Written by: Ignas.
Compiled by: Luffy, Foresight News.
You may have spent countless hours trying to capture the next hot narrative in the crypto space. If you judge correctly, you will make a fortune; if you enter too late, you will become a bag holder.
In the crypto market, the highest investment returns come from:
Identify narratives early.
Map out capital rotation routes before others.
Exit when the expected bubble peaks.
Lock in profits.
Then think: Will the next wave of narrative come? Narratives will cycle, and speculative waves will return under the following conditions:
There is real technological innovation supporting the narrative, allowing it to rebound even after the first wave of hype fades.
New catalysts emerge.
After the hype fades, a dedicated community continues to build.
I elaborate on my thoughts in the article below:
https://x.com/DefiIgnas/status/1757029397075230846
Using Ordinals on Bitcoin as an example, we can clearly see four waves of speculative frenzy in the chart below.
December 2022: Ordinals theory released with little on-chain activity.
March 2023: BRC-20 standard triggers the first wave of market activity; activity cools for six months.
Late 2023 - early 2024: Continuous development triggers the second and third waves of market activity.
April 2024: Runes launched, price skyrockets, then fades weeks later.
Ordinals provided months of layout time and multiple exit opportunities, while Runes only offered a brief single exit window. The field is now dead silent.
Will Ordinals (including Runes), NFTs, or other new forms come back? Maybe. It depends on my narrative score.
Analytical framework.
This is a framework for identifying hot new narratives and judging whether subsequent speculative waves will endure. This is a version still under refinement; here's my version 1.0 formula:
Narrative Score = [(1.5 × Innovation × Simplicity) + (1.5 × Community × Simplicity) + (Liquidity × Token Economics) + Incentive Mechanism] × Market Environment
This formula isn't perfect, but it shows which factors are important and how they are weighted. Let's break it down one by one!
Innovation.
Here, innovation refers to the crypto-native innovations on the technology level that I focus on.
The most powerful catalyst is innovation from 0 to 1. It can appear in new domains (DeFi, NFTs, RWA, etc.), new token economics models (like veToken), or even in the ways tokens are issued (fair launches, Pump.fun).
I previously wrote: Innovations from 0 to 1 have a uniqueness that can change industry trajectories, and their originality can spawn new crypto subdomains.
Identifying such innovations is quite challenging due to cognitive biases. When something new appears, it may receive little attention (like Ordinals) or even be seen as noise. Therefore, keeping an open mind and trying every new trend (especially controversial ones) is key to seizing the opportunity.
Without true technological innovation, narratives are just fleeting speculative bubbles.
This cycle is unique because its innovation (AI) comes from the outside. Thanks to AI, we have seen innovations like Kaito InfoFi and AI agents.
Some examples from this cycle:
Ordinals
Restaking
AI Agents
InfoFi
SocialFi
ERC404
My goal isn't to list all cases, but to establish a cognitive model for identifying them. The degree of innovation can be rated from 0 to 10.
Simplicity and meme potential.
Not all innovations have the same spread. Some are easy to understand, while others are not.
Complex narratives (like zero-knowledge proofs, restaking) spread slowly, while simple or memeable narratives (like WIF) spread rapidly. Can you explain this concept in 5 seconds? Is there a meme?
For example:
High simplicity (10/10): AI, Memecoin, XRP as a blockchain bank.
Medium simplicity (5/10): SocialFi, DeFi, NFTs, Ordinals.
Low simplicity (3/10): Zero-knowledge proofs, modular chains, restaking.
Complex narratives take time to ferment, and price increases are slower. Additionally, simplicity can drive community growth.
Community.
Bitcoin is the greatest innovation from 0 to 1, but without a community, it's just a piece of code. The value of Bitcoin comes from the story we assign to it.
People still don't understand why Cardano or XRP perform well despite limited innovation. The reason is: a loyal community.
Or to put it more aggressively: Memecoin.
They have no technological innovation, but Memecoin has now become a $66 billion sector, thanks entirely to a group of people rallying around the tokens.
The tricky part is calculating the size of the community: Is it based on the number of fans on platform X, the hot topics on X, or the number of Reddit subscriptions and post volumes?
Some communities are hard to identify because they use different languages or communicate in different channels, like Korean users discussing XRP in local forums.
Kaito's proposed 'Mindshare' is an excellent metric, but Loudio's experiments show that having a large mindshare doesn't necessarily mean a real community has been built.
https://x.com/DefiIgnas/status/1929511567768363174
To identify a genuine community, especially in the early stages, the best way is to immerse yourself: buy tokens or NFTs, join Discord or Telegram groups, observe who is discussing it on X (not paid promotions). If you feel a real sense of belonging and connection, it's a strong bullish signal.
In my view, Hyperliquid is the fastest-growing community. Attacks on HYPE by Binance and OKX have instead enhanced its cohesion, giving the community a mission and goal to support the team and protocol. Hyperliquid has become a movement.
https://x.com/DefiIgnas/status/1904923406325473286
I believe innovation and community are the most important factors, so I assigned a 1.5 times weight to both.
Like innovation, I included the same simplicity variable in community factors: the simpler the narrative, the easier it is to spread.
Memecoin (such as PEPE) is easy to understand, while Hyperliquid, though not as simple, has still successfully gathered a community.
Both Runes and Ordinals brought technological innovations (allowing the issuance of fungible tokens on Bitcoin, which was once thought impossible) and have strong communities. But why did the price drop?
Because there is a third factor to consider.
Liquidity.
Innovation ignites narratives, and the community builds stories and beliefs, but liquidity is the fuel that allows you to ride the wave and safely exit at the peak. This is key to distinguishing between a 'sustainable wave' and 'last bag holders when the music stops.'
The creator of Runes, Casey Rodarmor, has excelled in building alternative token models, but perhaps he should also establish an AMM pool similar to Uniswap on Bitcoin to maintain the momentum of Runes.
Runes Memecoin struggles to compete with Solana or Layer2 Memecoin due to a lack of passive liquidity pools. In fact, Runes is more like NFTs traded on Magic Eden: while there is decent buying liquidity, there is insufficient selling liquidity for large exits. Low trading volume fails to incentivize listings on top CEXs.
NFTs also face liquidity issues. This is why I once had high hopes for the ERC404 NFT fragmentation model, which could have provided passive selling liquidity and annualized returns through trading volume. Unfortunately, it failed.
I believe liquidity is the main reason DeFi options have struggled to emerge over the years.
https://x.com/kristinlow/status/1929851536965873977
In recent market fluctuations, I wanted to hedge my portfolio with options, but the on-chain liquidity was terrible. I had high hopes for the crypto options platform Derive, but its future is now filled with uncertainty.
Liquidity doesn't just refer to a deep order book, continuous inflow of new funds, CEX listings, or high locked value in liquidity pools (TVL), though these are important. Liquidity in the formula also includes protocols that achieve exponential growth as liquidity increases or projects with built-in liquidity guiding models, such as:
Hyperliquid: More liquidity means a better trading experience, attracting more users, which in turn brings more liquidity.
Velodrome's ve3.3 DEX: Building liquidity through bribery mechanisms.
Olympus OHM: Protocol's own liquidity.
Virtuals DEX: Pairing the launch of new AI agents with VIRTUAL tokens.
Token Economics
Token economics is as important as liquidity. Poor token economics leads to sell-offs. Even with deep liquidity, the continuous selling pressure from unlocks is a significant risk.
Good cases: High circulation, no large VC/team allocations, clear unlocking plans, burning mechanisms (like HYPE, well-designed fair launches), etc.
Bad cases: Malicious inflation, massive cliff unlocks, no income (like some Layer2 projects).
A narrative with an innovation score of 10/10 but a token economics score of 2/10 is a ticking time bomb.
Incentive mechanism.
The incentive mechanism can make or break a protocol, or even an entire narrative.
The narrative of restaking relies on the performance of Eigenlayer, but the failure of token issuance (possibly due to the narrative's complexity or weak community) has led to stagnation.
Evaluating liquidity in the early stages of a narrative is challenging, but innovative incentive mechanisms help build liquidity.
I am particularly interested in new token issuance models. If you've read my previous articles, you'll understand what I mean: when tokens are issued in innovative ways, the market often undergoes a transformation.
BTC hard fork → Bitcoin Cash, Bitcoin Gold.
ETH → Ethereum Classic.
Initial Coin Offering (ICO).
Liquidity mining, fair launches, low circulation with high fully diluted valuation (FDV, suitable for airdrops but detrimental to secondary markets).
Point narrative.
Pump.fun.
Private-public sales on Echo/Legion.
As the market changes, token issuance and incentive mechanisms also evolve. When an incentive model is overused and its rules are widely known in the market, it means the market has entered a saturation stage and the peak of hype.
The latest trend is cryptocurrency treasuries. Publicly traded companies are buying cryptocurrencies (BTC, ETH, SOL), with their stock prices exceeding the value of the cryptocurrencies held.
What is the incentive mechanism here? Understanding this is crucial to avoid becoming a bag holder.
Market environment.
The best narratives launched in brutal bear markets or macro risk events (like the early tariff wars) will also be drowned out. Conversely, in a liquidity-loose bull market, even ordinary narratives can soar.
The market environment determines the following multiplier:
0.1 = Brutal bear market.
0.5 = Volatile market.
1.0 = Bull market.
2.0+ = Parabolic frenzy.
Case: Runes (April 2024) has innovation, community, initial liquidity, and some incentive mechanisms, but it launched just as the hype from Bitcoin halving faded, causing the market to start a significant correction (market environment multiplier ~0.3). As a result: average performance. If it had launched 3 months earlier, it might have performed better.
How to use the formula.
Score each factor on a scale of 1-10:
Innovation: Is it a breakthrough from 0 to 1? (Ordinals: 9, Memecoin: 1-3).
Community: Are they true believers or speculators? (Hyperliquid: 8, VC-led projects: 3).
Liquidity: How is the market depth? (Quick listings on top CEX: 9, trading like NFTs Runes: 2).
Incentive mechanism: Is it attractive and sustainable? (Hyperliquid airdrop: 8, no incentives: 1).
Simplicity: Can it form a meme? ($WIF: 10, zkEVM: 3).
Token economics: Is it sustainable? (BTC: 10, 90% pre-mined: 2).
Market environment: Bull market (2.0), bear market (0.1), neutral (0.5-1).
Scores are subjective. I give Runes an innovation score of 9, but you might give it 5. This formula merely suggests factors to consider.
Calculating with Runes as an example:
Innovation = 9, Community = 7, Liquidity = 3, Incentive Mechanism = 3, Simplicity = 5, Token Economics = 5, Current Market Environment = 0.5.
Substitute the formula:
1.5 × Innovation × Simplicity = 1.5 × 9 × 5 = 67.5.
1.5 × Community × Simplicity = 1.5 × 7 × 5 = 52.5.
Liquidity × Token Economics = 3 × 5 = 15.
Incentive mechanism = 3.
Subtotal = 67.5 + 52.5 + 15 + 3 = 138.
Multiply by market environment (0.5):
Runes narrative score = 138 × 0.5 = 69.
In contrast, Memecoin scores higher in my subjective ratings (116 points):
Innovation = 3 (due to the Pump.fun innovative issuance model, not a complete zero).
Community = 9.
Liquidity = 9 (integrated AMM, high trading volume = high LP returns, CEX listings).
Incentive mechanism = 7.
Simplicity = 10.
Token economics = 5 (100% circulation at issuance, no VC, but there are risks of small group speculation / pump, no revenue sharing).
Market environment = 0.5.
Summary.
Scan narratives early: Use tools like Kaito, Dexuai, etc., to focus on innovations and catalysts.
Strict scoring: Assess honestly. Is the token economics bad? Is it in a bear market? Is there a lack of incentives? The market environment changes at any moment, and new native innovations in the field may revive narratives (like Runes' AMM DEX).
Exit before the decline of the incentive mechanism: Sell at the peak of token releases or airdrop landings.
Respect trends: Don't go against macro trends. Hoard cash in bear markets, deploy funds in bull markets.
Keep an open mind: Try protocols, buy popular tokens, participate in community discussions… Learn through practice.
This is just my version 1.0 formula, and I will continue to improve it.
