Thoughts on the Investment Returns of the Main Chain and Ecological Projects: The Alternating Appearances of Supporting Roles and Protagonists

Original Title: "The Father-Killing Phenomenon of Freud in the Crypto World"

Author: 0xSoros

In 2015, with the advent of Ethereum, several early ICO projects emerged, including Augur, Golem, Singularity, and FirstBlood.

Characteristics of early ICO projects: purely speculative air projects, no token lock-up period, and token sales on a first-come, first-served basis with no personal investment limits. These three features ushered in a long era of frenzied speculation in the Crypto industry.

Historical data shows that if the investment period is long enough, such as holding for over a year, the returns from investing in ecological projects are unlikely to outperform those from investing in Ethereum's native coin. Here, we calculate returns in fiat currency.

The secret to gaining Alpha from investing in ecological projects lies in making heavy bets on the right ecological projects during hot periods and exiting at the right time to earn returns in Ethereum's native coin, referred to as "earning coins." On this point, DegenSpartan from Egirl Capital has provided a clear explanation. LINK/SNX/YFI were once standout coins, but over a longer timeframe, the LINK/ETH and SNX/ETH trading pairs have shown a continuous downward trend.

This can almost be considered an important secret to making wealth through trading coins in the crypto world.

The difference between projects like Augur and Golem is that Augur's ICO participants received their tokens only two years after investing, resulting in dozens of times returns in fiat after listing on Poloniex. In the same period, Ethereum had returns of hundreds of times. Over a two-year period, Augur underperformed Ethereum. Investors in Augur found that the ETH they initially invested had actually decreased.

In contrast, projects like Golem had no lock-up period and went live immediately after the ICO, allowing for quick flipping if you identified a promising project at the time.

Today’s industry leaders were not few in number who engaged in heavy positions + flipping operations back then. For example, early Ethereum players who participated in Golem's ICO immediately dumped their tokens after listing, multiplying their Ethereum holdings several times. Because it was such an early stage, participating in an ICO was likely to be profitable, often yielding several times the investment. Many Ethereum whales accumulated their wealth this way.

That was a truly wonderful era.

In the public chain market of 2021, the mother chain achieved the highest returns. This was true for every public chain ecosystem, with almost no ecological projects outperforming the mother chain. Just a year later, most ecological projects of public chains saw declines of over 90%, while the mother chain only experienced about a 50% retracement.

Are there any exceptions? Yes, there are ecological projects whose investment returns outperformed those of the mother chain, and even more astonishingly, whose market capitalization surpassed that of the mother chain projects. The most typical case is LUNA in the Cosmos ecosystem compared to ATOM.

ATOM's returns in the 2021 public chain market can only be considered satisfactory. Compared to the hundreds of times returns of public chains like SOL/LUNA/AVAX, ATOM only offered returns in the tens of times.

There may be several reasons for this. First, ATOM's private investors already had hundreds of times returns, and if private investment returns are included, ATOM could have thousands of times returns. This means that if you invested 10,000 yuan at the beginning of 2017, it could have turned into tens of millions by 2022. By this calculation, ATOM's returns are astonishingly high.

Second, there were internal conflicts within the team in 2019. The founding team led by Jae Kwon lost momentum after the project was launched, and internal opinions split into two factions, leading to infighting and subsequent team restructuring. This series of events severely damaged ATOM's vitality.

Third, the narrative of value capture did not position the Cosmos Hub, represented by ATOM, as the center of the Hub universe. The ATOM token did not have strong value capture. Of course, I believe this is merely a narrative; from the perspective of market dynamics, it may still be that the market manipulation capabilities of the whales were not as strong as those of SOL/LUNA, and market sentiment was not enthusiastic enough.

The reason LUNA surpassed ATOM to become the largest public chain project by market capitalization in the Cosmos ecosystem is fundamentally that LUNA found the right track in algorithmic stablecoins. Amidst the chaos of various algorithmic stablecoins like BAS/ESD in 2020, LUNA/UST successfully broke through and became the only algorithmic stablecoin that has survived and continues to grow, which is nothing short of a miracle.

This reminds me of the Gnosis ecosystem.

Gnosis can also be considered an early ICO project from the Ethereum era. It sold tokens using Dutch auctions and subsequently listed on Poloniex. Players who participated in the Dutch auction achieved several times decent returns.

A characteristic of early Ethereum projects is that since ETH was cheap at the time, if the team held onto their inventory of Ethereum instead of selling it, they would have amassed a significant amount of money after experiencing a bull market. This also gave legitimate teams time and space to experiment and pivot in new directions. However, there were also fraudulent projects that simply ran away.

Gnosis belongs to the category of legitimate project teams. After a period of silence, the team has made attempts in areas such as DEX, MEV, and wallets. MEV led to the creation of Cowswap, and multi-signature wallets led to Gnosis Safe. Recently, Gnosis acquired xDAI, positioning itself as a public chain, Gnosis Chain. Notably, there is a crypto-native game on xDAI called Dark Forest.

For a long time, Gnosis has been criticized for not being focused enough on direction, as they have tried various subfields, giving a sense of frivolity and randomness. Now, they have chosen to decentralize and issue tokens for projects in these subfields. Cowswap and Gnosis Safe are set to issue tokens soon.

This makes me think of the Gnosis ecosystem in relation to the Cosmos ecosystem. I believe the Gnosis ecosystem has characteristics of decentralization, dispersion, and independent security models similar to the Cosmos ecosystem. Because of this, we might expect a situation in the Gnosis ecosystem where ecological projects outshine the mother chain project, similar to LUNA and ATOM. Personally, I am not very optimistic about GNO, but I am more interested in Cowswap and Gnosis Safe.

If the mother chain project within an ecosystem is not performing well, it does not completely negate the potential of its ecological projects. Of course, seizing opportunities requires deep engagement in the ecosystem; bystanders cannot grasp the opportunities. The so-called bystanders are players who have not further engaged in the public chain ecosystem.

For example, if I know that public chains are a major investment theme for the next 5-10 years, then if I layout all the mother chains of public chains, I can basically capture Beta returns. However, ecological projects are often overlooked or abandoned due to various factors (mostly time and energy constraints or the choice to adopt a laid-back approach after achieving financial freedom).

This article merely points out the interesting phenomenon in the industry of "ecological projects outshining the mother chain, with supporting roles stealing the spotlight," which is also a way to achieve excess returns. Whether one wants to seize it depends solely on individual circumstances and choices. Choosing to be laid-back or to strive forward are both valid options.