It’s my third crypto cycle, and every cycle the market seems to get crazier. Numbers stop making sense as irrational FOMO attracts retail degens who don’t know what market cap or fully diluted valuation is.

I wrote my experience on navigating the crazy bull market in November, 2023. I won’t repeat myself in this post, so feel free to read it

We are not here yet. Meme-proxies for market top are not here yet: Coinbase app is not No 1. on the Apple store, there were no crypto ads during the Super Bowl, and retail FOMO isn’t here yet.

How Inflated is the Market Right Now?

My second most important article from my personal experience was focused on how we create new stories to print more tokens at even higher valuations.

In 2017-18, the total crypto market cap was inflated by ICO tokens. These tokens lacked technical innovation and were backed solely by a white paper and sexy stories.

The 2020-21 bull run was more complex.

Leverage quickly accumulated in DeFi and CeFi. Leverage quickly built on Grayscale’s “Widowmaker” trade, and centralized lending companies lent to each other with little understanding of where the money really was.

DeFi inflated thanks to liquidity mining (which rewards you with governance tokens for providing liquidity) and the innovation of lending protocols like Aave and Maker, which enable on-chain leverage.

We have also invented new token models like Olympus OHM (3,3) Ponzi or SNX (to mint sUSD) to leverage their ecosystems.

The thing is, with every passing bull run, we make token printing easier. Before ERC20, token printing was complicated. Bitcoin forks such as Bitcoin Cash, SV, and Gold required expensive POW machines.

To learn more on what I mean, check my Echoes of the Past post.

So, where are we now in the 2024-25 bull market bubble?

Yes, it’s always a bubble in the making in crypto.

Funding rates on all CEXes for BTC are reaching all-time highs. Scary.

We have positive funding rates, which is bullish as traders are betting the market will go up. As long as the market doesn’t dump too much and longs don’t get liquidated.

On-chain DeFi data is healthier and more bullish as leverage seems to be low (but growing).

The TVL on Aave, the most liquid borrowing market, is creeping up. Usually, borrowers deposit ETH/BTC and other assets to borrow stablecoins for 1) buying more ETH/BTC or 2) using stablecoins for other tax-friendly usage.

The total TVL in DeFi stands at $75B, which is ~270% away from the ATH on Nov 11, 2022 of $175B USD.

Yet, borrowing/lending rates are going up across the board in DeFi. Ipor’s Index shows that borrowing can cost up to 10% APY.

Another important factor to follow is on chain liquidations. Defillama has a dashboard but it’s not updated for a few weeks already.

Where are we inflating now?

There are a few areas of focus for market inflation/leverage.

The first “inflation” here is issuance of new tokens. I can just create 1B $IGNAS tokens and sell 1 token for $1 USD to you, and the total $IGNAS market cap will be $1B USD.

More on this in the thread below.

The problem here is to convince you to buy my tokens. For that, I will create a new “Research4YouBaby” protocol, launch points, and sell you a really nice story.

You’ll deposit ETH/SOL/stablecoins into my protocol to get points because you want to get an airdrop. It’s free money, you think.

Other degens do it too. The higher the TVL goes, the more confidence it instills in the market that the protocol is the future of finance.

It’s great for my protocol as I’ve just built a loyal community and I generate fees from all that TVL. Research4YouBaby protocol found its product market fit (PMF)!

But I’m not the only smart protocol developer out here. Everyone is giving points! It’s a feast!

Of course, points are inflating at a crazy rate, but points are not tokens. My goal is to wait for the peak hype and launch my token. Jito’s JTO timed it well. Jupiter did it even better.

However, both tokens are dumping.

The initial hype resulted in a very high fully diluted valuation (but low % is circulating) because those who missed the airdrop ended up buying from the open market. The continuous unlocks will weigh heavily on the price.

You might have bought JTO or JUP because there are a few hot tokens to buy. All the 2021-22 tokens are boring, and no one wants to buy them.

But with every hot airdrop, someone needs to eat-up the story of this-protocol-is-the-future-of-finance and buy the token. If you bought JTO, JUP, and are currently at a loss, you might reconsider buying new shiny hot tokens in the future.

Thankfully, increasing BTC and ETH prices put the fuel to the market as degens can sell their BTC/ETH to buy shitcoins. But the moment BTC and ETH starts to go down…. You know what happens.

A bit off topic, but protocols that issue tokens are becoming complacent.

They think that the longer they hold on to points, the more users/TVL they get. But the more tokens are being issued into the market, the less people will have cash to spend on their shitcoins. Timing the market is key.

So, we are printing tokens.

You need to follow the newly token price action to see if there’s demand for them. Currently, the market is sending mixed signals as JUP/JTO are going down, but DYM/TIA/PYTH are holding well.

TIA/PYTH/DYM have better storytelling than JTO or JUP because by holding on to TIA/DYM/PYTH, you believe you’ll get more shitcoin airdrops. It might work for a while, but at some point, airdrops will get smaller and smaller until no one will care about a few dollars received in an airdrop and will dump TIA/DYM/PYTH if they don’t provide other value proposition.

TL;DR, with every new shiny, hot token, 1) dollar amount spent and 2) user attention is being diluted. At one point, we’ll reach a stage where the amount entering won’t be enough to sustain the number of tokens being launched in the market, and we’ll crash hard.

We aren’t here. But we are printing fast. Here are two major categories that facilitate token printing:

• RaaS (Rollup as a service) allows to easily launch a chain or a protocol in just a few minutes. Dymension, AltLayer, Caldera, even Arbitrum L3 chains etc. Dymension alone is supposed to have hundreds of RollAps. Think who will buy those tokens?
• Restaking is a multilayer token printer:
  • AVS: dApps using restaked ETH to boost their utility are called AVS. AltLayer, for example, is also an AVS protocol. Multiple AVS are about to launch and more will come when Eigenlayer launches on mainnet. Learn more here.
  • LRT protocols: Every Liquid Restaked Protocol will have a token.

Then there’s a second type of inflation/leverage in the system that comes from token derivates.

Liquid Restaked Tokens

Liquid Restaked Tokens is the most obvious one. I believe it could pose some system risk.

LRT ETH, like rsETH by KelpDAO is a complex ETH derivative asset that is exposed to:

• Multiple ETH LSTs (ETHx, stETH etc). If an LST has a bug, rsETH is also rekt
• Multple AVS protocols. ETH backing rsETH will end up securing AVS protocols. You might lose your ETH in slashing event.
• Eigenlayer itself. Hope Eigenlayer has no hacks…

Now, we are seeing LRT ETHs being integrated into the DeFi 1.0 ecosystem. I believe soon we’ll see Aave, and multiple stablecoin protocols accepting LRTs because they offer higher yields!

Restaking + Liquid restaking are in the top 10 by TVL already. And Eigenlayer isn’t even fully live yet. God help us all.

But it doesn’t pose any systemic risk, I guess. For now. More on the risks, read this research.

Ethena - the New Hot Stablecoin in Town

Secondly, there’s a new Ponzi-not-Ponzi protocol in town: a usual suspect - stablecoin.

Ethena is backed by half of crypto insiders, and you’ll probably see many threads on how revolutionary it is.

In fact, it’s founded on a simple yet powerful concept: deposit stETH to mint USDe stablecoin at a 1:1 rate. The peg is upheld by shorting ETH on various DEX/CEX platforms, thereby maintaining a delta-neutral position.

This USDe generates stETH yield (~4%) and offers varying % APY based on positive funding rates on exchanges. As degens tend to be mostly long, the funding rates remain positive, with longs paying shorts. If you’re unsure about how funding works, check out the thread below for a simple explanation.

The shorting part is the tricky one as some funds have to be deposited to CEXes but there are a number of decentralized perp DEXes as well.

What will happen if one of the exchange goes bust? What happens if withdrawals are closed? What will happen if funding rates goes negative? All of these are the points at question on X.

Ethena is currently relatively small, with 250M USDe issued. However, with its cleverly designed points (referred to as shards), a referral program that offers a 10% reward for referring others AND using the referral, and backing from prominent investors like Binance, it will grow big.

It may even become too big to fail.

Currently, Ethena’s dominance of Open Interest in selected exchange stands at 3.57% but what will happen when their dominance grows? The implications are significant, but the effect it will happen on the market will take time to show up.

In any case, it is a direct increase of leverage in the market via Open Interest, as well as increased dependance on stETH.

What could go wrong? I don’t know, but my rule is to farm until it’s early lol

Plus, if you are sidelined in this market while sitting on stablecoins, it’s a new hot opportunity for you.

They will run a 3-month campaign or until USDe supply reaches $1B US Dollars.

So, if you did you research, use my permanent referral link to get 10% boost on your points shards.

Note you can’t mint USDe with stETH yourself (as it also requires KYC), so you will need to buy USDe and deposit to one of the Curve pools for 20x the points.

Growing risk, looping farmoooors?

Finally, there might be some overleveraged risk by airdrop farmooors who loop their positions on lending protocols to maximize points. You deposit SOL to borrow USDT on MarginFi, then swap USDT for more SOL on Jupiter to deposit SOL into Kamino to borrow more USDT…

Any other risky areas you have in mind? Let me know in the comments.

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Now, what happens next? There are at a few major catalysts for the three leading blockchains.

Ethereum

There are at least 4 bullish catalysts for ETH.

First, with the arrival of BTC ETF, the speculation is shifting towards ETH ETF.

Secondly, Ethereum has a significant Dencun upgrade going live sometime in March/April which includes 9 EIPs, with EIP-4844 (proto-dansharding) being the most important.

Proto-danksharding aims to lower transaction fees for L2s and decrease the cost of data availability by introducing a new segmented space called “blobs” for storing data.

It will reduce transaction fees on L2s by 10x, which could increase network activity on L2s and potentially boost the price of L2 tokens.

That’s not all.

Uniswap v4 is coming shortly after the upgrade (ok, maybe not so soon). The V4 requires EIP-1153: ‘Transient storage’ that is crucial for Uniswap v4 to reduce network costs.

Uniswap v4 brings “hooks” that are programmable contracts that operate at different stages in a liquidity pool’s lifecycle. It transforms Uniswap from a protocol to a platform that developers can built on top.

The V4 launch might pump $UNI price (in the short-term as token is hard to hold lol).

Third, Eigenlayer will launch on mainnet in 1H 2024.

The APYs on ETH will go up, attracting more attention to Eth. This will be especially true as riskier assets start losing favor and degens shift their focus back to ETH. I believe that launching more tokens into the market will further boost the bullish sentiment for ETH, as the profits generated from these tokens will eventually rotate back to ETH/BTC.

Thanks to LRTs we can earn Ethereum staking yield (~5%)+ rewards from Eigenlayer restaking (~10%)+LRT protocol token emissions (~10% and more). When Eigenlayer is fully live, we can expect a ~25% on ETH. On Pendle you already get 40% APY. - Navigating the LRT Wars and What’s at Stake.

Finally, amount of ETH staked is going up. It’s a key metric to follow as ETH stakers show confidence in long-term ETH price appreciation.

I believe following the dynamics of withdrawals vs deposits is a useful metric to follow if you want to time the market top.

Bitcoin halving

“The halving” is an interesting mix of meme and serious business.

The meme aspect is evident, as Bitcoin pumps in value around the time of the halving event.

However, there is also a serious side to it, which has multiple facets.

First, the block reward will decrease from 6.25 BTC to 3.125 BTC, reducing the “dumping” power by $225M USD per month.

Secondly, halving will boost the Bitcoin ecosystem narrative. The effects are already here.

Stack’s STX is up by 75% in a week as the team is getting ready for the Nakamoto upgrade. It will reduce block time from an unusable 10 minutes to 5 seconds. It’s a major upgrade, making Stacks finally fun to use. I expect more dApps and airdrops in the Stacks ecosystem.

Stacks is not the only (but probably the top) L2 on Bitcoin. The BTC L2 narrative is exploding in mindshare with multiple L2s, notably Merlin, planning to launch around the halving event.

But these L2s are complex, so please DYOR.

Finally, at exactly the halving block 840,000, the Runes protocol by Ordinals Theory creator will launch. It will usher in a new era of shitcoin trading that even Solana degens will be jealous of.

Overall, with institutional fiat inflows in BTC ETF and high degen spirits thanks to BTCFi, the future for Bitcoin looks bright.

Solana

I must admit, Solana has disappointed me. It actually made me feel quite sad. :(

It went down with almost a year without an interruption in minting blocks.

The bullish sentiment around Solana has dropped as a result, but there’s a major catalyst for Solana to regain market confidence.

Solana Firedancer aims to make Solana faster and more secure, while also improving how decentralized it is. It’s a new version of the software that validators, the nodes that process transactions, use on the Solana network.

It’s important because it helps Solana handle more transactions at once, with a goal of reaching up to 1M transactions per second! This could make Solana faster than many traditional payment systems, like Visa.

Firedancer also focuses on making the network safer by changing how its parts interact, which could help prevent hacks and make it more stable. Hopefully.

Developed by Jump Crypto, Firedancer is scheduled for a full launch in the summer of 2024.

Overall, the playbook by Mert seems apt here: Ethereum might steal the light from Solana until Firedancer is live.

But it’s not guaranteed. If Solana continues to have outages even after the Firedancer upgrade….

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