[P1] 2023 Cryptocurrency Market Guide - L2/AI/LSD How to Find the Next 100x Coin
AMA Recap with Jun Fang, a Senior Blockchain KOL
In addition to the four-year halving cycle, we also need to consider the rotation cycle of infrastructure and applications. Currently, the blockchain is in a new cycle of infrastructure construction. We should pay attention to the ETH ecosystem, including ETH itself, layer 2, sidechains, compatible chains, and newly emerging data availability layers.
With the ongoing FUD in the market, how long can this small bull market last?
With the cooling of the "Hong Kong concept" hype, what will be the next trend?
As Ethereum Shanghai continues to upgrade, who will be the biggest winner of LSD?
With the ongoing upgrades to Ethereum in Shanghai, who will emerge as the biggest winner of LSD?
With Coinbase launching the Base testnet, how will it affect the competition landscape of L2?
On the evening of February 24th, the WEEX community on Telegram welcomed Fang Jun, a well-known figure in the blockchain industry, who shared his insights on the market cycles of the cryptocurrency industry, infrastructure, and application rotation. Fang, who is a senior blockchain KOL, technical expert, partner of KuaiZhi Lab, and partner of Uweb Education, drew from his years of experience and research to offer valuable perspective. The following is a transcript of the AMA session.
Themed Live Broadcast
Q1: What is your view on the macro cycle?
Fang Jun: Despite the attention given to macroeconomic and policy issues, such as the impact of Fed policies on the market, the four-year cycle of the crypto industry remains unchanged from a long-term perspective. This cycle aligns with Bitcoin's halving cycle, and Bitcoin-related indicators are used to evaluate the industry cycle, which appears reasonable. While changes in the market over the past three to four years cannot be ignored, using this cycle as a rough measure of industry fluctuations is still largely applicable.
The cycle of the blockchain industry lasts only four years, while the global economy may have cycles spanning over a decade or even several decades. Therefore, to grasp the macro cycle, understanding the halving cycle and using it as a reference is crucial. Currently, we may be at the relative low point of a new four-year cycle, similar to the situation at the end of 2018 and in 2019, where the entire industry was in a downturn. However, a huge correction occurred in 2020, followed by the beginning of a new bull market.
So it is crucial for us to foucus on the halving cycle to judge the macro cycle.
The first viewpoint is what is shown above. Let's now discuss the second viewpoint. We are especially concerned with the cycle of infrastructure and application rotation when evaluating the industry from the perspectives of industry builders, applications, technology, and product development. In comparison to the four-year cycle, it is less well known. If you consider public chains and other underlying technologies as infrastructure, the other side is various applications. Over the past couple of years, we've seen the emergence of many exciting new applications, such as DeFi, NFTs, and GameFi. In actually, a new cycle of infrastructure construction has begun.
Until 2017, the blockchain industry had been primarily focused on developing different public chains, with a lack of attention given to creating practical applications. It wasn't until the end of that year that developers began to recognize the potential of these applications, resulting in a rapid surge of growth in this area. As a consequence, cryptocurrency prices rose significantly, marking the first major shift from an infrastructure-oriented approach to one that prioritized the development of practical applications.
During the explosive growth period of on-chain applications, an incident involving CryptoKitties at the end of 2017 highlighted the performance limitations of the Ethereum blockchain. The resulting congestion on the network led to the realization that an upgrade to ETH 2.0 was needed to address the scaling issues. Furthermore, this incident also prompted the emergence of several high-performance public chains in 2018, with claims of surpassing Ethereum. The resulting competition among these platforms has fueled innovation and improvements in blockchain technology, leading to a more diverse and dynamic ecosystem of decentralized applications.
Despite having numerous public chains, the challenge was how to utilize them. The industry was perplexed as applications couldn't run on these chains. However, in early 2020, DeFi emerged, with Compound being the most prominent application. Then came the DeFi Summer in August and September of the same year, followed by various applications such as NFTs, Socialfi, and others. Faster chains like BSC also emerged, fueling the explosion of applications.
Currently, the industry is more focused on discussions around Rollups, L2, and ZK-Rollups. Yesterday (February 23rd), Coinbase announced the launch of its own sidechain, Base, along with other developments like data availability layers, modular blockchains, and new public chains such as Aptos and Sui. This indicates that we are now clearly in a new cycle of infrastructure development.
The reason for emphasizing this point is that when we segment the industry, if we don't follow the cycle and still want to participate in DeFi, NFTs, etc., we may find that our options are limited. However, if we focus on infrastructure, we will find that there are many infrastructure projects emerging that we can choose from.
In summary, my answer is two-fold. First, we should consider the four-year cycle and the possibility of price fluctuations despite the current low point. Second, we should pay attention to the infrastructure and application cycles in specific areas, with the current focus being on infrastructure. Personally, I recommend keeping an eye on Ethereum's various technologies, such as the recently introduced Rollup and the EIP-4337 smart contract wallet that I am currently following closely.
Q2: Various hot concepts, such as L2, LSD, AI, NFT, and Hong Kong policies, have been emerging. What areas do you believe will receive more attention and development in the future, and how should investors plan their strategies?
Fang Jun: People may generally concentrate on these trending issues. However, there is little innovation in applications currently. DeFi is developing and new products such as DeFi derivatives have potential for growth. NFTs have recently become popular and projects like Blur's airdrop pose a threat to Opensea. For entrepreneurs, Singapore is still the main choice, but Hong Kong also offers opportunities. Some games appear quiet and may need more time to become truly engaging. Regarding social media, researchers are still discussing different perspectives, and the landscape is hard to comprehend.
In my view, infrastructure rather than apps should be the present focus in the cryptocurrency.
When researching infrastructure, you can categorize it into different areas, such as storage, new public chains, cross-chains, AI, and more. Personally, I focus on the Ethereum ecosystem, which includes not only Ethereum itself but also its layer 2, such as OP and ZK-rollup series. In the former category, there are OP and Arbitrum, while in the latter, people have been exploring ways to create a fully EVM-equivalent version. Additionally, there are Ethereum sidechains, such as BSC, Polygon, and Coinbase's newly launched Base. You can think of it as either a layer 2 or a means of bringing Coinbase's massive user funds onto the chain. There are also fully Ethereum-compatible chains, like Fantom and the earliest EVM-compatible chain Avalanche, which are worth keeping an eye on.
In summary, the large Ethereum ecosystem includes Ethereum itself, layer 2, sidechains, compatible chains, and the emerging data availability layers. For example, yesterday we discussed a new infrastructure project using the Cosmos ecosystem, which connects Cosmos with the entire Ethereum network. This approach is taken because all users, developers, and applications are currently located within the Ethereum ecosystem.
In the Ethereum ecosystem, the most worthwhile infrastructure-level thing to focus on is the layer 2. As someone in the blockchain industry, it's important to have a thorough understanding of how products like Optimism and MATIC work. I believe it's beneficial to interact with Optimism/Polygon/Arbitrum personally to gain a better understanding. After interacting with these products, you'll notice that they are similar to Ethereum for ordinary users, except that they use their own tokens as gas. The applications used, such as Swap, are different from those on the Ethereum main chain, but the usage process is very similar. This is from a user's perspective.
Further down, you'll find Arbitrum (currently without its own token), OP, and the ZK-rollup series. I'm particularly interested in Scroll, and Polygon has also launched Polygon zkEVM (formerly Polygon Hermez) and more.
I believe that it is important to focus on understanding how Rollup works, especially ZK-rollup, and have a general understanding of its logic. You should be familiar with its transaction processing and security before believing in its potential to inherit the security of Ethereum. This knowledge will influence your future decisions.
If you want to make informed decisions about participating in projects like OP, waiting for Arbitrum's opportunity, or looking into ZK-rollup. You might be interested in waiting for Scroll or think that MATIC also has a chance. If you participate as a VC, you'll notice that there are also SaaS service providers that have attracted attention in the early VC market.
In my perspective, I pay particular attention to the Ethereum ecosystem, regardless of any current trending subjects. To make a comparison with the traditional market, Rollup in the Ethereum ecosystem is similar to high-performance public chains. You can also go back at this stage and consider if future public chains that try to displace Ethereum or earlier rival public chains have a chance since Rollup has so many options? You can continue to deduce from there.
To make informed decisions about trending subjects, we must understand their underlying technology. Those interested in infrastructure should focus on long-term projects that prioritize sustainable development over short-term hype.
As an AI enthusiast, I'm studying various AI technologies and wondering if they can be applied to cryptocurrency trading exchanges. Are the projects labeled as AI truly using AI, or is it just a fad? To make informed decisions, we must observe Ethereum and Rollup closely and form our own opinions based on careful analysis. It's important to avoid blindly following the hype and remain open-minded. Everyone should do their research and form their own opinions on AI's potential in the cryptocurrency industry.
[To be continued...]
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