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Bankless Nation, welcome to the 2024 edition of Crypto™!
2023 started with some of the most bearish sentiments our space had ever experienced, and it concluded with one of the most bullish setups we've ever seen.
As we enter this 2024 bull market with a fresh second wind, it's time to spotlight some key investment themes poised to shape the new year. Stay ahead of the curve by understanding these six narrative metas set to dominate in the months ahead! 👇
1️⃣ Restaking and Liquid Restaking Tokens (LRTs)
The restaking meta is already getting loud, and EigenLayer hasn't even hit mainnet yet. With over $1B deposited into the EigenLayer contracts today, the jostling to become a significant player in the EigenLayer ecosystem has already produced fierce competition.
As such, the Liquid Staking Token (LST) wars are about to be restarted again, but this time, it'll be the LRT wars. Liquid Restaking Tokens will have all the yields of native ETH staking plus the extra yields produced by adding restaking networks. Why would someone settle for 5% LST yields when they can get more with LRT yields?
What are LRTs, you ask? They're just like LSTs but have the yields produced from EigenLayer baked inside the token. EigenLayer enables AVS (Actively Validated Services, i.e. EigenLayer networks), which all produce some yield or fees for people who restake their ETH to them. People who restake will likely restake to a plurality of AVS to maximize their staked ETH's productivity and increase their yields.
That said, producing a service that does this safely and efficiently will be valuable for the less technical users like me who know that others can do it better. And this is where LRTs come in. LRTs aggregate user deposits, restake them across EigenLayer networks, capture all the yield, and pass it along to the depositors.
Pretty compelling! Yet beyond the fundamental utility here, one of the reasons why I think 2024 is going to start with an LRT boom is because the latest airdrop wave meta has already kicked in. Amid this massive flurry of interest and activity, LRT projects are "double-whammy," two-for-one airdrop hunting opportunities. For example, Swell is currently offering their "Pearls," which I assume are placeholder points for the eventual Swell token, on top of EigenLayer points, which I presume are placeholders, too.
Frankly, I think EigenLayer is setting up to be one of the largest airdrops of all time, and the competition to become the dominant LRT token in Ethereum will be as hot as the competition to become the dominant LST token was.
Admittedly, I am not familiar with all the LRT strategies from all the current LRT teams. Here, I will leave you to do your own due diligence. However, there are two projects that I'm paying attention to because I am close with the teams from either investing as an angel, or investing through Bankless Ventures, which are Puffer and Swell as mentioned earlier.
Notably, Puffer has a unique advantage from their work with SGX—extra slashing protection—as an extra layer of defense against capital loss. This mechanism, along with Puffer's collaboration with Justin Drake on Smoothing Commitments and with Andrew Miller from Flashbots on Remote Attestations, positions the project to unlock efficiencies and opportunities that other LRTs may have to play catch up with.
And as for Swell, it was an LST project that pivoted into Liquid Restaking when they saw the writing on the wall. With ETH TVL in its system when EigenLayer opened up its doors for deposits, Swell was already near the front of the competition. Now, Swell is #1 out of the LRT projects with deposits in EigenLayer and is #2 in LST deposits behind Lido.
Yet there are a handful of projects worth keeping an eye on in this scene right now, including:
Don't get caught dozing here then, track the action going forward with this great EigenLayer Dune dashboard that surveys its LRT battlefield at any given time.
Disclaimer: Ryan and I are advisers to EigenLayer and angel investors in Swell Network. Bankless Ventures is an investor in Puffer.
Is the meta now "Bitcoin, Ethereum… and Solana?"
Solana is massively hyped at the moment. That's what happens when a coin goes up 900% in a year. It's attracted the capital and attention of VCs anew as well as emboldened the community who believed in it before it was cool again.
To be sure, the launch of Jito just sparked a version of Ethereum's 2020 DeFi summer on Solana, and now it's clear that the network's app layer has risen from the ashes of the 2022-23 bear market.
With Solana's SOL having just entered the top 5 crypto assets accordingly, all eyes are on Solana to see if it can do what all its biggest supporters think it can do: be the most likely place to host breakout consumer crypto applications in this incoming bull market.
Suppose Solana is going to fulfill its potential here. In that case, it will need to attract more novel founders who build more novel applications that are not just shinier versions of the same thing that Ethereum already has. Solana will need to produce new types of apps that crypto has not yet seen before, uniquely enabled by the properties the network offers.
DePIN seems to be the early standout contender category here. However, I think the jury is still out as to whether there is any substance here. We'll see, though, and the sector's worth tracking closely in the meantime either way.
Meanwhile, plenty of tokenless Solana protocols are still left to airdrop their tokens in 2024, which means, at the very least, hype and attention will remain on Solana until they do. Whether Solana can retain its spotlight after its version of DeFi Summer is over remains to be seen.
Internally, the attention in Solana has turned towards its economics. With some of Solana's hardest problems in the rearview mirror, it's now time to turn to the next lowest-hanging fruit in the project, which is its native fee markets and overall economic structure. Can Solana fix its economics? Only time will tell, but its community likes its chances more than ever.
Gaming seems to be the surest category for a breakout crypto application in the near future. Mainly because we know that many highly-anticipated games are in development right now, and some of them will be coming to market in 2024.
If the games are fun, gamers will play them. If game developers know what they're doing, they will tastefully introduce crypto elements as needed and not have them as overwhelming elements of the game. Gaming content is a massive industry in itself, and the distribution that crypto will be able to access via the gaming sector is massive.
The best thing about the contemporary crypto gaming sector is how it is being shifted away from an explicit focus on crypto-native players. Many of these new games are being built for people who are crypto-agnostic.
This shift puts our space in striking distance of one of the largest demographics on the planet, as there are currently around 3.2 BILLION gamers globally. If we can build a game that attracts the crypto-agnostic, it will be among the first breakout examples of crypto offering something for those who don't care about crypto.
In the meantime, look at gaming ecosystems like Immutable and its IMX token as a proxy for excitement here. Immutable, which is working on a gaming-specific zkEVM chain built on Polygon, currently has a higher valuation than Arbitrum!
4️⃣ DA Wars
The Data Availability wars have also begun, and the starting pistol was the one-two punch of the TIA airdrop at a $2B valuation, followed by an up-only chart straight to $14B FDV.
Why is everyone obsessing over Data Availability now, then? Stay tuned for an upcoming Bankless podcast episode with Jon Charbannou and Neel Somani where we dive deep into the question: "Is DA a good business model?" You won't want to miss it!
That said, it's fair to assume that DA is like the bandwidth stratum of Web3, and cheap DA layers will take crypto from slow and expensive to fast, cheap, and plentiful without sacrificing decentralization along the way. Indeed, DA is the main bottleneck preventing chains from taking off the brakes around their resource costs and throughput levels. As such, whatever DA chains can rise to meet these needs can see long-term sustainable value flows in the cryptoeconomy.
My eyes are on the upcoming launch of EigenDA, EigenLayer's first AVS to come online, which will be the first additional source of yield going into the LRT tokens I mentioned earlier.
EigenDA is constructed differently from Celestia and has some unique properties as a network. To learn more about that, listen to my recent episode with Sreeram and Teddy from EigenLayer. Since EigenDA is secured by staked ETH and not an alternative L1, this makes the DA properties of EigenDA more proximate to Ethereum, reducing some security assumptions and perhaps making it an easier choice for rollups who still need more DA than what the Ethereum L1 can offer.
Celestia and EigenDA are the two leading contenders here right now, but others are also entering the DA wars. For example, NEAR has added DA capabilities to its chain, which also has some unique properties due to the sharding research that NEAR has done over the last few years. I am sure there are more that I have yet to hear of, or that are in stealth, which will come to market in 2024 since the bounty for the DA race is now so large.
5️⃣ Parallelized EVMs
Solana has induced an urgency in building out optimized VMs for Web3. I asked Solana founder Anatoly Yakovenko on a recent episode, "What is the most critical component of Solana," to which he replied: "The parallelization of the SVM." This unique property that Solana brought to market is the ability for multiple transactions to be processed at once, so long as the transactions aren't touching the same state as each other.
This is a huge strength of the SVM and a big weakness of the EVM. And now the parallel VM wars are being fought both on Ethereum L2s and on new L1s. For instance, the Eclipse project is taking the SVM and building a rollup that settles on Ethereum (using Celestia for DA), and it's not the only one doing this.
Monad is another project that's been working on parallelizing the EVM for a while now. Rebuilding the EVM to go from single-threaded to multi-threaded is no easy task, but the rewards for successful execution here are large. Imagine Solana's scale, speed, and inexpensiveness but with Ethereum's ecosystem. Monad is going for bytecode equivalence of the EVM, meaning that any bit of code that's ever been written inside of the EVM environment can immediately port over to Monad without cost.
The "Solana's speed but Ethereum's distribution" strategy is being identified by more than just Monad and Eclipse. This strategy has also been embraced by Sei, as demonstrated in their recent pivot announcement to becoming a parallelized EVM chain.
Take note, as I started writing this article in December, and since then SEI's price has exploded as people have piled onto this narrative faster than I saw coming. Since Monad isn't live, SEI has been the only way to gain readily exposure to the parallelized EVM narrative, and thus its token has appreciated accordingly.
While Monad seems intent on remaining as an independent L1, I predict that the Monad EVM is going to become a target for EVM alternatives on Ethereum L2s. If Monad open-sources its EVM, it's going to be a very hot piece of software for Web3. It may also be a viable strategy for Monad to do both an ETH L2 in parallel to its independent L1 to make sure it's filling the competitive landscape as much as possible.
I had a conversation with Ansgar last November, in which he expressed interest in L2s finding a new VM spec to design around, one that is far more optimized for execution than simply reproducing the L1 EVM as an L2. The thought process is if we can find a better virtual machine for L2s that is more execution optimized, we can rally L2s to use that as the standard rather than the traditional (and slow) EVM. This shift would take coordination, but it would vastly improve the Ethereum L2 space.
My very safe prediction for 2024 is that $2B will be airdropped into users' hands. EigenLayer might even achieve that just by itself.
Airdrops weren't new in 2021, but the retroactive Uniswap airdrop did trigger a new paradigm of what airdrops meant and how apps can leverage them. Fast forward to today, and some of the biggest projects in the space have been fine-tuning their token launch plans for years.
Now, then, it's time for action. For example, StarkNet and LayerZero both recently confirmed their upcoming token launches, and I expect both of these to happen in Q1 2024.
These airdrops will force the hand of others to hasten their tokens, too. Once the full momentum of a new airdrop season begins, it will be hard to stop. After all the majors drop their tokens and place billions into users' hands, you'll have the follow-ons quickly develop their "app" and ship their "tokens" to catch the wave.
Once this happens, you'll know that we're approaching peak levels of froth and it's time to begin selling, not buying. Be careful out there. The trap of airdrop farming will likely pull much of your capital in to maximize gains, but this will occur at a time in which it is rational to be pulling your capital out.
Alameda, for example, began their operations with 0-risk bitcoin arbitrages across exchanges, and as the bull market progressed, ended up fully levered in illiquid shitcoins. You want to do the opposite. You want to start fully levered in illiquid shitcoins, and then sell into dollars, BTC, ETH, and other risk-off positions as the bull market progresses.
If you don't know where to start optimizing your 2024 airdrop gains, use the Bankless Airdrop Hunter! Hunters > Farmers. Airdrops want real users, and the Bankless Airdrop Hunter helps you both learn how to use crypto (safely!) while optimizing your chances of getting an airdrop. We've built it perfectly in time for these new opportunities, now's your chance!
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