ETH CC Insights: Uncertainty Remains in a Positive Atmosphere, Founders Frustrated with Current Token Issuance Model

Author: Regan Bozman

Compiled by: Deep Tide TechFlow

Leaving the cold and rainy Brussels for sunnier places. The atmosphere at ETH CC is generally positive—there are many optimistic signs (shoutout to @megaeth_labs), but there is indeed a lot of uncertainty (and perhaps some boredom). Here are some takeaways while enjoying waffles, lambic beer, and fries:

In my opinion, the most valuable part of crypto conferences is conducting an atmosphere check. Are people excited? If so, what are the reasons for that excitement? People might say they don’t care about crypto prices, but in my experience, the atmosphere often has a strong positive correlation with prices!

The current market sentiment seems quite weary, and most people's feelings are as follows:

What every pre-launch founder is most concerned about is how to avoid the current poor token issuance model. For reference, my perspective may be somewhat biased, as people seem to enjoy discussing this topic with me.

I spoke with all the founders at ETH CC, and they expressed frustration with the current points and airdrop issuance strategies, but challenging the status quo is very difficult! Even if you don’t want to do points, if your competitors are doing it, you have to do it too. The same goes for airdrops—crypto users expect them, and projects worry that users will leave without them.

Even those founders who want to do different things still adopt airdrop strategies. In my view, permanently allocating 5% of tokens to weak hands is a foolish move, but changing the token issuance model is also very challenging!

Over the past few weeks, I’ve had dozens of such conversations, and most founders want to conduct token sales; they realize this aligns the community better in the long run, but there are insurmountable challenges to doing so.

(A) Lawyers advise against conducting token sales.

(B) Exchanges advise against conducting token sales (because they believe it will lead to higher regulatory scrutiny).

Exchanges are the kingmakers, and it’s hard to go against the advice of lawyers. In my view, this makes innovation in this category very difficult at present.

The current market issues remain the primary concern for everyone—founders releasing tokens, venture capitalists, limited partners.

People are now (in my view correctly) focusing on the imbalance of supply and demand in liquidity and the "wall of unlocks," rather than the myth of low float/high FDV.

Interestingly, founders are now attracting liquidity funds before releases to try to queue secondary demand. No one was doing this a year ago. This year will be a good year for @Arthur_0x.

This is a smart strategy because liquidity funds may be the easiest lever to pull demand in public markets, but their role is limited after all. I don’t want to nitpick Arbitrum, as they have indeed done a lot of great work, but taking the market liquidity of $ARB as an example, there is a monthly unlock amount of $50 million to $100 million. Assuming half of that is sold, it means there is a selling pressure of $25 million to $50 million. Even if all liquidity funds buy ARB, it may not fully offset this selling pressure, and this is just one token.

Limited partners (LPs) are aware of this and are starting to allocate more capital to liquidity funds. While this portion of funding is still small compared to venture capital, it is clearly on a growth trajectory. Venture capital firms also have room for innovation; currently, 20% of our portfolio is liquid assets (which is the industry standard). I believe this proportion could increase to 40%, but LPs generally do not like to deviate from the norm, making this difficult to achieve.

I suspect founders will become more creative here, and we may see some pre-token generation event (pre-TGE) trades where funds also agree to purchase a certain amount of tokens in the secondary market, but I haven’t seen this happen yet.

On the product side, Ethereum's current focus seems to be on solving the current fragmentation issue through abstraction. This is a good direction! However, in the short term, fragmentation still has clear economic incentives, making it a difficult problem to solve. Over the past few years, the trend of the Ethereum Virtual Machine (EVM) has been fragmentation—different layer 2 (L2) solutions, zero-knowledge proofs (zk) versus optimistic rollups, and so on. There are clear economic incentives for doing this: building your own infrastructure can achieve higher valuations in public markets. But it also disperses liquidity and creates a poor user experience.

Now, from wallets to L2, the entire ecosystem is pushing for abstraction and reintegration.

On the wallet front, teams like @rhinestonewtf and @safe have been pushing ERC 7579, aimed at achieving ecosystem-level interoperability for smart wallets.

This is one of many efforts by Ethereum to reverse fragmentation at the wallet level.

Polygon and zkSync are also pushing their respective horizontal scaling solutions.

In the long run, I hope one of these solutions succeeds, but fragmentation still has many economic incentives in the coming years.

At the conference, I spoke with some LPs and found that the optimism of LPs returning to the crypto space in the first quarter has slowed.

For external observers, Bitcoin reaching $100,000 seems far off. This situation, combined with the lack of new market narratives, makes the market environment even more challenging.

After the ETH Denver conference in February, I had predicted a significant influx of funds into crypto venture capital funds in the second half of this year.

But now I believe this will happen at the earliest in the fourth quarter, and more likely in the first half of 2025.

The market is becoming misaligned, and many crypto venture capital funds are in the final 25% of deployment, so more funds are needed in the next six months, but LPs want to see allocations first.

Venture capital needs the market to warm up to make allocations. The macroeconomic backdrop may improve soon, and we could break historical highs or see a breakthrough application by the end of the year. I believe at least one of these is quite likely.

Without this, I can foresee a slowdown in venture capital deployment, as VCs must extend their current funds. Finally, can we cancel these boring panel discussions?

No one likes to listen to these panel discussions; they are the laziest form of content. Either focus on truly teaching people something or create an environment where people can freely communicate!

The content in between is a waste of time. I remain optimistic about future developments, with many exciting things to look forward to.

Those who want to complain about Brussels on Twitter are destined not to succeed (Not Gonna Make It).