CGV Research | 10 Keyword Predictions for the New Narrative of the Next Crypto Bull Market

Author: CGV Research

When we see "narrative", we usually understand it as "storytelling". Actually not.

The latest book "Narrative Economics" by Nobel laureate Robert Shiller brings us different thinking. Shiller discovered the importance of "narratives" in the pricing of financial assets and market volatility: the events themselves may not matter, but the "story" after processing, encoding, processing and embellishment is more important. Even if it is the same event, if it is interpreted from different angles, different levels, and different logics, it will have completely different impacts on the financial market.

From this perspective, the encryption market naturally has financial attributes, and constantly looking for new narratives is an important way to attract funds and talents to continue to enter the market; and when funds and talents continuously enter this market, new narratives can be realized Base. If things go on like this, go round and round again.

Therefore, the new narrative is the new room for growth. How to discover and predict new narratives in the future, so as to respond and plan in advance, is very important for encryption practitioners.

From 2020 to today, we have witnessed the rise of DeFi, the emergence of NFT, the popularity of GameFi, the pursuit of the whole people in the Metaverse, the landing of Layer2, the madness of the new public chain... These narratives in different fields support the encryption field foundation for rapid growth.

The concept of Web3 may be too ambitious. The Cryptogram Venture (CGV) research team tries to find key clues to the new narrative of the next crypto bull market from the perspective of the needs of subdivided scenarios, combined with the pain points and trends of the current encryption industry.

With the help of SBT, by developing a provable reputation system, the problem of under-collateralized borrowing can be well solved; by checking the correlation between voting Souls holding SBT, the DAO Sybil attack problem can be well solved. In addition, SBT will also be useful in scenarios such as social wallet recovery, airdrop mechanism optimization, GameFi level, record, and special skill binding.

CGV believes that the proposal of SBT may bring users a richer Web3 world, that is, bring real social structures (such as families, churches, teams, companies, etc.) into Web3, not just the financial system (DeFi).

Scenario D: In order to protect the privacy of users, how can the data analysis company draw data analysis conclusions without directly seeing each data and address?

Scenario E: DeFi users do not want their property transaction amount to be seen or tracked by everyone. How should it be resolved?

Zero Knowledge Proof (ZKP) means that the prover can convince the verifier that an assertion is correct/true without providing the verifier with information beyond the validity of the statement itself. There are two most widely used technologies after the zero-knowledge proof mechanism is transformed into a computer programming language—zk-SNARK and zk-STARK.

In 2021, Vitalik once said in an article: Perhaps the most powerful cryptographic technology to come out of the last decade is general purpose succinct zero knowledge proofs, usually called zk-SNARKs. (Perhaps, the most powerful cryptographic technology in the past decade technology, is a general concise zero-knowledge proof zk-SNARKs)

Privacy is one of the main usage scenarios of zero-knowledge proof, specifically divided into transaction privacy and data privacy.

For a long time, many people have wondered: Why is there so much thunder and little rain on the privacy track? The number of users and usage is not high, and many people even think that privacy is a false proposition. In the Web3 era, we have seen the explosion of DeFi, NFT, GameFi, SocialFi and other application layers, and the behaviors on the chain are becoming more and more abundant. Simple anonymous transfers can no longer meet people's needs for privacy.

In a transaction, if you need to prove that you have some unspent asset, but you don’t want to expose the entire source and whereabouts of the asset, ZKP can solve the information leakage caused by transaction transparency, such as transfer address and amount. This is very important for financial applications such as currency payments, hedge funds, exchanges, and P2P. Projects such as Manta Network, Aleo, and NYM are worthy of attention.

In terms of data protection, many projects try to protect data privacy (blockchain hybrid architecture) by means of Trusted Execution Environment (TEE) and multi-party secure computing, such as identity information, medical information, etc.

As the need to protect user data and expand the use of cryptocurrencies continues to grow, well-known investor Naval Ravikant's prediction that "the inevitable end of the encryption industry is the greatest degree of decentralization and maximum privacy" may gradually become a reality .

Scenario F: ETH Rollup-based L2 currently mainly includes: Arbitrum, Optimism, Starkware, Zk-sync, Polygon, Aztec, Boba, and Metis. In the future, there may be 10 to 20 Rollups that will appear one after another. There is a strong liquidity split.

The industry generally believes that a single public chain has the problem of "impossible triangle", and its security, scalability, and degree of decentralization are difficult to have at the same time. Modularity is essentially an idea around the expansion solution, and it is a solution to the "impossible triangle" problem.

The modular public chain is to modularize the technology, application, rules and standards of the public chain. Each module is a blockchain, and they will be responsible for different functions (such as execution layer, consensus security layer, data availability layer, DEX application chain, stable currency application chain, NFT application chain, derivatives application chain, etc.), which is convenient for different project developers to match processing solutions according to individual needs.

For example, transactions are executed through high-speed Rollup, a secure settlement layer is responsible for settlement, and a low-cost and large-capacity data availability layer is responsible for guaranteeing.

In fact, the modular public chain is not a new concept. With the maturity of the Ethereum Layer 2 solution, it has gradually attracted the attention of the industry.

From the current point of view, the Ethereum Layer 2 solution is not a panacea. The Optimism and Arbitrum networks have encountered major problems one after another, which reflects that Layer 2 is still in a very early stage. With the influx of users, various bugs may appear. become a regular event.

Therefore, the first-generation smart contract platform represented by Ethereum is trying to complete all the work from data storage to complete Turing complete calculation on one platform, and there is a long way to go. In the future, we will see the stack decompose into data availability and consistency, block validation and construction, transaction ordering and block proposals, and multipurpose or directed computing. Celestia, Assembly and other projects have carried out fruitful exploration.

We believe that from financial LEGO's DeFi to modular public chains, the composability of blockchain technology will make the encrypted world more colorful.

Specifically, such as the stable currency protocol for automatic income reinvestment, the aggregation protocol for arbitrage transactions, the NFT fragmentation protocol for distributing pledge rewards, and the fund management protocol for paying the salaries of DAO members, etc.

If the above requirements are met, the project party will build a complete set of robot programs that trigger the operation of the smart contract. It will take a lot of time and cost to establish, operate and maintain. From this perspective, DeFi developers can outsource their web3 DevOps needs and focus on building core products themselves. This will give automation service providers (such as Gelato, Chainlink and KP3R, etc.) a large market space.

For example, Gelato Relay helps Web3 application and infrastructure developers use simple APIs to quickly, economically and reliably mine arbitrary transactions on behalf of their users or protocols, supporting use cases such as gas-free transactions Common UX issues like switching between networks or worrying about transactions getting stuck.

CGV believes that in the long run, if smart contracts in the Web 3 world can respond to the real world and specific scenarios in the Web 2 world in a real-time, safe, and fast manner, building a real-world and Web 2 API and Web 3 The bridge between smart contracts, hyper-automation will have a broader prospect.

Scenario L: With the emergence of Web3 and the explosion of NFT, many people are enthusiastic about the encryption market, but they generally do not know enough about the encryption market, and the threshold for registering digital wallets and completing on-chain transactions is slightly higher.

Scenario M: Some public chain and DeFi protocol developers face hundreds or even dozens of active users every day, and are unable to expand new customer resources.

Scenario N: Some traditional manufacturers and Internet companies hope to combine NFT technology with their own business to build a new business model; at the same time, many encrypted native NFT ecological service providers are fighting around the stock market of encrypted users. Can the demands of the two be unified?

In economics, the impact of a private economic behavior on social welfare is called an externality.

After reviewing the history of the encryption industry, the CGV research team found that every magnificent bull market is inseparable from the outbreak of a specific external market.

Before 2018, the miners and computing power market, digital currency trading and exchange market were the main theme of the encryption industry; from 2018 to 2020, with the rise of DeFi summer, liquidity providers, pledges, and insurance markets were in full swing; after 2021 , the X-to-earn market, the Guild market, and the NFT creation market have become the best testing grounds for creating an encrypted externality market.

For example, StepN is based on the pursuit of health by users running, allowing hundreds of thousands or even millions of people who have never been in contact with the encrypted world to have their own digital asset wallets and popularize the basic operations of DeFi; Axie is just a battle game. However, the booming Guild economy has been bred, and some guilds have become an inclusive financial service facility in Southeast Asia; BAYC has huge externalities, and has formed a huge group of high-net-worth investors with NFT.

From the perspective of Web3, tokens are extremely liquid, highly open and composable, so that Web3 products and protocols will generate unexpected external markets.

Looking forward to the next cycle, public chains, NFT, and DeFi may be the first key areas to start a new wave of external markets.

Take StepN, which once relied on the star public chain Solana as an example, and has successively become the largest NFT trading market on Solana, the DEX with the highest transaction volume, etc., bringing hundreds of thousands of new users to the Solana ecosystem, which in turn "nourishes "The competitiveness of the public chain. I believe that in the X to Earn 2.0 subdivision track in the future, N "StepN" will be born. Their support for different public chain ecologies may one day be able to influence the pattern of public chain competition.

In addition, NFT is not just PFPs used to show off or social business cards. Most NFTs represent a certain subculture or meme color, which gives people a sense of belonging. What NFT can achieve in the future is based on A value-added way to reach permissionless community goals.

NFT may become the best tool to connect the real economy and the encrypted economy, which is an often overlooked aspect of today's NFT ecosystem.

In the field of the real economy, many products have different user profiles, but the data between products and companies are not interoperable, and the users of company A and company B may highly overlap. Through NFT tools, companies can better target users, make it easier for users to find tribes, and the process of exchanging signals with each other becomes more efficient, which is bound to bring more new external markets to the encryption industry.

For example, multiple commercial entities could offer unique discounts based on the wallet's history. This is what traditional membership cards cannot do. How surprising it would be if the owner of a certain BMW model could use NFT to enjoy discounts on products such as LV, Apple, or even a real estate project without the authorization of different brands.

In the same way, for Cefi and DeFi, whoever can attract more external capital access will have more say in the financial market.

Since its inception, the FTX trading platform has been making continuous efforts in the direction of compliance and achieved results. SBF once said that although in the short term, compliance will slow down its own development and expansion, but in the long run, it can make business expansion more stable and long-term. Behind FTX's emphasis on compliance development, it actually pays more attention to the development of external markets.

Scenario O: From Axie Inifity to StepN, it seems that X to Earn mode will experience the curse of "death spiral". When can old products usher in the "second growth curve"? Can a sustainable X to Earn model be created?

Scene P: Play to Earn, Move to Earn, Bike to Earn, Learn to Earn, Drive to Earn, Sleep to Earn, Eat to Earn, Read to Earn, Write to Earn, Code to Earn, Create to Earn, Sing to Earn , Meditate to Earn... Which type of X is the most promising? The essence of X to Earn is a new growth paradigm of Web3. Scenario X is the foundation of the project, and the economic model Earn is designed to serve X. After experiencing the dizzying X to Earn market competition in the Red Sea, with the superimposed effect of the bear market, I believe that there are very few projects that actually come out. Let us call this stage X to Earn 1.0 stage; in the upcoming X to Earn 2.0 stage, we will see new changes in the market. The popularity of the X to Earn mode does not mean that everything can be "X to Earn". Choosing a suitable specific scene is the first condition for the success of X to Earn.

The CGV research team also agrees with Mtyl's understanding of the selection of X scenarios. A suitable X needs to be satisfied at the same time: 1. The results of labor can be quantified. Labor results that are difficult to be clearly quantified will bring great challenges to the design of economic models; 2. The positive value of the scene to the public. Provide users with intangible value, reduce revenue sensitivity, and make it easier to attract new users. Sports, games, learning, and reading are the four main scenarios that are favored. Among them, projects such as iJump and ATP.Club deserve long-term attention.

As for the economic model, whether it is a dual-token mechanism, high rewards, fission, etc., the core is to control the inflow and outflow of the elements of the entire economic system. It should not be too fast or too slow. Adjust while developing.

In addition, building product barriers through network effects, educating and guiding users to pay more attention to the intangible value acquisition of scenarios are also important business model evolution directions.

Of course, the daily operation of X to Earn is also very important. How to balance comprehensive factors such as community traffic, new users, gold rewards, user conversion rate, etc., is equally full of challenges in the 1.0 and 2.0 stages of X to Earn .

Scenario Q: Most of the investment income of NFT still comes from buying low and selling high. Investors are often afraid to enter the market or even exit the market because they are worried about "selling out" or mispricing assets, which is not conducive to increasing transaction volume and transaction frequency .

Scenario R: Since NFT can only be purchased as a whole, and the rarity varies, the value of each NFT is different. It is difficult for market makers to make a market and improve the trading experience.

Scenario S: In the eyes of different collectors or investors, even the same NFT has different prices. The ambiguous pricing situation makes it more difficult for buyers and sellers to reach a consensus at the moment of the transaction, resulting in insufficient liquidity and capital utilization.

Whether it is the continuous emergence of NFTs such as personal profile pictures/avatars (PFP) and digital artworks, or the record-breaking transaction volume of NFT trading markets such as OpenSea, LooksRare, etc., they are constantly verifying a conclusion: NFT has value and is a new financial asset class.

In theory, any financial asset can be securitized—that is, turned into a tradable, fungible item of monetary value.

However, in the NFT financial world, problems such as reliable and recognized valuations and instant liquidity models have not yet been resolved, and the road to NFT financialization has only just begun to emerge.

According to CGV statistics, taking the scale of the lending market as an example: In the traditional financial market, in the credit market of hard assets (mortgage loans and real estate industries, etc.) worth US$40 trillion, the penetration rate of lending exceeds 50%; In the collectibles market, the loan penetration rate is about 10%; while the NFT transaction volume in May 2022 will be 3 billion US dollars, it is optimistically estimated that the NFT credit market penetration rate may be in the range of 1-3%.

Fair and timely pricing is the first step in the development of the NFT financial market. However, high market volatility, extreme trading volume fluctuations, and the diverse characteristics and characteristics of NFTs make NFT valuation and evaluation very challenging and complicated. Explorations based on oracle machines (such as Upshot, NFTBank) or human-evaluated projects (such as Abacus) that retrieve on-chain data are worthy of attention.

The lack of a scalable, low-risk and credible price evaluation mechanism has also severely restricted the development of the NFT credit market, causing the demand for NFT-backed loans to exceed the supply of loan capital, and causing a large number of NFT loan needs to be unsatisfied.

Just imagine, if only CryptoPunks, BAYC, MAYC, CloneX and other blue-chip top NFT holders are the main service targets in the lending market, NFT finance will be just a castle in the air.

However, NFTfi, Arcade represented by the peer-to-peer model, BendDAO represented by the peer-to-pool model, and Cedar's innovation of the "NFT buy now, pay later" business model have all blazed their own path.

It should be pointed out that dividing NFT into fragmented and alternative tokens cannot effectively solve the liquidity problem. In the absence of practicality and increased income, the essence is to convert an illiquid NFT into an illiquid ERC-20 token; multiple people owning an NFT together will bring new difficulties to asset governance.

Additionally, as NFT technology becomes widely used across industries, just as there are general-purpose and specialized marketplaces today, we may see more financialized products targeting specific NFT categories such as medical records, conversations, insurance Contracts and other specialized protocols serve as the NFT financial infrastructure layer for each vertical.

Scenario T: There are more and more platforms in the metaverse, social networking, playing games, selling NFT, attending conferences, and participating in virtual concerts. It seems that any of them sounds cool, but who should design, develop and coordinate specific scenarios and gameplay? Operation and maintenance?

Scenario U: Owning one or several pieces of virtual real estate in the Metaverse, besides waiting for the land price to rise, what value can there be? If you need funds, can you borrow from the market?

Since the birth of Metaverse, it has been regarded as an important way to build the future digital world. People imagine that everything in the real world in the future can be replicated in the virtual world of the Metaverse, and even obtain a unique experience that transcends time and space constraints.

And virtual real estate has become the earliest value-discovered field in the current metaverse economic system, and is known as "the cornerstone of metaverse assets". According to data, the value of the virtual real estate industry will grow at a compound annual growth rate of 31.2% between 2022 and 2028.

Virtual real estate is not just a digital image, but more of a programmable space in a virtual reality platform. Assuming you own a piece of virtual real estate, you can hold events and collect rent; sell banners or advertisements and get advertising revenue; organize various games and get commissions from the proceeds of the games; early entrants can also get the earliest assets in the Metaverse Trading permissions and permissions to purchase the latest assets first.

Therefore, building and innovating business models based on virtual real estate building development business, and providing landowners, artists, business owners and various users with more immersive, real-time and diverse pan-entertainment experience will become a new reality after the value of virtual real estate. innovative business growth points.

CGV predicts that in the future, new organizational forms such as DAOs and trade unions around virtual real estate, and emerging businesses such as virtual real estate issuance, operation, and trading platforms may have huge market demand.

Taking the metaverse ecological service provider MetaEstate as an example, it has carried out relevant business exploration and practice, and has carried out extensive business around the global metaverse planning and reasonable land use, building excellent buildings, introducing well-known IP, development and use scenarios, marketing activities, property management services, etc. And the layout of virtual real estate management, fund capitalization, business globalization and EstateFi financial cooperation has formed a closed loop of metaverse virtual real estate ecological services.

Scenario V: Most of the Web 3 encrypted DAPP applications are deployed on the computer side. Even the Web 3 wallet Metamask has a better user experience on the computer side. If users want to Mint an NFT and use their mobile phones, the experience is really bad.

Scenario W: Hardware wallets are recognized by more and more people. Although they are safe, they are a bit cumbersome to use. In today’s world where mobile phones integrate everything, sometimes it is a bit cumbersome to carry a hardware wallet.

Today, when the mobile Internet occupies most of the user's time, it is difficult for the user to return to the PC screen for anything. However, crypto users often have to.

Objectively speaking, many crypto, decentralized finance, and NFT applications are more restricted on mobile than on desktop, or have cumbersome user interfaces. If the original mobile hardware and system are used as the bottom layer, many problems can be easily solved.

There is also a wallet known as the entrance to the encrypted world, and hardware requirements will gradually be stimulated. Many people may criticize that the security of the built-in cold wallet of the mobile phone cannot completely match that of the hardware wallet. However, once cryptocurrency transactions become popular, asset occupancy reaches a certain level, or a large amount of liquidity is generated, the demand for secure storage hardware will continue to be released. Let's take a look at the USB-shield of the bank. After being widely popularized by the bank APP, the USB-shield seems to have withdrawn from the stage of history.

Today, we have seen new attempts in the field of encrypted mobile phones from encrypted projects and traditional mobile phone manufacturers. On June 23, 2022, Solana Labs announced that it is developing its own smartphone brand Saga, with a built-in Solana Mobile Stack (including mobile wallet adapter, seed library and Solana Pay), costing about $1,000, and plans to start delivery in early 2023;29 HTC launched the Metaverse mobile phone on October 1, which includes the Viverse App with Metaverse entrance, the Vive Avatar that can create virtual avatars, and the Vive Wallet that manages virtual assets.

From the analysis of the CGV research team, encrypted mobile devices are not just about making encrypted currency applications more mobile-friendly, and the project side may be playing a bigger game.

Just imagine, if the Solana mobile phone is officially launched, it cooperates with mobile operators to carry out market activities such as recharging and pledging SOL, using mobile phones for free, and enjoying discounted phone bill packages. To some extent, will this open a new chapter in the Solana ecology?

Scenario X: For newcomers who have just entered the encryption industry, there are endless cryptocurrency products and high transaction costs, and they need simpler channels and user-friendly products to meet their investment needs safely and conveniently.

Scenario Y: For one or more promising tracks in the future, professional investors want to choose their favorite ETFs/investment portfolios, and balance investment risks according to individualized ratios such as styles, industries, cross-markets, and asset classes.

Scenario Z: As a KOL with over a million fans, or an investment DAO, you want to select mainstream tokens in the market based on a customized liquidity pool, issue and manage your own DeFi derivative assets (ETF/investment portfolio), and obtain income .

ETF is not a new term, and you will hear it every once in a while: a certain company has submitted an application for a Bitcoin ETF to the SEC. But as of now, the US SEC has either postponed the application and approval of the Bitcoin ETF, or has repeatedly solicited opinions from the society.

ETF (Exchange Traded Fund) is a trading open-end index fund, commonly known as an exchange-traded fund. It is an open-end fund that is traded on an exchange and has a variable fund share. After the international financial crisis in 2008, ETF became the most popular investment tool in the investment field. As of the end of 2021, according to Wind statistics, the total size of ETFs in the United States ($7.19 trillion) accounts for about 10% of the size of the U.S. stock market ($68.9 trillion).

As a simple and convenient way to get in touch with Bitcoin, Bitcoin ETF can allow investors to avoid the relatively complex cryptocurrency transaction process and the risks that encrypted assets may face in transmission and storage, and can stimulate more purchase and transaction needs . Therefore, whether the cryptocurrency ETF can be approved is an important sign that the cryptocurrency is becoming compliant and attracting more traditional investors.

On October 19, 2021, the first ETF that tracks bitcoin futures prices, the ProShares Bitcoin Strategy ETF (ProShares Bitcoin Strategy, trading code: BITO), was listed on the New York Stock Exchange in the United States. While it tracks the price of bitcoin futures, it is a milestone step in the cryptocurrency's acceptance by traditional financial regulators. We believe that in the near future, with the promotion of regulatory compliance, the news that the Bitcoin spot ETF may be approved for listing may be ushered in.

In addition to Bitcoin ETFs and Ethereum ETFs connected to the traditional financial world, encrypted native ETFs are expected to become a new blue ocean market.

Investors don't need to know the intricacies of different crypto protocols, the economics of each token, or historical performance to make an informed investment. Create a diversified portfolio of crypto assets by simply investing in a single ETF.

Nowadays, more and more exchanges are beginning to introduce leveraged ETFs into their encrypted financial derivatives ecosystem, and companies and investors are also looking forward to convenient, easy-to-operate, and safe investment portfolio/ETF trading platforms (such as: DeSyn Protocol, Phuture, etc. ).

It is also foreseeable that after the adoption of Bitcoin spot ETF and the maturity of the encrypted native ETF market, encrypted ETF managers (financial consultants) such as BlackRock iSahres in the traditional financial field will become trading platforms, ETF issuance management platforms, investment Institutions, DAOs and KOLs are competing for new roles, and there will be a trend of "the constant is always strong".

In the current special world, at a special point in time, for such a special encryption industry, there are too many uncertainties, too much interference noise, and it is indeed even more difficult to dig out the theme of the new narrative of the next bull market.

But history often tells us that the password to move forward may be in a casual glance, and opportunities are often reserved for those who really care.

I hope that we are all lucky enough to be the prophets, narrators and witnesses of the new encryption narrative, and we will jointly welcome the magnificent new starting point of the encryption market.

(The author of this article is CGV Research, from CGV FoF)