Author: Ignas

Compiler: Shenchao TechFlow

The cryptocurrency market is warming up, and the question arises: what should we invest in?

Certain tokens like MUBI have shown high returns, but they require sharp insight and close attention to community trends for timely investment. However, there are other tokens that can provide high returns over a longer period as they involve the development of Web3 technology innovations. These projects allow us to discover them before prices rise and then invest.

Here is a list of 10 protocols I am watching that are about to launch significant upgrades. I will keep an eye on what these projects are about to release and explain why I am interested in them.

1. Frax V3 and Fraxchain

In the rankings of non-profit stablecoin rating agencies, Frax is rated D (unsafe).

According to the report, Frax's insecurity stems from the volatility of the FXS token used as collateral, over-reliance on centralized assets (USDC), and significant control of voting rights and monetary policy by the core team.

Like DAI, FRAX also lost its dollar peg during the USDC decoupling, but currently, Frax has made a transition through v3.

Frax v3 is being gradually rolled out, and sFRAX is now live. The annual yield of sFRAX attempts to track the interest on reserves balance (IORB) rate set by the Federal Reserve, using an IORB oracle. It can essentially be called the "risk-free rate" on-chain.

The current annual yield is 5.4%, with approximately 22 million FRAX collateralized.

With the launch of Frax v3, FRAX is shifting away from algorithmic stablecoin mechanisms and transitioning to 100% collateralization. FRAX will peg to the dollar through Chainlink oracles and governance approval.

Next is the introduction of BAMM (Borrowing AMM). Curve founder Michael referred to Frax's BAMM as "the biggest innovation in DeFi since crvUSD."

BAMM allows users to leverage any token without the need for oracles. It operates within its ecosystem, managing asset prices and liquidity internally to prevent bad debts and ensure solvency. BAMM allows for efficient capital utilization and increases demand for FRAX. For more details, check this post.

Honestly, I am still not quite clear on how it works, so I hope to delve deeper when more details are available.

There are also FXBs, which are debt utility tokens that can be converted into Frax after a specific period. You can purchase FXB at a discount and then convert it to Frax for low-risk profits.

Interestingly, Frax and Maker started from different points but are both moving from USDC to embrace RWA. RWA allows protocols to move away from the leveraged stablecoin cycle demand, providing more predictable yields.

Another similarity between the two protocols (Frax and Maker) is that they are both launching their native blockchains.

MakerDAO is exploring a fork of Solana, while Frax is building a hybrid OP and zk Rollup and will use frxETH as the gas token (but potentially all Frax stablecoins will be supported). I applaud Frax's innovative initiatives in decentralization, which distinguish Fraxchain from other L2s. Fraxchain is currently on the testnet, and you can try its tutorial in the Frax Telegram.

Why am I optimistic about this project?

Frax is building a high-quality blockchain ecosystem, and as more upgrades and technological innovations occur, the value of the veFXS token will also increase.

These developments take time, so I believe the current market price (with FXS market cap at $647 million) has not yet reflected the upcoming RWA+L2+BAMM upgrades, and if these events are anticipated, the price may rise.

sFRAX is now live, Fraxchain is on the testnet, and BAMM/frxETH v2 code is underway, expected to be completed in 2-4 months.

2. Synthetix Andromeda Version and Elimination of SNX Inflation

Synthetix is gradually upgrading to V3 to address multiple pain points, but two of them stand out to me:

• Multi-Collateral Pricing: V3 is collateral-agnostic, allowing any collateral to support synthetic assets. V2 only allowed SNX. This will increase the liquidity of sUSD and the markets supported by Synthetix.

• Synthetix Loans: Users can now provide collateral to the system to generate sUSD without taking on debt pool risks or paying any interest or issuance fees.

The upcoming Andromeda version this month includes the launch of Core V3 and Perps V3 Base, using USD as collateral.

Previously, Synthetix relied on sUSD, but with the addition of USDC, it should attract more users and LPs. However, USDC is used for front-end integration, and Synthetix wraps it into sUSD for back-end Synthetix contracts.

Andromeda is an exclusive product of Base and is an important upgrade as it will test the demand for USDC as collateral, LP yields, and the fees/volume generated.

Several Synthetix ecosystem protocols (such as Polynomial, Kwenta, Infinex, and dHEDGE) have confirmed deployment on Base, so Coinbase L2 will see more action.

Why am I optimistic about this project?

The Synthetix DAO voted to allocate 50% of the fees earned on Base for the buyback and burn of SNX, so if fees are high, it will create upward pressure on SNX.

More importantly, the founder of Synthetix has proposed to terminate the inflation of the SNX token.

Initially, inflation was used to incentivize subscriptions and increase liquidity, but over time, its effectiveness has diminished. The proposal suggests that stopping inflation would make SNX deflationary, aligning better with the network's future development, including potential new developments and major collateral shifts.

Thus, the Base deployment is a significant test for SNX, and I will closely monitor the trading volume and the proposal to eliminate inflation put forth by the project team.

3. Fluid in Instadapp

I am optimistic about the Instadapp ecosystem.

The team has launched several products, such as Instadapp Pro, Lite, and Avocado, but the most important product is about to be released.

Instadapp combines the advantages of Uniswap, Maker, Compound, Aave, and Curve, changing the way borrowing and trading work in Fluid.

Below is a theme I posted on Twitter about Fluid, with a brief overview of the main innovations.

• Lenders can take loans with up to 95% LTV using ETH and reduce liquidation penalties to 0.1%.

• Partial liquidation only liquidates the amount needed to restore to a healthy state.

• The liquidity layer integrates the liquidity of all protocols, so users do not need to remove liquidity with each upgrade.

• Smart debt and smart collateral allow you to profit from your collateral or reduce debt from generated trading fees. Therefore, traders can now trade on top of your debt instead of increasing your debt through fees, which will decrease.

• Full feature blog post

Another blog post from DeFi Made Here discusses why he believes "Fluid is the biggest innovation in DeFi since the transition from Uni v2 to Uni v3."

Why am I optimistic about this project?

Clearly, as an ambassador for Instadapp, I have personal biases. But we cannot overlook the significant innovations of Fluid. With Fluid (and Avocado), Instadapp will transition from a "middleware" protocol (an aggregator of other DeFi protocols) to a more robust role, enhancing the role of the INST token.

INST will manage Fluid similarly to other lending protocols like Aave.

Fluid is expected to launch in mid-December, with a $500,000 bounty for hackers, and will be publicly launched in mid-January.

4. Eigenlayer + LRT

If you are a loyal reader of mine, you will know why I am optimistic about Eigenlayer, but now we have a more detailed timeline.

Eigenlayer has launched the second phase of the testnet, providing Restakers like you the opportunity to delegate to operators.

These operators will validate Actively Validated Services (AVS), which is also the basis for my optimism about the LRT (Liquid Restaking) token.

At this stage, EigenDA is the first and only AVS. Rollups can integrate EigenDA to enhance throughput.

With the emergence of new AVS, we will witness the expansion of Ethereum's shared security use cases. Here are a few examples:

• Ethos: The hub for restarting Cosmos on Ethereum.

• Witness Chain: Diligent proof defense and location proof for physical decentralization.

• Hyperlane: Inter-chain messaging (bridging) for Rollups issuance.

• Espresso Systems: Decentralized sequencer for Rollups transactions.

• Blockless: Infrastructure for network-neutral applications (nnApps) that can run on any L1/L2 blockchain network without being tied to a specific blockchain.

Multiple AVS will launch their own tokens to incentivize operators and Restakers to delegate ETH to them.

However, it becomes complex when deciding which AVS to support. As a Restaker, you need to choose operators that validate the AVS.

Currently, there are 107 operators on the testnet, and more are expected to join. So how do you choose the operators with the highest risk-reward ratio?

This is where Liquid Restaking Tokens (LRT) come into play. You can deposit funds into the LRT protocol instead of directly staking through Eigenlayer. However, LRT still requires a managing entity to select operators and manage risks. This means that new protocol tokens will be airdropped and yield higher returns.

With LRT, we can expect to earn Ethereum's staking yield (5%), Eigenlayer's restaking rewards from AVS (10%), and LRT protocol token emissions (10%+). Without considering the initial airdrop, the annual yield for ETH is around 25%.

It is still early to see which LRT protocol will prevail, but Ether.fi seems to be the leading protocol.

Why am I optimistic about this project?

The narrative of restaking + LRT appeals to me because it has the three key elements I look for in exploring projects: 1) innovative technology 2) opportunities for token minting 3) engaging narratives.

I believe that restaking and implementing LRT will make ETH an attractive asset worth buying and holding. This, in turn, will allow ETH to catch up with BTC and altcoins. However, this is not a risk-free yield!

Unfortunately, we still need to wait. The second phase mainnet will launch in the first half of 2024, and the third phase will launch later in 2024, at which point more AVS will be introduced (the real fun begins).

5. Uniswap V4

Uniswap V4 introduces the "singleton" contract, merging all liquidity pools into one framework, thereby reducing the gas cost of creating liquidity pools by 99% and making multi-pool swaps cheaper.

In fact, you can already experience the benefits of the "singleton" contract through Ambient Finance. I am always amazed at the low gas fees.

The reason Uniswap v4 is on this list is due to "Hooks," which make Uniswap v4 more like a platform.

Hooks in Uniswap V4 are essentially programmable contracts that can operate at different stages of a liquidity pool's lifecycle. These Hooks can be seen as "plugins" that allow custom code to be executed when key events occur in the liquidity pool. This may include on-chain limit orders, time-weighted average market making, depositing out-of-range liquidity into lending protocols, automatically compounding LP fees into LP positions, and other events.

In fact, Instadapp has already previewed a no-liquidation lending protocol using v4 Hooks, with liquidation penalties set to 0%.

Why am I optimistic about this project?

Using V4 hooks, Uniswap will become the liquidity hub of DeFi, even stronger than it is now. It is important to note that protocols face liquidity issues at launch, but with Hooks, developers can use Uniswap as liquidity to experiment and launch their own protocols + new tokens.

This, in turn, will bring more liquidity to Uniswap, potentially attracting liquidity from other DEXs.

Since V4 will launch under a commercial license, forking will not be allowed until 2027. As multiple dApps launch on Uniswap, it may gain more market share. I hope the Uniswap DAO and builder community can find ways to distribute value to UNI token holders.

However, we must wait until the Ethereum upgrade in Cancun in Q1 2025 which includes EIP-1153: transient storage, which is crucial for reducing network costs for Uniswap v4.

Perhaps staking UNI during the Cancun upgrade would be a good short-term strategy.

For more information, click here.

6. Stacks Nakamoto Upgrade

My view on Stacks is straightforward, and I recently shared it on X.

The Stacks ecosystem token has performed well, mainly due to three major innovations:

• Stacks Nakamoto Release: Will reduce transaction speeds from the current 10m-30m to ~5s.

• sBTC: A non-custodial, trust-minimized BTC dollar peg that allows smart contracts to write back to Bitcoin.

• Growth of BTCfi: Ordinals, BRC20, etc.

Stacks is expected to launch the upgraded version in Q1 2024.

The biggest beneficiary may be Alex Lab, which is the liquidity hub for Stacks DeFi, providing BRC20 order book trading, bridging BTC and BRC20 with Bitcoin, and EVM chains.

Why am I optimistic about this project?

If you have read my previous article about the three factors of a cryptocurrency boom ecosystem, you will find that Stacks meets all three conditions, as user attention and funds are concentrated on a few assets, with more tokens set to launch.

The three factors of a cryptocurrency boom ecosystem:

• Technological innovation

• Token minting opportunities

• Engaging narratives

Reducing transaction speeds to 5s and bringing BTC liquidity, combined with the narrative of BTCfi, makes me quite optimistic about the future of Stacks.

Additionally, compared to its unique value proposition, the price of Stacks MC is relatively low, but Alex Lab acts as a leveraged bet on STX. The upgrade in Q1 2025 is also on the way.

7. Growth of Monolithic L1: Fantom 2.0 Upgrade and SEI V2

Let me explain why I am putting FTM and SEI together. There are two reasons:

First, the modular versus monolithic scaling approach is one of the most interesting narratives in this bull market. More and more people are becoming disillusioned with scaling Ethereum through L2 solutions.

The issues include compromises on decentralization, security, and worse user experiences, as well as the methods L2 (Blast) uses to distribute airdrops.

Additionally, L2 tokens lack a value proposition for investors. Recent "staking" from the Treasury Fund's ARB has shown the limitations of L2 DAOs in terms of token economics.

As security and network obfuscation improve, the future may see improvements, and token economics will also improve with truly native decentralized L2s and the potential for revenue sharing.

But at this stage, even with L2, transaction fees are too expensive for lower transaction amounts. We need L3 or L4.

However, these technological revolutions may not appear in this bull market. If we want maximum security, we will ultimately pay high gas fees on Ethereum, or we will rotate funds from one L2 to another through third-party bridges to obtain airdrops, as no one wants to wait 7 days for withdrawal on Optimistic rollups.

Now, single blockchains also have their own problems. The most significant compromise on decentralization is through a limited number of nodes or high hardware costs.

But since Ethereum has stopped focusing on or slowed down L1 scaling, can Ethereum's modular design solve these issues before current monolithic blockchains improve their decentralization?

This is where Fantom and the Fantom Sonic upgrade come into play. It brings over 2k txs per second and a finality time of 1.1s without sharding or L2. The team's goal is to create a new generation of dApps, such as GameFi.

Why am I optimistic about this project?

I am optimistic about Ethereum and Solana as they are major competitors to Ethereum. However, Fantom is innovating to benefit from the narrative of monolithic scaling.

Next spring, I hope to see dApps genuinely being built on Fantom, which will be the most critical follow-up factor.

Then there is SEI V2

I know many people dislike it. Or some people can't even distinguish SEI from SUI or Aptos. But I remain open-minded about SEI (like FTM) because it aligns perfectly with my views on modular versus monolithic development.

You can read the full upgrade details of SEI v2, but the most important points are:

• Support for a parallelized EVM, which will benefit the development of the dApp ecosystem as developers can redeploy smart contracts from EVM blockchains to SEI.

• 390 milliseconds finality time (already live on the mainnet).

• 12.5k theoretical TPS.

Why am I optimistic about this project?

In the last bull market cycle, L1 speed was paramount, but I believe this bull market will also see an explosion of L1 wars like the last one.

Like Fantom, Sei is also built to expand the technical ecosystem vision, but it currently has the lowest market cap among the three, and a significant token unlock will not begin until Q3 2025.