Returning to Growth-Driven Value: How Can Encryption Tokens Overcome Their Predicament?

Summary

• The essence of the current encryption market dilemma is the excessive investment and irrational valuation in the primary market during the last cycle, leading to some projects appearing in the secondary market with unreasonable valuations.
• The level of competition in the encryption market is rising dramatically and forming a pyramid-like class structure, where profits at each level come from the exploitation of those below, draining liquidity from the market. This process further exacerbates distrust among the lower levels, making the competition increasingly severe.
• In the current environment, the death rate of projects and Tokens will significantly increase. Technology, background, and narrative will shift more from being sufficient conditions to necessary conditions, and the only thing the market believes in is real rise, including user rise, revenue rise, and adoption rise.

1. The Dilemma of the Entire Encryption Market

The encryption Token has generally experienced a significant decline. It is not just certain specific types of Tokens; even fully circulating altcoins, popular coins, and Ethereum have shown a continuous downward trend. The simple circulation rate of Tokens cannot fully explain this widespread collapse in value.

From a macro perspective, the cyclical bull market pattern of "every four years" seems to have been broken. Since the second quarter of 2024, the market has entered an unusually low liquidity state. The peak of Bitcoin's market share lags behind the peak of Bitcoin's price, which is different from the patterns observed in previous cycles. More notably, Bitcoin reaching new highs has not led to a general rise in other cryptocurrencies, further proving that the current predicament involves the entire encryption market.

There are multiple reasons for this situation:

1. The marginal effect of Bitcoin halving has weakened after multiple halvings, and a larger market capitalization base also limits the room for price rise.

2. The launch of the Bitcoin ETF has driven the price rise, but the overlap in timing with the halving cycle may create an illusion of a bull market.

3. Since the birth of Bitcoin, the global economy has generally been in a rise or stable period, but this trend is changing.

2. The Trend of Involution in the Encryption Market

From an industry perspective, the negative effects of over-investment and mispricing are becoming apparent. The years 2020-2021 were the most prosperous for investors, leading them to significantly expand their financing scale in the following years. However, even now, there are still very few encryption projects with annual agreement revenues exceeding $30 million.

This prosperity has allowed some funds and projects that should have been eliminated to survive, even obtaining substantial financing at unreasonable valuations. Ultimately leading to these projects appearing in the secondary market at inappropriate valuations in 2023-2024.

However, the problem is not limited to this. The entire market is trapped in a rapidly deteriorating cycle, with more and more participants being drawn in. In the absence of external cash inflows, the market has formed a pyramid structure, where the profits of each level come from the exploitation of the lower levels, draining liquidity from the market. This, in turn, leads to increased distrust among the lower levels, making the internal competition even more severe.

3. Return to Real Growth

In the current environment, the survival pressure faced by projects and tokens has significantly increased. While technology, background, and narrative are important, they have become more of a necessary condition rather than a sufficient condition. What the market truly values is "real growth," which includes user growth, revenue growth, and adoption rate growth.

(1) Organic rise: Focus on market strategy

Many projects have two common misconceptions: one is to overly focus on technology while neglecting the market, and the other is to equate data rise with real growth. In reality, in the current environment of liquidity scarcity, projects face only two paths: rise or death.

Real growth should be highly integrated with the product strategy, aligned with the operational roadmap, and still maintain a high user retention rate after eliminating unsustainable factors. An excellent marketing leader should spend most of their time on strategic observation and thinking, rather than simply executing various marketing activities.

(2) Repositioning KOL Cooperation

The role of KOLs is often underestimated or mislocated. There are still many high-quality KOLs in the market who can not only provide assistance at the market and brand level but also offer valuable advice on products, strategies, and more.

The project team should communicate one-on-one with important KOLs directly, rather than completely relying on intermediaries or agencies. This not only helps build trust but also allows founders to gain a deeper understanding of the entire industry ecosystem.

(3) Take the agreement revenue as a core indicator

In the encryption market, people tend to overlook one fact: truly sustainable rise comes from sustainable business models and revenue. Projects should prioritize protocol revenue as a key growth metric.

Key steps for sustainable development include:

1. Establish a reliable source of income
2. Ensure that the agreement has the potential for surplus.
3. Build effective governance mechanisms and economic models

(4) Establishing a real economic model

The main problem faced by many projects is the mismatch between the rise of token circulation and business development. A truly effective economic model should meet the following conditions:

1. Able to generate sustainable protocol revenue
2. Token cycle matches the project growth cycle
3. Treat incentives as investment behavior rather than consumption behavior
4. Solve the problem of class solidification in the chip structure

Only by establishing a healthy and sustainable economic model can encryption projects survive and achieve long-term development in the current market environment.