Insights on the primary crypto market under the global economic landscape: DePIN, Intent and Abstraction may emerge as a new force

Original author: Pentos Ventures

World Economic Landscape

It is already summer in 2024, and the arrival of July means that this year has entered the second half of the game.

The market fluctuations in September last year brought long-lost hope to the crypto world. Since then, since January 2024, the price of Bitcoin has continued to rise, and most practitioners have asserted that the bull market has arrived. At this time, a large number of highly valued projects have emerged in the primary market, and the valuation of 30 million even falls into the range of lower valuations. The biggest reason for the project party to define its valuation is that the market determines that the price of BTC will exceed 100,000 US dollars in this round, and the valuation of projects anchored by the change in BTC prices should be higher. In fact, a fatal logical mistake has been made here. The volume change of funds in the BTC price market is not equal to the volume change of funds in the altcoin market. There is no absolute relationship between the two. The valuation of the project should be defined in itself.

Despite this, as the driving force of market sentiment, investors have been resolute in their investment in projects with unreasonable valuations. Since then, with Binance listing a high-valuation project and no one taking it, the market has been full of questioning voices. The main focus of the voices is: the price of the currency has been falling, so who is making money?

To answer this question, we need to go back to the point mentioned at the beginning: The volume change of funds in the BTC price market is not equal to the volume change of funds in the altcoin market. Here, we need to exit the Möbius loop and look at the market problem from a more macro perspective. The so-called global economy is a large-scale capital game, and cryptocurrency is one of its components. Where does the money for cryptocurrency come from? The answer is obvious - the traditional world.

So, how did the COVID-19 pandemic, which began in late 2019, affect global economic changes and radiate to the cryptocurrency world? What will the global economy look like in 2024?

According to the latest data from the International Monetary Fund in Q1 2024, the US dollar is still the worlds hegemonic currency in the allocation of global currency reserves. Therefore, all global economic issues cannot avoid discussions centered on the US political economy.

We need to note that since the outbreak of the COVID-19 pandemic at the end of 2019, the inflation problem in the United States has begun to surge in 2021, and the main reason for the surge in inflation is the shock of commodity prices. Driven by unexpected increases in commodity prices and distortions in key product markets, such as the new and used car markets. 1 Strong total demand during the pandemic, coupled with supply restrictions in certain industries, has caused shortages and rising prices in sectors. At the same time, the United States printed more than $3 trillion in 2020. This measure is intended to stimulate economic activity and provide relief to those affected by the pandemic, but it has also led to rising inflation. Further pushing up commodity prices, BTC, as one of the categories of commodities, is relatively small in total size compared to gold, and its price increase is more obvious.

When the economy is overheated or inflation is rising, what the Fed usually does is to raise interest rates to cool economic growth and control inflation. Inflation is closely related to the change in CPI. The CPI in 2021 rose significantly, with an annual growth rate of about 7.0%; the CPI in 2022 continued to rise, with an annual growth rate of about 6.5%. CPI growth slowed in 2023, but remained at a high level, with an annual growth rate of about 4.0%. According to the latest data from the U.S. Bureau of Labor Statistics, the CPI in May 2024 was the same as the previous month, with a seasonally adjusted monthly change rate of 0%, but the CPI for all urban consumers (CPI-U) increased by 4.0% year-on-year from May 2023 to May 2024. 2

Normally, when the annual inflation rate exceeds 3%, it may be considered high inflation. From the above data, although the monthly CPI data changes have been controlled, the annual data shows that the United States is still in a high inflation. In other words, under the annual interest rate hikes, inflation has not been effectively improved. At the same time, the United States is facing other serious problems due to the interest rate hikes.

First, the interest rate hike also pushed up the interest on U.S. Treasury bonds. Although the United States has adopted the FIMA repurchase mechanism, it still needs to face the problem that the interest on U.S. Treasury bonds is the third largest expenditure after social security and medical care. And the expenditure comes from fiscal revenue. What kind of problems does the U.S. fiscal revenue face? During the U.S. election, it has been encouraged to stimulate the manufacturing industry. In addition to solving domestic employment opportunities and increasing RD and innovation, it is also a continuation of the Sino-U.S. trade war. However, due to the interest rate hike, the manufacturing industry is simply unable to pay the high loans. As a result, the manufacturing industry cannot be stimulated for development.

In the latest US non-farm payrolls data, we can see that non-farm payrolls increased by 272,000 in June 2024, higher than the expected 182,000 and 165,000 in the previous month. Non-farm payrolls are widely considered to be an important barometer of the health of the US economy. 3 Non-farm payrolls exceed expectations (higher than expected): represents a stronger economy, good for the US dollar. Non-farm payrolls are lower than expected: represents a weak economy, bad for the US dollar.

The latest data seems to show a better economic situation in the United States. But whether this is actually the case, it seems that we need to further compare more data content. For example, the data on full-time and part-time employment in the United States, part-time employment has been showing an upward trend since the COVID-19 pandemic, which still means that non-agricultural data may contain overlapping data. In addition, if we compare the M2 data, we find that there has been no incremental funds in recent years.

https://www.advisorperspectives.com/dshort/updates/2024/06/07/a-closer-look-at-full-time-and-part-time-employment

https://fred.stlouisfed.org/series/WM2NS

Another major problem facing the United States is that Europe has recently chosen to cut interest rates. As the second largest global currency, the euro has been competing with the US dollar. The European interest rate cut has led to a large amount of funds entering the United States, which will push up the cost of funds for US banks. The European interest rate cut will further increase the blow to the US manufacturing industry due to the strong competition of European companies. At this time, Europes choice of interest rate cut is mainly based on the weak internal economic problems. In the face of inflation and economic problems, it chose to solve economic problems. In addition, it is also very likely that the US interest rate hike is closely related to the Russia-Ukraine War, which is part of the US dollars acquisition of the euro. The interest rate cut can also be seen as a confrontation with the US dollar. Not only that, after the Russia-Ukraine War, many countries took measures to avoid being acquired by the US dollar, such as Saudi Arabia and Iran using RMB to settle oil, and the 10 ASEAN countries using their own currencies.

Judging from the current situation, if the United States does not cut interest rates, the US economy may collapse first in the face of economic sieges from various countries; but if interest rates are cut, the US dollar economy will also face serious problems in the face of a rebound in high inflation. But judging from the current situation, the US economy may face more precarious problems than inflation. This year is a general election year. According to the analysis of the International Monetary Fund (IMF), economic policies in election years are usually affected by political and economic factors. The government may take measures before the election to maintain economic stability and thus increase vote support. However, post-election policies may be adjusted according to the economic strategy of the new government. So judging from the current situation, there is a high possibility of changes around November.

https://www.ft.com/content/088d3368-bb8b-4ff3-9df7-a7680d4d81b2

We need to make an accurate judgment on the current economic strategy, which is difficult at this stage. Overall, our view is that interest rate cuts are more likely. The view here is mainly to express some of the more macro-level content that the cryptocurrency market faces and should pay attention to. In the final analysis, what we need to think about and pay attention to is whether there is capital entering the market.

Does technological revolution make economic recovery possible?

In addition to monetary policy to regulate the market economy, the development of technological revolution is also a topic that needs to be paid great attention to. Usually, technological innovation will change the way of productivity, thus producing huge economic effects. For example, the emergence of the Internet has changed all aspects of human communication, entertainment, travel, etc. The dollar hegemony economy is mainly supported by strong military hegemony and oil settlement, and both cornerstones are currently shaken. Therefore, if the dollar wants to continue to maintain its hegemony, it will need to find new support points.

At present, breakthroughs in AI technology have attracted much attention. I believe that most practitioners have or are changing the way they learn, produce, and think because of AI. The development of technology always develops at an exponential level. While replacing some job categories and opportunities, it will also create more extensive opportunities and imagination space. From a macro perspective, AI technology will likely become the next support point for the hegemony of the US dollar. As the first economy, the United States will have comprehensive motivation to promote the development of AI technology for the stability of the US dollar and the global economy. Of course, it is understandable that technological innovation is disorderly and has great uncertainty, but I believe that AI will have great possibilities under the support of the first economy.

According to a PwC report on global artificial intelligence , AI is expected to contribute up to $15.7 trillion to the global economy by 2030. This growth will mainly come from increased productivity and consumer demand.

Productivity improvement: The application of AI technology can significantly improve productivity by automating and optimizing processes. This part is expected to contribute about $6.6 trillion to economic growth.

Increased consumer demand: AI can stimulate consumer demand by personalizing products and services and improving user experience, and is expected to bring about US$9.1 trillion in economic growth.

The impact of the region:

China: China is expected to benefit the most from AI, potentially adding $7 trillion to its GDP. North America: North America is expected to add $3.7 trillion to its GDP. Europe: European countries are expected to add about $2 trillion to their GDP.

It should be pointed out here that by 2024, the global gross domestic product (GDP) will be approximately US$45.72 trillion. 4 Therefore, although the global economy is not optimistic at present, there is still a certain optimism about the future economic trend.

AI technology is bound to affect the development of blockchain technology, thereby further changing the way cryptocurrency games are played and creating more imagination. In the current primary market, we have not seen any particularly good AI technology enter the industry. From the perspective of technology changing the landscape and discussing the opportunity for new funds to enter the market, based on the funds communication, learning and research on various track projects in the current primary market, it is believed that DePIN and Intent Abstraction tracks may emerge as a new force, bringing new imagination to the cryptocurrency world.

Imagination, the emerging DePIN and Intent Abstraction tracks

There are many tracks that can be accessed and studied in depth in the primary market. After years of hard work in the crypto world, many investors are actually quite interested in DeFi, GameFi, SocialFi, etc. It is hard to arouse interest. Because in these contents, you can hardly see new technological breakthroughs and the injection of fresh blood. However, the projects and founders of DePIN and Intent Abstraction tracks have attracted the attention of the fund, and I also hope to share what I have heard and learned with the market.

DePIN Track

The outdated definition and classification of DePIN, and the related reports on the market are one after another, so I will not go into details here. I believe that most funds or users who have not been exposed to the DePIN project still have certain prejudices against DePIN. In a rapidly developing industry, prejudice will always be a stumbling block that prevents you from improving your cognition and further seizing opportunities to earn more capital. It is not difficult for us to imagine that if we do not have in-depth contact with DePIN, we will still think that the current DePIN track is exactly the same as the traditional technology chain reform of the year. But the actual situation is not the case. At present, there are already some DePIN projects on the market, such as the DePIN Layer 1 project peaq , the Mapping track Hivemapper , the automotive Internet of Things track DIMO , the modular infrastructure IoTex , and so on. At present, there are many introductions and analyses of leading projects, so we will not go into details here. What we want to share with you is what we have seen and learned at the first level.

Based on our study and research on the DePIN track and extensive exposure to projects, we found that:

• Projects that already have traditional actual business are bringing incremental users to cryptocurrencies, and they have the ability to convert users from Web2 to Web2.5/Web3

• DePIN companies that can meet real demand are entering this field, and their technical level has certain advantages in the subdivision field.

• The project team has strong business implementation

In the extensive contact with the DePIN project, there are many Helium-related participants. For example, Hotspotty, as Heliums first European hotspot, manages nearly 40% of Heliums devices and brings nearly 300k users. Most of these people used to be Web2 users who were completely unfamiliar with Web3, and these users are continuing to participate in more DePIN projects because of Helium. Hotspotty co-founders Maxime Goossens and Daniel Andrade are currently actively expanding the DePIN Hub (a platform where users can find DePIN stories and alphas) and strengthening the cohesion of the DePIN community through innovative social features.

If Helium is one of the most influential DePIN projects, its performance is an exception. Lets take a look at the situation of other DePIN projects. Whether it is Natix, which focuses on mobile traffic maps, or Teneo , which starts from RWA Launchpad and gradually turns to DePIN Data Layer, most of the initial users come from the Web2 world (here refers to users who are not familiar with Crypto transactions), and they gradually transform into Web2.5/Web3 users by following the development of the project for a long time. And similar projects are not uncommon. We believe that the incremental users that each DePIN project is bringing to the Web3 world should not be underestimated.

Speaking of DePIN, a company that meets real demand, I would like to share two recent projects. One of them is Staex , led by founder Dr. Alexandra K. Mikityuk . Staex is a zero-trust network for IoT devices that blocks all network traffic by default and forces communication through mutually defined tunnels. The company was founded at the Blockchain Research Institute of Telekom Germany, which is the parent company of T-mobile. At present, the companys technology applications have actually served equipment content such as drones and EV charging piles, and have achieved balance this year.

The other is ROVR , which is a decentralized 3D data collection, processing and storage platform. This technology is mainly used in the autonomous driving of vehicles. Led by CEO Ling Guang, the team members are all industry experts from this field. The founding team has mainly guided the technical development of Baidu Maps and NavInfo, and led the cooperation between HD Maps and Mercedes in China; at the same time, as the main manufacturer of Helium, it has also been deeply involved in the development of the Helium project. At present, the 3D scene generation data and automatic annotation results technology provided by ROVR are already in the leading position in the industry. Recently, it has received confirmation from Baidu and Alibaba teams on the cooperation projects supported by its technology, and encouraged the ROVR team to further deepen the technology in this field. ROVR is also actively contacting other leading players in the fields of traditional automobiles and autonomous driving, and will officially release hardware to provide more opportunities in the future.

Of course, as far as the DePIN project is concerned, the biggest obstacle we have seen so far is that the DePIN project lacks sufficient knowledge of how to play Web3 games. But at the same time, this is also the part where funds or industry practitioners can give the greatest support to the project. For funds and practitioners, these projects that are worth supporting have teams behind them that have been deeply engaged in segmented technology for many years, and their business landing capabilities are also very solid.

Intent Abstraction Track

After Vitalik Buterin proposed the concept of Intent and Account Abstraction, it officially entered the market, and many developers began to enter the track to conduct product development research. Before Taobao came into the public eye, many investors disdained it, and before the birth of Uniswap, most people questioned the possibility of DEX. As for mass adoption, many people still think it is just talk. But with the development of Intent and Abstraction, a more user-friendly experience and a more immersive encryption experience are imperative. In addition to the eye-catching projects on the track, such as Biconomy and XION , our observations and summary of the first-level Intent Abstraction track projects are as follows:

• Account abstraction is the starting point of Abstraction, and more imaginatively, it is the content at the Infrastructure level.

• At the infrastructure level, the user experience is greatly improved, cumbersome operations are reduced, and it is more in line with modern peoples usage habits, which is conducive to the entry of new users.

• Intent Abstraction is often combined with AI. The realization of automatic on-chain contract reading, calling, and operation will bring more development potential for cryptocurrency transactions and applications.

• Based on Intent Abstraction, we realize the interoperability of multiple chains and multiple applications, and develop new encryption experience

• The founders of the Intent Abstraction track are young, have multiple abilities, and have a deep understanding and knowledge of Web3.

The first person who caught our attention was Ash Ahmed, a 20-year-old who just graduated from Harvard. The project he is developing is called Axal , Intent Coordination Layer, which provides a comprehensive solution for monitoring, calling, executing multi-chain data and task automation to automatically solve the trading needs of DeFi Protocol users. At present, the intents in the market are still relatively simple on behalf of users. Axal is still in a very early stage. It may not become the best Intent Coordination Layer, but it has created an imagination. This imagination represents the future of Crypto transactions. Any platform (such as decentralized financial protocols, games or social networks) can access a coordination layer for cross-chain, swap and monitoring activities, etc.

Another project that we still remember is Abstract . Its founder Adair Kelley is a nearly versatile person with abilities in music, development, and public speaking. What Abstract is doing is to provide developers with a technical solution that can carry out full-chain development. On this basis, users will be able to discover, register, and use applications on any blockchain without having to understand the underlying technology. Abstract is not the only project working on this solution, but what Abstract is working on is definitely the trend of the future.

Whether it is Axal, Abstract Money or other Intent Abstract projects, what they are doing is to provide people with a more humane and more operational usage scenario. Imagine that Internet products have been developing to provide a better user experience, so should Web3 products be the same?

I think that both DePIN and Intent Abstraction can catch our attention among many tracks. The main reason is that the characteristics of the track and the project are strongly correlated with capital conversion, users and market growth, which will bring more imagination to the cryptocurrency market.

How will the pulse of the future beat?

All crypto practitioners have been thinking about a question: what has blockchain changed? Decentralization? Distributed ledger? Or has it given everyone a new plate? In fact, everyone has their own answer.

From a financial perspective, the emergence of smart contracts has given entrepreneurs a new way to raise funds. The first change is the replacement of traditional equity with tokens. The advantage of this change is that it can effectively control the situation of additional issuance and over-issuance, while the disadvantage is that the cost of adjusting the interest structure as the project develops is high, which makes it more difficult to implement. In terms of reward methods, token design is more about rewarding early contributors, while equity is more about rewarding continuous contributors. Therefore, tokens are more suitable for use in scenarios with clear rules and very clear distribution of benefits. Therefore, the integration of token economic design characteristics is very suitable in the scenario application of DePIN.

From a technical perspective, the main technologies of blockchain are decentralization and smart contracts. The famous impossible triangle shows that everything has two sides, so blockchain as a new technology must have its own limitations in terms of application. With the development of blockchain technology for so many years, its volume has not yet achieved a truly exponential expansion. From the perspective of the evolution of the Internet industry, a more humane, easy-to-use, and more practical technology and product can burst out amazing power and achieve an exponential breakthrough in scale. This is why Abstract and Intent should become a core focus.

As digital gold, BTCs space and scale will continue to expand, but it does not mean that blockchain will grow proportionally with it. At present, the ceiling of DeFi, an innovative financial track, has begun to emerge. Blockchain needs to seek breakthroughs in real industries, apply blockchain technology to real industries, provide technical services for real businesses, and solve specific problems that can be solved by technical advantages. On this basis, the existing DeFi content can be integrated to create more wealth effects. In addition, for the future of AI, we seek the combination of machines and systems in business scenarios, and use the technical characteristics of blockchain to solve accounting and settlement needs.

The market in July seems to be even more disappointing. Facing the market environment, we may be at a loss. But I believe that whether it is the traditional world or the crypto industry, there are some technologies and products that can give hope. The market has stagnation, but once technology is turned on, it will never stop unless it is eliminated. The only thing we can do is to follow the pace of technology, continue to learn and improve, step into every field of need together, and quietly change the world. We always believe that technology is for good, and technology and business make human life better.

Sources
( 1 ) Ben Bernanke and Olivier Blanchard ( 2023). What Caused the US Pandemic-Era Inflation?
( 2 ) US Bureau of Labor Statistics. Consumer Price Index. 2024.
( 3 ) US Bureau of Labor Statistics. Non-farm employment data. 2024

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