Messari: Three Crypto Trends and Challenges for the Next Bull Market

Author: Messari

Compiled by: PANews

The next bull market will be driven by the technologies and trends that continue to be built during the current bear market, but not all technologies or trends hold equal value. So, let’s explore in this article which crypto trends might spark the next bull market.

In fact, we can use a framework to evaluate crypto trends, considering the following main factors:

1. Innovation

2. 10x Value Potential

3. Total Addressable Market (TAM)

4. Value Capture

5. Competitiveness

With this framework in mind, we may evaluate the following three trends to see if they truly have the potential to catalyze the next wave of the bull market.

I. Application Protocols

In the past, the crypto industry seemed to value network protocols more than application protocols. However, the dynamics of market competition have subtly shifted. New ecosystems will strive for EVM compatibility, allowing application protocols to be easily deployed.

As blockchain competition intensifies, execution environments like EVM are beginning to explore commoditization and monetization models, in which case crypto applications gain a more solid industry positioning. Moreover, crypto applications themselves are seeking more optimized business models aimed at accumulating more "bottom line revenue."

Trends in Application Protocol Development

1. Core Features

• Portability: Apps can now easily adapt to new (EVM) blockchains;
• Profitability: Using stablecoin models, application protocols can generate "bottom line revenue";
• User Relationships: Compared to traditional network protocols, application protocols can create better user associations.

1. Key Differences

• Sustainability: Application protocols will benefit from competition among foundational chains;
• Non-forkable: The liquidity of minted stablecoins will not face fork risks;
• Verifiability: Products and teams withstand real-world testing.

1. Major Challenges

• Incentives: Need to provide ETH incentives or offer excess incentive measures;
• Regulation: Must face regulatory uncertainty risks;

Favorable Factors

1. Ecosystem Funds

• Ecosystem funds will attract more users to apps;
• Apps will accumulate revenue and brand power;
• Utilize brand power to expand into more blockchains.

1. Business Optimization

• Product upgrades will increase revenue;
• Source code licensing will reduce fork risks;
• Strengthening governance processes.

Unfavorable Factors

1. Regulation

• Compliance requirements from U.S. regulators will limit user base growth;
• Stablecoins are expected to face additional regulation;

1. Crypto User Experience

• Users hold negative views on crypto wallets and browsers;
• Lack of accessibility limits user base growth;
• User experience exceeds protocol control.

II. Decentralized Social

Decentralized social provides on-chain reputation, organizations (DAOs), and content ownership, with content ownership being key as it offers individuals a way to ultimately capture the value they create, meaning the internet will reconstruct the flow of value.

Decentralized social is a fully open, personalized, and "ownable" social media, where social apps can create independent profit models, and users can earn income through the content they create. Major products in this field include data hosts, social graphs, and social applications.

Trends in Decentralized Social Development

1. Core Features

• Revenue: Diverse profit models, such as P2E;
• Open Data: Social graph data can migrate between applications;
• Extensibility: Decentralized social is open-source and fully customizable.

1. Key Differences

• Large Addressable Market: Includes social network advertising and digital commerce;
• Defensibility: Social graphs and infrastructure can be quickly completed and effectively consolidated;
• "Portable Talent": Developers and user experiences are more accessible.

1. Major Challenges

• Scalability: Daily active user numbers for decentralized social applications are generally high, which can put pressure on the blockchain;
• Privacy: Data from decentralized social applications is open, and the lack of privacy may discomfort some users;
• User Experience: Ordinary users may have a slightly poor wallet experience.

Favorable Factors

1. Users "Own" Content

• Through NFTs, users wish to own and share content;
• User ownership of content will enable more functional designs;
• When users have content ownership, user stickiness will further increase.

1. Social Investment

• Investment activities will become more social, such as WSB and DAOs;
• The past lacked native social investment platforms, but there may be significant growth potential in the future;
• Investors need to establish credibility within the community, leading to the emergence of a batch of native tools for building investment credibility.

Unfavorable Factors

1. Mobile Crypto Limitations

• Mobile crypto integration is not efficient;
• iOS has always been a "staunch gatekeeper";
• Greatly limits the available user base.

1. Data Issues

• Social application products typically generate massive amounts of data;
• Current blockchains struggle to handle vast transaction data;
• Need to support usable layers for unpublished data.

III. Web3 Games

The goal of Web3 games is to allow players to own their in-game digital items and create an in-game economy using tokens, thereby driving players to feel a sense of achievement in the game and become more willing to invest money in it.

Driven by "play-to-earn" game models like Axie Infinity, Web3 games are becoming increasingly popular, with more Web3 games beginning to integrate tokens into their mechanisms. Although no sustainable Web3 game has emerged so far, this field has attracted significant investment aimed at developing the next "hit game."

Trends in Web3 Game Development

1. Core Features

• Incentives: Players can earn income by investing time in the game;
• Player-owned Content: Players own "game content ownership";
• Easy to Start: Faster onboarding helps further promote the adoption of Web3 games.

1. Key Differences

• High Income: Participating in play-to-earn games like Axie Infinity may yield more income than participating in DeFi;
• Defensibility: The liquidity of minted stablecoins will not face fork risks;
• "Portable Talent": Developers and user experiences are more accessible.

1. Major Challenges

• Competitiveness: Compared to traditional games, Web3 games are currently at a disadvantage;
• Instability: The stability of game economies needs improvement;
• Longer Development Cycles: Iterating on Web3 games is more challenging.

Favorable Factors

1. Esports + Market Growth

• Games driven by esports are highly popular;
• The gaming market will continue to expand into mobile;
• The gaming industry easily attracts investment, thereby driving significant market growth.

1. Users "Own" Content

• Gamers are more willing to "own" content themselves;
• Gamers have more opportunities to profit;
• Increased secondary sales can boost game revenue.

Unfavorable Factors

1. Web3 Game Mechanism Design

• Controlling multiple game projects operating in the open market is challenging;
• Long development cycles increase the risks of game mechanisms;
• Product/market fit is difficult to assess.

1. Game Distribution Issues

• Major game distribution is still controlled by large companies like Apple;
• The crypto integration of games still has limitations;
• The mobile crypto gaming market is still in its infancy.