EthCC News: Market makers are not sitting back and relax; popular narratives are not the same as popular fields

Original translation arrangement: Ismay, BlockBeats

Crypto.com Capital member Tommy

This article summarizes insights into the current state of the industry, from the dominance of infrastructure projects, to the waning interest of venture capital in high-valuation early round investments, to changes in market narratives and increased competition among market makers, as well as future market catalysts such as ETH ETFs, elections, and interest rate changes, providing a panoramic observation and analysis. These insights not only reveal the current state of the industry, but also provide deep thinking and foresight for future development trends.

During @EthCC, I spent most of my time communicating 1-on-1 with developers, VCs, and market makers. Here are my reflections on the current state of the industry:

Blame the games, not the players

“We love consumer, but 90% of the deals we closed this year were infrastructure.”

I hear a lot of developers and VCs say we have too many people building infrastructure, but too few consumer apps that actually have users.

Most VCs I’ve spoken to have expressed interest in consumer dApps, but recent funding announcements show that the funding market is still dominated by infrastructure deals.

This is a vicious cycle that is hard to blame on any single stakeholder:

Projects and VCs want to be listed on the largest CEXs and get good liquidity

CEXs want to list projects that can provide good incentives to users through marketing campaigns (high FDV) and top backers

Infrastructure projects have higher valuation premiums due to the resources required to build, so more capital flows into infrastructure projects, forming this cycle.

VCs lose interest in high FDV early round investments

Valuations have risen significantly since Q4 last year. Many private/Series A valuations are over $1 billion FDV, especially for AI-related projects.

On the other hand, most recent major launches have been disappointing ($BLAST at <2bn; $ZK and $W at $3bn; $ZRO at $4bn). The overall altcoin market is weak, and many VC-backed projects have FDVs below their last private round.

In the current market environment, the chances of VCs getting 50-100x returns are almost impossible. Not to mention that VCs also have to face lock-up periods (about 1 year lock-up + 2-3 years vesting). These projects may need to survive the next bear market and compete with many new projects that will grab market share due to the short-term attention of the industry.

Therefore, more VCs are looking for liquidity strategies (if their mandates allow), or OTC transactions at a significant discount to the last round valuation (or current FDV if trading). For VCs with more resources, they are incubating projects founded by their former employees to ensure that they are the earliest investors with higher potential returns.

Many VC analysts/research partners are turning to become emerging L1/L2 ecosystem/BD, or starting their own projects. Compared with investing, working on projects seems to have a higher expected value. One advantage is to use their experience/relationships to raise funds for the projects they work on, because they know what VCs like to hear/care about.

In addition, the poor performance of altcoins has led to a low Distributed to Paid-In Capital (DPI) ratio for LP funds, and it will be difficult to raise new funds if a strong track record cannot be provided. Some funds have already spent most of their capital on transactions last year, and even if attractive investment opportunities appear now, they do not have funds to deploy.

Old wine in new bottles

Narratives that did not gain attention as expected are repackaged as new ones. Intent was once a hot topic, but was quickly replaced by DA, re-staking, etc.

Many projects now label themselves as "chain abstraction" or even "AI" for Intent-based projects that embed some kind of LLM or algorithmic elements.

In addition, most DePin projects have added "AI" to their branding strategy to attract VC attention.

These security tokenization projects similar to the previous cycle have become RWAs in this cycle.

I think there is nothing wrong with repackaging, and it is not easy to find a narrative that the market accepts. However, the market is still waiting for the next new narrative that is not repackaged from the old narrative.

Not all narratives are "investable"

There is a difference between hot narratives and hot fields.

Account abstraction is a hot narrative, and it is an excellent tool for providing a better user experience. But this is not a field, it is a function that will be embedded in different use cases (from wallets to games, from DeFi to SocialFi). You still need a product to sell, that is, it is impossible for a project to claim "We do account abstraction", but "We created an AA wallet", "Games with AA functions", etc.

Simply chasing narratives without analyzing which space (product) is dangerous, and for VCs, you may invest in the hottest narratives in the wrong space.

Market Makers Are Not Silent

Obviously, market making is a profitable business, but since some US players have exited the market due to regulatory issues, the industry has become more competitive and new players are entering the game.

Some market makers race to the bottom to win deals. In the options model (the model preferred by most MMs), MMs get token loans from project teams for quotes, and they need to put up stablecoins for bidding. This is either capital intensive (if they use their own balance sheet) or costly (if they borrow from somewhere else and pay interest). The options model is not "cost-free" for MMs.

To win deals, you need: i) relationships and reputation, ii) attractiveness of the proposal, and iii) providing value-added services to customers.

Project teams are also becoming more aware of different market makers, so the transparency advantage that market makers have in negotiations is disappearing, driving a more competitive market.

Market Catalysts (ETFs, Elections, Interest Rates)

Most people are waiting for the ETH ETF to go live, hoping to see price action similar to that seen after the BTC ETF.

Unlike the BTC ETF, some hope that the ETH ETF will be a stronger catalyst for Ethereum-related (I refuse to use the word “aligned”) altcoins.

There are also expectations that after ETH, we’ll have more altcoin ETFs approved (maybe the SOL ETF is next?)

If more altcoin ETFs are approved, the ultimate goal of the project will be to get ETF approval, rather than a Tier 1 CEX listing, which can completely change the sentiment of the old coins if they have the potential to become ETFs.

Another catalyst that people are looking forward to is the US election, hoping for a more crypto-friendly policymaker.

One rate cut is expected this year and further rate cuts in 2025, which will bring more liquidity to cryptocurrencies.

Although the current market conditions are somewhat bleak, most people are optimistic about the prospects for the next 2-3 quarters, and the mood is to remain calm, not too aggressive, but full of optimism.

「 Original link 」

Blockworks Research researcher magic

Bully on AMM

I am resolute in my extremely bullish stance on AMMs. They are the only DeFi applications that build new games and incentives on existing traditional financial market structures. For all LOB (limit order book) enthusiasts, traditional finance is your ceiling, and AMMs take finance to a whole new level and benefit from all the extra properties of blockchain.

Cross-chain intention-centric infrastructure is developing

Cross-chain intention-centric (or call it whatever you like) infrastructure is surging in the background, and the solver network is becoming more and more complex. The transaction supply chain is moving off-chain and/or paying for Ethereum's security. In my opinion, cross-chain intention-centric infrastructure + solver network + rollup-centric future will eventually lead to AMM self-built chain.

About Ethereum

There are efforts to disaggregate the builder market on Ethereum, and while we don’t know what additional value commitment play might unlock (e.g. block space future), I still can’t imagine a return to a MEV-boost (maximum extractable value) type of situation where “build my most valuable block”, there’s a chance to look at additional value unlocks like impermanent loss or commitments.

Why does stake always end up concentrating on validators who say “commit to or include transactions that build my most valuable block”? If you have some thoughts or answers, feel free to comment.

I unfortunately missed a lot of the content about Flashbots’ new rust builder, and didn’t participate in the TEE (trusted execution environment) discussion. I feel like there’s more to discuss here, as they’re solving the fundamental problem, which is information flow control (which I think is the topic).

About MEV

While there has been a ton of talk about more infrastructure and MEV plays, there has been little to no talk of fundamentals. On-chain spreads are wide, which means the possible set of solver paths (and therefore MEV) is smaller than if the spreads were tighter, or limited by a lack of coin fundamentals. Ultimately, it comes down to who is providing liquidity and why.

I think there is a huge opportunity to build fundamentals. To me, that means protocols and their DAOs are aligned on a business model that drives revenue and value and/or liquidity back into their governance tokens. (This is what I will be focusing on. In particular, I am interested in working with DAOs to identify their revenue drivers and provide relevant economic analysis — with the goal of providing valuable information for governance).

Bullshit on Preconfirmations

I am bullish on preconfirmations, and the market is bearish on preconfirmations. Adding more complexity and trust to the base layer is a roundabout way to reduce block times or adopt new consensus mechanisms. That said, I am bullish on rollup sequencers and other off-protocol infrastructure (like primev or espresso) because they can provide preconfirmations to users (always good for UX) without adding complexity to the base layer.

In general, the trend of execution moving off-chain is clear. I don't know how this will play out. Any random thoughts on some updated discussions on base layer consensus? And Ethereum's propensity to be the most secure DAO?

Conclusion

To summarize, even though Ethereum feels very decentralized (because I spend all my time on side activities because the content there is more valuable), there are still too many very smart people building on Ethereum to ignore this.

That said, if I were a trader, I feel like the explosive growth is over. There are some very interesting projects that just raised money, and Solana continues to be a very attractive place to apply what we've learned on Ethereum. Both offer new places to build applications and appear to be better growth opportunities. This doesn't mean ETH won't still benefit from ETF inflows, but I don't know how much value their long-term signals have compared to the core issues that need to be solved.

Also, I think rollups will become very attractive as sorters unlock the MEV (maximum extractable value) beast. Time acceleration is bullish, and performance will depend on the ability of the DAO to expand the ecosystem and return value to the protocol.

「 Original link 」

Chinese KOL Xiaojiang

1/The public chain is dead, and the era of large-scale infrastructure construction is over. No one is willing to pay for projects without a business model and without considering landing. Retail investors shout Anti-VC, while VCs complain that the valuation is too high, and they are also victims.
This is a benign process of self-cleaning, which is painful but beneficial. No one knows how long it will take. The best choice for ordinary people is to buy some US stocks.

2/In this event, Solana is more like a mysterious organization. Solana has no public activities at ETHCC, and it is more invitation-based and conducted in secret. For Asian developers, how to integrate into the Solana ecosystem is a big issue. This year's Breakpoint will be held in Singapore, which shows that the Solana ecosystem attaches great importance to Asia. If you are a Solana developer, don't miss this opportunity.

3/Speaking of the community, the rise of SHEFI has brought a better taste to WEB3. I saw many powerful women at this conference. Without women, WEB3 is just a pure financial market wrapped in a technological shell. Women have brought more art, culture and humanistic care to WEB3. They are more concerned about the growth of projects rather than financial plunder. It is recommended that developers communicate more with female founders, as their perspectives are much clearer than those of men in the circle.

4/Pay attention to those old coins whose market value has returned to the last bull market. For a coin to come back to life, there must be a complex network of relationships behind it. An anti-fragile ecosystem is a good system. It is important to realize that the world is a makeshift team, and the probability of making money is very small. Cherish your attention and focus on important things.

5/The gap between the East and the West is getting bigger and bigger. When Bitcoin was 60,000, people's thoughts returned to the confusion of the ICO era 6 years ago: What can blockchain do? It is normal to be confused. The most fascinating thing about blockchain is that it is a complex system. Countless people are contributing code to it. There are always people we don’t know building it in some corner of the world.

「 Original link 」

欢迎加入律动 BlockBeats 官方社群：

Telegram 订阅群： https://t.me/theblockbeats

Telegram 交流群： https://t.me/BlockBeats_App

Twitter 官方账号： https://twitter.com/BlockBeatsAsia