The market is entering a boring phase? What will happen to points and airdrops next?

Original source: @DefiIgnas, edited by Followin.

Do you feel that the market has been boring recently?

I’ve come to appreciate boredom, though. With constant stimulation and demands for attention, it now provides a welcome break.

During the last bull cycle, I was constantly online in case I missed out on some new 10,000% APY yield farming project. While these things were exciting, the sensory overload led to fatigue, and I even hoped for a bear market.

Crucially, boredom is a sign that you are in a good place. If you are under pressure to solve important problems, you will not be bored.

It's good for mental health.

The same applies to the cryptocurrency market, which has been lackluster over the past two months as cryptocurrencies have traded sideways.

But compared to the beginning of the bear market, the boring bull market of sideways trading is good. BTC is stable near the 2021 all-time high, cryptocurrency companies have not gone bankrupt, USDC has not decoupled, and the founders of crypto companies in this cycle have not been jailed. However.

So, where are we at and what are our next steps in the coming months?

I last shared my market overview in February and I plan to update as the market changes.

What are the airdrops worth paying attention to this week:

Deposit LRT (weETH, rswETH, sUSDe or Pendle assets, etc.) to earn Blackwing XP (BXP) and earn LRT + Eigen points at the same time. Built on Initia, so we may also get Initia airdrops.

The fun part: you can trade BXP to testnet BUSD and earn more BXP by trading, or lose money if your P/L is negative.

The project just raised $4.5 million from various venture capital firms. It's not that big yet.

Just launched, during the first 30 days of Speedrun, Patron NFT holders can earn additional GP points. Points will soon be tradable on-chain.

Use 5 cards to participate in a tournament, where the winner is determined by the engagement metrics of your Twitter "heroes." You can earn Blast Gold Points as well as Fantasy Token Points.

Tip: Buy and hold the most common and cost-effective cards based on CT personality engagement. No need to upgrade to a higher level.

My favorite strategy (and pet) is INF LST because it 1) earns 9% APY and integrates into Kamino and Marginfi for greater capital efficiency (leverage!)

Speculation: The more pets (LST) you have, the higher your allocation will be.

How optimistic is the market right now?

Data from Coinbase’s first quarter report for 2024 shows that retail trading has yet to fully take off.

Retail user trading volume was $56 billion in the first quarter of 2024, compared to $177 billion in the fourth quarter of 2021.

2023/24 Coinbase trading volume

On the other hand, institutional trading volumes are close to their all-time high (ATH) of $371 billion in Q4 2021, with trading volumes in the latest quarter at $256 billion.

Coinbase transaction volume in 2021

You could say this is because retail users are now transacting more on-chain. But even with the recent memecoin craze, DEX volume (including Solana) has yet to reach its all-time highs in 2021/22.

Number of DEXs. The advantage of Dex over CEX is only 12%.

Despite the prevalence of VC pitching retail users, funding is still far from the highs seen in 2022. (There is a lag in VC data as protocols announce funding to match their marketing goals, but it’s a big lag)

In addition, the meme proxies for market FOMO have not yet appeared: the Coinbase app has not yet reached the top of the Apple Store, friends don’t ask you too many questions about cryptocurrencies, cryptocurrency ads are not very common, and there are not many cases of people in the cryptocurrency circle showing off Lamborghini/Rolex.

So, is this bullish? I think so.

BTC appears to be driven to current prices by 1) US (sophisticated retail investors), 2) ETF speculators, and 3) ETF buyers. But retail users are oblivious to this.

Stablecoin supply reaching an ATH is another bullish signal – there is capital sitting on the sidelines ready to be deployed.

Finally, we currently have a positive funding rate, which indicates bullish sentiment from traders betting that the market will rise. We have also successfully written off additional leverage in February 2024.

My gut tells me that we are moving higher and the market is looking for a catalyst to exit this accumulation zone.

Generally speaking, some bull runs can start within cryptocurrencies when we 1) build new technological innovations 2) create new narratives through those innovations and 3) find new ways to issue tokens.

Even without new money coming in, the market will start to rise thanks to leverage and FOMO to deploy capital from crypto natives. The 2017-18 cycle started with Ethereum and ICOs.

The start of the 2020-21 cycle benefited from the massive money printing during the COVID-19 pandemic, but became intense and "internalized" due to the DeFi and NFT craze.

This time around, we have a crypto market cap that went from $1 trillion at the beginning of 2023 to $2.4 trillion today, thanks to BTC ETFs, points/airdrop farming, and printing tokens at insanely high valuations.

Therefore, an external or internal catalyst is needed for the market to continue to rise. Some external catalysts include:

Ideally, I’d like to see internal catalysts for 0 to 1 innovations like DeFi and NFTs in 2020, but that seems less likely at this point.

Many of the 0 to 1 innovations of this cycle, such as Bitcoin DeFi, rehypothecation, L2, and DePin, lack the traction needed to attract retail investors. While memecoin trading may have initially attracted new users, their interest (and money in their pockets) may not last as retail investors continue to lose money on memecoins.

A strong catalyst would be a consumer application that expands the user base beyond the crypto-native crowd. Maybe Friend Tech, Fantasy Top, some GameFi games, or whatever.

Nonetheless, the main internal metric driving user engagement and liquidity currently in this cycle is starting to lose momentum — the era of points airdrops.

Points, airdrops and token issuance, what’s next?

Every cycle we find a new way to print coins. Every cycle it gets easier.

In the pre-Ethereum era, token issuance required launching a PoW blockchain. This was a relatively fair model because 1) tokens were airdropped to BTC holders via a fork, or 2) mining requirements were not high.

Ethereum changed the game thanks to ERC20 tokens. Now anyone can issue tokens cheaply. The problem is convincing people to buy these tokens. As a solution, ICOs + whitepapers with sexy stories about changing the world have sprung up.

ICOs faded as teams failed to deliver on their exaggerated promises, and we discovered their bullshit.

(I know quite a few “builders” from the 2017/18 cycle who are simply raising money in Dubai, Portugal, etc. while doing their best to pretend they are doing something).

Then in 2020/21 we introduced fair launches and liquidity mining. Both had their advantages, but their time is over as liquidity mining proved to be unsustainable for token prices as it encouraged farming and dumping.

Fair launches sound great in theory, but few fair launches are actually fair (it’s a long topic, but insiders managed to get most of the tokens anyway).

The story sold to retail users is “governance”, i.e. becoming an owner of the protocol while sharing in the protocol revenue.

Points are a natural evolution of the way tokens are printed.

It aims to solve the “farm and dump” problem by extending the token generation event and adding multiple farming seasons while letting users actually use the dApp, thereby keeping users and TVL longer.

It worked for a while: airdrops like Jupiter, Jito, and I think EtherFi were successful.

However, like every new token printing cycle, it will eventually run out of steam once the rules of the game become obvious to everyone and opportunists in the crypto community start to *take advantage* of the system.

*Utilize isn’t the most appropriate word.

My most recent big loss was buying the Tensorian NFT, and I ended up making less money on the airdrop than I paid for that damn NFT. Scammed me again…

Another major issue is the low float token issuance (high FDV, low MC), coupled with the lack of new stories to attract retail investors to buy these low float tokens.

The biggest problem is that people don’t trust the technology. They don’t trust the story of [enter any narrative here].

I'll be honest. I like high FDV token airdrops because the USD allocation is high. I can farm and dump the tokens. This is no longer a secret to anyone.

VCs also like it because even if the price drops 80% after the TGE, they can still make 10x on their initial investment.

However, these tokens are destined to fall as the influx of new retail users is limited and crypto natives from previous cycles have learned not to hold low-circulation tokens.

For recently launched tokens alone, we would need $60 billion in capital inflows into these tokens just to maintain their current prices!

We play the points game, but two things have happened recently that seem to have shifted the market:

Layerzero has benefited from Sybil activity by inflating numbers and increasing protocol valuations while generating fees. Now it wants to punish those Sybils.

Eigenlayer was launched but no token was launched, which touched a nerve. We realized that the points farming rules were too vague to properly plan our activities and it was easy to be gamed.

What's next?

We need to see how successful the Layerzero airdrop is, and what zkSync Era, Zircuit, Magic Eden, etc. do next.

We often think in terms of airdrop recipients, but any protocol is incentivized to reach real users who will learn about the protocol by using it and are willing to 1) continue using it 2) buy tokens after the TGE because he is bullish on it.

Sybil wallets are valuable before a token generation event because they inflate metrics. However, they lose value after a TGE because Sybils are unlikely to buy tokens afterwards. Even if they did, a real person managing hundreds of wallets still only has the purchasing power of one person, not a hundred.

Therefore, to make airdrops sexy again, protocols can focus on:

NFT holders. Synthetix’s Infinex (which I shared above) is doing this.

Rewarding users of competitor protocols to attract them

For example, given an initial airdrop, 50% of the airdrop will be locked until they use the protocol by depositing TVL, making transactions, etc.

Proof of Humanity POP holders, KOL Twitter users, individual PoS stakers, etc. What Starknet and Avail have already done (although at the expense of some real users)

The current 5% to 15% airdrop allocation is not enough to attract users. It works when there are few airdrop farmers around.

Friend tech is 100% airdropped with no tokens, which is an interesting experiment for VCs or the team, but FRIEND needs to perform very well for the trend to pick up.

Launching with a higher airdrop allocation will partially reduce the low circulation problem, but will not completely eliminate it.

Launching at a lower FDV, leaving room for new buyers to upside. The good price/performance ratio of Kamino’s KMNO token could be the catalyst for this change

My advice to you is still to use multiple wallets that are not directly connected. Eigenlayer giving 100 extra EIGEN is an example. But don't over dilute yourself as most are based on 1) TVL deposited and 2) quantity.

If you hold multiple NFTs, spread them out so that each wallet only holds one NFT of note.

Final Comments

In my last market overview in February, I warned of the growing risks of cycle farming.

Not to toot my own horn, but the ezETH depegment incident proved me right, with millions of rotating positions being liquidated.

It was an expensive lesson, but a necessary one. DeFi leverage has since shrunk.

We can see that all kinds of leverage are falling. As Degans reduce the risk of point mining and lower their expectations, stablecoin lending rates eventually fall.

The on-chain lending market is also healthy, with no major liquidations expected until ETH drops to the $1,500 level.

But leverage will always find a sneaky way into the system.

Currently, the two most prominent ones are:

Eigenlayer is slowly adding new features, and as more AVS are introduced and cut, it may start to bring more risk to the market.

Nonetheless, the most worrisome leverage is low-volume token issuance.

Personally, I would avoid holding a token long term if the MC/FDV ratio is below 80%. The few exceptions are high APY and points airdrops, such as earning 20% APY on STRK while generating points on the Nostra lending market.