Web3 AI Investment Insights: Finding the Most Mispriced Projects Amid Mainstream Focus

Author: Crypto, Distilled

Compiled by: Shenchao TechFlow

The field of Web3 AI is vast and often misunderstood. If you focus too much on technical details, you might miss significant opportunities. If you only focus on price, you might end up with nothing more than intangible conceptual products.

Fortunately, there is a simple factor driving most outcomes.

Before diving into this key insight, let’s clarify some important points.

Many people mistakenly equate complexity with high quality, especially in the Web3 AI space. However, simplicity often yields the best results. In the chaotic AI industry, a straightforward approach is not only practical but essential.

This is why I have adopted the principle of Occam's Razor. This principle suggests that among competing solutions, the simplest one is usually the best.

Consider the elegance of Einstein's equation e=mc\^2; it involves only three variables yet explains vast cosmic phenomena, illustrating the power of simplicity in understanding complex systems.

I summarize the key driver of Web3 AI as a crucial consideration: "the flow of attention in the mainstream AI industry." In this sense, Web3 AI merely acts as a general proxy for AI advancements.

Let’s analyze this step by step.

In recent years, significant breakthroughs in AI have garnered much attention. This has brought strong momentum to AI-focused crypto projects. While the combination of AI and cryptocurrency shows great potential, many practical challenges remain. Valuation methods are also unclear.

This is why mainstream narratives often overshadow crypto-centric narratives.

1. How to assess the negative externalities of centralized AI?

2. How to view the importance of "decentralizing" AI?

3. How to evaluate great technologies that have yet to find a true product-market fit?

A bottom-up approach is very challenging. In contrast, a top-down approach is often more direct and effective. This method first analyzes the flow of attention in the mainstream AI industry. It is more important to focus on "which wave to ride" than on which boat to choose.

How influential is the widespread attention on AI?

Can it surpass the strength of the entire market? In some cases, it indeed can.

Despite practical bottlenecks, many AI tokens have outperformed $BTC and $ETH, as well as major AI stocks like $MSFT and $NVDA, especially in the fourth quarter of 2023.

This performance is mainly attributed to two factors:

1. The broader cryptocurrency market performance

2. AI news headlines

The following chart shows the performance distribution of AI tokens when $BTC declined.

How to leverage this insight?

1. First, identify the key factors driving the entire AI industry.

2. Second, determine the cryptocurrency sub-markets that align with this attention.

3. Finally, identify the most "mispriced" projects within these categories.

(Note: This assumes a bull market is underway)

For example, GPU projects like $RNDR surged before $NVDA's GTC event in March. Similarly, when open-source AI models became trendy, projects like $TAO also performed well.

During these shifts, core technologies often remain relatively unchanged. The real difference lies in the focus of mainstream attention, which amplifies valuations.

The ultimate example------ $WLD

Coinbase recently provided compelling evidence to support this theory. A typical example is $WLD, which demonstrates how closely AI tokens track AI headlines.

For instance, after Sam Altman promoted $WLD on December 15, the token surged by 50%. When OpenAI released Sora on February 15, 2024, the price of $WLD tripled, even though there was no direct announcement on Twitter. The valuation of $WLD once reached $80 billion, closely mirroring OpenAI's $86 billion valuation in February, highlighting the significant impact of widespread attention on AI on market trends.

Conclusion:

In short, Web3 AI does not exist in isolation; understanding the broader industry context is crucial for the competition between decentralized and centralized projects.

While Web3 AI projects are novel, they are not yet as viable as centralized projects. Therefore, mainstream AI narratives may continue to drive market developments. Pay attention to real-world AI narratives to predict trends in the AI and crypto markets.

But remember, there are high risks involved. With many promises but little actual adoption, risk management and caution are essential.

This article is not financial advice.