IOSG Weekly Brief｜2049 Cold Thoughts: The industry calls for real users and new funds, Ethereum cannot just talk about feelings and ideals #243

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09-30
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This article is for learning and communication purposes only and does not constitute any investment advice. Please indicate the source when reprinting, and contact the IOSG team to obtain authorization and reprint requirements. The projects mentioned in the article are not recommendations or investment advice. The scale of this Token2049 conference has grown tremendously, with the number of attendees doubling from last year, exceeding 20,000 people. Even Grab drivers were amazed that the number of people attending crypto events this week seemed to exceed the number of visitors to the F1 race. In multiple events, overseas audiences and speakers accounted for more than half, and there is no doubt that this conference may become the most successful and profitable edition in the history of Token2049. 1. US VCs and "top-tier" projects reveal the industry lacks real users The funds that were on a roll in the first half of this year (some of which had three valuations in the same financing round) and the funds and big players who were frantically buying OTC/doing secondary market transactions at the beginning of the year have started to slow down. The volatility and reflexivity of the crypto industry are awe-inspiring. The financing market is getting worse, even very bad, and most of the active investment deals are happening in low valuations and new directions. LP investors are influencing the VC market, and the VC market is becoming more stringent in selecting early-stage projects and entrepreneurs, making it even more difficult for entrepreneurs to raise funds. The listing requirements of exchanges like Binance are also becoming more stringent. Projects with valuations around $100 million that have not yet completed their TGE have abandoned their plans to list on Binance due to the overwhelming difficulty. Infrastructure projects valued between $300 million and $500 million are still struggling to raise funds (basically accepting anyone who comes). For projects that have already completed their TGE, if their initial distribution strategy was not good, their FDV has dropped an average of 80% compared to the last round of VC valuation. Projects with liquidity on Binance are still hoping for a bull market rebound, while projects that have not listed on Binance have already started planning new projects or the next stage of their work. 2. The industry calls for real users and new capital, and innovation support is precarious In this industry, everyone is busy, some faking data and revenue to deceive exchanges and investors, some constantly discussing academic topics in the technical community but forgetting that good infrastructure is to gain applications and users. Exchanges have become the biggest winners due to their excellent revenue model, providing the best work environment and income level in the short term, but making it harder for startups to attract top talent. This is a bit like the prosperity of the 2049 conference, where under the prosperous times, few people are discussing how to gain real users and revenue, and a stable and sustainable business model. The performance of Altcoins may be worse than expected, forcing industry participants to re-examine innovation and real use cases. The interests of VCs, exchanges, project parties, and retail investors are not aligned, and all participants have become victims of the market. Without reform, they will only end up in a dead end, unable to bring in new money and talent/users, even if Bitcoin succeeds, the entire Web3 industry will still fail. Here I advocate for adjustments to the utility and unlocking terms of tokens. The traditional IPO investment lock-up period only requires 6 months to 1 year, but for crypto seed-stage companies, the overall lock-up of liquidity can be as long as 3-4 years. Most project tokens have no utility, and exchanges are willing to make a market and adjust prices in the first half of the year after listing, but after that, neither the project parties/exchanges nor the retail investors who bought in the secondary market care about the price, and the countless times of harm and losses will greatly undermine more people's support and confidence in innovation. If everyone is self-deceptively expecting a big rebound in the next bull market, but not thinking about what kind of application scenarios will bring in real users, they will fall into the trap of sitting and waiting for the mountain to be empty. Those who have enjoyed the early benefits of the industry do not understand the suffering of the people, and the largest 16-letter fund in the US is self-sufficient, with a $10 billion fund in a 10-year cycle that allows them to live well without needing to cooperate with any institution/market force, while most successful founders do not care about young entrepreneurs like they were 5 or 10 years ago. But the industry is in a struggling stage, and we need the power of these successful people to point the way and bring faith, so that more people can persevere and see the dawn of the next bull market. This time, after communicating with the person in charge of listing at a leading exchange, their biggest principle and consensus internally is to look for long-term entrepreneurs. In the past, some founders who faked data to get listed chose to cash out and lie low after the successful listing, leaving the community with a pile of debts, while long-term visionary entrepreneurs are committed to growth and finding more reliable and effective sustainable business scenarios at every stage. 3. The future of Ethereum (return to real application scenarios, avoid false prosperity) After the transition to PoS in "The Merge", due to the significant reduction in ETH issuance and the existence of the burning mechanism, Ethereum has actually entered a 20-month deflationary cycle. However, due to the sluggish L1 transactions in the past few months, the L1 gas price has been in the single digits for a long time, causing ETH to return to an inflationary trend, and the total supply may soon return to the level at the time of "The Merge". IOSG still remains optimistic about Ethereum in our investment strategy, as we have not yet found a more successful technical ecosystem than Ethereum. The overall Ethereum ecosystem TVL has grown from about $34 billion a year ago to $88 billion, an increase of 159.5%; this significant growth also indicates the potential for Ethereum to drive new innovative projects. However, the massive amount of airdrops and liquidity mining has actually driven Ethereum's false prosperity. The real user scale brought by airdrops and incentives is relatively limited, and people have already started to feel disgusted with the airdrop acquisition strategy. Third-party research shows that the user churn rate after the airdrop is as high as 80%, which is not beneficial to the founders and projects. For example, Friendtech, which was previously a relatively influential and eye-catching project in the market, but after the subsequent token launch and failure to maintain the price, all users have abandoned this application. The reStaking track has also encountered a similar bottleneck, with TVL withdrawing or shifting to new protocols after the airdrop ends. The latest Metamask monthly active user data shows that from the bull market peak of 30 million, it has dropped to 10 million, indicating 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 the widespread dispersion of applications, developers (asset issuers), and users. Developers and users are rapidly moving towards chains with subsidies and memes, and the liquidity between different chains and L2s is too fragmented, and high-performance chains have not brought high-performance applications. Ethereum is experiencing an unprecedented crisis of confidence. Since the launch of the ETH ETF, there has been a net outflow of over $1.2 billion, from the core Ethereum researchers/EF to the developer community organizations, to the business companies related to ConsenSys, and to external investors, a huge crisis of trust is emerging. Vitalik needs to better point the way and goals for the different participants, because Ethereum has already become a huge decentralized business entity in the entire crypto market, even the traditional market, and there has never been such a business entity in history. The challenge for the entire Ethereum community and Vitalik will become increasingly severe, even to the point of "no destruction, no establishment".

The most discussed topic at this 2049 discussion was actually the Ton ecosystem. Of course, Western funds are generally not optimistic and bullish on Ton and Web2 platforms, but they have not answered the question of whether to invest or not. However, it is evident that in this difficult cycle, Ton has brought new vitality to the Altcoin market. Among the 900 million monthly active Telegram users, there are probably about 3 million real game players, and the customer acquisition cost for each Ton user is around $0.7. Subsequently, the model of Ton bringing new users from Web2 to Web3 will most likely be applied to the growth of new L1/L2 platforms, and these platforms can be expected to specifically allocate a budget to subsidize this user growth. At the same time, it can also be seen as an opportunity that after the United States completes its strategic deployment of Altcoin financial ETFs, it will begin to consider allowing technology companies' applications to access and penetrate Web3, and a one-stop user experience without awareness of the chain will become the new standard.

Over the past two years, 90% of Gamefi projects have been trading below their listing prices (compared to the valuation of the last round of VC investment). It seems that 3A games, full-chain games, and Degen game community platforms are all being abandoned by retail investors. However, Pirate Nation invested by a16z at the beginning of the year and Small Brain, which recently completed financing, still have a good community foundation. The gaming track has become exceptionally difficult, and all participants are losing confidence. Altcoin games are forcing participants to leave or make greater innovations in products and fun games in a more difficult mode. However, we are still looking for teams that have faith in the game and consensus in the Altcoin market.

About 5 years ago, when we visited the Ethereum website, we could still see a list of other L1 competitors at the bottom, openly and transparently comparing Ethereum's shortcomings or problems encountered. Now, Ethereum is stronger than ever, but how to make this network more open and diverse is a problem we urgently need to solve.

Solana's BreakPoint event was highly praised by the community! It reflects Solana's strong community cohesion and a more pragmatic pursuit of user growth and breaking out of the circle. I think Ethereum can learn from Solana in terms of understanding the core developer community and educating users.

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4. Conclusion

I hereby call on more successful beneficiaries of the industry's dividends to pay more attention to the root problems currently faced by 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 the industry's early entrepreneurs, and will continuously reflect on and iterate its investment thesis to guide entrepreneurs to think about new business models and customer acquisition methods.

At the same time, this 2049 also saw more founders from traditional AI entering Web3 entrepreneurship. Gensyn and Hyperbolic representing Computing, as well as Schelling AI representing Web2-style All-in players, and Title.xyz dedicated to Midjourney-style image/video generation models, AI+Consumer+DeFi are becoming the new tracks that industry funds are actively betting on. I hope that my peers and exchange listing teams can focus more on long-term entrepreneurs, support these talents, as they will definitely bring better use cases and growth to the industry. Stay optimistic and Move Forward positively!


To learn more about investment news, IOSG Ventures portfolio dynamics, please click on the next article.

ImageIOSG Ventures began investing in the Altcoin industry in 2017 and is an early investor in major vertical areas of Web 3.0. As an industry research and community-driven native Altcoin fund, we have long worked with excellent early projects and protocols, dedicated to the development and innovation of the industry. Our investment portfolio includes a series of creative and high-potential projects, such as ZKRU (Scroll, StarkWare, Arbitrum, zkSync, Taiko), Security Auditing (Runtime Verification, Hexens), MEV (Flashbots, Blocknative), DeFi/NFT-Fi (1inch, MetaMask), FOG (Big Time, Illuvium), Staking/reStaking (EigenLayer, Ether.fi, Ren, Kin), as well as industry-leading projects like Arweave, Cosmos, Celestia, EigenLayer, Scroll, zkSync, Nil Foundation, and Mina.

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Disclaimer: The content above is only the author's opinion which does not represent any position of Followin, and is not intended as, and shall not be understood or construed as, investment advice from Followin.
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