Bankless Co-founder: The Last Cycle Before Crypto Matures

Original Title: 《David's Take: This is the Last Cycle》

Author: David Hoffman, Co-founder of Bankless

Translator: Yvonne, MarsBit

If you look closely, you will notice some signs that cryptocurrency is entering its last market cycle, after which it will enter a long-term era of maturity, stability, and growth.

One perspective in the crypto space suggests that "the next cycle will be the last cycle." This has been said before, and I do not intend to make a definitive prediction on this. I am merely connecting some dots in the crypto space that point to a new phase in the crypto market after the bear market ends.

Now, let’s dive deeper!

On Regulation and Institutional Approval

The cryptocurrency market is undergoing the largest regulatory struggle in history. In fact, this has been inevitable. As an industry based on currency and finance, we cannot easily enter the mainstream without the recognition of regulatory bodies.

"Becoming mainstream" means that cryptocurrencies can pass regulatory tests.

Do not be afraid. Regardless, cryptocurrencies will win. All we have to do is wait for the questioning to end.

Cryptocurrency is an unstoppable force, and nation-states may change their minds. Gary Gensler will let us register for market entry. Elizabeth Warren will stomp her feet. Banks will try to stifle us.

Ethereum will produce the next block.

History is ultimately defined by the trajectory of technological development. Every blow from anti-crypto regulators and legislators will eventually be offset by the forces of the free market.

The current phase of crypto should not be seen as "nation-states attacking crypto," but rather as "nation-states bullying disruptive technology." Like every college freshman or fraternity member, we just need to get to the other side.

Ripple has only achieved a temporary victory. BlackRock, Fidelity, and all other large TradFi players have just sent a signal to the powers that be to calm down. Popular brands largely do not care about financial regulation; they just continue to explore the uses of cryptocurrency.

Our court cases will be filed, bills will be drafted, voted on, rejected, and then voted on again. This will be frustrating and painful. But one day it will come to an end. Regulators will eventually assess the situation. All we have to do is wait. Time is on our side.

Once the regulatory tests are over, mainstream cautious curiosity about cryptocurrencies will turn into a frenzied gold rush as they realize there is fertile land outside, and the path to enter these new territories is clear and manageable in terms of risk.

Protocol Maturity

As we begin to see the dawn of regulation, we can also see the endgame of many protocols that the crypto industry relies on.

Another key point I took from the ETH CC article is that many of the protocols required for Web3 are evolving into their final forms. We are not there yet, but the final stage is close at hand.

In the near future, we will have more available data in Web3.

EIP4844 will commoditize access to the world's most secure block space.

Thanks to zk-rollups, transactions will be instantaneous. Shared sorting blurs the boundaries between chains. All these technologies pursue the same result: making blockchains invisible.

By the time the next bull market arrives, the cost of Web3 computing will reach theoretical minimums. High gas costs and slow block times will no longer be bottlenecks for using decentralized protocols. The responsibility for innovation will shift to application developers, who will be responsible for leveraging the ample computing resources provided by protocol developers.

The next bull market will not be constrained by scale. No one will use "high costs" and "protocol immaturity" as reasons not to integrate with Web3 systems. Ethereum's "rollup-centric roadmap" will be expressive and customizable enough to easily build proprietary chains to meet the use cases required by any curious player.

This will open the door to the long tail of crypto use cases. When Web3 is slow and expensive, the only available use cases are currency, finance, and high-value assets. If things need to cost tens or hundreds of dollars to accomplish, then the only rational activities that can be supported are those worth thousands of dollars or more.

When the cost of participating in Web3 is low enough, it becomes reasonable for platforms to subsidize their users. Once user transactions are subsidized by competing platforms, the full range of cryptocurrency use cases will ultimately be open to everyone.

What can Web3 do when it is freely accessible?

What new applications can be developed?

What new user groups can we join?

The answers are everything, all, and everyone.

The Development Trajectory of Ethereum

In 2015, Ethereum set an ambitious roadmap for itself. Over time, the ambition of this roadmap has only increased, while the pace of its realization has been much faster than the ambition itself. It turns out that Ethereum's expectations for itself are far more complex than initially imagined.

At some point around 2019, things changed. A significant amount of R&D and some key technological breakthroughs opened a new chapter for Ethereum. "Ethereum 2.0" or "Serenity" (now simply referred to as "Ethereum") has a clearly defined roadmap, and the only thing left is to test and write code.

From 2019 to 2023, code was written and delivered. Ethereum transformed from a single PoW chain into a modular, expressive PoS chain, giving rise to one network after another.

The Ethereum team made commitments and fulfilled them.

What is most astonishing about Ethereum's development trajectory is its commitment to the initial vision set in 2015. Although the details of implementation have changed, and the path itself is unknown, Ethereum has never wavered in its goals.

Throughout history, betting on Ethereum's development trajectory and Ethereum developers has never been successful. With EIP4844 set to be released later this year (in my personal estimation), Ethereum will maintain a perfect record of commitment.

Keeping promises and adhering to a vision signals to the outside world that Ethereum is building products with faith, intention, and purpose. We are not crazy—we have been striving toward the same vision for eight years. You just understand it now.

Before this, the outside world may have seen Ethereum as a group of confused monkeys running around in chaos. But now, as Ethereum finally evolves into the decentralized internet value computation layer that the world needs, people will see beauty in the chaos. The network of networks.

Along with the flourishing of Ethereum comes the storyline of ETH. In 2015, Ethereum could be considered a shitcoin, making corresponding progress alongside the protocol it operated on. In 2015, Ethereum was highly inflationary, with a block reward of *5 ETH, while now *ETH is a native yield-bearing asset with an algorithmic monetary policy. It has real yields, no human intervention, contrasting sharply with the monetary policy of the dollar and the farce of the Federal Reserve.

Apart from further enhancing ETH's monetary capabilities, there has been no further upgrade to ETH's monetary policy.

If you ask large investors what they prefer, the answer is yield. ETH's yield far exceeds that of other bonds. ETH investors earn yields while ETH itself is simultaneously in a deflationary state. The nominal yield for bondholders is positive, but the real yield is negative—"real" is the more important descriptor here.

In contrast, it is widely believed that the real value of the dollar and U.S. Treasury bonds must decline to maintain stability in the global financial system, so Ethereum's future will have a naturally unfolding narrative.

Ethereum's evolution toward a super-robust monetary throne signals to the outside world that there are some unique new things in the crypto industry. Through cryptography and networks, we can create unprecedented financial assets. No, the narrative power of crypto assets with strong value propositions will not stop at Bitcoin… we will not settle for "digital gold." We are exploring new territories where Ethereum as an asset can fit well into previously existing mental models of asset value while being completely different from all previous assets.

The two parts of Ethereum and ETH maturity can be summarized as "growing lindy" and "successfully navigating unknown waters." When society's attention turns back to cryptocurrencies, they will see a protocol and its assets that have been coherently and purposefully developing toward a vision that has never wavered since its inception.

The legitimacy gained by the Ethereum ecosystem will propel it to become a "safe" enough crypto asset for people to take professional risks on and begin recommending "in-depth research" at a high level.

This initiates the ETF, a ball that is already rolling.

ETF Competition

The competition for ETFs has begun. As mentioned earlier regarding regulation, all we have to do is wait. The trajectory of history is defined by technology. Gary can only keep the door to crypto ETFs closed for so long—eventually, the forces of the free market will take effect.

It seems that the sooner, the better. Once Bitcoin opens the door to crypto asset ETFs, it will be hard to stop other assets from having their own ETFs.

We expect to see BTC ETFs and ETH ETFs in the near future. If these coincide with the upcoming bull market, the capital channels between cryptocurrencies and the outside world will be the largest ever. This will match the regulatory dialogue mentioned above. By the end of this cycle, stock codes BTC- and ETH will be as common as APPL and AMZN among major brokerages worldwide.

In Any Case, the Cycle is Shortening

For years, Bitcoin's returns have been suppressed. If you bought Bitcoin wildly in 2010, congratulations, because the surge in 2011 was the most dramatic growth Bitcoin has ever experienced. Each subsequent cycle has required more time to lower the return rates.

One of the biggest topics surrounding cryptocurrencies is that volatility is too high. With each cycle, the volatility of crypto assets decreases, while the volatility of traditional stock and bond markets reaches its highest levels in over 30 years.

The trading market is not lacking in volatility. The crypto market was born from and shaped by it. Now, our market is moving toward stability, while traditional markets are in turmoil due to the actions of the Federal Reserve.

As regulatory pressures ease, and due to the appeal of sustainable, non-speculative adoption of crypto networks thanks to the maturity of network infrastructure, much of the volatility in cryptocurrencies can be mitigated through adoption. The larger the ship, the harder it is to shake.

Moreover, my conclusion in the aforementioned infrastructure section is that our "crypto ship" is ready to expand to any scale that society needs.

The ark is ready; it’s time to board!

The Development of Crypto Civilization

Cryptocurrency will always have its Wild West. There is no way to put the genie back in the bottle—once you provide society with unlicensed financial services, the western frontier cannot be stopped. Thanks to ERC20, anyone can mint meme coins, but now, thanks to OP Stack, anyone can mint a meme chain in the next market cycle.

But now, as the cycle turns, we will see the establishment of Eastern civilization. The safety and security of civilization. The East and West stand in opposition. Those who pursue freedom and adventure head west to escape the tyranny and oppression of civilization. But some seek the safety and security of civilization. Mainstream adoption requires means, channels, laws, and police. The margins of cryptocurrency will move west, but the core of cryptocurrency will evolve into a predictable, reliable, and regulatory-approved environment where those who are less inclined to take risks will feel safe.

Some cryptocurrencies will begin to be considered safe enough that ordinary Web2 users will feel secure and willing to participate. Smart contract wallets with account recovery features, proven applications, high-traffic L2s, Base… these will become the crypto civilization and will be places where those who are less inclined to take risks can still safely engage with the crypto world.

But for every reader of this article, coming here will be a choice. We will know the secret paths to the more obscure corners of cryptocurrency… where tokens and degens play their roles. Good or bad, we will always have the Wild West of cryptocurrency.