Author: Alex Xu, Lawrence Lee, Mint Ventures
Introduction
As one of the oldest sectors in the cryptocurrency domain, the DeFi sector’s performance in this round of bull market has been less than satisfactory. Over the past year, the overall increase in the DeFi sector (41.3%) not only lags far behind the average (91%) but also trails behind Ethereum (75.8%).
Data Source: artemis
Even looking solely at the 2024 data, the DeFi sector’s performance remains lackluster, with an overall decline of 11.2%.
Data Source: artemis
However, in the author’s view, amidst the peculiar market backdrop where altcoins plummeted after Bitcoin hit new highs, the DeFi sector, particularly its leading projects, may have encountered its best strategic moment since inception. Through this article, the author aims to clarify perspectives on the current value of DeFi by exploring the following questions:
– Reasons for the significant underperformance of altcoins compared to BTC and Ethereum in this round.
– Why now is the best time to focus on DeFi.
– Highlighted DeFi projects worthy of attention, along with their sources of value and risks.
This article does not comprehensively cover all DeFi investments of value in the market; the mentioned projects are used purely for analytical examples and not as investment advice. This article represents the author’s interim thoughts as of the publication date, subject to change in the future, and contains strong subjective viewpoints, potential errors in facts, data, and reasoning. Constructive criticism and further discussion from colleagues and readers are welcomed.
Continued in the main body.
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The Mystery of Altcoin Price Slump
In the author’s opinion, the underperformance of altcoin prices in this round can be attributed to three main internal reasons within the cryptocurrency industry:
1. Insufficient demand growth: Lack of compelling new business models, with most sectors still awaiting Product Market Fit (PMF).
2. Excessive supply growth: Further infrastructure development in the industry has lowered startup barriers, resulting in an oversupply of new projects.
3. Continuous unlocking of tokens: Continuous unlocking of tokens from low-circulating, high Fully Diluted Valuation (FDV) projects creates significant selling pressure.
Let’s delve into the background of these three reasons separately.
Insufficient Demand Growth: First Cycle of Bull Market Without Innovative Narratives
In an article written by the author in early March titled “Preparing for the Main Uptrend of the Bull Market: My Phase Thought on This Cycle,” the author pointed out the lack of business innovation and narratives similar to DeFi in 2021 and ICO in 2017 during this bull market cycle. Therefore, the strategy should be to overweight BTC and ETH (benefiting from incremental funds brought by ETFs) and control the allocation ratio of altcoins.
So far, this perspective has proven to be correct.
The absence of new business narratives has led to a significant decrease in inflows of entrepreneurs, industry investments, users, and funds, suppressing overall investor expectations for industry development. When the market fails to see narratives like “DeFi will devour traditional finance,” “ICO is a new paradigm of innovation and financing,” and “NFTs disrupt the content industry ecosystem,” investors naturally move to places with new stories, such as AI.
However, the author does not support overly pessimistic views. Despite the lack of attractive innovations in this round, the infrastructure is continuously improving:
– Block space costs have significantly decreased, applicable to both L1 and L2.
– Cross-chain communication solutions are gradually maturing, with a rich selection available.
– User-friendly wallet experiences are upgrading, such as Coinbase’s smart wallet supporting rapid creation and recovery without private keys, direct access to cex balances, and no need for gas recharging, providing users with a web2-like product experience.
– Solana’s Actions and Blinks functions allow interactions with the Solana chain to be published to any common internet environment, further shortening user adoption paths.
The above infrastructure acts like electricity, water, coal, and roads in the real world—they are not the result of innovation but the soil from which innovation emerges.
Excessive Supply Growth: Excessive Issuance of Projects + Continuous Unlocking of High Market Cap Tokens
In fact, from another perspective, although the prices of many altcoins have hit new lows this year, the total market capitalization of altcoins has not plummeted compared to BTC.
Data: Trading View, 2024.6.25
So far, BTC has fallen by about 18.4% from its peak, while the total market value of altcoins (shown as Total3 in the Trading View system, representing the total crypto market value excluding BTC and ETH) has only dropped by -25.5%.
Data: Trading View, 2024.6.25
The limited decline in the total market value of altcoins is attributed to the backdrop of significant expansion in both the total number of altcoins and their market values. From the chart below, we can visually see that the increase in the number of tokens during this bull market is the most rapid in history.
New Tokens by Blockchain, Data Source: https://dune.com/queries/3729319/6272382
It should be noted that the above data only includes issuance data of EVM chain tokens, with over 90% issued on Base chains, and Solana has actually contributed more new tokens. Whether Solana or Base, most of the newly issued tokens are meme tokens.
Among the high market cap meme tokens that appeared in this bull market are:
– dogwifhat: $2.04 billion
– Brett: $1.66 billion
– Notcoin: $1