Author: Li Rongqiang

The tide is changing. While many are still reveling in the excitement surrounding the approval of crypto ETFs, the critical mass of Web3 adoption has already arrived.

This is not only the implementation of friendly bills or the maturity of blockchain technology, but also a profound "paradigm shift": exchange businesses are being forced to "go on the chain", and more efficient and transparent DeFi is emerging, blurring the boundaries between centralization and decentralization at an unprecedented speed.

The future is here, and the convergence of traditional finance and DeFi will unlock enormous opportunities. As industry participants, we must discern clearly which are the true "entry opportunities" and which are merely the final bubbles.

Web3 is about to reach a critical point

From the perspective of the medium- to long-term development of web3, there will be huge opportunities for application landing. It was too early to say this in previous rounds, but now it is almost at a critical point. There are several reasons for this:

First, from the perspective of laws and regulations, with the issuance and expansion of cryptocurrency ETFs, some of President Trump's cryptocurrency-friendly remarks and the subsequent implementation of friendly bills have given the industry a free rein, such as the passage of the Stablecoin Genius Act in the middle of this year. With the release of this industry, more traditional financial institutions will enter the market with professional knowledge, tools and real money.

Secondly, the improvement of blockchain and Web3 technologies and related infrastructure has fully met the conditions for large-scale application landing and migration. Ethereum also celebrated its tenth anniversary this year. After many black swan events and various destructive stress tests, time has proved that Ethereum and layer2 and subsequent supporting infrastructure are capable of supporting large-scale application landing.

As technology and infrastructure mature, the cultivation of relevant practitioners and talent teams has also begun to take shape. In particular, the smart contract developer ecosystem, represented by languages like Solidity and Rust, has formed, supporting the industry's progress and future development.

Furthermore, the emergence of MicroStrategy and numerous US-listed DATs has significantly lowered the barrier to entry for both institutional and individual investors. Previously, many institutions (such as funds and family offices) were not allowed to purchase crypto ETFs, but they were permitted to purchase US stocks. The inclusion of cryptocurrencies in DATs has opened a new Pandora's box, further lowering the barrier to entry for both institutional and individual investors. While this is certainly an innovation, particular attention needs to be paid to asset custody, as well as the attendant shady dealings and various liquidity swaps. This will take time to develop, and we anticipate potential black swan events. Therefore, I believe there will be opportunities for both good and bad news to flow into the market.

Overall, we have reached a critical point, and it is an opportunity for web3 mass adoption. As ordinary investors, we need to find a good time to enter the market.

The development of any technology and related industries is always zigzagging and upward. Don't be anxious, there will always be a chance for you to enter. All winters are opportunities for those who have not gotten on the bus to get back on board.

Where are the future opportunities?

On the one hand, there are still opportunities in the public chain. It is difficult to get the opportunity of dozens or hundreds of times the growth as before, but relatively speaking, there are some projects with greater growth potential, and some small projects are hard to come by.

The second is the opportunity for large exchanges to migrate their businesses onto the chain. In the previous wave, exchanges relied on their own traffic advantages, used their influence and traffic to monetize, and obtained high valuations through investing in early-stage projects for listing and monetization. However, this wave can no longer continue.

Users are not fools. Those projects that start out with tens or even hundreds of billions of dollars, and many of them even have ridiculous business logic, are valued very high once they go online, and then the valuations continue to rise.

I personally believe this wave of opportunities is primarily driven by exchanges and traditional financial institutions migrating their businesses onto blockchain. This includes traditional DeFi projects (given how rapidly this industry is developing, DeFi split into traditional and new DeFi shortly after its emergence), which have strong cash flow and have been operating for a long time. These projects are collaborating with traditional institutions or adding traditional businesses to the blockchain and implementing refined management. Furthermore, with the increasing legal and regulatory approvals, many previously unattainable initiatives are now possible, which undoubtedly opens up a lot of new possibilities. Let's take Binance and Coinbase as examples.

Before we get into that, we have to mention the incredibly popular Hype project of the past two years. With a team of just over a dozen people, Hype has managed to achieve this level of trading volume and maintain its operations for such a long time. This clearly demonstrates that anonymous, permissionless, perpetual, and decentralized spot exchanges may be the future trend.

First of all, from a core perspective, it is more efficient, more transparent, and more decentralized. A dozen people support such a large trading volume. Binance is so large in scale that it requires technology, operations, customer service and marketing, as well as various public relations to maintain relationships with KOLs. It is also a bit difficult, especially after some market rumors after the 1011 margin call.

Therefore, the Hype model has hurt many centralized exchanges, forcing them to face the problem and directly engage in perpetual and spot DEX. At the same time, due to technological advances, the order book model technology is mature enough and its efficiency is getting higher and higher.

Therefore, Binance has CZ directly supporting Aster, Coinbase is Avantis, and other exchanges are also following suit, building a complete chain of exchanges, public chains, DEXs, and DeFi applications.

For example, binance-BNBchain-aster (pancakeswap/lista/venus), coinbase-Base-Avantis (Aerodrome/Morpho). Currently, Avantis does not have spot products, only perpetual contract dex, but I estimate that related functions will be on the way to improve this chain.

This is the real process of gradually migrating the exchange's business onto the chain. This is a trend that is unstoppable because it is permissionless, anonymous, and available 24/7. The extreme efficiency improvement brought by the fully decentralized exchange is more efficient than the existing centralized exchanges that require heavy operations.

This is an advancement in technology as well as an advancement in concepts.

The boundary between Cefi and Defi is blurring

Of course, I'm not saying that centralized exchanges will be useless in the future. They will continue to exist. Currently, centralization has its advantages in matching transactions and supporting large-scale user concurrency, and this is understandable. Therefore, centralized exchanges will exist for a long time, but their market share will be eroded by decentralized exchanges.

It’s just that this permissionless and anonymous decentralized exchange provides an option for more people.

The aftermath of the October 11th liquidation incident, caused by the opaque automatic liquidation (ADL) mechanisms of centralized exchanges, harmed many users. Market rumors circulated that the actual volume of liquidated positions was far higher than disclosed. This has led some users to migrate to fully decentralized exchanges.

Exchanges are responding based on the principle of "if you can't beat them, join them." Binance has already launched Binance Alpha and Alpha 2.0. Currently, Binance users can use their funds on the exchange to purchase on-chain tokens. There's also a dedicated Binance Alpha section on the Binance homepage, with liquidity provided by PancakeSwap. So, what's wrong with future exchanges integrating LISTA and Venus for lending? They may already be doing so, though we're just unaware of it. These changes are largely invisible to users.

Logically, Coinbase proposed this slogan earlier. When the Base chain was launched, it proposed to put all of Coinbase on the chain. However, it has always emphasized its compliance, so it was inevitably restricted when doing related business, especially the various restrictions imposed on cryptocurrencies by then-President Biden and the Chairman of the SEC. Coinbase could not completely throw its sleeves around to develop the Base chain and projects like Binance.

However, the Base chain has clearly announced that it will issue coins, which may completely change this situation and give a shot in the arm to the Base chain ecosystem and the entire business ecosystem of Coinbase.

At the same time, let's examine how Coinbase, a publicly listed US company, will handle the legal framework surrounding its Base Chain token issuance. If this process is successfully implemented, it will serve as a model for other projects. More DeFi companies will likely go public, and more publicly listed companies may issue tokens. M&A and partnerships are also an option. Pandora's box has been opened.

As long as the effect is good and there is a wealth effect, it will definitely trigger imitation, and more businesses will be migrated to the chain, which will eventually completely blur the relevant boundaries and even become imperceptible to users, who will not be able to distinguish whether it is centralized or decentralized.

In addition, I recently heard that hashkey, a Hong Kong compliant exchange, is also considering going public. I don’t know how they will deal with the hashkey coins they have already issued. The situation is getting more and more lively.

Meanwhile, Robinhood, a long-established brokerage, has successfully transitioned into the cryptocurrency trading business, leading to a surge in its market capitalization. Robinhood allows users to trade both stocks and cryptocurrencies, and traders often don't know whether they're buying coins or stocks, further blurring the lines. Will other established brokerages follow suit?

On the other hand, some large-cap US stocks can be traded on many perp dex, and US stocks can also be bought and sold on the Kraken exchange, which means that in the future, stocks can be traded 24/7 on decentralized exchanges and various cryptocurrency exchanges.

First of all, let’s not talk about whether this is right or not. At least, the flow of capital will be faster. Previously, due to the backward financial infrastructure, people in many countries and regions did not even have bank cards, let alone playing stocks. However, the advancement of web3 infrastructure has made stablecoins accessible to more people. Compared with their country’s own currency, the US dollar stablecoin is a savior, and it can be done with just a mobile phone.

Inclusive finance itself is a savior for many backward countries, but if these things themselves are risky, then they are also victims of the risks. Therefore, everything has two sides and must be viewed comprehensively.

summary

As the industry deepens, there will be higher requirements for the project itself and practitioners, especially in terms of professionalism, and they need to know more, which is also in line with the development trend of new technologies.

The new projects that are coming out now are often worth tens of billions or even hundreds of billions of US dollars, which are basically not worth looking at. I hope to wait for a time when all the good and bad are mixed together and these projects return to reasonable valuations. At that time, I can think carefully about which projects are worth studying.

Therefore, the first priority in this industry is to survive long enough, stay away from those fleeting memes, leveraged contracts and related derivatives, and debt. Only by living long enough can you see the vast world of web3.