$TRUMP ignites expectations for Trump's presidency. Which assets may迎来 the "American compliance spring"?
As Trump is about to take office as President of the United States again, investors are filled with expectations for the future of the crypto market. Since Trump won the presidential election, Bitcoin has surpassed the milestone of $100,000. The $Trump token, announced by Trump, reached a total market capitalization of $82 billion in just two days, soaring 472 times from its opening price. Other American celebrities and political figures are emerging as Alpha. "The president is about to issue a token," not only gives a shot in the arm to the future of the crypto market but also brings more liquidity into Solana, further intensifying the rise of the Solana ecosystem.
During last year's campaign, Trump promised to incorporate all Bitcoin currently held by the U.S. government and any future purchases into a "national strategic Bitcoin reserve." He will stop the government's crackdown on cryptocurrencies within an hour of taking office and propose policies that can promote the comprehensive development of cryptocurrencies. If Trump can truly fulfill these supportive commitments, the U.S. may greatly accelerate the popularization of cryptocurrencies and become the "global cryptocurrency center."
We anticipate that Trump will prioritize the promotion of the FIT21 Act (the "21st Century Technology and Financial Innovation Act"), which will allow tens of thousands of cryptocurrencies to be almost clearly distinguished as "commodities" and "securities," promoting a new wave of entrepreneurship and innovation under the reasonable regulation of the SEC and CFTC. Traditional VCs and funds can enter the market under compliance protections, raising the entire crypto market's market capitalization to a new height. For us investors, different types of cryptocurrencies have different risk characteristics. The price fluctuations of "commodity" cryptocurrencies may be related to market demand, supply, and other factors, while security-type cryptocurrencies may be influenced by project operations, market expectations, and other factors. With clear classifications, we can also more accurately assess the risks of the cryptocurrencies we invest in and make more reasonable investment decisions.
I. FIT21: Clarifying "Commodity" and "Security" Attributes
From the perspective of U.S. regulation, since 2015, whether cryptocurrencies belong to "commodities" or "securities" has been a point of contention between the SEC and CFTC.
SEC's Determination Criteria: The Howey Test
- Is there an investment of money?
- Is there an expectation of profits?
- Is there a common enterprise?
CFTC's Determination Criteria:
- Is there substitutability?
- Is there market tradability?
- Is there a certain degree of scarcity?
In May of this year, the U.S. House of Representatives passed the "21st Century Technology and Financial Innovation Act" (FIT21 Act), which clarifies the regulatory responsibilities of the two regulatory agencies and updates existing securities and commodities laws to establish a broad regulatory framework for digital assets. The framework classifies cryptocurrencies (digital assets) other than stablecoins into two categories:
- "Digital commodities," exclusively regulated by the CFTC
- "Restricted digital assets," which are essentially similar to securities but not explicitly stated, exclusively regulated by the SEC
These will be referred to as "commodities" and "securities."
FIT21 proposes five key elements to distinguish whether cryptocurrencies are securities or commodities:
Howey Test: Consistent with the SEC's long-standing criteria, if the purchase of a cryptocurrency is viewed as an investment and investors expect to earn profits through the efforts of entrepreneurs or third parties, it is typically considered a security.
Use and Consumption: If a cryptocurrency is primarily used as a medium for consuming goods or services, such as tokens that can be used to purchase specific services or products, it may not be classified as a security but rather as a commodity.
Degree of Decentralization: The bill emphasizes the degree of decentralization of the blockchain network. If the network behind a cryptocurrency is highly decentralized, with no central authority controlling the network or having a "backdoor" to the asset, that asset will be considered a commodity.
Functional and Technical Characteristics: If a cryptocurrency primarily provides economic returns through automated programs on the blockchain or allows voting participation in governance, it is likely to be considered a security.
Market Activity: How cryptocurrencies are promoted and sold in the market is also an important factor. If tokens are primarily marketed based on expected investment returns, they may be viewed as securities.
From the perspective of use and consumption, public chains and PoW tokens are more aligned with the standards of commodities. Their common characteristic is that they are primarily used as mediums of exchange or payment methods, rather than as investments expecting capital appreciation. Although these assets may also be purchased and held speculatively in the actual market, from the design and primary use perspective, they are more inclined to be viewed as commodities.
The bill states, "If no relevant person has individually owned or controlled more than 20% of the voting rights in the past 12 months, this indicates that the digital asset has a high degree of decentralization." This usually means that no single entity or small group can control the operation or decision-making of the asset. From this perspective, a high degree of decentralization is an important factor in driving the asset to be viewed as a commodity, as it reduces the control of a single entity over the asset's value and operation, aligning with the characteristics of commodities, which are primarily used for exchange or use rather than for investment returns.
From the perspective of functional and technical characteristics, utility tokens governed by DAOs are more aligned with the standards of securities. "If a cryptocurrency primarily provides economic returns through automated programs on the blockchain or allows voting participation in governance, it will be considered a security," as this indicates that investors expect to gain benefits through the efforts of third-party enterprises.
There is a contradiction: what if a utility token also has a high degree of decentralization in governance? Shouldn't it be defined as a commodity?
The point to consider here is whether the holder's primary purpose for holding the asset is to obtain economic returns (e.g., through asset appreciation or dividends), or to use the asset for transactions and other activities on the platform or network?
In the context of the ETH spot ETF application (Form 19b-4) being approved, the definition of ETH leans more towards functional use, as its staking and governance nature is more about maintaining network operation rather than economic returns, so in the future, L1 digital assets similar to ETH, under the premise of meeting decentralization and other conditions, can theoretically be viewed as commodities.
From this perspective, protocols governed by DAOs, including DeFi and L2, if they trend more towards obtaining economic returns or dividends in governance, are more likely to be defined as securities.
Therefore, based solely on the FIT21 Act, we temporarily classify L1 tokens as commodities and protocol tokens with DAO governance and L2 tokens as securities.
At the same time, we find that this result is largely consistent with the Type 1 (digital commodities) and Type 2 (equity governance tokens) classification proposed by Frax Finance. A detailed interpretation will be provided in the third part.
Although it was passed by the House of Representatives back in May, the FIT21 Act has yet to be voted on in the Senate. JPMorgan analysts believe that once Trump officially takes office, several stalled cryptocurrency bills, including FIT21, may quickly gain approval.
As Trump is about to enter the White House, FIT21 may soon arrive, creating a stable and effective regulatory environment for the healthy growth of the crypto market. Continuous attention to the progress of the bill is needed (House √ ------ Senate ------ Presidential signature).
The bill clearly defines the concept of decentralization, indicating that no one can individually control the entire blockchain network, and anyone who does not own more than 20% of the digital assets or voting rights is likely to be viewed as a "digital commodity." The definition of commodity cryptocurrencies is expected to strengthen their expansion in the payment field. At the same time, under a high degree of decentralization, more ETFs may emerge. The SOL ETF is expected to become the third crypto spot ETF after the ETH ETF, as stated by Geoffrey Kendrick, Standard Chartered's head of foreign exchange and digital asset research, and Anthony Scaramucci, founder and managing partner of SkyBridge Capital. There are also XRP and LTC, which have recently surged due to ETF rumors.
As for "restricted digital assets," i.e., security tokens like DeFi, the FIT21 Act will be more favorable for DeFi compliance and may even trigger "mergers." Whether it is startups or traditional finance entering the DeFi projects for investment, it will become more convenient. Considering the recent embrace of the crypto market by traditional financial institutions represented by BlackRock (promoting ETF listings, issuing U.S. Treasury assets on Ethereum), DeFi is likely to be a key area for their layout in the coming years, and the entry of traditional financial giants may make mergers one of the most convenient options. Any related signs, even just intentions for mergers, will trigger a reevaluation of the value of leading DeFi projects.
II. In-depth Analysis of L1, L2, DeFi: Are They Commodities or Securities?
Bitcoin (BTC)
The value of a commodity depends on labor time, in other words, the realization of labor time; the value of a security depends on profit margins, in other words, the realization of profit expectations.
A commodity is an economic product, usually a resource, with complete or substantial substitutability. In other words, the market views instances of commodities as equivalent or nearly equivalent, regardless of who produced them.
Bitcoin is the first, most popular, and largest cryptocurrency by market capitalization. The total supply of Bitcoin is capped at 21 million, and through the PoW consensus mechanism, the process of "miners" and "mining," and the acquisition of labor products, it crystallizes human labor, which can be transferred, traded, and generate profits through money as compensation, corresponding to the actual property enjoyed by holders in real life, possessing both use value and exchange value.
At the same time, its hash power distribution, node distribution, and network hash rate continue to rise, making it the most decentralized cryptocurrency. To date, no other cryptocurrency can compete with Bitcoin in terms of decentralization.
The core idea of Bitcoin is to establish a decentralized currency payment system that anyone can participate in without the approval or regulation of governments or banks. After more than a decade of development, Bitcoin is now used as legal tender in El Salvador and the Central African Republic, and countries like the U.S., Australia, Canada, and the U.K. have allowed Bitcoin to be used for legal payments.
Therefore, from both the degree of decentralization and its use, Bitcoin is undoubtedly a "digital commodity."
Ethereum (ETH)
As the first blockchain network to support smart contracts, Ethereum is known for its decentralized applications, ERC token standards, security, decentralization, and innovation in the financial services sector, providing developers with the infrastructure to build and deploy decentralized applications while promoting the development of popular sectors like DeFi and GameFi.
Crypto enthusiasts often refer to ETH as "digital oil." Why?
Firstly, ETH plays the role of basic fuel in the Ethereum network, used to pay transaction fees and acts as the fuel for transactions, known as Gas. You need to use it to pay for various operational costs, such as sending transactions, purchasing services or goods, deploying smart contracts, etc. This is similar to the use of oil as fuel and energy in the real world, serving as the foundational resource that drives various activities and applications. From this perspective, it leans more towards commodity attributes, primarily used as a medium of exchange or payment method.
As the number of applications on Ethereum continues to grow and network activity increases, such as DeFi and GameFi, the demand for ETH is also continuously rising. This increase in demand is similar to the rising demand for oil during the industrialization process, thereby driving up the value of ETH. At the same time, DeFi mining and LSDFi derived from ETH can be viewed as interest paid to ETH holders, representing a commodity premium.
It is worth mentioning that, from the perspective of issuance and burning, Ethereum's ETH even has a lower annual issuance rate than Bitcoin's BTC, and in extreme narrative fervor situations like xxFi Summer, there may even be a deflationary situation where the burning amount exceeds the issuance amount. This deflationary characteristic is similar to the scarcity of oil resources.
Since Ethereum transitioned to the PoS mechanism, the issuance mechanism of ETH has undergone significant changes. PoS rewards users for holding and staking ETH to maintain network security. This mechanism links the newly issued ETH to the security and vitality of the network.
When Ethereum used the PoW mechanism, a block was generated approximately every 14 seconds, with each block's creator receiving a reward of 2 ETH, resulting in an annual new issuance of about 4.5 million ETH (approximately 12,300 ETH released daily).
With the adoption of the PoS mechanism, the issuance model has also changed: staking validators are rewarded, with more staking leading to lower yields and less staking leading to higher rewards, achieving self-regulation.
From the table below, it can be seen that after adopting the PoS mechanism, under the condition that the annual ETH inflation rate does not exceed 1.71%, the range of newly issued ETH is approximately 180,000 - 2.09 million per year (approximately 496-5,700 per day).
In 2021, the Ethereum Foundation introduced the EIP-1559 "burn" mechanism.
EIP-1559 improved Ethereum's transaction fee structure, where the BaseFee (base fee) in each transaction is entirely burned, while the Priority Fee (priority fee) is directly paid to miners.
This indicates that the higher the network usage, the higher the BaseFee reflecting network congestion, and thus the more ETH ultimately burned.
Let us observe the burning and supply status during the PoW and PoS periods through specific data.
From the chart below, it can be seen that in August 2021, EIP-1559 officially went live, and since that time, 4.54 million ETH have been burned, while 7.81 million have been issued, resulting in a net issuance of 7.81 - 4.54 = 3.27 million ETH.
From the chart below, it can be seen that in September 2022, Ethereum completed The Merge and transitioned to the PoS mechanism. Since that time, 1.91 million ETH have been burned, while 1.87 million have been issued. In fact, after transitioning to PoS, the overall state of issuance and burning is deflationary, approximately -40,669 ETH.
From these two sets of data, it is evident:
- From the perspective of burning, from August 2021 to September 2022, during the early stage of the last bull market, the burning amount reached 4.54 - 1.91 = 2.63 million ETH.
This period was during the early stage of the bull market's end, and according to the chart of Gas prices, Gas remained between $30 and $156, with on-chain activity still frequent. High network usage leads to high burning.
However, it could not balance the new issuance amount of 7.81 - 1.87 = 5.94 million ETH during this period.
- From the perspective of issuance, from August 2021 to September 2022, this was still under the PoW consensus mechanism, with a new issuance of 5.94 million ETH. However, since the transition to PoS in September 2022, only 1.87 million ETH have been newly issued.
Therefore, the issuance amount under the PoS mechanism is much lower than that under the PoW mechanism.
In the context of the parallel issuance and burning mechanisms, we expect that when market attention gathers on the Ethereum network, triggering a new wave of narrative frenzy similar to DeFi Summer or AI Meme Season, if trading volume increases significantly, we may see the amount of burned ETH exceed the amount of newly issued ETH, thus forming a deflationary phenomenon.
However, currently, the market focus is not on the Ethereum chain, and trading volume and Gas fees are relatively low, with issuance exceeding burning, resulting in an inflationary state. According to ETH Burned statistics, in the past seven days, ETH has cumulatively issued 18,199 ETH and burned 8,711 ETH, meaning the total amount has only increased by 9,488 ETH, effectively controlling the inflation rate.
As shown in the chart below, Ethereum currently has an annual new issuance of about 0.411%, but compared to the PoW version of Ethereum at 3.716% and Bitcoin at 0.83%, it has maintained a low level.
Finally, still considering from a regulatory perspective, the Ethereum network is highly decentralized, with no centralized controlling entity. Although there is a known founding team, the current operation and development mainly rely on the community. Upgrades at the protocol level come directly from proposal governance.
Observing the top 10 ETH holders, apart from the first being the ETH 2.0 staking contract, which holds 46.06% of ETH, the remaining individual wallet addresses or contract addresses hold no more than 3% of ETH.
According to FIT21's method of assessing decentralization, this further supports the commodity attributes of ETH.
Other L1s similar to ETH are also their own chain's Gas tokens and are the core of the ecosystems built around them, with no single address holding more than 20% of the tokens, which we also consider to belong to commodity attributes. However, we need to focus on L2.
ETH L2
The Ethereum ecosystem is already very large, with not only a thriving L1 but also over a hundred L2s with various verification forms like Rollup, Optimism, and zkRollup, each forming its own ecosystem.
The degree of decentralization of L2 block producers is not as crucial as that of L1, meaning that tokens are not necessarily required. Optimism and Arbitrum previously operated well without tokens. ETH has a unique function among all L2s, which is to serve as the Gas token for all L2s.
Why do L2s use ETH as the Gas token?
The emergence of Ethereum L2 aims to improve Ethereum's scalability and reduce transaction costs while inheriting Ethereum's security and data availability.
First is security; all transactions on L2 ultimately need to be confirmed and stored on L1. Second is data availability; to ensure that L2's data can be verified by the Ethereum main chain and maintain authenticity, transaction data on L2 must be published on Ethereum. Both processes require using ETH to pay settlement fees and DA fees on Ethereum.
When paying to L1, even if L2's native tokens can be used for payment, they essentially still need to be converted to ETH first. For example, Starknet is the first among several well-known L2s to plan to support using its native token STRK to pay Gas, but it relies on validators to handle the STRK <-> ETH conversion, with exchange rates quoted through third-party oracles.
So what is the significance of L2's native tokens?
This brings us back to the L2 chain itself. Although L2 is as secure as L1, L2 typically employs centralized ordering nodes for transaction execution, responsible for transaction ordering and packaging. This centralized design, while providing a better user experience, lower fees, and faster transaction confirmations, also brings potential censorship risks. For instance, centralized orderers can maliciously censor user transactions, extract MEV, or engage in front-running.
Given this, how can we decentralize the orderers? The current answer is tokens, which decentralize through governance and block rewards. For example, token holders can vote to participate in network governance, deciding the operational rules and parameters of the orderers.
This explains why the vast majority of L2s issue their own tokens, but the practical use of these tokens is primarily for governance.
Therefore, the native tokens of L2s are essentially not the Gas of their own chains and do not necessarily need to develop ecosystems around those tokens (most still primarily revolve around ETH), and are more likely to be classified as securities from a regulatory perspective.
DeFi
The DeFi Summer of 2020 was a true bloom of applications, with a large number of new protocols emerging, and established protocols like UniSwap, Maker, and Aave reaching new highs. Every new chain and Layer 2 launched typically featured the same three components: Swap, stablecoins, and lending. These three components have been heavily commoditized across chains.
From a utility perspective, DeFi protocols provide financial services and products that are essentially similar to products in traditional finance, which are typically viewed as having security attributes.
Moreover, most DeFi protocols are still in a state of "partial decentralization," where decentralization is only reflected in the application and governance layers, while the underlying code is still controlled by the core development team. This makes DeFi only suitable to be classified as "securities" under FIT21. Additionally, according to the Howey Test, DeFi protocol tokens meet the conditions of investment, profit expectations, a common enterprise, and profits derived from promoters or third-party efforts, and should also be defined as securities.
Taking Maker as an example, Maker is one of the core lending protocols in the DeFi ecosystem, generating approximately $25 million in revenue over the past 30 days.
MKR is its governance token, currently serving a governance role. MKR holders can participate in Maker's governance, voting on changes and updates to the protocol, including adding new collateral types, modifying existing collateral types, and changing sensitive parameters.
Let’s analyze the MKR token mechanism in detail.
Maker manages and adjusts the supply of MKR tokens through its unique stock buyback model. The core of this model is a mechanism known as the "Surplus Buffer," which is the primary destination for all income generated by the Maker protocol. The main purpose of the Surplus Buffer is to provide the first line of defense against loan shortfalls.
When a loan shortfall occurs, the funds in the Surplus Buffer will be used first to cover this shortfall. Only when the Surplus Buffer's funds are insufficient to cover the shortfall will the Maker protocol issue additional MKR tokens to cover the debt. (Currently, there is no data on net issuance, but the average daily trading volume on-chain is as high as $120 million.)
It is noteworthy that the Surplus Buffer has a set upper limit. When the funds in the Surplus Buffer exceed this limit, additional Dai will be used to repurchase MKR tokens, and before June 2023, the repurchased MKR tokens would be burned. This mechanism is designed to reduce the total supply of MKR, thereby providing value to existing MKR holders.
As of now, 22,368.96 MKR tokens have been repurchased and burned, accounting for 2.237% of the total supply.
However, this mechanism was replaced in July 2023 by a newly introduced smart burn engine, which will automatically repurchase MKR when the protocol's surplus funds exceed $50 million and burn them; otherwise, it will periodically accumulate LP from Uniswap (replacing the previous direct buyback and burn). Since July 2023, over 22,335.1 MKR (approximately $35.19 million) have been repurchased and burned, accounting for about 2.23% of the total, with an average daily burn rate of 40.31 MKR (approximately $63,500).
Before June 2023, 22,368 MKR were burned, but after the launch of the new burn engine in July 2023, a similar number of 22,335 MKR were burned in just 18 months. However, the acceleration in the burn rate is not due to the mechanism but rather the narrative surrounding RWA that emerged at the end of 2023. Maker officially began implementing RWA in early 2023, introducing U.S. Treasury bonds, and at that time, the income from the RWA segment already accounted for more than half of Maker's total income.
Although MKR has a burn mechanism in paying stable fees, reducing circulating supply through destruction, giving it a certain degree of scarcity, it has the opportunity to be classified as a commodity based solely on the CFTC's judgment criteria.
However, considering the protocol level, even though current DeFi protocols typically use proxy contracts or multi-signature wallets to upgrade the protocol, minimizing centralization issues, the management authority of smart contracts is still controlled by a few individuals. At the same time, since token holders have governance rights, according to FIT21, MKR and other DeFi protocol tokens are more likely to be classified as securities.
Here, let’s further discuss the native token UNI of Uniswap.
Whether in trading volume, user base, or technological innovation, Uniswap has maintained an unshakeable leadership position in the DeFi space.
Two months ago, Uniswap Labs announced the launch of the Ethereum L2 network Unichain based on OP Stack, planning to launch the mainnet in January 2025. The launch of Unichain is not only a technological innovation but also brings a new use case and economic value to the UNI token, transforming it from a governance tool to a productive asset.
Firstly, the UNI token will become the core of the Unichain network's operation, as the prerequisite for becoming a validator is to stake UNI tokens. Unichain's validation network employs a unique economic model that encourages users to stake UNI tokens to participate in network governance and revenue distribution.
This mechanism effectively adds practical staking functionality to UNI, making it no longer just a governance token. While staking, users can not only help maintain network stability but also earn actual returns through transaction fees and block rewards.
Whether from the previous protocol governance or now upgraded to an ETH L2, UNI leans more towards security attributes.
Jito is the leading LSD protocol in the Solana ecosystem, with its TVL steadily reaching new historical highs in 2024. In the recent meme craze, Jito's LST token jitoSOL has achieved an annualized interest rate of 8% due to MEV earnings captured from its memory pool, far exceeding stETH's 3%. That is, the larger the meme craze on Solana, the higher the APY of jitoSOL.
JTO, as Jito's governance token, has uses in governance voting, MEV dividends, staking, etc., which is similar to shareholder rights in traditional securities, possibly leaning more towards security attributes.
III. Decoding the Unique Classification Method of FXS Founders
The founder of the established algorithmic stablecoin Frax Finance, Sam, proposed the concepts of Type 1 and Type 2, believing that L1 tokens are all Type 1, while all dapp tokens and L2 tokens are Type 2.
This is largely consistent with the conclusions drawn from our research above.
His reasoning logic is:
L1 tokens (ETH, SOL, NEAR, TRX, etc.) are "sovereign scarce assets" of their own chain economies. They are the most liquid assets on-chain. Dapps accumulate them, use them to build DeFi, and incentivize liquidity, making them a safe-haven asset in times of crisis. Upon reflection, this is similar to the use and consumption situation in FIT21, where L1 tokens are primarily used as mediums for consuming goods or services, with users using L1 tokens to pay or purchase services, while protocols build services around L1 tokens. L1 tokens are the "core tokens" of the on-chain economy.
Dapps issue their tokens to L1 asset holders through liquidity, ICOs, DeFi, airdrops, and other innovative forms, making L1 assets "interest-bearing."
Dapp tokens represent the actual labor/GDP of humans in that economy. L1 tokens generate interest from the labor of people building the on-chain economy.
L2 tokens are typically not sovereign scarce assets in their digital economies, even if they possess half of the elements: on-chain economy and vibrant builders. They belong to "Type 2." In fact, some L2s do not even have tokens.
SOL's strong performance is not due to an increase in TVL, nor because people expect billions of SOL to be burned/income in the distant future. ETH has already seen billions in income/burning, yet its performance is not better than SOL. The real reason for SOL's rise is that the Solana chain economy utilizes it in liquidity pools, memecoin trading, and DeFi, and you need to use it to participate in the Solana network's status.
Sam ultimately expressed his vision of allowing FXS, which should belong to Type 2, to transition to Type 1. How will this be achieved?
FXS has been the governance token of Frax Finance for the past four years.
Frax Finance plans to launch the Ethereum L2 blockchain Fraxtal in February 2024, which is very similar to the Unichain mentioned above, where staking FXS is a prerequisite to becoming a validator on that chain. In our and Sam's conclusions, this still falls under the Type 2 category, or in other words, securities.
With Fraxtal, FXS effectively has its own on-chain economy. However, it still lacks an opportunity to become the "core asset" of this economy.
In February 2025, FXS will hard fork through Fraxtal to become the Gas token of Fraxtal and will be renamed FRAX.
This approach will make FXS a Type 1 token, with FSX becoming the core asset of this on-chain economy, and all dapps will need to build around FXS. This is analogous to Uniswap, which, even with Unichain, still primarily revolves around ETH rather than UNI.
Frax Burn Engine
It is worth noting the upcoming burn mechanism, Frax Burn Engine. The following diagram illustrates the concept of the FRAX burn engine, where the FRAX token, in addition to serving as the Gas for Fraxtal, will also support other infrastructure services within the ecosystem.
Frax Name Service, as well as Future Services, imply that some official protocols will burn all/part of their income in the form of FRAX.
EIP-1559 is Ethereum's burn mechanism, and FRAX may adopt a similar mechanism to reduce supply through burning transaction fees.
The following diagram shows the relationship between FRAX token burning and issuance. There are three main variables: burn rate (Burn), supply (Supply), and issuance rate (Emissions).
The red line represents the burn rate, which gradually increases over time. This means that as the ecosystem develops, a portion of FRAX tokens will be regularly burned, thereby reducing the number of tokens in circulation.
The yellow line represents supply, which begins to decline after reaching a peak. This corresponds to the increase in the burn rate, indicating that the burn mechanism helps control the total supply of tokens and prevent inflation.
The green line represents the issuance rate, which is initially high and then gradually decreases. This may relate to the issuance of new tokens; as the ecosystem matures, the issuance of new tokens will decrease.
The label "DEFLATIONARY FRAX" in the diagram indicates that the FRAX token has deflationary characteristics. Deflationary means that over time, the number of tokens in circulation will decrease, which typically leads to an increase in the value of each token, thereby increasing the wealth of holders.
The dashed line in the diagram indicates an immutable hard cap, meaning that the total supply of FRAX tokens has a fixed upper limit. This design helps enhance the scarcity of the tokens, potentially increasing their value.
IV. "Containing American Elements" May Become a New Trend: Which Assets Will Welcome the "American Compliance Spring"?
In the months following the U.S. elections, XRP has taken over from Solana and experienced a noticeable rise. Recently, Ripple President Monica Long stated in an interview that Ripple's leadership has directly engaged with the incoming U.S. government, and she expects XRP's spot ETF to be "approved soon." Following closely is LTC, as Canary Capital recently submitted an application for a Litecoin ETF to the SEC, causing LTC's price to soar. XRP and LTC have become the most favored assets by U.S. capital after Solana.
With the expectation of the FIT21 passing, traditional U.S. VCs/funds may significantly purchase tokens related to American concepts. So, from this perspective, which tokens will become the next hot commodities in the eyes of U.S. capital after SOL, XRP, and LTC?
We have listed the top 100 tokens by protocol revenue over the past year, which can be selected based on protocol revenue and "American elements."
In terms of L1, the most suitable tokens are Avalanche (AVAX) and Near Protocol (NEAR). Since L1 belongs to commodity attributes, they have the opportunity to apply for ETF status.
Avalanche ranks 24th in protocol revenue, with its development team Ava Labs headquartered in the U.S., and has recently hinted at engaging in dialogue with the new U.S. government. At the same time, Avalanche has been exceptionally active in collaborating with traditional institutions, having partnered with JPMorgan Onyx, Franklin Templeton, and Citibank to create tokenized funds. U.S. VCs such as a16z, Polygon, Galaxy, and Dragonfly invested in it early on;
Near ranks 57th in protocol revenue and has received early investments from U.S. VCs such as a16z, Coinbase, Pantera, and Electric.
In terms of L2, the most suitable tokens are the well-known Arbitrum (ARB) and Optimism (OP). Their protocol revenues rank between 30 and 50, and their team members are primarily located in the U.S., having received investments from U.S. VCs like a16z and DCG.
In the DeFi sector, there are many tokens that meet the criteria, as these DeFi protocols have a high degree of "American elements" and are somewhat ambiguous with U.S. institutions. Notably, Maker (MKR), Uniswap (UNI), Aave (AAVE), Ethena (ENA), Ondo (ONDO), Aerodrome (AERO), and Curve (CRV).
Maker ranks 8th in protocol revenue, generating $168 million in revenue over the past year, but its total market capitalization ranks only 85th. In addition to being led by a U.S. team, it has also received early investments from U.S. VCs like Pantera and a16z.
Uniswap ranks 9th in protocol revenue, generating $121 million in revenue over the past year. Uniswap was created by U.S. developer Hayden Adams and has received a Wells notice from the SEC. It has also been invested in by U.S. VCs like Pantera and a16z.
Aave and Ethena also lead in protocol revenue, ranking 14th and 15th, and were recently acquired by the Trump family project World Liberty.
Ondo, as the only RWA protocol in the top 100, is known for its collaboration with BlackRock's BUIDL fund. It was also recently acquired by the Trump family project World Liberty and has received investments from U.S. VCs like Coinbase, Tiger Global, and GoldenTree.
Recently, Curve and Aerodrome, which have collaborated with BlackRock, are also worth paying attention to.