Breakthrough Bottlenecks, Embrace Transformation.
Author: Jesse Walden
Translation: Deep Tide TechFlow
In the past two years, the crypto industry has gone through what I call a "consolidation phase." During this phase, the industry's focus has shifted more towards optimizing existing technologies rather than creating entirely new innovations from scratch.
This consolidation and optimization are mainly reflected in three key areas of the crypto industry:
Infrastructure: Improvement and optimization of underlying technologies.
Application Scenarios: Clarifying and deepening existing core use cases.
Long-term Winners: Emergence of projects and technologies with sustained competitive advantages.
Infrastructure Optimization: Moving Towards 2024
The infrastructure of the crypto industry has been continuously optimized and is now maturing, no longer a major barrier to industry development. This maturity is due to ongoing technological optimizations rather than completely disruptive architectural innovations. These optimizations lay the groundwork for the industry to welcome a potential next "bull market," during which:
The blockchain's transaction storage space (Blockspace) is ample, capable of accommodating more transactions.
Development tools (Tooling) are more refined, providing convenient support for developers.
User transaction fees are close to zero or even completely free.
The complexity of wallet usage has been effectively simplified, lowering the user threshold.
The user experience of on-chain applications can now rival that of traditional Web2 applications.
In fact, the abstraction, performance enhancement, and reliability improvement of infrastructure during this phase have only developed over the past 12-18 months. For example, Ethereum L2s (Ethereum Layer 2 scaling solutions), the reliability improvements of the Solana network, and wallet abstraction technologies have only recently reached production-level maturity.
Integration of Application Scenarios and Long-term Winners: Trends for 2024
Currently, two core application scenarios have entered a mature phase: speculation and stablecoins.
These two scenarios have existed since the inception of the crypto industry. Bitcoin has been the first speculative asset in the crypto industry since its launch in 2009. Stablecoins, on the other hand, are among the earliest token applications (for example, USDT was launched in 2014). Today, the development of these two areas is entering a golden phase, closely related to the optimization of infrastructure.
For instance, Memecoins, as the most direct manifestation of speculative behavior, now have extremely low creation and trading costs, making operations simple. Similarly, the issuance and trading of stablecoins have become more convenient due to advancements in technological tools. Tools like Bridge have greatly simplified the issuance and trading processes of stablecoins, making these operations easy and efficient.
In the extended fields of speculation and stablecoins, another integration trend is gradually emerging: those "long-term winners" that have recently performed well are continuously expanding their advantages and achieving greater success. These projects include blockchains (like Solana and Ethereum), wallets (like Phantom), and decentralized exchanges (DEXs) (like Uniswap and Raydium). They not only benefit from the rapid growth of the stablecoin and speculative markets but can also quickly adapt to popular speculative trends in the market (whether Memecoins or NFTs).
The Next Phase of the Crypto Industry: Breakthrough Bottlenecks, Embrace Transformation
As the infrastructure bottlenecks gradually become a thing of the past, the industry faces two major bottlenecks that urgently need to be overcome. These two bottlenecks are not only the reasons for the consolidation-optimization phase but also hinder the industry's transition from 0 to 1 new innovations.
The first bottleneck is the challenging and uncertain regulatory environment. However, this situation may be changing. The crypto industry may soon welcome a clear regulatory framework in the U.S., which will provide fertile ground for outstanding projects in the industry while eliminating the presence of bad actors.
High-performance infrastructure and a clear regulatory environment are the two key factors driving the industry's transformation, and the core of this transformation lies in addressing the last and most important bottleneck: talent.
Since 2022, the number of new talents entering the crypto industry has significantly decreased. This phenomenon is not hard to understand, as the negative public opinion environment and the risks faced by founders under uncertain regulatory frameworks have deterred many. However, the lack of new talent directly limits the generation of new ideas within the industry.
I believe that as the industry environment improves, this trend will reverse next year and will be divided into two phases:
Long-term winners that have performed well during the consolidation phase will continue to expand their advantages and achieve unexpected success. For example, Polymarket has stood out during this election cycle, and similar cases will continue to emerge in the future. This trend will benefit from the mainstream application of on-chain technologies, both at the consumer and institutional levels. Startups will experience a wave of IPOs, and more projects will launch their own tokens. These developments will redefine people's perceptions of the crypto industry's influence and inspire a new generation of builders to join this field, injecting fresh vitality into the industry.
A brand-new group of entrepreneurs will enter the crypto space. They will start from the most fundamental principles (i.e., first principles) and will no longer be constrained by traditional infrastructure and old ideas. Under clear regulatory rules, experiments around new product experiences centered on “user ownership” will become feasible. This will bring a new wave of innovation to the industry.
Although price volatility in the crypto market will continue, as new rules, new talents, and new ideas emerge, we hope to clarify within the next five years whether the crypto industry can transcend the realms of speculation and stablecoins to provide more profound value. At the same time, we also look forward to "user ownership" becoming the core of new products and networks, driving faster growth by aligning with users' economic interests. The successful validation of breakthrough applications will be a key pathway to reducing long-term market volatility. I personally look forward to witnessing the development of this process, as I believe the next few years will be a critical window for the development of the crypto industry.
At Tuesday's annual meeting, I shared these views with Variant's investors. But I also need to add one point: what I am most concerned about is that before the industry transitions from the consolidation-optimization model to the 0 to 1 innovation model, there may be another rapid cycle of price surges and crashes. If this happens, it could delay the pace of innovation in the industry—but even so, I still believe that the next five years will be an important window for the development of the crypto industry.
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