The "spectrum" and "dimension" of cryptocurrency asset investment

Author: Orthogonal Labs

In discussions about investment projects, there is often a tendency to categorize projects as speculative (lacking fundamentals) or transformative innovations. At Orthogonal Labs, we believe that a simple binary perspective does not comprehensively capture the complexity of projects. Instead, we view the value connotation of investment projects more like a "spectrum" range without clear boundaries.

At one end of this "spectrum" are projects tailored for cryptocurrency asset users, providing relatively "entertaining" experiences through speculative trading, gaming, or meme coins. We often question the value of these projects due to their lack of fundamentals. However, these projects actually have high user engagement (very active).

Recent examples include the meme craze in the Solana ecosystem, including $WIF, $SLERF, $BOME, as well as the Telegram bot craze in 2023 (mainly used for investing in meme coins), and we have seen similar traits in $RLB and $SHFL. Community/user participation is a crucial part of the cryptocurrency digital asset space. To some extent, the value of a project does not entirely depend on the views of investors but may rely more on the acceptance level of the community or users. In this sense, these projects have value—"their existence is justified." Of course, we should also acknowledge that the limitation of these projects lies in their difficulty in attracting a broader user base or promoting the widespread adoption of cryptocurrency assets.

At the other end of this "spectrum" are projects that leverage technology to create significant impact and transformation, such as Bitcoin, Ethereum, stablecoins, or trustless computing frameworks. These projects represent a breakthrough innovation in existing implementations, akin to another plane (an orthogonal vector) vertically on the existing plane. Unlike the value positioning of the projects mentioned in the previous paragraph, these projects are primarily driven by technological innovation and aim to solve underlying issues to achieve larger-scale applications of blockchain technology.

These projects are dedicated to addressing key issues such as scalability, censorship resistance, security, and usability, hoping to resolve bottlenecks that hinder widespread adoption. If these deep-rooted challenges can be solved, these projects have great potential to drive significant and sustainable growth in the entire cryptocurrency asset ecosystem.

However, these projects also have their own problems. Although these projects are crucial for laying the foundation for large-scale applications, they often remain distant from users and practical applications. This disconnect from direct user needs can sometimes lead to challenges in technology implementation and adoption (the so-called "dead infra"). In many cases, these projects may seem overly abstract, with vague user positioning, instead becoming narrative-driven. They can gain market attention in the short term, but in the long run, this hinders their ability to gain broader support from users and developers, making them unsustainable.

From an investment perspective, although the efforts of these projects sometimes seem far from practical applications, their endeavors to solve underlying technical issues should be recognized, and the valuations given by the market reflect this. Therefore, they still attract investors seeking long-termism in the cryptocurrency market. Unlike projects focused on speculative trading or entertainment, these projects propose clearer, more stable, and long-term value positioning, potentially inspiring broader technological implementation and driving transformation across various fields. They are an important area in investment.

In the intermediate category between the two extremes, we can classify emerging capital markets or financial infrastructures, which serve as an important link between the two extreme projects. These projects include tokenization of real assets, decentralized investment platforms based on blockchain technology, and various attempts at decentralized trading protocols. These projects introduce innovative assets and new trading experiences in the cryptocurrency space (which I simply summarize as "new assets" and "new trading"). Although they may not directly bring transformative impacts, they signify a significant evolution in financial infrastructure. By providing new investment opportunities and facilitating the maturation of the cryptocurrency ecosystem, they are crucial in shaping the future of finance in the digital age.

An interesting "experiment" in this field is Friend.tech, which capitalizes on the time/engagement of KOLs/Influencers using cryptocurrency assets (despite sustainability issues). Additionally, there are teams exploring the integration of AI Agents with cryptocurrency assets, where decentralized AI Agents are financialized, potentially creating a new category of micro-assets that can better unlock the value of these AI Agents. These efforts showcase the possibilities of cross-innovation between blockchain, AI, and finance, adding depth to the evolving landscape of digital finance.

If we further expand, we can liken the above analysis to a coordinate system, where the X-axis represents the "spectrum" from "entertaining" projects to transformative projects, while the Y-axis represents user types, from non-cryptocurrency users to experienced cryptocurrency enthusiasts. At the top of the Y-axis are new users who have yet to enter the cryptocurrency world, while at the bottom are those deeply involved in the cryptocurrency community, often referred to as "Crypto Degens."

In the cryptocurrency asset space, there is a tendency to analyze new developments from a technical perspective, focusing on technological innovations while lacking attention to the users being served. However, understanding the preferences, needs, and behaviors of the target audience is crucial for the success of a project. This highlights the importance of the Y-axis, which represents the user base and community engagement of the project.

Typical examples that represent the importance of understanding user needs include segmented trading market products like pre-markets, OTC markets, and Points Markets. Although these platforms primarily serve Crypto Degens, teams like Aevo and Whales Markets are able to accurately capture and address user needs, demonstrating a profound understanding of their target audience.

Conversely, an example might be the attempt to simply lump all blockchain games (web2.5 games and fully on-chain games) together. In reality, web2.5 games and fully on-chain games serve different user groups. From the perspective of the entire cryptocurrency asset space, the "mission" of both for the large-scale application of cryptocurrency assets is entirely different. Simplistically conflating the two essentially overlooks the subtle preferences and behaviors of different users. We will elaborate further in another article.

The combination of the X-axis and Y-axis constructs a two-dimensional framework in which the value of a project increases as it moves from the lower-left corner to the upper-right corner (especially if we consider "massive adoption" as the ultimate goal of the entire cryptocurrency community).

What all investors may be looking for are projects in the upper-right corner: not only capable of technological innovation but also resonating with various types of users, attracting them, thereby ultimately promoting broader adoption and sustainable growth of the cryptocurrency ecosystem—this could be an ideal project that possesses only "abstract possibilities" :-)

Orthogonal Labs not only focuses on projects that can drive the large-scale adoption of cryptocurrency, especially those at the intersection of blockchain technology and social transformation, but we also recognize and place great importance on various projects within the "spectrum" range, which often act as catalysts for the large-scale adoption of cryptocurrency assets. Whether these projects enhance the user experience of the cryptocurrency community or attract new users, each project plays a key role in shaping the future landscape of cryptocurrency adoption.

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