The Rollup - The State of Crypto Investing in 2024

In this episode of The Rollup which took place on February 20, 2024, Andy and Robbie hosted Qiao Wang from Alliance to discuss emerging crypto narratives beyond DeFi, value accrual dynamics, strategic investment insights in blockchain technology, and more! Read our notes below to learn more.

Background

Andy (Host) – Co-Founder of The Rollup

Robbie (Host) – Co-Founder of The Rollup

Qiao Wang (Guest) – Customer Support at Alliance

Alliance – Crypto’s leading accelerator & founder network

Diverse Narratives in Crypto: From DeFi to NFTs and Beyond

Qiao says the biggest change since Defi summer is the emergence of various narratives beyond just Defi, such as modular vs. monolithic systems, NFTs, decentralized science, and AI, making it impossible to keep up with everything.
Qiao discusses the unbundling effect in crypto, where monolithic systems become modular, and his view that short to medium-term value accrual is about mindshare and the community around a project rather than technical aspects.
Robbie agrees with Qiao’s short-term perspective on value accrual and adds that in the long run, he believes value returns to the users who generate it, despite the modular landscape complicating the flow of value.
Qiao shares that he doesn’t worry about short-term market movements or the tokens he holds, focusing instead on ensuring the founders’ success in his accelerator, Alliance, by helping them build desirable products, achieve market fit, and grow.
Qiao highlights the two extremes in the crypto sector: pure speculation, which has found product-market fit, and the practical use of stablecoins like $USDT on Tron for payments, especially in emerging markets.
Qiao discusses the success of Tensor, a leading NFT marketplace on Solana, which outperformed Magic Eden despite starting with fewer resources.
Qiao speculates that Solana‘s NFT trading volume might surpass Ethereum‘s due to lower transaction costs, highlighting the cost-effectiveness of trading on Solana even compared to Ethereum’s layer twos.
Qiao says that he expects both NFT marketplaces and fungible token DEXs on Solana will accrue more value than their Ethereum counterparts in the next year or two, citing the prevalence of Solana coins on Dex screener.

Comparing Platforms: Solana’s Rise and Ethereum’s Resilience

Robbie notes the significance of platforms like Pandora on Solana outpacing their Ethereum counterparts, aligning with the trend towards Solana for fungible and non-fungible tokens.
Qiao acknowledges accusations of being overly favorable towards Solana but counters by praising Ethereum’s modular architecture and highlighting the potential of new layer-2os like Manta, which significantly reduce gas fees.
Qiao says that despite some technological drawbacks, developers are drawn to Ethereum for its community and user base, suggesting that personal affinity towards a particular blockchain ecosystem influences developers’ choices.
Qiao says that both monolithic and modular architectures will remain relevant in the short term, with personal affinity playing a significant role in the blockchain ecosystem’s evolution.
Robbie discusses the significant gas fee savings achieved by using Celestia DA instead of a traditional layer-1, highlighting how these savings benefit users. He highlights the unique perspective that supports both monolithic and modular architectures, contrasting with the common preference for one over the other.
Robbie says that monolithic architecture offers substantial gas fee savings and increased security compared to modular architecture, which fosters developer affinity for certain communities.
Qiao says that the success of blockchain technologies, like Solana over Ethereum, is highly dependent on their historical development timelines. He believes Solana’s technology is superior but acknowledges Ethereum’s established network effect.
Robbie talks about Sam Bankman-Fried‘s significant, yet historical, influence on Solana’s development, questioning the lasting impact of his involvement.
Qiao says that Solana has moved beyond FTX’s collapse, viewing the distancing from FTX as beneficial. He notes Solana’s strong, organic developer community and highlights Jump‘s crucial role in building Firedancer, a new client expected to enhance Solana’s performance.
Qiao says that Firedancer is a separate client from Solana’s current one, expected to significantly improve performance. Robbie hopes this will also increase network reliability by providing redundancy.

Insights on Blockchain Infrastructure Trends and Investment Strategies

Andy expresses surprise at Solana’s recent downtime, having thought such issues were resolved.
Qiao finds humor in Ethereum and Solana’s supporters predicting Solana’s downtime, reflecting on the recent network stability during the Jupiter drop.
Andy says the only way for Ethereum to compete with, Solana, and other high throughput layer-1s is through alternative data availability layers.
Qiao says that in the next one or two years, roll-ups can compete by using a dedicated DA that’s not Ethereum’s. He mentions that roll-up teams are building their DAs and can use Celestia as well. Qiao distinguishes between Aevo and Manta, noting their use of ZK proofs versus optimistic fraud proofs.
Qiao says roll-ups can offer similar fees to Solana in the short term by leveraging separate DAs, despite potentially lower security. He speculates on the future integration of modular and monolithic architectures, such as Monad or Sei V2, and the possibility of Ethereum dApps migrating to these platforms.
Robbie talks about Cosmos and its fit in the space, prompting Qiao to compare Cosmos’s horizontal modularity with Ethereum’s vertical modularity. Qiao explains that Cosmos scales by adding more chains, unlike Ethereum’s unbundling approach. He discusses Cosmos’s success in infra products like Celestia and mentions projects using the Cosmos SDK, highlighting a convergence between Ethereum and Cosmos technologies.
Qiao discusses the potential for convergence between different blockchain infrastructures. He references Tron’s early launch and its success with $USDT, attributed to support from Binance and its appeal in emerging markets.
Qiao says that Solana could potentially take over as the preferred chain for stablecoin transactions if it remains cheaper than Tron and focuses on payments.
Andy discusses the ease of introducing newcomers to NFTs and DeFi on Solana compared to more complex and expensive rollups, suggesting a preference for simplicity and efficiency in blockchain technology. He mentions the current abundance of blockchain space and questions whether future convergence will favor a few winners or a seamless chain abstraction that obscures the underlying blockchain.
Qiao comments on a trend where companies fail to find product-market fit as apps are encouraged to rebrand as layer-2s, attracting significant market interest due to the valuation against other layer-2s. He predicts a future where a few generic layer-2s like Arbitrum, Optimism, and Polygon dominate alongside numerous application-specific chains.
Andy asks about early-stage investing and balancing private portfolio investments in infrastructure plays, rollups, or new chains against liquid market activities.
Qiao explains Alliance’s focus on early-stage, private investments, highlighting their strategy of supporting startups from their inception. He reflects on last year’s favorable venture investing climate due to low valuations and criticizes the current bullish sentiment driving up valuations prematurely.

Navigating Infrastructure Investment Dynamics

Andy asks Qiao’s opinion on what constitutes an overpriced valuation for infrastructure projects today, noting the wide valuation range for pre-product infrastructure projects.
Qiao critiques the overinvestment in infrastructure projects, attributing it to the speculative nature of the market that favors infrastructure over applications. He says that this trend is detrimental to the industry despite the incentives for VCs and exchanges to continue investing in infrastructure projects due to their high speculative value and volume generation.
Robbie says that collective investment in infrastructure might be holding back the development of a “killer app” in the tech industry by diverting funds away from innovative applications.
Andy says that foundational infrastructure projects like Privy are necessary for the development of innovative applications and shares skepticism about the viability of certain pitches, such as a horse racing game, highlighting the difficulty of recognizing value in early-stage projects, especially those focused on B2B infrastructure.
Robbie asks if being contrarian or early in investment strategy, particularly in infrastructure, is a differentiating factor, noting the trend of VCs eagerly funding infra projects while applications may offer a contrarian investment opportunity.
Qiao says that their strategy isn’t necessarily about being contrarian but more about cautious engagement with sectors that aren’t overly hyped, indicating a balanced investment approach.
Andy shares a thesis on market cycles, suggesting a shift towards shorter speculative cycles rather than the traditional four-year cycles, driven by market maturation and a contrarian view to the prevailing expectation of bear and bull cycles.
Qiao challenges the notion of fixed market cycles, proposing that the market is moving away from the four-year cycle paradigm. He says that current market dynamics, influenced by factors like the Bitcoin ETF, could lead to shorter cycles, predicting a possible peak by the end of the year or early next year, thus accelerating the cycle timeline compared to previous patterns.

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Show Information

Medium: YouTube (Video)

Show: The Rollup

Show Title: DeFi By Design EP#127 The State of Crypto Investing in 2024

Show Date: February 20, 2024