If you search for keywords in this interview, you will find that the keywords "making money", "opportunity" and "cycle" appear frequently throughout the article - this fully reflects the fluctuations in human nature caused by the instability in the cryptocurrency cycle, and the cycle that continues to be played out in the crypto: cycles, human nature, and wealth are intertwined in this industry and influence each other.

However, what we are discussing is not a proven business model, but rather the exploration of the high-risk, high-return field of the cryptocurrency market and how to find a stable profit path in a volatile market environment.

Looking back at the development of Solv Protocol, from the outbreak of the ETH ecosystem to the rise of the Bitcoin ecosystem, and then to the financial interest-bearing products with continuously iterated algorithms, each step seems to perfectly fit the growth cycle of the industry. The second episode of "DripEcho", a cryptocurrency and blockchain interview program produced by Waterdrip Capital, specially invited Ryan, the founder of Solv Protocol. Since its establishment in 2020, Solv has quickly emerged in DeFi Summer, experienced two market cycles, and accurately grasped the industry trend that many people have not noticed, providing a new way of thinking about the future of Bitcoin and virtual assets. In the current turbulent market, we invited Ryan to discuss with us how to discover real cyclical opportunities and the new financial experiments that DeFi is conducting in the market.

Panic spreads, and risk aversion

The crypto world’s “gold rush” is cooling down.

As if overnight, market sentiment turned to panic, and investors' confidence gradually collapsed in the cyclical market fluctuations. In the past two years, these former adventurers are re-examining their investment strategies with a more cautious attitude by withdrawing funds and waiting. Of course, for the cryptocurrency industry, the fading of dividends is not just a simple market correction. Behind this lies the deeper laws of market cycles and technological evolution.

The price of Bitcoin has fallen again, triggering widespread discussion in the market about whether this round of bull market has ended. In the four months after the halving this year, the price of Bitcoin has fallen by nearly 5%. This is the first time that the price of Bitcoin has fallen after the historical event of halving. It even fell below $60,000. At the same time, in the current market, voices of "quitting", "questioning" and "disappearing dividends" are heard one after another; at the same time, some people bluntly say that those who do not understand the industry do not need to look back. All of this, in the final analysis, is nothing more than the confusion and reaction of individuals in the face of uncertainty during the market fluctuation cycle.

Has the cyclical dividend disappeared?

In fact, this change has not weakened the confidence of core investors. Investors who have made huge profits in the last bull market still believe in the long-term value of cryptocurrencies and continue to increase their holdings. As the market fluctuates, some speculators begin to withdraw, while investors who truly understand the industry cycle see new opportunities. Not only Bitcoin and Ethereum, but also began to turn their attention to emerging solutions and more asset allocation methods.

“It will probably last until around 2028, and there are still opportunities. However, compared with the previous cycle, many arbitrage opportunities have been significantly reduced in this cycle.” Ryan admitted that the cyclical dividends of the cryptocurrency industry have not completely disappeared. Compared with the traditional market, it still has advantages.

Howard Marks, co-founder of Oaktree Capital Management, was asked about his views on investors trying to predict the market. He said, "The biggest mistakes in investing often do not come from recognized risks, but from incorrect assessments of risks." Trying to gain returns through market timing often brings unnecessary risks. Even in the crypto world, it is rare to find people who can stay calm in the midst of volatility. In this market, most of the early players have withdrawn, and only a few are still holding on. However, this is not the end of the game. As the market adjusts, a group of more cautious and rational investors have begun to re-position and turn their attention to long-term holding and new blue ocean strategies.

The transition from SolvETH to SolvBTC may mean that the team is more optimistic about the prospects of Bitcoin. In this regard, the solv team responded affirmatively: "Starting from 2024, we will basically focus on Bitcoin's income assets. The main reason is that the stablecoin and Ethereum markets have become red ocean markets, and the competition is very fierce. The last cycle was a cycle of algorithm innovation and underlying infrastructure innovation. But this cycle has shifted its focus to asset innovation. Whoever can introduce incremental assets into this industry will be able to achieve greater success in this cycle.

In this cycle, the creation of new assets becomes the key, while the influence of algorithmic innovation has weakened. We chose Bitcoin based on our judgment of the macro market. The demand for Bitcoin's interest rate hike is real, and coupled with real usage scenarios such as financial services, mortgage lending and leverage, Bitcoin has become the best choice. "

The battle for retail investors’ survival under a zero-sum game

“So in the current market environment, is it really possible for retail investors to make money?”

“Anyone who is rational and has made the right choice has actually made a steady profit by holding Bitcoin until now. The key is that many retail investors did not like to hold Bitcoin in the past. If they do not operate properly, most retail investors will be eliminated in the volatility.”

Ryan and I discussed the real winners of this cycle.

As discussed in the previous article, the current status of the cryptocurrency market is "the cusp of the storm", with VCs, project owners, exchanges or retail investors taking turns to appear, but few people really make money. He believes that there are two key steps to be implemented: one is to "return to the essence", that is, to re-examine and select crypto assets with real value support, rather than blindly chasing short-term hype hotspots; the other is to "stay rational", that is, to adhere to long-term investment strategies in market fluctuations, rather than being swayed by short-term market sentiment.

“This cycle is very different from the past two cycles. Bitcoin’s bull run has further enhanced its asset status globally, especially in the process of proving in the traditional financial world, its wealth effect has been increasingly recognized. People who hold Bitcoin are more likely to get certain returns, although the magnitude may not be as high as in the past. This is actually a sign of the maturity of the industry.

Relatively speaking, Altcoin are not in an absolute bull market phase right now. From a macro perspective, the probability of losing money by investing in Altcoin right now is greater than the probability of making money. "

As for the winners in the market, Ryan believes that they are not dependent on luck. “The macro environment is the key factor. When the macroeconomic conditions are good, the chances of profit are higher. But in the current situation, market capital is obviously more willing to flow into Bitcoin rather than Altcoin.”

For many retail investors, this situation is frustrating. So has the industry's dividend really bottomed out? Will the next cycle be more severe? Ryan's understanding of this is: "Looking forward, there may be another decline, and market opportunities will become more difficult to grasp. Just like Bitcoin mining, it is not as profitable as before. In the last cycle, mining was still a very good business, but this cycle is just average, and the next cycle may be basically unattractive. So, this decreasing trend is like the effect of Bitcoin halving."

Bitcoin's new mission and DeFi's road to innovation

At the time of the show’s taping, Babylon was conducting an unprecedented social experiment.

As if overnight, the role of Bitcoin has changed. Babylon launched the Bitcoin staking mainnet. They want to use this method to prove that the largest crypto asset will soon become the security cornerstone of the PoS system. Bitcoin may usher in the third native use case after value storage and simple payment - staking. Through staking, Bitcoin assets can be used to protect the network and earn income, providing a more secure and reliable infrastructure for PoS chains and other decentralized applications, while releasing the potential value of the $1 trillion Bitcoin ecosystem.

One of the recent hot events is that Solv deposited 250 BTC for the first phase of Babylon mainnet pledge, reaching the hard cap and occupying the largest Babylon pledge share in the market. For Solv, this is a strategic layout, which coincides with Ryan's thoughts on Bitcoin assets and the possibility of new applications.

At present, the demand for new products in the market is increasing. As a DeFi interest-bearing project, the process of product iteration is actually how to organize the game relationship of assets. "But the stage of algorithm innovation has passed. What people need now is more mature products. The current innovation has reached the top of the pyramid, especially in the field of advanced financial products such as interest rate swaps." Speaking of new gameplay, Ryan believes that although there are still some small spaces for innovation, such as Hyperliquid has done a very good job in algorithm innovation of small currencies, the space for these innovations is limited. The focus now is not on new algorithms, but on whether new assets can be introduced. "Whoever can introduce new assets will succeed in this cycle. So, I think it is better to focus on the introduction of new assets than on new algorithms."

This is exactly the question that countless newcomers who choose to enter the industry are thinking about: what exactly is the temptation brought by blockchain?

Practitioners are quite frank when facing this topic. "I think 99% of people enter this industry to make money. Although there are a small number of people who believe in blockchain technology, most people are motivated by practical economics."

However, the reality that must be faced is that the development of the industry has shifted from pursuing short-term profits to creating actual value. "Especially in the current market environment, it is more difficult to make money, and wealth must be obtained by creating commercial value."

This is also the main reason why he chose the blockchain industry. Ryan entered the blockchain industry in 2018 and became one of the first DeFi protocol degen users. The birth of Solv stems from his dissatisfaction with just pursuing economic benefits. "Although the user value and product value of the financial industry are extremely high, the cost of building trust behind it is also huge. For example, to establish a bank and attract huge amounts of funds, national-level endorsement is required, and the cost is extremely high. Compared with traditional finance, blockchain technology builds trust at a very low cost, which makes Ryan realize that the commercial value of this field is huge. Through blockchain technology, he can build more valuable financial products at a lower cost than traditional finance.

Regarding the next step, I think Ryan showed a cautious optimism. He set his sights on several key areas: AI, biotechnology or blockchain, which hold endless possibilities, especially in financial innovation. He admitted that competition in the blockchain field is increasingly fierce, but this is also where he thinks it is most worthwhile to invest. "I am not in a hurry to enter other fields, because there are still too many opportunities in financial innovation and blockchain technology waiting for us to explore and realize."

Financial freedom and blockchain democracy

When talking about motivation, we talked about the superficial economic motivation and the deeper idealistic pursuit. The coexistence of money and ideals is a delicate balance that only a few people can achieve. "I think that although only 1% of people may enter this industry because of their belief in blockchain technology, considering that there are more than 100 million people participating in this industry worldwide, even 1% is quite considerable. These people believe in the early potential of blockchain technology. Although this group of people is small in proportion, they do exist. They see the changes that blockchain can bring to traditional industries."

The pursuit of "freedom" has been the goal of mankind since ancient times. With the development of DeFi, the concept of "financial democratization" has also emerged. Its meaning is: exploring how to enable everyone to participate equally in the global financial system in the blockchain era.

When discussing the future of DeFi, people often ask whether decentralized finance has the potential to completely replace traditional finance. Supporters firmly believe that DeFi's transparency, decentralization, and borderlessness represent the future of finance. DeFi advocates like to see themselves as innovators or even rebels, seeking to break the existing order and create a new financial model.

But the reality is that although DeFi is disruptive in technology and concepts, the challenges it faces are equally huge. More importantly, DeFi cannot completely solve all the problems in the traditional financial system. "When the Internet first emerged, people were also discussing whether it would completely replace offline shopping and supermarkets. But in the end, we saw that although Taobao and Amazon were very successful, the offline economy and stores still exist." Speaking of the future development of DeFi, Ryan emphasized. Just as technology giants have not completely eliminated physical business, DeFi is unlikely to completely replace all the functions of traditional finance. It is more of a supplement and extension to the existing system rather than a complete substitute.

Now, this dream of "financial freedom" is no longer a 100% ideal, but "is beginning to become an achievable reality." In a discussion at MIT, Michael Casey emphasized that DeFi can become an alternative to traditional financial institutions by reducing bureaucratic barriers and providing financial services on a global scale. Similarly, the World Economic Forum has proposed that the adoption of blockchain in traditional financial services is increasing, and it is expected that by 2027, blockchain technology may significantly change the way global value is exchanged and stored, and it is even possible to tokenize 10% of the global GDP.

Many traditional financial institutions have begun to pay attention to and try to integrate DeFi technology. They believe that the future financial world will be a situation where traditional finance and decentralized finance coexist, rather than a life-and-death competition. How far can it go and can it really replace traditional finance? These questions remain unresolved.

"But in this process, we can rebuild high-value financial products at a very low cost, which not only realizes our ideals but also makes money. I think this original intention itself is very good." This may be a trend in the future industry, combining the driving force of ideals and reality to move forward in the industry.

“DeFi cannot completely replace traditional finance, but it improves certain inefficient links in a more efficient way. The two are destined to complement each other. International assets that were difficult to reach in the past can now be better exposed to global investors through blockchain and increase liquidity. This approach is particularly suitable for some non-financial assets, such as tickets or other assets that are not fully defined as financial. The traditional financial system has very strict supervision on securities assets, and DeFi can provide better services for the second and third types of non-financial assets.”

About Solv Protocol:

The team has been focusing on the development of the Bitcoin track since April. Before the BTCFi track attracted widespread attention, they foresaw its huge potential, took the lead in layout, and launched related products.

- The total number of SolvBTC holders has exceeded 200,000, and the total market value has exceeded 1 billion, making it one of the BTC assets with the highest consensus in the entire network.

- The total amount of SolvBTC has exceeded 20,000, second only to Ethereum, TON and BNB Chain, making it the fourth largest on-chain BTC asset platform, and its scale is even larger than most BTC ETFs.

- Solv Protocol’s total TVL has also exceeded 1.2 billion. It has been ranked among the top 30 DeFi Protocols on the entire network since July 2024 and is the absolute leader in the BTCFi track.

The following are highlights of the show:

JoyChen: The recent market performance is indeed as challenging as we said. It is undoubtedly a difficult time for most retail investors. Therefore, there is a saying in the market: retail investors did not actually make money in this round of bull market. The wealth effect you mentioned has also been questioned by many people. What do you think of this statement? What kind of people do you think can really make money in such a market environment?

Ryan: I think a very simple example is that if you bought Bitcoin one or two years ago and held it until now, you must have made money. Because compared with the price one or two years ago, the value of Bitcoin has increased significantly. Therefore, anyone who is rational and makes the right choice and holds Bitcoin until now is actually making a steady profit.

The point is that many retail investors did not like to hold Bitcoin in the past. They preferred to invest in Altcoin because Altcoin gave them the illusion that they would either multiply 100 times tomorrow or earn 10%. For these people, a potential return of 100 times is more attractive because they may have only invested 1,000 RMB or 1,000 USD, and expected to get a high return that exceeded their expected threshold.

JoyChen: From SolvETH to SolvBTC, does it mean that your team is more optimistic about the prospects of Bitcoin?

Ryan: Yes, or we have always had stablecoin and Ethereum related products. But starting from 2024, we basically focus on Bitcoin's income assets. The main reason is that the stablecoin and Ethereum markets have become red ocean markets, and the competition is very fierce. The last cycle was a cycle of algorithm innovation and underlying infrastructure innovation, such as algorithm innovations such as AMM. But this cycle's focus has shifted to asset innovation. Whoever can introduce incremental assets into this industry will achieve greater success in this cycle.

JoyChen: When many friends in traditional finance first come into contact with cryptocurrency, they will ask why the APY of cryptocurrency is so much higher than that of traditional finance? The yield of traditional financial financial products is usually around 2% to 3%, while the yield of cryptocurrency far exceeds this figure. As a DeFi project that provides income, how is Solv's yield guaranteed?

Ryan: Actually, this question is not difficult to understand. In the traditional financial world, the amount of funds is very large, and all parties involved are very professional, so the money that is particularly easy to make has already been made. Traditional finance has developed for decades, even hundreds of years, and is already very mature. The DeFi world has only been around for five years, and is still in its dividend period.

To give a simple example, once an arbitrage opportunity appears in traditional finance, it will be quickly absorbed by the market. However, in the cryptocurrency market, especially between DeFi and cryptocurrency exchanges, there are still arbitrage opportunities. Sometimes the price of Bitcoin between two exchanges may differ by $100, but not many people go for arbitrage. This is because the market is still in its early stages and there are not many participants, so there are still a lot of profit opportunities.

I think this industry dividend can continue for a few years, but it will eventually enter a more reasonable range. For example, in traditional finance, the drawdown of a quantitative fund may be between 1% and 3%, and the annualized return is 8% to 10%, which is already the level of top assets. In the world of cryptocurrency, the annualized return may reach more than a dozen points or even higher, so it is still very attractive to investors in traditional finance. This is essentially the embodiment of industry dividends.

JoyChen: Solv's TVL is close to 1.5 billion US dollars. I think TVL may be the most important indicator for retail investors. Retail investors usually think that since so many people's money is locked in it, it means that the project party will definitely ensure the safety of funds. What advantages does the growth of TVL rely on to achieve such a high level?

Ryan: First of all, I think it’s a question of dividends. BTC itself has huge dividends, so I don’t need to convince users too much because there are not many competitors in this field. This is similar to the success of early DeFi projects. Dividends and timing are often more important than personal efforts. Therefore, the main reason why users choose us is because we are making the most professional and best products.

Secondly, many people will question why the TVL is so high? Is there any risk behind this? In the case of Solv, our product has real business value and product value. Solv is the largest reserve and interest-earning protocol in the current Bitcoin field. The more Bitcoin we reserve, the more income we generate, which directly increases the overall value of the protocol. Therefore, I think that a TVL of more than a billion US dollars is just the beginning. It can reach 5 billion, 10 billion, or even 50 billion US dollars.

The charm of DeFi is that it does not require 500 or 1,000 people to maintain such a large amount of funds. Through code and smart contracts, the labor cost and trust cost are greatly reduced. This allows us to manage this scale with a very lean team and rigorously tested products, and as the scale expands, the value of the protocol will continue to increase.

Finally, you mentioned the issue of income. Our products are divided into two parts: reserves and income. The core of reserve products is to ensure the transparency of reserves. We have introduced custodians such as Coinbase and Fidelity to ensure the security and transparency of funds. The interest-bearing product line includes creating income for Bitcoin through staking, quantitative income, option trading, etc. Each product has different risks and benefits, and users can choose the appropriate product according to their risk tolerance. Of course, we also ensure the transparency of assets, but in extreme cases, such as security issues on certain platforms, losses may occur, which cannot be completely avoided.

JoyChen: Overall, Solv's product logic and custody methods are relatively safe, but why do some DeFi projects still have problems with explosions? Where do these problems mostly occur? Can you talk about this issue from the perspective of the project?

Ryan: In the last cycle, there were many cases of project failures, especially in the stage of algorithm innovation. Algorithm innovation inherently brings new risks because the code is newly designed, and if there is a weak link on one side, it may be attacked. This is a common problem in algorithm innovation.

However, in the current cycle, the situation has improved, especially in terms of cross-chain bridges and other theft issues, which have been significantly reduced compared to the previous cycle. Now, the problems are more on the asset side rather than the algorithm side. For example, some capital arbitrage strategies may make operational errors, resulting in huge drawdowns or losses. This shows that the risk control ability and strategy selection on the asset side have become more critical.

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Article citations:

Mit Management Sloan School , World Economic Forum

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