The evolution of crypto narrative cycles and long-term value creation in DeFi

Author: Kyrian Alex; Source: Medium; Compiler: Lynn, MarsBit

In the blockchain space, narrative has consistently proven to be a powerful driver of attention, investment, and growth. The ever-changing landscape has seen the rise and fall of topics ranging from ICOs to DeFi and NFTs, leaving important lessons for investors, founders, and enthusiasts.

The evolution of the narrative can be observed through the shift from initial coin offerings (ICOs) to launchpads. The 2017 ICO boom heralded a revolution in venture capital, but many projects failed to sustain their momentum. As the industry matures, attention turns to more refined investment mechanisms, with exchanges leading the launchpad trend. These narrative shifts highlight the dynamic nature of the Web3 space, where trends emerge, peak, and fade quickly.

Narratives are sweeping over the cryptocurrency space like a tidal wave, pushing once-obscure concepts to the forefront of attention. Let’s look at some recent cases to illustrate this phenomenon.

! [DeFi] (https://img-cdn.gateio.im/resized-social/moments-40baef27dd-a94ed8ce5f-dd1a6f-6d2ef1) First, we experienced the Bitcoin Defi moment. Bitcoin is not usually associated with experimentation, but its introduction of serial numbers, which represent bitcoins through unique identifiers, opened the door for complex DeFi applications. BRC-20 tokens are built on Ordinals, designed to imitate the fungibility of ERC-20 tokens, with unique characteristics that may be Bitcoin with fractional ownership, smart contracts, decentralized exchanges, lending platforms, and insurance platforms Currency DeFi paves the way. But as we always say, CT has the brains of a goldfish. The attention span didn't even last two months. Only the first users/builders will actually make money from it.

Then we had the LSD craze. LSD dominates DeFi due to Ethereum’s shift to proof-of-stake. It provides users with staking rewards without locking assets, and LSDfi protocols such as Lybra Finance and Pendle Finance build on this concept, expanding the ecosystem with benefits such as increased liquidity and reduced risk. Annual interest rates have been high. But guess what? After the initial recession hit, APRs dropped sharply, and with that drop came hype.

We saw the same thing during Memecoin mania. Tokens like $PEPE and $BEN have surged in price, driven by social media, NFT popularity, and the desire to make a quick profit. Even though people know these tokens are risky and volatile, they just want to generate sweet 100x gains in the shortest possible time. The hype there is the relative ease of buying coupled with the potential to make huge profits in a stagnant market. Well, like every meme season known to man, the hype came to an abrupt end with plenty of scandals, rugs, hacks, and shills.

Oh, and how can we forget the hype over AI coins from the recent AI-popular Chatgpt? What is driving the hype? Guessing about progress? Transformative potential? Speculative rebranding?

Or can we forget about the so-called virtual reality revolution? Rumors about Apple's VR headset and Meta's rebranding have fueled interest and speculation about virtual universes. Tokens such as Decentraland ( MANA ), The Sandbox ( SAND ), Axie Infinity ( AXS ), and Render Network ( RNDR ) have surged many times over on these rumors. Old entrants benefit and new entrants suffer. why not?

Narrative has its limits.

They can push a subject to the forefront, but they don't guarantee long-term success. As a result, founders often find themselves caught in a dilemma: the challenge of getting their startup timing right amid unstable narrative cycles.

Note that most of the items I mentioned before are very good items, but the narrative that drives up their price and popularity will ultimately hurt them in the long run. So founders try to accept the fact that they are making enough revenue/profit to manage operating costs during market downturns. Because even a bear market can expose the vulnerabilities of projects that receive a lot of attention, leading to a shrinking user base and a bleak market outlook.

The Web3 investment landscape resembles uncharted territory, and pioneers must rely on a combination of foresight and considered risk-taking.

For founders navigating the Web3 space, several survival strategies have emerged:

1. Understanding Narratives: It is critical to distinguish between investor-driven narratives and themes with entrenched potential. Founders should determine whether they are entering a narrative early or riding the tide of an existing one.

2. Act early: First-mover advantage often translates into months of investor education and persuasion. For founders looking for support and investment, this double-edged sword can be both a blessing and a challenge.

3. Survive flexibly: Surviving a situation where many of your peers may fall by the wayside is a remarkable achievement in itself. Prudent financial management aimed at weathering difficult times may be the key to long-term success.

4. Consumer focus before capital: Prioritizing user engagement and iterating on product based on consumer feedback before seeking investor capital is a smart strategy. Meeting consumer demand can lead to more sustainable organic growth.

5. Recognize the right timing: Timing is critical; getting into the subject of a crash or misinterpreting short-term price increases as genuine consumer demand can lead to challenges in securing follow-on funding.

The Dichotomy of DeFi

Once touted as a beacon of innovation, DeFi has shifted from inflated expectations to a more pragmatic slope of enlightenment. Despite the decrease in attention and usage, the underlying user base remains relatively stable, indicating that many users are still actively engaged in the category.

This dichotomy raises a key question: Can DeFi maintain its relevance outside of market narrative swings?

The answer depends on the DeFi ecosystem’s ability to cope with the obvious challenges that emerged during the initial hype phase. This includes addressing issues such as high transaction fees, network congestion, and security vulnerabilities.

We must then turn our focus to tangible utility and real-world use cases.

DeFi projects that can demonstrate concrete value propositions, solve real problems, and offer sustainable financial products are likely to find a more stable footing. A balance needs to be struck between innovation and compliance. We must move from speculatively trading tokens to products that provide real financial services.

The current emphasis on ownership and exclusivity in the Web3 ecosystem stands in stark contrast to the prevalence of free access to content in the early days of the Internet. The shift to ownership comes at a cost, both in terms of monetary investment and user engagement.

! [DeFi] (https://img-cdn.gateio.im/resized-social/moments-40baef27dd-c5ab79688e-dd1a6f-6d2ef1) Emerging topics such as DeFi, NFT, and Web3 games are still evolving, each with its own unique development trajectory. The shift from relying solely on investor capital to promoting consumer engagement is a critical shift that founders must embrace. It’s no longer enough to just chase trends; it requires effort. Founders must build products that meet real-world needs and provide tangible value.

As the field strives to create value while retaining users' attention, models that combine "free" experiences with ownership, such as the one seen on Reddit, offer a potential path forward.

A new paradigm is emerging in Web3 investing that values sustainability, user engagement, and meaningful differentiation. Unlike the frantic ICO era, investors are now scrutinizing a project’s long-term viability and ability to withstand market volatility due to rising market interest rates and drying up of liquidity. The concept of "survival of the fittest" applies not only to the project itself, but also to investors and entrepreneurs who adapt and develop as trends change.

As the Web3 investment landscape continues to evolve, the challenge is striking the delicate balance between risk and reward. Timing investments within the narrative cycle, understanding the intrinsic value of a project beyond the hype, and driving user engagement are the cornerstones of success. Investors, founders and enthusiasts must navigate this intricate space with an eye toward long-term potential, guided by the lessons of the past and the promise of a more sustainable future.

in conclusion

The Web3 investment landscape is a complex tapestry woven of narrative, attention, capital and survival. In this case, trends ebb and flow, hype can either fuel or kill projects, and success depends on a combination of vision and adaptability. As the industry matures, the focus should shift from short-term price behavior to long-term value creation. The path forward requires a strategic approach. Therefore, builders, creators, and users alike should be aware of the changing dynamics and remain steadfast in their commitment to innovation that will stand the test of time.