Author: YBB Capital Researcher Zeke
1. Bow to compliance
How did crypto transition from niche to mainstream? Over the past decade, decentralized blockchain has provided a regulatory wilderness to the world. Satoshi Nakamoto's peer-to-peer electronic payment system did not succeed but opened the door to a parallel world. Laws, governments, and even society and religion cannot constrain this existence above countless nodes on the internet.
Being outside of regulation is almost the only factor driving the success of this industry. From asset issuance starting with ICOs and countless subsequent variants, to the DeFi ignited by UNI, and now the so-called super application stablecoins, all are built upon this factor. Excluding the trivialities of TradFi has created today's industry.
Interestingly, after the failures of exploring new continents in the Age of Discovery, people began to abandon sailing ships and return to the past. Perhaps it started from the moment the BTC ETF was approved, or from the moment Trump won the election, native crypto has entered its end-of-law era. The industry is starting to seek compliance and to fulfill TradFi demands, with stablecoins, RWA, and payments becoming the mainstream of industry development. Beyond that, we are left with pure asset issuance — a picture, a story, a string of CA is now the only daily conversation. 'Dog chains' are no longer derogatory terms.
How did we get to this point? I have analyzed this in many articles over the past two years, but fundamentally speaking, as of now, blockchain lacks effective means to restrain various entities behind addresses from committing wrongdoings. We can only ensure that nodes are honest, and DeFi is without intermediaries. Beyond that, we cannot prevent anything that happens in this dark forest; many things inevitably lead to solitude. NFT, GameFi, and SocialFi heavily rely on the entities behind the projects. Blockchain has excellent fundraising capabilities, but who will restrain these project parties from using these funds reasonably? And turn a story into a real project.
The vision of de-financialization cannot simply be solved by improving infrastructure performance. If we cannot do these things well in a centralized server, how can we expect to do them well on-chain? We cannot realize proof of work on the project side; bowing to compliance may indeed be the beginning of future de-financialization, which is ironically helpless.
Crypto is indeed becoming a subset of traditional finance, and the discourse power of this ledger is starting to be stripped away by the upper echelons. Bottom-up developments are becoming increasingly rare, and opportunities are being compressed. We are welcoming the era of on-chain hegemony.
2. Stablecoins
What is on-chain hegemony? I think it can be discussed from two aspects: one is stablecoins, and the other is the repeating story of traditional internet.
First, regarding the former, today's stablecoins are basically dominated by fiat-backed and YBS stablecoins. Recently, there has been a major event concerning fiat-backed stablecoins, which is the passage of the (Genius Act). Let me briefly summarize the contents of the bill:
Definition and issuance restrictions: Define 'payment stablecoins' as digital assets used for payments or settlements, which must be fully backed 1:1 by USD or highly liquid assets (such as short-term government bonds).
Only licensed issuers (who must register and accept regulation) can legally issue stablecoins, prohibiting unauthorized individuals or entities from issuing them.
Reserve and transparency requirements: Issuers must hold reserve assets (such as USD or high-quality liquid assets) equal to 1:1 with the stablecoins, ensuring stability and solvency.
Require regular public disclosure of reserve situations; issuers with a market cap exceeding $50 billion must undergo annual financial audits and comply with anti-money laundering (AML) and counter-terrorism financing (CFT) regulations.
Regulation and compliance: Establish a clear regulatory framework, with stablecoins not considered securities, subject to banking regulation rather than SEC regulation.
Establish licensing procedures, regulate issuing institutions, and enforce anti-money laundering, asset freezing, and destruction mechanisms.
Promote innovation and financial inclusivity: Aims to foster the development of the stablecoin industry in the U.S. through a clear legal framework, enhance financial inclusivity, and maintain the dominance of the dollar in the digital economy.
Restrict large tech companies: Prohibit large tech companies from issuing stablecoins without regulatory approval to prevent market monopolization.
The long-standing industry concern over Tether's collapse has finally become a thing of the past, and it is only a matter of time before downstream payments are incorporated into the mainstream. The large-scale adoption of blockchain is beginning to take shape. But what will stablecoins look like once incorporated into the regulatory framework? How will regulations from other countries counter this? The reasons for the success of stablecoins need not be reiterated.
The passage of this bill also means that on-chain transaction mediums are officially taken over by the U.S. American private enterprises benefit from U.S. debt, and after gaining control of the currency, this country will also have a very high level of control over on-chain. Without discussing the continuation of dollar hegemony, how can I imagine a scenario where all stablecoins in a DeFi project are suddenly frozen?
On the other hand, there are YBS stablecoins. Ethena's concept is good, offering UST-level yields during a bull market, along with stability far exceeding that of pegged assets. In my previous articles, I also mentioned that on-chain native stablecoins might ultimately achieve Delta-neutral hedging, such as the more complex f(x) Protocol, which hedges on Hyperliquid. But strangely, everyone has started making YBS stablecoins: first, various traditional hedge funds entered, then market maker DWF got involved, and finally, exchanges want to join in. They may not become Tether, but at least they want a share of the ENA cake; this ideal has spread like a virus.
This pathological YBS stablecoin frenzy has clearly deviated from its original meaning. Using one's own primitive accumulation and adopting more aggressive strategies to seize the market, truly innovative projects are being wildly suppressed, and the threshold for startup projects is getting higher and higher. Yes, technology and ingenuity are no longer important here; whether it is centralized or decentralized does not matter. Innovative projects like f(x) Protocol have not received widespread attention; now the combination of Cex and high-end quantitative teams is what matters; in this war, APY and convenience are everything.
Although YBS stablecoins may be a good choice compared to exchanging my ETH for small images or various bizarre narratives, the packaging of this Cex financial product has become the only innovation of this round, which only indicates that most of the previous paths were wrong.
3. Asset issuance
Public chains are the largest asset issuance platforms, and ICOs were the beginning of this game. Everything that followed is a variant, but at least it promoted the birth of some narratives and advanced the industry process, but now everything is heading towards traditional internet development. The profit models of Base and Pump are actually infinitely close to Web2, with almost zero feedback to the community; in this regard, they are even inferior to Cex. The original meaning of Web3 was to democratize everything, co-creation was supposed to be about common construction and wealth, but now it has become distorted. This is just the first point; now all oligarchs are studying how to create asset issuance platforms, what constitutes innovative asset issuance.
Launchpads are now the only paradise where native crypto users can become rich, but it is also pathological. In addition to paying fees to platforms and tools like GMGN, one must also experience the feeling of shooting in the trenches. Asset issuance is also starting to become nested, and can even develop off-chain. Well, even though NFTs and GameFi are not strictly decentralized, at least they have on-chain parts, have driven the construction of Inrfa, and have allowed this industry to break out of its confines.
Since the beginning of the AI framework last year, completely off-chain projects can now issue tokens, and it itself is an off-chain asset issuance platform. Extreme speculation has instead caused the industry's bottom line to continuously lower; what is the meaning of all this?
CZ and Vitalik are perplexed by memes, leading to the concept of DeSci, allowing speculators to speculate and researchers to innovate. It seems to find a common ground, but how can studying lab mice and classical mechanics be more interesting than today's internet memes and bizarre AIs? This narrative only flared up for a while; after AI and DeSci cooled down, it was time for celebrity coins to take the stage, exhausting liquidity from Trump in North America to Milei in South America.
As the market begins to cool, and narratives fail to take over, we have to play Ponzi with asset issuance. Virtuals combines the Binance Launchpool + Alpha gameplay, staking for points to participate in new projects, which can then be staked again, leading to skyrocketing token prices. Emmm, so naked and direct, yet it no longer piques my interest. What comes next? Believe (the concept of internet capital markets)?
I cannot be sure, but in the last cycle, various flywheels, Ponzi schemes, and narratives have left behind a treasure like DeFi, which indeed sparked a wealth of fresh ideas in the industry. What can speculation at this stage create? I only see a continuous simplification of the issuance threshold, accompanied by numerous malicious events. Do we need a new set of rules?
4. Attention
In the past, a project's rise relied on narrative and technology, exploding after consensus was built. Now, we are buying attention, using points like Blur to purchase, or using real money like exchanges to form an MCN company for KOLs. The combination of PDD and Douyin's marketing methods has permeated the circle; compared to founders running around to discuss technology, this method seems much more direct and effective.
Attention is undoubtedly one of the most valuable assets of this era, but it is also hard to measure. Kaito is currently quantifying it, but Yap-to-Earn isn't really innovative; this was evident in ancient SocialFi. Kaito's biggest innovation is being driven by AI, claiming to recognize the 'value' of information and measure sales ability using AI. However, this model clearly cannot truly capture long-term value, and tokens are becoming a kind of 'fast-moving consumer goods'.
The drawbacks of the points-based system, I believe everyone has deeply experienced. I have also reviewed the impact of Blur on this circle in previous articles. If future projects rely on purchasing attention, it's hard for me to evaluate whether this behavior is wrong. I can only say that marketing efforts are not a sin, but there seems to be a trend of universal Pump in today's circle. The old crypto era has indeed come to an end. Selling influence for profit has become a mature business, from the President of the United States to Binance to today's KOLs, no project has prospered because of this; everyone is just taking what they need.
Conclusion
Stablecoins will move towards the world, and blockchain payments have become a certainty. But the natives living here may not need these; we need native on-chain stablecoins, we need de-financialization, we need the next wave, and we do not wish to live in a Web3 that sells traffic.
Time has indeed proven that some BTC OGs were right back in the day, but I still hope they are wrong about the future.
