Author: Jocy Lin, Founder of IOSG Ventures Source: X, @JinzhouLin

The scale of the Token2049 exhibition has taken shape, with twice as many people as last year, exceeding 20,000 people. Even Grab drivers lamented that the number of people attending crypto events this week seemed to exceed the number of tourists coming to watch the F1 race. In many events, overseas audiences and speakers accounted for more than half. There is no doubt that this exhibition may become the most successful and profitable one in the history of Token2049.

The industry calls for real users and new funds, and innovation support is at risk

Everyone in this industry is busy, some are making false data and revenue to deceive exchanges and investors, some are constantly discussing academics in the technical community but forget that good infrastructure is to obtain applications and users. Exchanges have become the biggest winners because of their good revenue model, providing the best working environment and income level in the short term, but making it more difficult for startups to obtain outstanding talents. This is a bit like the prosperity of the 2049 conference. In the prosperous times, few people are discussing how to obtain real users and revenue, as well as a stable and sustainable business model.

There is an industry trend of startup projects as a whole gathering towards Binance. A small number of high-profile, small-circle superstars can easily raise funds, while most projects of ordinary startup teams find it difficult to raise funds. Fundamentally, at the current stage, exchanges and investors cannot be distinguished because neither of them has captured real users and generated value.

For top-tier projects, the number of active users dropped to single digits as soon as they were launched on BN; for these community content platforms that have transformed from Web2 platforms such as Instagram to Web3, a large number of founders/advisors/investors cashed out and did nothing as soon as they were launched on BN. This 2BN business model is seriously hurting community retail investors and draining the liquidity of the entire industry.

Altcoin may perform worse than expected, forcing industry players to re-examine innovation and real-world application cases.

The interests of VCs, exchanges, project owners, and retail investors are inconsistent, and all participants are harmed by the market. There is absolutely no trust and cooperation between the four parties. Without reform, they will only end up in a dead end, unable to attract new money and talent/users. Even if Bitcoin succeeds, the entire Web3 industry will still fail.

In the past two years, 90% of Gamefi projects have broken their IPO prices after listing (compared to the last round of VC investment valuations). It seems that 3A games/full-chain games/Degen game community platforms are all being abandoned by retail investors. The industry has not seen any significant breakthrough games such as Axie Infinity and Stepn, and some highly anticipated shooting games have not been able to come out. However, Pirate Nation, which A16Z invested in at the beginning of the year, and Small Brain, which recently completed financing, still have a good community foundation.

The gaming track has become extremely difficult, and all participants are losing confidence. Crypto games are forcing participants to leave or create more innovative products and fun games in a more difficult mode. Of course, we are still looking for teams that have faith in the game and a consensus on the Crypto market.

Here I advocate the adjustment of the practicality and unlocking terms of tokens. The current unlocking mechanism and practicality have big problems, and I call on the industry to conduct more extensive discussions and research. The investment lock-up period of traditional IPOs only requires 6 months to a year. For investments in crypto super-early seed round companies, the overall liquidity lock-up is as long as 3 to 4 years. Most project tokens have no utility. In the first half of the year after the launch, there are market makers willing to make markets and adjust prices on the exchange, but after that, no one on the project side/exchange cares about the price, and no one is responsible for VCs and retail investors who buy in the secondary market. After countless injuries and losses, more people's support and confidence in innovation will be greatly damaged.

If everyone is deceiving themselves and expecting a big bull market rebound, but does not think about what kind of application scenarios will allow real users to enter, they will fall into a situation of eating up all the resources. People who enjoy the early dividends of the industry do not understand the suffering of the world. The largest 16-letter fund in the United States is a school of its own. The 10-year cycle of 10 billion US dollars allows them to live well without cooperating with any institutions/market forces, while most successful founders do not care about young entrepreneurs who are the same as they were 5/10 years ago. However, the industry is in a difficult stage, and we need these successful forces to point out the direction and bring faith to everyone, so that more people can persist and see the dawn of the next bull market.

This time, I talked with the person in charge of listing at a leading exchange and learned that their biggest principle and consensus within the exchange is to find long-term entrepreneurs. In the past, some founders who had faked data listed on exchanges chose to cash out and stay put after the successful launch, leaving a pile of debts to the community. Entrepreneurs with long-term concepts are committed to growth and finding more reliable, effective and sustainable business scenarios at any stage.

The following chart shows that the user growth in this cycle lags far behind the previous cycle. This is also because most Web3 projects have not captured real users and generated value, resulting in slow growth in new users. This year's user growth is largely derived from the sale of ton traffic, and the quality of users is uneven. The user growth in the new cycle is far less than the user entry level in the previous cycle.

Where should Ethereum go (return to actual application scenarios and avoid false prosperity)

After the transition to PoS in "The Merge", Ethereum actually entered a 20-month deflationary cycle due to the significant reduction in ETH issuance and the existence of the burning mechanism. Due to the sluggish L1 transactions in the past few months, the gas price of L1 has been in the single digit for a long time, causing ETH to return to the inflationary trend, and the total supply may return to the level of "The Merge" in the near future.

IOSG continues to be optimistic about Ethereum in its investment strategy. We have not found a more successful technology ecosystem than Ethereum. The TVL of the overall Ethereum ecosystem has increased from about $34b a year ago to $88b, a growth rate of 159.5%; this significant growth further demonstrates the possibility of Ethereum promoting new innovative projects in the future.

But in fact, a large number of airdrops and liquidity mining are driving the false prosperity of Ethereum. The real user scale brought by airdrops and incentives is relatively limited, and people have begun to dislike the airdrop customer acquisition strategy. A third-party study shows that the user churn rate is as high as 80% after the airdrop, which is not good for the founders and projects. Take Friendtech as an example. This was a relatively influential and eye-catching project in the market before, but after the subsequent token launch and the lack of price maintenance, all users are abandoning this application. The restaking track has also encountered a similar bottleneck. After the airdrop, TVL evacuated or switched to a new protocol.

The latest Metamask monthly active user data shows that it has dropped from 30 million at the peak of the bull market to 1 million, marking a significant decline. The user activity of EVM-compatible L1/L2 chains has also dropped by more than 50%. This dispersion of liquidity has led to a wide dispersion of applications, developers (asset issuers), and users. Developers and users are rapidly flowing to chains with subsidies and memes. The liquidity between different chains and L2 is too fragmented, and high-performance chains do not bring high-performance applications.

Ethereum is experiencing an unprecedented level of doubt. Since the launch of the ETF, it has been selling more than 1.2 billion US dollars in net funds. From Ethereum core researchers/EF to developer community organizations, to Consensys-related commercial companies and external investors, a huge crisis of trust is emerging. Vitalik needs to better point out the direction and goals for different participants, because Ethereum is already a very large decentralized commercial entity in the entire crypto market and even in the traditional market. There has never been such a commercial entity in history. The test for the entire Ethereum community and Vitalik will continue to become more and more severe, even to the point where there is no way to build without breaking.

The most discussed topic in 2049 this time is the Ton ecosystem. Of course, Western funds are generally not optimistic about Ton and Web2 platforms. They are not optimistic, but they have not answered the question of investment/no investment. However, it is obvious that in this difficult cycle, Ton has brought new vitality to the crypto market. Among the 900 million monthly active Telegram users, there are about 3 million real game players. The customer acquisition cost of each Ton user is 0.7 US dollars. In the future, it is highly likely that Ton's model of bringing new users from Web2 to Web3 will also be used in the growth of new L1/L2. It can be expected that these platforms will give a budget to subsidize this part of user growth. At the same time, we can also see an opportunity. After the strategic deployment of the crypto-financial ETF is completed, the United States will begin to consider allowing technology companies' applications to access and penetrate web3, and the one-stop experience of users without chain perception will become a new standard.

About 5 years ago, when we visited the official website of Ethereum, we could see a list of several other L1 competitors at the end, which allowed everyone to understand the shortcomings or problems of Ethereum in a completely open, transparent and comparative manner. Ethereum is now more powerful than ever before, but how to make this network more open and diversified is an issue we urgently need to solve?

Solana's BreakPoint was well received by the community! It reflects that the Solona community has a strong centripetal force and is more pragmatic in pursuing user growth and going beyond the circle. I think Ethereum deserves to be on par with Solana in terms of understanding the core developer community and educating users.

Dividing Line

I hereby call on more successful people who have benefited from the industry to give back to the industry, pay more attention to the root problems currently encountered in the industry, support the construction of public goods, and create a better business innovation environment for these long-term entrepreneurs. IOSG will also take the lead in setting an example, providing support from 0 to 1 for early entrepreneurs in the industry, and will continue to reflect on and iterate its investment thesis, guiding entrepreneurs to think about new business models and ways of acquiring customers. The industry cannot always be covered by homogeneity and nesting dolls, and more innovation is needed. In this cycle, the test of the community is more about faith!

At the same time, in this 2049, we also saw more founders who have joined Web3 startups from traditional AI, including Computing represented by Gensyn and Hyperbolic, Web2-type All-in players represented by Schelling AI, and Title.xyz, which is committed to making Midjourney art-style image/video generation models. AI+Consumer+DePin is becoming a new track for industry funds to actively bet on. I hope that peers and exchange listing teams can focus more on long-term entrepreneurs. Supporting these talents will definitely bring better use cases and growth to the industry. Stay optimistic and Move Forward positively!