By Jiawei @IOSG
introduction
▲ Source: CMC
In the past two years, the market’s focus has always been on one question: Will the copycat season come?
Compared to Bitcoin's strength and growing institutionalization, the performance of most altcoins has been lackluster. The market capitalization of most existing altcoins has shrunk by 95% compared to the previous cycle, and even newly launched coins, often shrouded in gloom, have fallen on hard times. Ethereum also experienced a prolonged period of low sentiment, only recently recovering thanks to trading structures like the "coin-to-stock model."
Even as Bitcoin continues to hit new highs and Ethereum rebounds and stabilizes, overall market sentiment towards altcoins remains subdued. Every market participant is hoping the market can repeat the epic bull run of 2021.
The author here puts forward a core conclusion: the macro environment and market structure of the "flooding" and months-long general rising market in 2021 no longer exist - this is not to say that the copycat season will definitely not come, but it is more likely to unfold in a slow bull pattern and in a more differentiated form.
The short-lived year of 2021
▲ Source: rwa.xyz
The external market environment in 2021 is quite unique. Amid the COVID-19 pandemic, central banks around the world are printing money at an unprecedented rate, injecting this cheap capital into the financial system. This has suppressed the yields of traditional assets, and everyone is suddenly left with a large amount of cash.
Driven by the pursuit of high returns, funds began to flow heavily into risky assets, with the crypto market becoming a key recipient. The most intuitive point is the dramatic expansion of stablecoin issuance, soaring from approximately $20 billion at the end of 2020 to over $150 billion by the end of 2021, a more than sevenfold increase during the year.
Within the crypto industry, after the DeFi Summer, on-chain financial infrastructure is being rolled out, concepts like NFTs and the metaverse are entering the public consciousness, and public chains and capacity expansion are also in an incremental phase. Meanwhile, the supply of projects and tokens is relatively limited, resulting in a high level of attention.
Take DeFi as an example. At the time, the number of blue-chip projects was limited, with a handful of protocols like Uniswap, Aave, Compound, and Maker representing the entire sector. This made it easier for investors to choose, and capital could more easily synergize and drive the entire sector higher.
The above two points provide fertile ground for the copycat season in 2021.
Why “A beautiful place is not permanent, a grand feast is hard to come by again”
Putting aside macroeconomic factors, I believe that the current market structure has undergone the following significant changes compared to four years ago:
Rapid expansion of token supply
▲ Source: CMC
The wealth-making effect of 2021 attracted a large amount of capital to the market. Over the past four years, the booming venture capital market has invisibly pushed up the average valuation of projects. The prevalence of the airdrop economy and the viral spread of memecoin have jointly led to a sharp acceleration in the speed of token issuance and a surge in valuations.
▲ Source: Tokenomist
Unlike 2021, when most projects enjoyed high liquidity, mainstream projects in the current market, with the exception of Memecoin, are facing significant pressure to unlock their tokens. According to TokenUnlocks, over $200 billion in tokens with a market capitalization are expected to unlock in 2024-2025 alone. This underscores the industry's often-criticized "high FDV, low liquidity" phenomenon.
Dispersion of attention and mobility
▲ Source: Kaito
At the attention level, the above chart randomly captures the mindshare of pre-TGE projects on Kaito. Among the top 20 projects, we can identify no fewer than 10 sub-sectors. If we were asked to summarize the dominant narratives in the 2021 market in a few words, most people would likely say "DeFi, NFTs, GameFi/Metaverse." However, the market over the past two years seems to be more difficult to immediately grasp and describe in a few words.
In this situation, capital shifts rapidly between different sectors, and the duration of the shift is short. CT is flooded with information, with various groups spending most of their time discussing different topics. This fragmented attention makes it difficult for capital to form a synergistic force, as was the case in 2021. Even if a sector experiences a good performance, it is difficult to spread to other areas, let alone drive an overall rise.
On the liquidity front, one of the foundations of the altcoin season is the spillover effect of profitable funds: liquidity first flows into mainstream assets like Bitcoin and Ethereum, then begins to seek out altcoins with higher potential returns. This overflow and rotation effect of funds provides sustained buying support for long-tail assets.
This seemingly normal situation is something we have not seen in this cycle:
- One reason is that the institutions and ETFs that drive the rise of Bitcoin and Ethereum will not further deploy funds in altcoins. These funds prefer custodial and compliant top assets and related products, which marginally strengthens the siphon effect on top assets rather than evenly raising the water level to every corner.
- Second, most retail investors in the market may not hold Bitcoin or Ethereum at all, but have been deeply trapped in altcoins in the past two years and have no excess liquidity.
The lack of disruptive applications
The 2021 market surge was fueled by a certain level of support. DeFi has revitalized blockchain's long-standing application drought; NFTs have expanded the influence of creators and celebrities beyond their niche, with incremental growth coming from the expansion of new users and use cases outside the industry (at least that's the story).
After four years of technology and product iteration, we've discovered an overdeveloped infrastructure with few truly disruptive applications. Meanwhile, the market is growing, becoming more pragmatic and sober. Fatigued by the endless stream of narratives, the market needs to see real user growth and sustainable business models.
Without a continuous influx of fresh blood to take over the ever-expanding supply of tokens, the market can only fall into the internal circulation of stock game, which cannot fundamentally provide the necessary foundation for a general rise in the market.
Outline and envision this round of copycat season
The copycat season will come, but it will not be the copycat season like in 2021.
First, the basic logic of profit-taking and sector rotation exists. We can observe that after Bitcoin reached $100,000, its short-term upward momentum significantly weakened, and investors began looking for the next target. The same logic applies to Ethereum.
Secondly, amidst chronic market liquidity shortages, investors are trapped in altcoins, forcing them to seek self-rescue. Ethereum is a prime example: have the fundamentals of Ethereum changed in this round? The most popular applications, Hyperliquid and pump.fun, did not originate on Ethereum; the concept of a "world computer" is also a long-standing one.
Insufficient internal liquidity means that investors can only seek external liquidity. Driven by DAT and the more than threefold increase in ETH, many stories about stablecoins and RWAs have the most realistic foundation.
The author envisions the following scenario:
A deterministic market dominated by fundamentals
▲ Source: TokenTerminal
In an uncertain market, capital will instinctively seek certainty.
Funds will flow more towards projects with strong fundamentals and product-market fit (PMF). These assets may experience limited growth, but are relatively stable and offer high certainty. For example, DeFi blue chips like Uniswap and Aave have maintained resilience even during market downturns, while Ethena, Hyperliquid, and Pendle have emerged as rising stars in this cycle.
Potential catalysts could be governance actions like flipping the fee switch, etc.
What these projects have in common is that they can generate considerable cash flow and their products have been fully verified by the market.
Beta opportunities in strong assets
When a major market trend (such as ETH) begins to rise, funds that missed out on this surge or seek higher leverage will seek out highly correlated "proxy assets" to capture beta returns. Examples include UNI, ETHFI, and ENS. These can amplify ETH's volatility, but their sustainability is relatively poor.
Repricing of old tracks under mainstream adoption
From institutional Bitcoin buying, ETFs, and the DAT model, the overarching narrative of this cycle is the adoption of traditional finance. If stablecoin growth accelerates, perhaps quadrupling to $1 trillion, some of this capital will likely flow into DeFi, driving a market revaluation. The transition from crypto-focused financial products to traditional finance will reshape the valuation framework for DeFi blue-chips.
Local ecological hype
▲ Source: DeFiLlama
Due to its high level of discussion, user stickiness and the gathering of incremental funds, HyperEVM may experience wealth effects and Alpha for weeks to months during the growth cycle of ecological projects.
Divergence in valuations of star projects
▲ Source: Blockworks
Taking pump.fun as an example, after the hype surrounding its coin offering subsides, valuations return to a conservative range, and market divergence emerges, if fundamentals remain strong, there may be opportunities for a rebound. In the medium term, as a leading meme, pump.fun, with both revenue as its fundamental support and a buyback model, may outperform most top memes.
Conclusion
The blind-buy-it-all altcoin season of 2021 is now history. The market environment is becoming more mature and differentiated—the market is always right, and investors can only constantly adapt to this change.
In conclusion, I would like to make a few predictions based on the above:
- As traditional financial institutions enter the crypto world, their capital allocation logic differs significantly from that of retail investors—they demand explainable cash and comparable valuation models. This allocation logic directly benefits the expansion and growth of DeFi in the next cycle. To compete for institutional capital, DeFi protocols will more actively implement fee allocation, buybacks, or dividend-based schemes over the next 6–12 months.
- In the future, the valuation logic based solely on TVL will shift to a cash flow distribution logic. We can see this in some recently launched DeFi institutional products, such as Aave's Horizon, which allows the collateralization of tokenized US Treasury bonds and institutional funds to borrow stablecoins.
- As the macro interest rate environment becomes more complex and traditional finance's demand for on-chain returns increases, standardized and productized yield infrastructure will become a hot topic: interest rate derivatives (such as Pendle), structured product platforms (such as Ethena), and yield aggregators will benefit.
- The risk facing DeFi protocols is that traditional institutions leverage their brand, compliance, and distribution advantages to launch their own regulated, "walled garden" products to compete with existing DeFi. This can be seen in the Tempo blockchain jointly launched by Paradigm and Stripe.
- The future altcoin market may trend toward a "barbell" structure, with liquidity flowing toward two extremes. At one end are blue-chip DeFi and infrastructure projects. These projects, with their cash flow, network effects, and institutional recognition, will attract the vast majority of capital seeking steady growth. At the other end are pure high-risk assets—memecoins and short-term narratives. These assets lack any fundamental narratives and instead serve as highly liquid, low-barrier speculative tools, satisfying the market's demand for extreme risk and return. In between, projects with promising products but weaker moats and lackluster narratives may face awkward market positioning if their liquidity structure doesn't improve.
