Why This Cycle is Cooked | DH + RSA

Bankless Station, we got a bankless takes episode for you today. This is an episode of Hot Takes. Take them or leave them. Uh, the take today. Why David thinks this cycle is cooked. We gotta explain what you mean by that, David. Those are uh you know some strong words coming from us. Also, uh, I think we're gonna explain the bad vibes that seem to be happy in crypto right now. It's like no one's happy. And I think you're gonna give us an explanation for why. Also, there's something to do with token distribution and the dynamic between the VCs versus the people. And finally, I hope we conclude with what happens next, how this all resolves, or maybe doesn't resolve. But tell me, why did you want to do this episode? You actually wrote an article, which is kind of like the genesis for this episode. So we know some thoughts were brewing, probably thoughts over the last couple of weeks. We've recorded some episodes, you know, one with Regan about uh the VCs versus um like the people, and then also there was the Eigenlayer experience. But tell us, like, why this episode?

I felt there's there's just an autopsy that's kind of needed about the state of the market right now.

Autopsy implies that something's kind of dead. Uh and I actually do think that something is kind of dead. Uh and that is the current meta of token distributions. Uh this the current meta of token distributions is always in flux. Crypto chooses to distribute tokens in different ways.

All throughout its history. Like in 2013 was Fork and Fair launch. 2017, ICOs. 2020, liquidity mining, DeFi summer. 2021, token mints, NFT mints. So this is always something that is in flux. And I kind of think as a reaction, reflecting on the reaction of the eigen airdrop and some of the other patterns that we've seen, I'm kind of thinking that this current uh token points and airdrop meta

is cooked and uh in the rear view mirror. Now we still will experience it for a while. These things don't like disappear overnight. Uh, but I think the market is ready to look for alternatives.

For how projects distribute tokens. And how projects distribute tokens is like a very meaningful and critical part of how this industry works. It's the one of the things that defines every single era in crypto. And so

really there's just a lot of conversations happening right now about like Layer Zero is about to launch their token. There's a lot of eyes on that. ZK Sync is after that.

And then like the again, the reflections on the Eigen drop and even some of the like the mobs that we have seen pre Eigen. There's also a lot of like dots, I think, that are worthy and interesting to reflect on. And this is an attempt to give our takes about all of the reflections that I can put together.

All right. Well, we are going to give you guys the autopsy. We're going to cut open the body of this market and see what's inside. See what uh, you know, killed, killed the victim. I don't know if that's what David's saying, but we'll see all of that and more. But before we do, we want to thank the sponsors that made this episode possible. All right, David, you gotta start by explaining yourself here because uh the title of this episode and your article is Why This Cycle is cooked. And I want to define what you mean by cycle. All right. And then cooked. What are you what are you talking about here? Justify yourself. Why why why are you coming in with this strong language?

Yeah, so there's two different um cycles that's going on here. There's the one I was alluding to in the intro, which is the token distribution meta, how the industry is choosing to distribute tokens in the current year, the current cycle. And then there's like the bull market cycle. Uh I'm I'm very firmly talking about the former, the actual mechanism of distributing tokens. I think that part is.

Quote unquote cooked. Um, the bull market cycle can exist and and be independent from this. They are highly related and they have been highly related at times, but they're not perfectly related. Uh so the bull market cycle, the price action of all these things, uh, I'm not really necessarily talking about that. Uh, I'm mainly talking about how this particular equilibrium of how teams are distributing tokens is going to change. Uh, and I think the market is ready for alternatives.

So I think what you're saying is there's kind of two cycles at play and they're interrelated, but we we always get them both uh during like a bull cycle. That is one is the cycle of token distribution, right? Kind of like more tokens, more liquidity. And the other is just like the price action, bull market cycle, what what most people refer to when they talk about the cycle. And you think that those two are independent, but also interrelated. And when you say cycle, uh this cycle is cooked, you're talking about the token distribution cycle. The thing that we're in now where we get like this airdrop cycle, maybe this this point.

Meta, the the current distribution attempt that's going on, you think that part is is cooked.

Yeah, and I titled it This cycle is cooked just because it it kind of rolls off the tongue better better. Uh this meta is cooked, just it doesn't really ring the saying. But that's really what I mean. This token meta distribution is cooked. Uh and one of the reasons why I think it's cooked is because this whole system, this whole structure,

there are structurally bad vibes going on right now.

So all of these like super hyped tokens are coming to market, and we're seeing a pattern of angry protocol users that are feeling like they are getting the shit end of the stick. They feel like they're getting pittance from the actual airdrops that are going on. So these very hyped tokens, they very frequently launch at multi-billion dollar fully diluted valuations. And when tokens launch at multi billion dollar fully diluted valuations, that means that most of the upside has already been discovered

because no one is getting rich

buying, investing in a $10 billion asset. Like that is like a long term investment. That is not like

Uh, that's not like the 100x, the thousand X that people really look for when they come into crypto. Uh, and so sure, you can be at a long-term investor, but like

no one's no one's getting rich buying a $10 billion uh token. Uh, and since, because of the way that these tokens are being distributed, user allocations, the airdrops going to people,

are predetermined by the teams.

And the details around allocation weights and criteria are unknown are unknown, both before and after the drop.

And users really, as a result, feel like they're getting the raw end of the deal for their extremely crucial role in actually providing a protocol with users

and also meaningful decentralization. As like every like wink, wink, dog whistle that every team is saying, like, hey, we're gonna decentralize our protocol. Everyone knows that that means token.

And users receiving tokens is the act of a protocol decentralizing. And so this is a this is like a rite of passage for every single protocol. This is a rite of passage for anything that exists in crypto. That's a protocol with a token, is how it decentralizes. And it decentralizes to users. And this is critical for the decentralization of our industry. This process,

people are not satisfied with uh just because of the current meta, the current uh structure for how these tokens are getting distributed.

I think you're making the case for like structurally bad vibes. Like I I want I want to hear your data points for this. Like, why why are you feeling this? Like, so I'll agree it's felt this way, maybe from a not structurally, I'll leave that aside, but just the bad vibes have been here maybe for the past like couple of weeks.

Uh that the the eigen uh drop seemed to like.

be uh dropped at a time when vibes were already bad and like things kind of like it got worse.

But before that, I would say in in like you know March or even earlier in April, and certainly before this year, the vibes were great in crypto.

And like, isn't that just like correlated with price? I guess what I'm saying is you're making a stronger argument here, and you're saying there's structural, there's structural bad vibes. So I think you're you're trying to say that it's persistent and it's going to continue because there's some sort of underlying structural reason. But like, are you sure it's just not a mood? You know, like we're kind of in a mood, it's May. I don't know, what is it? Sell in May and then go away. I mean, like maybe, you know, it's just a momentary mood in crypto and and the the good vibes continue for airdrops and like points and everything else uh after this. So, like, what are your data points here?

I I do kind of think that this cycle particularly uh have had some of the worst vibes that I've seen.

Um, like bull markets, things are supposed to be like healthy and happy and everyone's happy, but I don't know if I've I'm seeing I'm experiencing that.

Um vibes is highly correlated to price action, of course. It's highly correlated to the supply of liquidity.

Uh and there hasn't been like an overwhelming inflow of liquidity this cycle, like there has been uh last cycle. Bitcoin has seen an inflow of liquidity, Solana has seen an inflow of liquidity, uh, and that's about it.

Uh and it hasn't been like um like Regan said in the episode, it hasn't been a rising tide lifts all boats cycle. Uh Bitcoin is receiving liquidity because of the Bitcoin ETF. Uh and so that's net new liquidity. Solana is receiving liquidity because of the meme coin, um, meme coin speculation.

Uh but there's other than that, like the rest of the industry is actually

playing tug of war over like not that much liquidity.

But you're just saying, like, but like you said, there's something structural here. Yeah. What's the structural element to this?

Yeah. Okay. So the the structural element is the relationship between like how much private capital there is versus how much public capital there is, and also the points, token, airdrop, meta.

Don't do something that's very, very critical for crypto, something that we've seen every other cycle do, which is allow for online communities to get rich together.

Fostering internet bonds by growing wealth together has been like a rite of passage that basically every single survivor in crypto, anyone who's made it through the cycle, has all experienced. I think people, people who like don't make it in crypto likely did not get rich with their internet friends together as a community. That's been like one of the core affordances that crypto is like, hey, online communities can band together and get rich with your friends, right?

We're not experiencing that this cycle nearly as much. Meme coins are doing that. Mean like WIF online community got rich with your friends. But like with this whole high FDV token drop meta, is not allowing communities to band together around projects and get rich around a project. We saw this behavior with Link.

The Link Marines. We saw this behavior with like the Avalanche army.

And all of these people had the opportunity to like ride the success of the protocol up. And that's not really something that we're seeing with high FDV token airdrops.

But let me push back on that. Isn't that isn't that because basically like you you have to buy during the the the bear markets, right? So we're we're in a bull market. Like, don't you think there's an element of unfair expectation? So one one community that there's a tremendous amount of energy in right now is the Solana community. And that's because like some of these people rode Solana all the way down to like $12 or something like this. And some of them even double down and purchase Solana. And they have gotten like rich. What what are we at now? Still in the like 100 levels or you know, like 200 levels uh at one point in time. I mean, that's like a that's like a nice uh 10x. Like that feels pretty good. And so we're seeing a lot of energy there. So like

A uh a multi-cycler might push back on that and just be basically like, well, yeah, you can't you can't get rich in one cycle. If you're saying the the vibes are bad because not enough retail has made enough money, it's just kind of like, well, when did you enter? And like what did you purchase? Right. Is it is there not the argument that

um, well, you can't expect this in in kind of like uh the bull market? And so, you know, it is happening in pockets, specifically to people who are here during the bear market.

Sure, sure. I think that's totally right. Like a but one of the issues with this, one of the reasons why there are like Twitter mobs going on, is that tokens are launching at multi billion dollar FDV. Community is getting like 5%, 10%.

Um, but also the high FDV low market cap gap.

Means that this token has to like suffer a ton of sell pressure before it can go up. So, like, yeah, the the bad vibes are coming because in order for people to get rich on these things, they they have to go down in price by a lot first, and then they can go up next cycle. But like, yeah, now we are experiencing bad vibes because this is what's coming first.

There's also uh I want to like talk about the public versus private market as well. Um in 2021, there was uh an abundant amount of raises going on into new funds and like records amounts of capital going into records amount of new funds in crypto.

VC funds you're talking about.

VC funds like VC funds like

Private funds that uh retail couldn't access.

you can see just like the gargantuan's amount of raises that happened in in 2021 and 2022. Uh like $12 billion on average per quarter for like three or four quarters in a row going into new funds.

All of that capital that was raised last cycle deployed during 2022 and 2023, and it's still deploying to this day. And now a lot of those investments that all of this abundant VC capital invested in are going into the tokens that you're seeing come onto the market today.

With the massive amounts of capital that went into the private markets last cycle,

think of like the public versus private markets as a teeter totter. And like there's a lot of VC capital on the pro on the private market side of things. And so the

path for people, for projects, is to raise like up to