Bullish Narratives

Solana cycle

• Solana has been the winner early in the bull market. FTX held billions in liquid $SOL, and Galaxy Digital was tasked with liquidating the assets via market and OTC sales. Solana has survived and thrived with immense price appreciation, epic short squeezes, and a raging community that will only be more fervently pro-$SOL going into 2024. I have learned a lot in the past couple of months and wrote a short retrospective.
• I recall how Ethereum airdrops led to an incredible wealth effect in the 2020 DeFi Summer explosion, and the same thing has been happening on Solana. The huge airdrops from Jito and Pyth are just the start, and more are set to come with Jupiter, Tensor, and Margin.fi. These protocols have been useful and will now reward loyal users strengthening their position on the chain. DeFi TVL, new protocols, and new users will all grow on Solana similar to Ethereum’s DeFi ecosystem.
• Firedancer is a second validator client being built by Jump, which should increase security and throughput for Solana. It’s a major infrastructure step before they work on token value accrual.
• Neon EVM allows builders to deploy solidity contracts on Solana. A Solana-style UX for existing EVM-compatible DApps opens up much potential for additional TVL.
• @benzuma20/composables-interoperability-vision-extending-ibc-to-ethereum-solana-cosmos-and-polkadot-9d50447290db">Composable is building interoperability between the Cosmos, Polkadot, Solana, and Ethereum ecosystems, which is very cool to think about and lends credence to a chain-agnostic future.
• Solana is a candidate for the next potential ETF, likely a Futures ETF, which would propel it to the 3rd most important blockchain in the world.

Ethereum Comeback

• $ETH Spot ETF
  • Bitcoin’s run started in January of this year, but it cranked up after Cointelegraph posted a tweet declaring the Bitcoin ETF was approved. Here’s the post-mortem. $BTC ran from $27,100 to its current price of $44,000 in just ~70 days, a 62% rip. The market has started to wake up to how significant a spot ETF is for crypto inflows, and the same playbook will be run back for $ETH in anticipation of a spot ETF approval by mid-2024. There could be a multi-month run for ETH thanks to ETF speculation, lowering interest rates, and potentially bullish flows into BTC.
• Aridrops Galore
  • The wealth effects of airdrops cannot be understated. We recently observed how Solana’s ecosystem exploded following airdrops from Pyth and Jito, with Jupiter right around the corner. Here are some of the bigger anticipated airdrops for Ethereum and Layer 2s
    • Eigenlayer restaking
    • Swell liquid staking
    • Ambient Finance
    • OpenSea?
    • Scroll L2 + DApps
    • zkSync L2 + DApps
    • Linea L2 + DApps
    • Blast L2
    • Manta L2
    • Layer Zero
    • Slingshot DEX Aggregator
    • Bungee/Socket

Layer 2 ecosystems mature

• Optimism’s ($OP) vision for the Superchain will start to take shape with Base and other rollups launching. Rollups as a Service like Conduit will make it easy for app chains to launch infrastructure so they can focus on their product. There will be a battle for app chains between Optimism and other interoperable ecosystems like Cosmos, Dymension, and Saga, but existing liquidity and bridge infrastructure give the Superchain a head start.
• Capital-efficient L2s like Blast and Manta have integrated collateral types like stETH and yield-bearing stablecoins to generate additional yield for the ecosystems. We’ll see if these are meaningful enough to sustain development and incentivize users and teams.
• Eigenlayer is a fascinating blockchain and data availability layer that is secured by staked ETH. This rehypothecation creates a self-sustaining yield component that will create additional demand for staked ETH and contribute to the supply shock. It’s quite early so the only DApps building are restaking protocols to allow for liquidity, but this could be a revolutionary blockchain starting to take place with many rollups launching in the future.
• Mantle will be the best new L2 at attracting new users, TVL, and transactions. They have a gigantic war chest of ETH they are already leveraging to provide enhanced ETH staking yields ($mETH) to users. $mETH is going to be an entrenched collateral across the ecosystem and is a secret weapon for Mantle. They also have a significant amount of $MNT and stablecoin incentives to bootstrap and invest in new projects.

LayerZero

• I anticipate a new trend for omnichain tokens with LayerZero. Account abstraction will allow users to hold assets and transact on their favorite Layer 2 or L1 rather than flipping chains constantly (chain-agnostic).

AI and Crypto intersection

• There will be multiple AI projects in the top 50 market cap in 2024. There is so much potential for AI in crypto. At its simplest manifestation, trading bots, automated payments, and arbitrage bots will utilize blockchain rails. Tokens enable decentralized ownership of the AI tools created to drastically increase efficiency and simplify many of the tasks that are painful in blockchain today. Bittensor ($TAO) is building a censorship-resistant, decentralized LLM and an ecosystem is already exploding around the toolkit. Autonolas ($OLAS) is building AI agents to perform on and offchain tasks that utilize all open source LLMs. Grass.io is building a decentralized oracle for AI training data by connecting to the internet all over the world.

The Cosmos Cycle

• For all of the disarray in ATOM governance, personality/founder issues, rifts in teams, and a lack of real utility for the Cosmos Hub, the Tendermint consensus and interoperability are excellent tech that may finally play out in terms of good investments in 2024.
• Celestia’s data availability layer is built with Tendermint and will be critical infrastructure for rollups. The $TIA token has good supply mechanics til the end of the year and stakers will likely receive airdrops for any chains utilizing their DA.
• Dymension and Saga are building clones of the Cosmos hub with focused BD on generating rollups as a service. They will share resources and make it easy to onboard new teams who want to run an application-specific chain. Tokens will launch in January 2024 and are likely to have attractive valuations as they didn’t raise a large amount in the bear market.
• Injective, Sei, and Kujira have all been exceptional price performers and builders will be attracted to these chains with newfound wealth. Don’t call it a comeback, but Terra’s new chain also has a fairly die-hard community after moving on from Do Kwon.
• DYDX is the first of many successful app chains and the leading perpetuals DEX. Stakers are now earning USDC (real yield) rather than relying on token emissions to secure the network. This is a revolutionary change and may set the standard going forward.

Bitcoin DeFi

• Inscriptions, marketplaces, and DEXs are reminiscent of early Ethereum DeFi. They were slow, expensive, and had many failures. The opportunity is immense here and although there are many $BTC purists, the community must acknowledge Bitcoin blockspace demand must go up over time to secure the network (miners will have to sell just to maintain their operations).
• I am watching DEXs, wallet infrastructure, stablecoins, and lending markets for simple DeFi upside. Also, native asset crosschain swaps will be more important with the growth of DeFi, and Chainflip has built a new, secure, liquid DEX for BTC<>ETH.

Gaming finally makes a hit

• There was an excessive amount of money raised for gaming over the last 2-3 years, and I anticipate there will be crypto-native games that finally attract native and non-native users. A crowd favorite and highly anticipated game is Illuvium. Magic The Gathering/strategy game enthusiasts are very excited about Parallel, and I’m watching Arbo for a higher upside play.
• The ‘picks and shovels’ play in gaming will likely be an infrastructure play like ImmutableX, which can enable mass minting of NFTs for in-game, tradeable objects, or a permissionless marketplace for in-game items.
• For those who are less involved in the day-to-day of crypto gaming, guilds like Yield Guild Games and Merit Circle/Beam have exposure to potential hits and will draw attention from large investors/advisors like Pentosh1.

Curve/Frax/Convex Ecosystem proliferates

• Decentralized stablecoin yields will be a winner takes most. During the bear market, Frax has been cooking. Frax base pools are boosted with very high yields, they’ve built a liquid-staked ETH token, and are building Frax chain. They simply know how to play the long game and will be a big winner for both ETH and stablecoin inflows. Convex also benefits from all of Frax’s and Curve’s success with their humungous amount of locked CRV to boost pool yields for LPs.
• AlladinDAO has built interesting new products, CLever and f(x) protocol, that have received a lot of positive feedback and reception from stablecoin maxis and could draw significant interest from DAOs looking to maximize treasuries and hedge native coin risk.

Memecoins are a Meta

• Memecoins have PMF for both crypto natives and retail alike. While they used to mark top signals, they are now far more sophisticated in their marketing reach via web and mobile, supply mechanics, liquidity concentration, and most importantly fun lottery tickets. Small bets can turn into big wins and it’s worth joining a cult and getting some diamond hands. Fundamentals include creative memes, videos, shill team, number of holders, and supply distribution…nevermind I’m not going to actually convince anyone these factors matter.

Intents-based DEXs are 0 to 1 innovation

• Symm_IO comes from auspicious beginnings as the founding team members are part of the dying Fantom ecosystem. The Deus team has formed a new protocol, now with backers, to develop the most advanced derivatives system in DeFi. Symm taps into offchain liquidity through ‘hedgers’ who serve quotes from centralized exchanges to traders and then hedge the exposure in whatever way they choose. This lets professional market makers do what they are good at and removes the requirement for inefficient onchain liquidity pools ala GMX and Uniswap v2. This means traders will get the best execution (lowest fees and spreads) and have access to the most pairs anywhere in DeFi, all without the risk of a centralized exchange (geofencing, locking funds, stealing funds, closing profitable trades). SymmIO has been deployed on front ends such as [Thena](https://twitter.com/ThenaFi), IntentX, Pear Protocol, Based Markets, and others are slated to launch soon.
• This system also applies to spot markets and will enable just-in-time liquidity to improve capital efficiency. Cowswap was V1 for intents-based swaps and has provided good execution/MEV protection, but Uniswap v4 hooks are going to also be a game changer for intents-based swaps.

Surprise

• Every bullish cycle, some new primitive comes along that catches everyone by surprise. Social had some buzz with FriendTech this past summer, and I expect DeSo or SocialFi to be a winner. Many teams saw how incentives are attractive to creators, and access is worth paying for by fans/simps, and have raised money to build a better UX.

Bearish Narratives

RWAs slow down

• The advent of onchain t-bill yields coincided with the peak of interest rates. Crypto was chasing the same yield that all tradfi investors were, and I expect the demand for this product to wane before really getting traction down the road. It’s a huge proof-of-concept test for the tokenization of everything, but native stablecoin yields will likely be far higher than t-bills for the next several years. Other RWAs could be far more interesting so it’s worth watching, but it’s going to be a slow process to onboarding.

Bearish Base growth

• Coinbase has a phenomenally strong brand, is the leading Centralized Exchange in the West, and makes beautiful products. They have a tremendous amount of clout, influence, and a marketing engine that puts them in a great position to onboarding retail investors into DeFi through Base. I don’t think onboarding users will be a challenge for Base, rather attracting teams to build on the chain will be extremely competitive. Other Layer 2s and Layer 1s have large amounts of venture capital and potential token airdrops to persuade developers to build, hire, and incentivize growth. The customer acquisition costs are very high in a bull market and if Base can’t pay, they won’t win even with the Coinbase and Optimism Superchain narratives. In a cyclical, speculative, reflexive market, you must strike while the iron is hot to remain relevant.
• Coinbase’s relationships with institutions are a superpower and they should leverage those with their credibility, security, and compliance rather than focusing on crypto native developers.

NFT volumes won’t get as high as 2021 mania

• While NFTs are awesome tech and have flexible applications, the 10k mint profile picture craze was a function of zero interest rates (think limited edition, onchain Pogs). There will be real NFT projects that can grow their treasury, brand, and accrue value (Pudgy Penguins and Yuga, e.g.) too, but the majority of mints will fall short and NFT creators will need to pivot their strategies to compete.

Bitcoin Spot ETF inflows underwhelm until H2

• I am not bearish on the BTC Spot ETF for flows (quite the opposite), however, I expect there will be a longer amount of time devoted to marketing, building products, and selling the BTC spot ETF. I wouldn’t expect to see big inflows until Q3 of next year. I assume the majority of retail and HNW investors already have exposure through personal accounts or private funds.

Liquidity pools

• Idle liquidity pools are inefficient and fragment liquidity across chains and smart contracts. Market makers are smarter at managing positioning and spreads, and over time pay for order flow will win out. While derivatives volumes should grow overall, and increase the proportion to centralized exchanges, GMX-style platforms will lose market share to central limit order books managed by market makers (dYdX, Hyperliquid, and Vertex) and Intents-based DEXs (Thena, IntentX, Pear Protocol, Based Markets).

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