2024 Crypto Investment Themes

Bankless Nation, welcome to 2024. And on the first Bankless Takes of the year, we have six predictions, six investment themes that we think are going to define the meta for the rest of the year, maybe into 2025. But from what we can see today, at least is already setting in place some six different investment themes that we are going to watch develop over the years. Ryan, how's your holidays?

Oh, it's good, man. I have a little bit of COVID. So if uh

Yeah.

listeners,

COVID.

if listeners hear the present from the family in my voice. Yeah, uh a parting present. But David, I'm excited to start 2024 on this first episode of the year. And

these predictions are curated by you yourself, or these investment themes, I should say. So um I've gotten a chance to look at them at a high level. I think I'm gonna need your help to uh to get us through this. Do you want to get in?

Absolutely. And if you've been a content consumer in crypto, you know that every single content producer that exists in crypto has put out their predictions for 2024. Whether you're a writer or a podcaster, you have your prediction. This is a that is a little bit of uh a meta, an aggregator, because I've been reviewing all of those and also putting my own spin into these. And this is also an article that I wrote. It came out uh yesterday on bankless, um, bankless.com. You can read it at bankless.com.

Slash 2024 hyphen crypto hyphen metas. Um, but we will also uh regurgitate that content for you here on the podcast. Six different ones uh all across the space, both inside of Ethereum and outside of Ethereum. Uh and so we're gonna get right into all of these metas, these six different metas that will define 2024. But first, I want to talk about some of these fantastic sponsors

that make this show possible.

So we have six crypto investment themes for 2024. And uh let's take these one by one. So let's start with the first one, David. So last year was a big breakout year for LSTs. That was liquid staking tokens. This year, a major investment theme is restaking and LRTs. That's liquid restaking tokens. That's what you're saying here. Tell me about this, David. Why is this a theme going into your?

This theme begins with Eigenlayer, who of course brought restaking into crypto at all. Now, there's already Eigenlayer kind of copycats, there's an Eigenlayer on Bitcoin, there's an Eigenlayer on the multi chain, but really Eigenlayer itself has kind of dominated the narrative.

Right in the last week, or maybe week before, yeah, the week before Christmas, one billion dollars of TVL was hit by Eigenlayer.

Uh and the caps that uh Eigenlayer has the liquid staking token caps, uh every single liquid staking token has a limit as to how much can be deposited into Eigenlayer just as a safety precaution, keeps getting hit over and over and over again. The most recent cap that was raised just a couple weeks ago was hit yesterday.

Wait, wait, what do you mean by that? What do you mean by that? So it's like uh ST ETH has a cap of how much ST ETH that that is LIGO LIDO's um staked ETH, how much Lido staked ETH you can put in Eigenlayer right now, and R ETH has a similar cap. That's what you mean by by cap. And Eigenlayer is in self imposing this cap,

uh, I believe, just because it doesn't want to grow too fast, too quickly. It's still in kind of an early form, like call it like a beta type form. Is that what you mean by these caps?

That's exactly right. And the caps for kind of the longer tail liquid staking tokens are lower than the Lido cap. But every everything that is a liquid staking token has a cap. Lido is the largest, the next largest deposit into Eigenlayer is Swell, and then Rocket Pool as well, Coinbase. But all of these individual liquid stake tokens has a limit on them. Ether, vanilla ether has no limit. So you can deposit as much ether into Eigenlayer to farm Eigenlayer points, which is kind of where this whole investment narrative starts is Eigenlayer Airdrop, the Eigenlayer Airdrop, starting with Eigenlayer points. And if you deposit Ether into Eigenlayer, you get Eigenlayer points. If you deposit liquid staking tokens into Eigenlayer, you also get Eigenlayer points. But you are probably also farming the liquid restaking token of the system that you are depositing into. So for example, if you are depositing into Eigenlayer via Swell or via Stakewise or via any of these other, like Stator, for example, you are you can also farm the liquid restaking token that comes as well. And this is why one of the major themes, the last major theme that we'll talk about, Ryan, is airdrops. But we'll get to that one. Right now, Eigenlayer is the dual airdrop farm.

Because everyone is very hyped on restaking, but you are also able to farm two airdrops at once, the eigenlayer drop, which everyone's excited about, and also a specific liquid restaking token that is entering the competition to ultimately replace liquid staking tokens, to replace Rocket Pool, to replace Lido, because this game board for liquid restaking tokens is brand new. It's a brand new fight. It's a brand new fight for TVL and attention and liquidity. And all of the wars of LST that were so hot in 2021 and 2022

are about to restart over again with liquid restaking tokens.

Okay, okay. So I think we need two points of clarification here. Is one, could you just reset? Why are people putting tokens in eigenlayer to begin with? Like what's the entire what like what's the point? So you you're you were kind of um talking a bit more and emphasizing maybe a bit more uh airdrop farming and and kind of um that sort of use case. But of course, that is kind of a speculative use case that is uh to bootstrap the network, that sort of thing. But what is the end reason for why people are actually depositing tokens into Eigenlayer? What does Eigenlayer do?

Right. Eigenlayer restaking networks are an additional source of yield to deposited capital. And technically, that capital can be anything, but for right now, it is just ether. If you want to explore why just ether, we recently did an episode with Sri Ram with Mike Newter a couple weeks ago. That's already out. And so that answers in that episode. But really, you have Ether staking and the yields from ETH staking. And this is the world, the arena of liquid staking tokens that we all know, you know, R ETH, ST ETH from LIDEL, et cetera.

We are now entering the world of liquid re staking tokens. And for all of the re staking networks that Eigenlayer enables, which is the point of Eigenlayer.

There is additional yield that comes from the fees or inflation from these networks that get imbued into the liquid restaking token. So the first restaking network that's going to come online is Eigen DA, a data availability network. And there are going to be fees from roll ups or from really anyone who wants to use and consume Eigen DA's data availability. Those fees for that service will be paid into the liquid restaking token. And so you have the stake, the yield from ETH staking. You also have the fees going to Eigen DA.

And then, you know, for any other, what is called an AVS actively validated service, which is what Eigen DA is, it's what a resaking network is. For any other Eigenlayer network, AVS, that generates yield, these liquid resaking tokens will secure those networks and capture those yields and deposit them into the liquid restaking tokens. So liquid resaking tokens are ether.

The yield from ETH staking and the fees from all Eigenlayer networks that that particular liquid restaking token provides security for. So it's simply just more yield. And we all we all love yield in crypto. It's ether denominated yield, it's ether capital as a deposit. And also it's combined with these double airdrop farms of Eigenlayer and the specific liquid restaking token project that is working in this arena. So I think it's the um an aligning of a handful of stars that are all putting eigenlayer and liquid restaking tokens into the narrative in 2024.

Okay, and I should mention, of course, uh with any yield, there is uh also risk associated with that. Uh nothing free, right? So um that's a note that thankless listeners should always be aware of. Whenever you see yield, it's really about your uh risk adjusted return. And you have to factor smart contract risk, the risk of being slashed by all these various protocols. But let me let me try to make sense of that. So what Eigenlayer essentially does is it takes a monetary unit like Ether,

and um it uses in the in say in the same way the Ethereum network uses ETH staked ETH as a bond.

to secure the entire Ethereum network. Eigenlayer is basically saying now you can use Ether and kind of the validator set of Ethereum to secure other applications. And Eigenlayer DA is a data availability application that Eigenlayer has kind of developed in-house.

And that's one of the first applications on top of the Eigenlayer network. But there will be more in the future. You can imagine entire like chain link style Oracle networks launched on top of Eigenlayer. You can imagine entire kind of like, I don't know if uh we should call them rollups, but sort of chains that are economically secured by ETH in in in kind of a different way than a rollup is. So an entire roll-up, maybe secured by Eigenlayer as an app. All of these various apps, these are the AVSs uh that you mentioned. Um and so AVS stands for what active validator. Actively

validated service which is kind of a complicated name it's really just a resaking

it's an Eigenlayer app. We just call it an Eigenlayer app. A restaking app. Okay. And so that's what's happening. And then just clear clarify this. Uh so what is the difference between a liquid staking token like STET?

and R ETH, these are liquid staking tokens, we're all familiar with that.

And a liquid restaking token. Is it just that you just take a liquid staking token, you take an R ETH and you stake it again, and then it becomes a liquid uh restaking token? Is that basically it?

yeah that's basically it so think of it as a set of concentric circles where at the very center you have vanilla ether

And one more concentric circle out, you have staked ether, either staked ether from Lido, staked ether from Rocket Pool. You could also solo stake, and you get the yields baked into the liquid staking token baked into that. And so now we're two concentric circles out, you know, ether, liquid staking tokens. And now with Eigenlayer, you get one more concentric circle out, which is liquid re-staking tokens. So inside of a liquid restaking token, you also have the yield from staking,

also get the yields from actively validated services in Eigenlayer. Now you can go to eigenlayer.com and check out all the AVSs that are either online or coming to be online. There's um, I think uh about 15 that are um on the website, but there are many, many more.

in stealth, uh still working on theirs their systems.

The amount of yield coming out of these things, we are unsure of. We it's still kind of an unknown metric. Um, it'll be a combination of network inflation, which we know is can be significant historically, uh, and then also fees from actually payments for these services, which I think is the largest unknown. We don't really know how large these fees can get. I would guess it's going to be uh a much less uh amount of yield in in comparison to network inflation. Um so there's still some numbers that are still to be to be determined here. Ryan, you talked about the risks of slashing and the risks of restaking. And that is definitely a very important theme that I think is going to differentiate certain uh liquid restaking token teams. There are many different reasons as to why a liquid restaking token team will win or lose this game, but really the game is ultimately defined as maximizing exposure while minimizing risk.

Can you maximize your liquid restaking token to every single restaking network and capture all of the inflation and all of the yield and bake that into your liquid restaking token? And can you do that earlier than the other teams while also minimizing risk? And so the event of getting slashed if you are a restaking network because you are providing these actively validated services is significant because A, you're losing capital, but you're also losing trust. So this is kind of how I think this game will win. There's the classic like there needs to be BD efforts, there needs to be integrations, there needs to be partnerships, but really the liquid restaking game will be won by maximizing exposure to AVSs and then minimizing risk.

And the reason this is a big deal is from a supply-demand perspective. I guess from a supply perspective, there's a lot of ETH out there. There's a lot of staked ETH out there in search of yields. So this is another use case for ETH kind of as the internet bond to secure non-ethereum networks, non-ethereum applications as well, which is kind of novel. And that's on the supply side. I guess on the demand side, it will really be a function of how many networks, how many applications uh require ETH or or can benefit from the economic security of Ether. Rather than I suppose bootstrapping their own token, you kind of use uh Ethereum's validator and and and uh ether as a monetary asset to bootstrap your network security. I guess that's on the uh the demand side of things. How many of these applications will really

um like really take off. It seems like DA, I know that's another point that we'll get to, but DA, Eigenlayer DA in and of itself might be a huge catalyst for demand here, but um there could be others. And I guess Eigenlayer is waiting for its breakout app.

Now, Eigenlayer is not the only restaking protocol. It's probably the most well known and the biggest, but are there others as well, David?

Not natively on Ethereum, and in my opinion, not having access to the capital of Ether makes other restaking networks not as interesting. Um, but that's always, you know, my perspective. That would probably come as no surprise to listeners. Uh, there is Babylon on Bitcoin. So Bitcoin restaking is a thing. There's another one, I'm forgetting the name, but it's more in like the multi-chain, multi-layer one ecosystem. Um, and really, like, there's actually no reason why Ether needs to be the enshrined asset of choice um inside of Eigenlayer, except for just the monetary network of ETH. Of my ETH is money as money like properties. It has a high market cap. Again, we talked about this point specifically in the episode I did with Mike Newter and uh and Stre Rom from Eigenlayer. So go listen to that most more recent episode uh that we put out on the Bankless Podcast feed. Um, there's also just one of the reasons why I know this is a big theme going uh into 2024 is the sheer number of teams that are going after this. I've heard reports of up to 15 liquid restaking teams. I haven't been able to categorize them all, but just like Puffer Finance, Rio Restaking, EtherFi, Swell Network, Ender Protocol, Kelp Dow, Renzo Protocol, Restake Finance. The number of teams is like large because everyone is kind of saying, like, oh, this is uh another shot at winning what was the liquid staking token game, but that game has kind of been won by Lido. It's hard to dethrone Lido at this point. But Lido is not in their liquid restaking game. Uh, and so it's an open playing field and everyone's very, very hungry. And so this is why I think it's a theme for for.

Why isn't Lido in the liquid restaking game? They kind of are, but they're not doing the AVSs, they're not doing the Eigenlayer applications directly. I mean, but um you can put

uh ST ETH inside of Eigenlayer, correct?

Correct. Yeah, you can put STETH inside of number of these applications. Uh so kelp DAO, for example, uh you can put Lido staked ETH into Kelp DAO along with uh Stator ETH, XETH into Kelp DAO. Uh and you can use both because they are retaining tokens.

It's it's one of the 15 liquid resiking token projects uh that exist out there. Uh and so yeah, so these some of these things have their own liquid staking tokens. So like Swell Network, for example, uh disclosure, Brian and I are angel investors, they are more vertically integrated because they have uh SW ETH.

But they are also one of the earliest teams to pivot into liquid restaking. And so they're more vertically integrated, whereas Kelp Dow isn't doing their own LST, but they are aggregating other LSTs into their LRT. So there's a number of ways, different permutations to build these systems. But the end product is a liquid restaking token, which will have more yield than liquid staking tokens. And it's going to be a fight for integrations into DeFi

and just more liquidity and market makers. And, you know, eventually there's only so much capital to go around. So that's where all of these teams are going to be competing on. And it's going to be hot. I really like it because it's just like a dual yield farming opportunity. And so like I'm farming one of these airdrops and uh it's it's nice because you get eigenlayer points and you get the LRT points, and it's just extra dopamine, you know.

Yeah, no, I this has all of the I guess the setup to be an investment theme uh for next year. I I can understand why you picked it. We've got teams developing in the space. We've got kind of a new base protocol that is sort of net new, hasn't been tried before, right? It's kind of like uh, you know, using the economic security of a and the validator set of a network like Ethereum and applying that to other networks and other applications. That's novel, that's new. Also has the yield side of things, also has the airdrop hunting side of things. So I can see why this makes your list. Uh so restaking, okay, and liquid restaking tokens. That's number one. David, let's go to number two. This is uh Solana. Tell me a bit about Solana. Why did it make your list of uh investment themes?

Uh well it kind of had to. I my hand was forced here. Uh the big question is, is the meta now Bitcoin, Ethereum?

And Solana. Is that the new question? Is that is Solana now a blue chip? Is now number six or number five in total crypto market cap. So it's pretty far out there. Uh and Solana has absolutely won Q2 or Q3 and Q4 of 2023. I think now kind of the question, now that Solana has been like repriced significantly, doing like a 9X when Ether did a 2X in 2023 and Bitcoin did a 3X. Now Solana, you know, it's come back from the grave. It's come back from the beating of FTX. Now that's in its rear review mirror. The Lido airdrop has awoken Solana's version of a DeFi summer.

And so now the question is like, can Solana follow through on this top five market cap valuation that it's that it's got itself?

Um people are speculating that it can. Um, in my opinion, if Solana wants to achieve its dreams, it needs to enable unique and novel applications that would be impossible to build anywhere else.

Right. So like right now we have like a very popular application on Solana is Jupyter and it's a DEX. And there's another popular application on Solana called MarginFi, and it's like a margin uh collateralized lending and margin position. Um Jito is you know flashbots plus Lido. These are all things that we have on Ethereum. And so they're important DeFi financial primitives, and Solana needs them, and now they they do have them. But in my opinion, Solana, in order to follow through on its newly discovered valuation, it needs to enable new categories of apps that cannot be built anywhere else. It can't just be a microcosm of Ethereum. People are calling what's going on in Solana right now Solana's version of DeFi Summer, which is necessary, but it's not novel. It's not new. Um DPIN, decentralized physical infrastructure, uh, is a contender here for types of applications that can be built on Solana.

In my opinion, TBD, if this is a real category. But this is kind of where I think people are focusing their attention and their energy and their capital in 2024 is like what new novel use cases can be built on Solana? What new novel users can Solana attract? And you know, can can it follow through on its promises of being a top five blue chip asset?

Do you think that Solana, the Solana community, will get serious about um economic protocol upgrades as well? I mean, certainly its fee market needs uh an overhaul from a variety of perspectives. Um there's no 1559 type of uh mechanism yet, although I think there are murmurings and and uh talk of that. Um I've seen over the last couple of weeks, and certainly Bankless has has said this in the past too, but uh some emphasis and and some surfacing of the idea uh that uh Solana is actually creating uh a lot of inflation

uh with with respect to um the amount that it issues on a daily basis versus the the fees that it that it kind of takes in.

Do you think that these get resolved during the cycle or do these more get uh resolved during the next bear market?

Yeah, that's a good question. I do think the from what I've been watching, my conversation with uh recently with Anatoly and other people that I talked to in the Solana space who are more informed than me, are they are all starting to see.