Thread: Is The "L1 Rotation Trade" Dead?
๐งต
The last bull market was absolutely dominated by L1's and the so called "L1 Rotation Trade"...
But will this be the case in the future?
1/x
๐งต
The last bull market was absolutely dominated by L1's and the so called "L1 Rotation Trade"...
But will this be the case in the future?
1/x
We all remember what happened in 2021...
All the L1's absolutely dominated the charts and grew to valuations well into the tens of billions...
To wit:
2/x
All the L1's absolutely dominated the charts and grew to valuations well into the tens of billions...
To wit:
2/x
If my memory serves me right, we at one time had ETH, BNB, LUNA, SOL, ADA, DOT, and AVAX all in the top 10 tokens by market cap, with MATIC + NEAR not far behind. (poor Fantom never got the respect it deserved fr)
3/x
3/x
So why did these tokens get such high valuations? My thoughts:
1) proven "model" via $ETH
2) everyone trying to make sure they had a bet on the "future winner" of the L1 arm's race
3) preferred digital investment type for institutional capital
4) 3AC (un-ironically)
4/x
1) proven "model" via $ETH
2) everyone trying to make sure they had a bet on the "future winner" of the L1 arm's race
3) preferred digital investment type for institutional capital
4) 3AC (un-ironically)
4/x
We saw L1 after L1 (and L2's) get its season...
BNB>Polygon>Fantom>Avax>Luna>Metis>etc>etc
The foundations behind these protocols also incentivized TVL with lots of $ (not saying this was bad choice, just that it was an important variable).
5/x
BNB>Polygon>Fantom>Avax>Luna>Metis>etc>etc
The foundations behind these protocols also incentivized TVL with lots of $ (not saying this was bad choice, just that it was an important variable).
5/x
Also part of the super high relative valuations mentioned above was that early crypto was virtually all base layer tokens as there weren't really 'protocols' built on top of them.
But will this continue?
6/x
But will this continue?
6/x
Well, L1's will certainly continue to be super important, since they provide the commodity of the digital economy (blockspace).
The question is how 'scarce' is this commodity?
7/x
The question is how 'scarce' is this commodity?
7/x
I'd argue that its not that scarce, since there are now so many different L1's competing to provide it.
In a way, via smaller transaction fees + financial incentives, it becomes a "race to the bottom", much like what happened w/weed when it was legalized in the US.
8/x
In a way, via smaller transaction fees + financial incentives, it becomes a "race to the bottom", much like what happened w/weed when it was legalized in the US.
8/x
I live in one of the first states to legalize marijuana, and I remember when it happened, there was a different dispensary on every block, all started by optimistic weed enthusiasts who thought it was their chance to get rich...
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9/x
However, it quickly became a race to the bottom, as they (and the co's growing it) all continually had to lower their prices to compete with each other and thus their margins, and one essentially saw the "Walmartization' of the marijuana industry.
10/x
10/x
It seems very possible that the L1/L2 world will not be that dissimilar.
(although technologically its still a super important and fascinating subject, esp re: scaling solutions)
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(although technologically its still a super important and fascinating subject, esp re: scaling solutions)
11/x
So... I could be wrong, but it seems to me the next bull market is more likely to be defined by protocols, and likely chain-agnostic ones at that.
What will this look like?
12/x
What will this look like?
12/x
I think we can already get some glimpses of it in a few ways...
1) some big protocols will just be on tons of chains, as we see with @AaveAave and @CurveFinance
2) L1's will be competing like mad to host valuable protocols
13/x
1) some big protocols will just be on tons of chains, as we see with @AaveAave and @CurveFinance
2) L1's will be competing like mad to host valuable protocols
13/x
3) more interchain operability
4) protocols will spin up their own "chain" in one way or another, a'la @dYdX:
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4) protocols will spin up their own "chain" in one way or another, a'la @dYdX:
14/x
5) We will see a continued move toward legit, organic-cashflow dividend-paying protocols that provide a service that is not chain-dependent, like $BIFI, $GMX, $GNS, NFT-marketplaces, etc:
15/x
15/x
6) we may see (chain-agnostic) stablecoins continue to gain market share within crypto as they seem to constitute the most sticky "use-case" thus far, and may dominate the top 10 list even when bull market resumes:
16/x
16/x
With all of the above said... one argument against the idea of a chain-agnostic future is all these bridge disasters like what happened with Harmony...
17/x
17/x
However, it seems as though that issue will get worked out one way or another... as it is clear that scaling solutions are necessary to avoid prohibitive transaction costs.
18/x
18/x
It also seems very possible that newer verticals like Gamefi/NFT's/X2E/phones(?!?) become a bigger and bigger part of crypto, further supplanting the status of L1's as chief beneficiaries of capital within the space.
19/x
19/x
Anyway... I could be totally wrong... and I have a huge bag of $ETH and a tiny bit of $FTM and $AVAX so I certainly don't want L1 valuations to go to zero or anything.
But it does seem as though the next bull market may see a very different top 10.
20/x
But it does seem as though the next bull market may see a very different top 10.
20/x
Finally.. If you're interested in finding good protocols to bet on (rather than just debating L1 tokens) follow these Chads too:
@phtevenstrong
@Ceazor7
@Route2FI
@CompleteDegen
@SalomonCrypto
@NickDrakon
@crypto_klay
@Riley_gmi
@bizyugo
@FTMAlerts
@CurveCap
21/x
@phtevenstrong
@Ceazor7
@Route2FI
@CompleteDegen
@SalomonCrypto
@NickDrakon
@crypto_klay
@Riley_gmi
@bizyugo
@FTMAlerts
@CurveCap
21/x
There's another 200 or so absolute gigabrains I could list too but isn't enough space!
Also big thanks to this gent for catalyzing me to do some thinking on the subject:
22/x
Also big thanks to this gent for catalyzing me to do some thinking on the subject:
22/x
Lol lmao... I searched 'marijuana' on the twitter gif engine and grabbed the first decent image I saw but apparently I should have looked closer!
@elonmusk bls fix ser sheesh...
23/x
@elonmusk bls fix ser sheesh...
23/x
PS Please follow and retweet if you found this thread interesting!
And if you disagree please share your thoughts below! Its very possible I'm totally wrong on this...
24/x
And if you disagree please share your thoughts below! Its very possible I'm totally wrong on this...
24/x
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