if others do this, or if these actions are concentrated on one chain (I hope to god we don't have more chain shards for specific applications). Of course, we are bullish on Arbitrum and expect L2 to continue to capture more transaction volume for non-gaming over time, although there may be volatility as gas costs on L1 come down.
The second (obvious) prediction is that the new L1 will seek to replace Solana in a meaningful way. While I think the biggest attack vector is still programming language generality, assuming Solana fixes its uptime issues, I may not have considered other attack points. I'm still bullish on Solana at these prices.
secondary title
Talent moat seen as authentic/returning to brand as a differentiator
I've always thought Yearn's core moat has always been the talent level of contributors (besides the early economies of scale associated with Curve releases/convex bribes). People put billions of dollars into Yearn because they know it's run by a sophisticated, risk-reducing, tech-savvy team of strategists and engineering. In the open source world, few seem to understand how getting out of a bear market talent moat can increase market share through better product velocity, creativity, and risk management. I wouldn't be shocked if baby boomer protocols have shown the ability to safely manage billions of dollars with stronger moats than we once thought. The question is whether the teams of these protocols will be properly incentivized to stick around, rather than start something new with a completely clean token supply.
new narrative
“It seems clear in the crypto space that the narrative is exhausted and emerging narratives like ZK are not enough to drive the next wave of influx.
Minor narratives like CRV wars or L1 rotations drive shuffle but not net new inflows.
DeFi regulation is also an issue. "
While this bear market is theoretically started by some combination of macro conditions and a crypto-centric crash, that doesn't mean that cryptocurrencies will go up once the world is back on "adventuring" on cryptocurrencies, as it has There is a downside as well. While I do think there are a lot of people who start trading stocks and think they know what they've been doing for the past two years, those folks will realize they don't have alpha and may turn to crypto as a way to trade in a less efficient market One way, crypto bear markets are often about inactivity and a lack of narrative.
Because of this, we have to consider what narratives will emerge if/when we decouple from equities to kickstart the cycle. Outside of The Merge, there are many new stories that will likely pick up speed over the next 6-18 months. My gut tells me that the people who will best pull us out of this bear market will be those focused on sustainable revenue for the protocol, and those touting a variety of new users who have never interacted on-chain before.
The latter will populate the domain shift of other web2 primitive ideas in distributed productivity/computing on the consumer side (ecommerce, gaming, super apps), enterprise or B2 B2 C side (think Livepeer, Helium, Render, etc.) , and the entry of institutions in DeFi. All will focus on abstracting today's crypto user experience from the security and transaction process.
These are just some thoughts, this isn't really an authoritative post, but a quick peek at other things I might be working on today.
Two more random thoughts
secondary title
Nouns and Crypto Fatigue
So I'm actually bullish on Nouns, but I do wonder about that.
You exceed value dilution (i.e. token release) in terms of value creation...you should exit angrily, which will give you a floor price.
In effect, you are betting on the DAO's ability to invest in growth.
Nouns generally rely on people's ability to spread their brand and narrative in order to add more value to the DAO (thus exceeding the inflation that happens every day). While the supposed rage exit creates a nice "floor price" similar to RFV dynamics, this ignores a fundamental problem in a bear market, which is that... people are going to get really tired of the crypto brand for a while. Maybe only a year or so, but I don't think Nouns are immune to crypto fatigue, so as a DAO I might consider how best to keep Nouns away from crypto and more towards short-term communities/movements. The low hanging fruit is through some kind of entertainment brand, the next is a studio focused on supporting a certain kind of creator, and the last one is probably philanthropy. Or, of course, take advantage of the subDAO structure and build LilNouns for each of these use cases, with capable leaders and a percentage of funds going to the core Noun DAO. Again, I'm just giving a half-baked idea here.
Cryptocurrencies and the Dictatorship of the Bear Market
At some point in every founder relationship I have (whether encrypted or not), I discuss the important dynamic of understanding when to effectively become a dictator within an organization. Doing this in a tight labor market can be intimidating because for many, the line between being overvoted (yet heard) and ignored (and making employees/contributors/community feel heard acquired skills are rare). However, as walls start to close around you and the market feels bleak, it is often indecision and/or apathy that kills the team.
It's a bit sacrilegious to say, but I think full democracy is a negative for most crypto projects today. The vast majority of projects will see general apathy/failure in their communities and governance participation will die in a bear market. Use this time to work on projects with the best leaders that will bring them closer to the dictator in response to a down market. Inactivity will kill the protocol. I wrote in our most recent investor update:
