Focus on Long-Term Value: How Should Crypto Projects Navigate Narrative Fluctuations?
As the industry matures, the focus should shift from short-term price behavior to long-term value creation.Original Title: 《Can DeFi sustain its relevance beyond the fluctuations of market narratives?》
Written by: Kyrian Alex
Translated by: Deep Tide TechFlow
In the blockchain space, narratives have proven to be a powerful driving force for attracting attention, investment, and growth. The ever-changing landscape has witnessed the rise and fall of various themes, from ICOs to DeFi and NFTs, leaving important lessons for investors, founders, and enthusiasts.
The evolution of narratives can be observed through the shift from Initial Coin Offerings (ICOs) to launchpads. The ICO boom of 2017 promised a revolution in venture capital, but many projects failed to maintain their momentum. As the industry matured, attention shifted to more refined investment mechanisms, with exchanges leading the trend of launchpads. These narrative shifts highlight the dynamic nature of the Web3 space, where trends rapidly emerge, peak, and then gradually fade.
Narratives sweep across the entire cryptocurrency realm like tides, pushing once-obscure concepts to the forefront of attention. Let’s look at some recent cases to illustrate this phenomenon.
First, we experienced Bitcoin DeFi. Bitcoin is not typically associated with experimentation, but the introduction of Ordinals, which represent Bitcoin through unique identifiers, opened the door to complex DeFi applications. BRC-20 tokens built on Ordinals aim to mimic the fungibility of ERC-20 tokens through unique features, potentially paving the way for DeFi on Bitcoin, including fractional ownership, smart contracts, decentralized exchanges, lending platforms, and insurance platforms. But as we often say, the attention span of the cryptocurrency community lasts even less than two months. Only the earliest users/developers truly profited from it.
Then we went through the LSD-Fi craze. With Ethereum's transition to PoS, LSDs dominated the DeFi space. They offered users staking rewards without locking up assets, while LSDfi protocols like Lybra Finance and Pendle Finance built on this concept expanded the ecosystem by increasing liquidity and reducing risk. Annualized yields soared. But guess what? After the initial wave of speculators entered, annualized yields plummeted, followed by the decline of the hype.
We saw the same situation during the Memecoin frenzy. Tokens like $PEPE and $BEN surged significantly, driven by social media, the popularity of NFTs, and the desire for quick profits. Despite knowing the risks and high volatility of these tokens, people just wanted to achieve 100x returns in the shortest time possible. The hype was fueled by the relative ease of purchasing and the potential for good profits in a stagnant market. Well, just like all meme seasons known to humanity, the hype ended abruptly, accompanied by a slew of scandals, frauds, hacks, and promotions.
Oh, how could we forget the AI coin hype triggered by the recent popularity of ChatGPT? What drove the hype? Speculation about progress? The potential for transformation? Or a speculative rebranding?
Or can we forget the so-called virtual reality revolution? Rumors about Apple’s VR headset and Meta’s rebranding sparked interest and speculation about the metaverse. Tokens like Decentraland (MANA), The Sandbox (SAND), Axie Infinity (AXS), and Render Network (RNDR) saw significant growth amid these rumors. Old participants profited, while newcomers lost.
Narratives have their limitations.
They can push a theme to the forefront but cannot guarantee long-term success. Thus, founders often find themselves in a dilemma: the challenge of timing their moves correctly within the volatile narrative cycles.
It’s worth noting that most of the projects I mentioned earlier are very good projects, but the narratives driving their prices and popularity ultimately harmed them. Therefore, founders try to accept the reality that they need to generate enough revenue/profit to cover operational costs during market downturns. Because even bear markets can expose the vulnerabilities of projects plagued by attention frenzy, leading to a reduced user base and weakened market prospects.
The Web3 investment space resembles uncharted territory, where pioneers must rely on a mix of foresight and calculated risk.
For founders navigating the Web3 space, several survival strategies have emerged:
Understand the narrative: Distinguishing between investor-driven narratives and themes with deeper potential is crucial. Founders should determine whether they are early entrants into a narrative or riding the wave of an existing one.
Act early: The advantage of early actors often means months of investor education and persuasion. This double-edged sword is both a blessing and a challenge for founders seeking support and investment.
Survive flexibly: In an environment where many peers may fail, survival itself is a remarkable achievement. Prudent financial management aimed at weathering the storm may be key to long-term success.
Consumer focus over capital: Prioritizing user engagement before seeking investor capital and iterating products based on consumer feedback is a wise strategy. Meeting consumer needs fosters more sustainable organic growth.
Discern the right timing: Timing is crucial; entering a collapsing theme or misinterpreting a short-term price spike as genuine consumer demand can lead to challenges in securing follow-up funding.
The Dichotomy of DeFi
DeFi was once hailed as a beacon of innovation, but it has now shifted from exaggerated expectations to a more pragmatic awakening phase. Although attention and usage have decreased, the potential user base remains relatively stable, indicating that many users are still actively engaged in the space.
This dichotomy raises a critical question: Can DeFi maintain its relevance beyond the fluctuations of market narratives?
The answer depends on the ability of the DeFi ecosystem to address the challenges that emerged during the initial hype phase. This includes tackling issues like high transaction fees, network congestion, and security vulnerabilities.
Next, we must shift our focus to tangible utility and real-world use cases.
DeFi projects that can demonstrate concrete value propositions, solve real problems, and offer sustainable financial products are likely to find a more stable footing. A balance must be struck between innovation and compliance. We must transition from speculative trading tokens to products that provide genuine financial services.
Currently, the Web3 ecosystem's emphasis on ownership and exclusivity has parallels with the early internet's free content access. The shift toward ownership comes at a cost, whether in monetary investment or user engagement.
Emerging themes like DeFi, NFTs, and Web3 gaming are still unfolding stories, each with its unique development trajectory. The shift from relying solely on investor capital to fostering consumer engagement is a key transition that founders must embrace. Chasing trends is no longer sufficient; founders must build products that address real needs and provide actual value.
In seeking to create value while retaining user attention, a model that combines "free" experiences with ownership (like Reddit) offers a potential path forward.
In the Web3 investment space, a new paradigm is emerging that places higher value on sustainability, user engagement, and meaningful differentiation. Unlike the frenzied ICO era, investors are now scrutinizing the long-term viability of projects and their ability to withstand market fluctuations—due to rising market interest rates and liquidity depletion. The concept of "survival of the fittest" applies not only to the projects themselves but also to the investors and entrepreneurs who adapt and evolve with changing tides.
As the Web3 investment space continues to evolve, the challenge lies in striking a delicate balance between risk and reward. Timing investments correctly within narrative cycles, understanding the intrinsic value of projects beyond speculative hype, and fostering user engagement are the cornerstones of success. Investors, founders, and enthusiasts must aim for long-term potential, navigating this complex landscape by learning from past experiences and committing to a more sustainable future.
Conclusion
The Web3 investment space is a complex tapestry woven from narratives, attention, capital, and survival. It is a realm of rising and falling trends, where hype can both propel and extinguish projects. The definition of success hinges on a combination of foresight and adaptability. As the industry matures, the focus should shift from short-term price behavior to long-term value creation. The road ahead requires a strategic approach. Therefore, builders, creators, and users should be aware of the ever-changing dynamics and remain steadfastly committed to innovations that stand the test of time.
