Written by: 10K Team

The annual report is divided into two parts

This article shares our thoughts on 2024

This article mainly covers 2024, including:

(1)ETF Impact

(2) DEX vs CEX

(3) Application chain

(4) Suanwen vs. on-chain asset management

(5) Has the industry entered the PE moment?

01. ETFs and giants dominate the market

1.1BTC ETF has seen a substantial net inflow in a year, and pricing power has shifted to North American institutional investors

After the BTC ETF was passed this year, the North American BTC ETF began to increase its 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 only less than 670,000 coins, and within one year, the holdings increased significantly to 525,600 coins.

Observing the net inflow and outflow of BTC ETF, you will find that this year’s BTC fluctuations and ETF’s Net inflows and outflows have been highly positively correlated, and pricing power has gradually shifted to North America.

This trend is further strengthened by the following factors: large CEX’s support for VC teams are becoming more picky (while charging teams high listing fees), while on-chain liquidity is growing with the development of better tools (like CLOBs, launch platforms, front-end tools like Moonshot, etc.).

1.2ETH ETF progress is relatively slow.Currently in the stage of changing hands from inside the circle to outside the circle

Generally speaking, the net inflow progress of ETH ETF is slower than that of BTC ETF. November 29 this year was the dividing point, and the ETH ETF began to see substantial net inflows. On that day, the net inflow was US$300 million, which was twice the cumulative net inflow in the previous four months. In the period since then, ETH ETFs have continued to have net inflows, but we have also observed that old crypto native OGs such as Sun Yuchen have begun to sell Ethereum. The current trend is of selling within the circle and increasing holdings of ETFs outside the circle. As of December 26, the ETF held a cumulative 3% of ETH.

We believe that ETH will also gradually change hands, and the pricing power will shift from crypto native to North America, but this replacement process may be longer than that of BTC. If there is a new institutional narrative for ETH next year, it may be that the ETH ETF can earn interest through staking and is not considered a security.

02.DEX Flip CEX?

2.1 The spot ceiling on the chain may be gradually approaching the limit

A new round of 4 years starting from 24 years During the cycle, we can clearly see that the market share of spot/derivatives on the chain 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 currencies such as BTC/ETH/SOL/XRP, and the transaction volume and best transaction depth of mainstream currencies are still in CEX. But just like the answer to why crypto - the biggest role of Crypto is to use tokens to incentivize medium and long-tail users/projects. The ones with the largest transaction volume on the chain recently are memes, which are mid- to long-tail projects compared to mainstream currencies.

If mainstream currencies such as BTC/ETH are still hot spots in the market in the future (a high probability), and Meme does not account for the majority of transaction volume, then spot transactions on the chain will The ceiling may soon be visible. In other words, Meme cannibalizes CEX Trading volume of mid- to mid-tail VC coins.

Judging from the market share of DEX on the chain, thanks to Pumpfun The emergence of Raydium led to a huge increase in Raydium's market share, once accounting for 28% of the entire DEX chain's market share. Due to the relatively sluggish performance of the Ethereum ecosystem this year, Uni's market share 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 grown 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 scale of the original on-chain derivatives track, thanks to the take-off of Hyperliquid in November, the dex/cex futures trading volume has increased significantly in November, single-handedly increasing the market share Increased from 4% to 8%.

We often say that the competitive characteristics of perp dex are:

1. Institutions prefer Orderbook , retail investors/whales prefer Pool mode

2. The trading volume of market makers/takers is greater than that of retail investors

3.In orderbook mode, MM/Taker Bringing trading volume and liquidity from 0-1, and relying on gameplay (airdrop + pull offer) 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 low. High

The LP Pool model represented by GMX/Jupiter represents dydx derivatives 1.0 model, GMX/Jupiter allows retail investors to add pools to bet against traders. On the one hand, they can eat handling fees, and on the other hand, they can eat liquidation fees. The original CEX MMThe business model is brought to retail investors in a decentralized manner, creating a new paradigm of perp dex on the chain. GMX and Jupiter did well in the bear market, with GMX even bucking the trend and doubling in market capitalization during the bear market.

But after the bear-bull transition, institutions came 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 orderbook 3.0 model. You may think that it is easy to build a high-performance derivatives exchange, but in fact it is not. Buying a rubbish trading engine from Chainup is completely unable to meet the needs of high-performance transactions. It took Hyperliquid Build two years to launch the product. It not only built its own trading engine and told an L1 story, but also used the Orderbook model to match transactions, and also used HLP to attract retail investors to add liquidity. Hyper currently seems to be the perfect integrator of perp dex.

But at the same time, we feel that there is still room for improvement in perp dex. The improvement may lie in the license - leading market makers still tend to be compliant/guaranteed. Perp dex in MM.

3.Solana/Base/Ton The competition

3.1 Pump.fun single-handedly contributes half of Solana’s trading volume

Every time we ask the big Infra/public chain companies in the head , what kind of ecosytem ecosystem do you want to build? We have always believed that if a real Infra/public chain company wants to succeed, it must have a unique project/track within the ecosystem.

DeFi/Ethereum, Stepn/Solana+BSC, GameFi/BSC, DePIN/Solana, payment/Tron. This time, Pump, as the leading dapp, once again turned the tide of the Solana ecosystem, with revenue of US$300 million this year. Solana’s Payfi and DePIN tell stories to traditional investors, and everyone is willing to pay. But retail investors may not recognize Payfi and DePIN. After all, what percentage of APY is Yu’e Bao, supply chain finance, and wifi?Base stations, collecting map data and other methods are still too far away from pure dog betting for retail investors. In the carnival of the bull market, retail investors like excitement. A big positive/negative line stimulates the brain to secrete dopamine. Secondly, Pumpfun’s website design is also very magical. High-frequency flashing and pop-up windows can 200% amplify the greed in users’ hearts, making it pure gambling and ultimate enjoyment.

Solana’s development path is now clear.

On the 2B side, Foundation tells the story of being able to serve the web2 enterprise side, such as Payfi. After all, the current cross-border payment/payfi is gradually bottom-up on the enterprise side. the fact of what happened. The enterprise side of DePIN's service has become less sexy, and it's been found that DePIN isn't rolling out as fast as it could. After all, in such an efficiency-focused on-chain world, we need a real industrial chain + supply chain + transportation to all parts of the world to reach a certain scale before we can serve the 2B side, and the speed will not be too fast.

On the 2C side, there is no story that can make money better than the extremely low-threshold casino + lottery.

In addition , and add a little bit about the auxiliary trading tools of GMGN-type "brokerage" products. As the leading product on the track, it has earned more than 20 million US dollars in revenue in the past three months. This provides new entrepreneurial ideas for web2 product managers to enter the currency circle. Compared with the Dune, Tokenterminal and other products seen in the previous cycle, the commercialization capabilities are at least 2 orders of magnitude stronger. This is due to the direct entry of this round of auxiliary trading products into transactions.

We will also continue to observe equity investments in similar products and do revenue sharing opportunities. The financing model of this type of product is mostly equity financing + revenue sharing opportunities, but current observations show that this type of investment model is not cost-effective for investors (it is actually good to do it yourself). Usually the first round of valuation is 10-20m, and investors hold about 20% of the shares. This means that if the company relies on dividends to cover the capital, the company must achieve at least 10-20m in revenue during its life cycle, which is very challenging. Yes, the leading effect of blockchain is too significant, and its life cycle is usually very short.

3.2 Solana Memecoin One general can accomplish a thousand bones

3.2 Solana Memecoin p>

The most successful theme this year is Meme coin. A large part of Meme’s trading volume siphoned off the trading volume of VC coins at the waist and tail. pump.fun even more The meme craze has reached its climax, and dozens of plates are released on pumpfun around the world every 10 seconds. This year, memes like ai16z, bonk, bome, spx6900, etc. have reached a circulating market value of more than 1 billion US dollars. p>

Meme The market provides huge fluctuations, with intraday fluctuations up to a thousand times. However, extremely high returns come with extremely high risks, and many memes will instantly return to zero.

As can be seen from the following data, 99% of Meme cannot exceed the market value of 1M. A Meme that can break out of hundreds of thousands of Memes is also a success.

3.3 AI Agent leads Base to prominence

In our October monthly report, we once focused on the Base ecosystem The rise. After two months, Base is now significantly ahead of other Ethereum ecosystems in terms of DAU and TVL.

In the current Base ecosystem, Virtual and Clanker are the most likely representative projects of Base besides Aerodrome. Virtual takes product drive as its core, emphasizes the link between AI and Web2 users, and gradually builds it. A "usable" tool system, former Google CEO Eric Schmidt and Marc Andreessen points to the Virtual team’s unique advantage in high-frequency trial and error. From PathDAO to Virtual Protocol, the team spanned GameFi and AI+DApp in three years and completed the miracle of growing 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 releases its Token, the gameplay will be more diverse than pumpfun. Virtual is the only token used on the platform. Use Virtual to create new gameplay and replicate the gameplay of Pumpfun/sol.

Interestingly, many projects have made more or less innovations in Tokenomics this year, truly realizing the flywheel effect of business + token.

3.4 Apart from Tap2Earn, what is Ton’s breakthrough point?

We issued a research report on Ton in the middle of this year, which mentioned that we do not have a particularly Bullish Ton ecosystem. The main reason is that we are not optimistic about the new recruitment system under the Tap2Earn system. Tap2Earn has a different payment system than DePIN and GameFi. The story told by the DePIN project team is that after there are more long-tail suppliers, the demand side will pay for the entire mid- and long-tail suppliers and ecosystem, such as Render rendering and Mobile mobile communications. GameFi is about fun games, and users will pay for the platform and gold miners out of entertainment needs.

But the story Tap2Earn tells is that when I have enough users, there will be advertising commercial value. But the problem is that these tap2earn users are pure woolists, and their commercial value is very low. In other words, the commercial value that exists is that they are sold to the exchange at one time. After half a year, we believe that Tap2Earn’s business model of attracting new users + advertising is difficult to survive in the long term. 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 new missions,

So where will Ton's next breakthrough point be? For example, recently we saw sahara’s current alpha test data annotation products, this issue is mainly long text. If a company can obtain actual orders, distribute them through TG, and label them for users, it may be a very sexy "web3 data Foxconn". But such companies need to seriously consider quality issues after crowdsourcing distribution.

In addition After detailed communication with our friends at Ton Foundation, we are also deeply aware of the problem of Ton ecosytem - ecological projects usually regard currency issuance as a short-term opportunity. The cabal will end after issuing a wave of currency and start the next project, such as DOGE/Hamster wait. Exchanges gain new users from these projects and want nothing more. The next six months proved that these users would not bring too high value to the exchange, nor would they bring higher TX to Ton (after all, they retreated after the hair-raising was over, and the on-chain penetration rate was too low). The TG team is basically indifferent to currency prices and is in a Buddhist state. Therefore, we are cautious about subsequent Ton opportunities.

4. Calculate stable ❌ on-chain asset management ☑️

Stable currency company income = AUM* Interest Rate.

The underlying interest rate in the stablecoin industry is usually anchored to government bonds. The new on-chain stablecoins that emerged from 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 adopt two completely different styles of play.

4.1 Ethena——Extremely large returns

Ethena achieves extreme delta neutral +eth native staking+governance currency-based subsidies increase the risk-return rate, thus attracting TVL. We have already analyzed too much about Ethena’s business model, so we won’t add much here. But it is worth mentioning that ETH OI has begun to grow significantly recently. Compared with September, OI increased by 2.5 times, and the ceiling of ENA is gradually opening. ENA is probably the token that rises the most and falls the most under the trend market.

Things that can open up the ceiling of ENA in the future may include: 1. Changes in ENA Token utility, such as revenue sharing, buyback, etc., but this may be strongly related to the macroeconomics 2. Start doing BTC (already cooperating with solv)/Solana/aptos/sui/ton short operations.

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4.2 Usual - Decentralized legal currency mortgage

Usual can be regarded as a dividend-paying version of legal currency mortgage The web3 version of stablecoin. By decentralizing part of the government bond income to the community + Token subsidies, the stablecoin yield rate is guaranteed. The team’s style of play is very much in line with the old DeFi style. TVL is subsidized through extremely exaggerated yields similar to those during the DeFi summer.

First of all, let’s learn about the difference between APY and APR. Simply put, APR is the income for the next year without taking into account 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, the APR arbitrage formula is equal to 543.65%, and the daily The interest rate is less than 1.5%. Taking into account the negative correlation between Usual's emissions and protocol growth, we can avoid the problem of excessive token dilution. When USD0 currently grows to US$1.7 billion in TVL, the annual revenue of the agreement is US$68.94 million, the circulation is US$500 million, and the FDV is US$4.5 billion. While the FDV/Revenue (65, usually DeFi PF is around 5-20) is ridiculously high, there are also a large number of Usual token subsidies for Usualx staking, USD0++ staking and USD0/USD0++ pools, so we think that at this price, Usual is relatively overrated. The model of this area is very similar to 20-21 DeFi summer using governance token subsidizes TVL model. But Usual’s Token utility is better than ENA, at least it has revenue sharing.

The team has raised the token and is currently selling Usual tokens at a 20% discount.

5. Has the industry entered a PE moment?

A larger range of OTC models will begin to appear in 2023. The project side will provide the OTC team/consultants/ecological tokens to investors, and the OTC money will be used to promote the market or do ecological work. After all, if you don’t pull the market, there will be no ecology:). Mid- to long-term stable promotion is the best marketing expense, which not only attracts retail investors, but also attracts developers. In addition, because the public chain currency is rising, TVL is rising. This will lead to the growth of retail investors/developers/TVL, and the most important three-ring spiral of the public chain.

The most successful OTC deal that has 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 losers). But in that moment of decision-making, it’s usually very, very painful. Since the fundamentals at that time were relatively poor, the business was not good, the valuation was high, and unlocking might not be friendly, the decision would be relatively difficult. Our best performance this year is Solana OTC (very optimistic about the fundamentals + calculations). Miss's main regret is ENA's OTC (not optimistic about ENA's utility as a mining currency).