Narratives In Crypto

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Disclaimer: Crypto is a fast-paced economy and things change quickly. Information on this post might be outdated even if written today. Do your own due diligence and stay safe. I might get affiliate commissions for purchases made through links in this post. Read the disclosure.

Alpha Gained:

What Is A Narrative In Crypto

A narrative is a simple way to understand the complexities of crypto and blockchain technology and innovations happening in the crypto space. Narratives are born and used so that people can understand crypto more easily as blockchain technology is often super complex.

Crypto and blockchain technology are hard to understand, considering all the cryptographic algorithms, hash functions, and how it works together with encrypted demands, or how Solidity smart contract coding language works and how it affects blockchain development.

With these few mentioned hard-to-understand concepts, a narrative was created to simplify the understanding process when trying to understand how crypto works. While it is extremely beneficial to understand how crypto works when you are investing in crypto, narratives help you notice which way the money is flowing and especially why.

Crypto has and will have certain narratives that are repeated year after year. Performance, DeFi, Metaverse are some that will continue to surface year after year. Some narratives live longer and some pump and dump in a week.

Performance And Scaling Narrative

What made Ethereum successful also made it unusable for many. Whenever a blockchain gathers a massive amount of users and with that a massive amount of transactions there are two things that go wrong if the chain isn’t scalable or if it’s slow. Transaction fees go through the roof and transactions take a long time to validate or can even go to a failed status.

Ethereum is the largest smart contract enabled chain in the world and will more than likely keep that status for the next few or more years. This fact created a narrative in fall 2021 for performance and scaling. This created a massive demand for a new chain that could handle transactions better, faster, and more cheaply. Thus we had a massive demand for new chains and Avalanche, Fantom, and Solana got a massive boost from this narrative and the tokens pumped to ATH in a few short months.

However, the reason why Avalanche and Fantom specifically had a massive pump was because of the user base but also because both chains had Solidity as the underlying smart contract coding language. Solidity enabled the fast deployment of new smart contracts (Dapp’s) to the blockchain and this enabled user adoption. Throw in the instant support for a Metamask based UI for DeFi trading and the narrative was completed.

Layer 2 Narrative

Polygon (MATIC) has also hit headlines with the acquisition of ZK (Zero-Knowledge) Rollups technology and that further upgrades the protocols and frameworks’ ability to handle larger transaction volume off-chain. Polygon is a layer 2 solution based on the Ethereum chain and handles transactions off-chain, whereas usually the transactions are handled on-chain. Thinking about the future, it could be that Polygon will take the crown when it comes to scaling Ethereum. Yet a narrative that will more likely surface in the next few years.

Seasons

Seasons are usually called upon when money flows from one chain to another. One could say there’s a Cardano season coming as they got their own native SundaeSwap. However, you need more than a dex to get traction to a chain. A chain needs dapp’s and that is what Fantom season brought for us. Massive amount of new dapp’s in the form of DAO’s and TOMB forks. 

It also helps when there are a few of the biggest names in DeFi (Andre Cronje and Daniele Sestagalli) working for a chain (Fantom) to bring it to a new level of excellence. However, we should remember that if the underlying technology can’t handle mass adoption, it doesn’t matter how great dapp’s are being built for the chain. Avalanche is an awesome example as instead of focusing on TPS (transactions per second) value, they aimed for a high transaction finality value. Meaning that the transactions are validated and completed as fast as possible, irrelevant to the number of transactions per second.

Metaverse

One of the most hyped narratives in the crypto space. Metaverse is something that is being built year after year and it hasn’t even started yet. The metaverse you currently see in the blockchain environment is in the department of joke when compared to the AAA titles launched by Sony Entertainment Studios or Activision Blizzard.

Metaverse is still a work in progress industry and what we currently see and experience is in the quality of mobile games played through laptops. The quality is kind of there but as we all know, the metaverse can be developed to insane quality, but as said before we are early in the game.

GameFi

Play-to-earn (P2E) model was one of the two early models of the metaverse. The other is NFT’s. P2E gained popularity after it made headlines that people were earning a living just by playing some random game online in the metaverse. This started the narrative for P2E games and this created a massive spike in AXS and SAND valuation, while not forgetting Illuvium.

When narratives are in play, it’s almost like it doesn’t matter what you buy as long as it’s inside the narrative. Star Atlas, DeRace, Crabada among others can defy the movements of Bitcoin if the narrative is strong enough. A good indicator when thinking about what games will succeed is to check the trading volume for different projects. When there’s high trading volume, it means there are a lot of people playing the game and thus increases the price of the token. Also when there’s a huge growth in the userbase it’s safe to say that the price of projects tokens will go up.

NFT’s

Pak’s ‘The Merge’ sold for $91.8m is one of the most expensive NFT’s (Non-fungible token) in the market today and that only shows how insane the NFT market can be. Or how does it sound that a young boy aged twelve sold NFT’s worth $400,000. NFT’s can be digital art, digital assets, P2E weapons, and skins, NFT’s can be avatars (what CryptoPunks pretty much represents) and NFT’s can also be a certificate of house ownership.

NFT’s are powerful and they are slowly but steadily implemented to the DeFi world in the form of ownership of a certain coin or token. Kind of like stating that you have voting power in a certain protocol for example. Something that Solidly is building at the time of writing.

As you can see NFT’s can be pretty much anything, but the most interesting aspect of NFT’s is the value of a given NFT. NFT itself is a digital asset and thus in itself, it has zero value at the very beginning. So why is it that some NFT’s have so insane valuations? Why is it that Mutant Ape Yacht Club monkey head NFT’s floor price is valued at 15 ETH? What makes these NFT’s so high in value?

There can be many reasons for this but the whole ideology begins from the fact that there’s only 1 single piece of these NFT’s in the entire world. There’s always the possibility to create 100 NFT’s of one specific digital asset but the most valuable NFT’s can be calculated by one finger.

It’s that ownership of something super rare and one of a kind in the world. And when you take into account the fact that ETH’s price is more or less growing year by year, the value of these NFT’s grows as ETH grows.

One prime example of a narrative pump is when Solana’s price went sky-high when the Degenerate Apes NFT collection was launched in the Solana blockchain. Narratives are powerful and when you can see them coming, you jump in and sell when the narrative is playing out.

DeFi 1.0 (Decentralized Finance)

DeFi is the first and the most important piece of a blockchain. Without a working DeFi, you can’t really do much in a blockchain (from an investing perspective). Whenever a blockchain gathers traction, more than usually if not always the underlying DeFi dapps see a surge in price too. 

That is because when the blockchain gathers money and users, the money can and will be used somewhere and that is through the DEX’s (Decentralized Exchange). So naturally blockchains DEX price grows as people dabble with the DeFi protocols. DeFi introduced LPs (liquidity pools) and that slowly is moving away as deeper liquidity becomes available for a true limit order book trading.

How Uniswap liquidity pools work (V2) (image source)

DeFi 2.0

DeFi 2.0 narrative (not a real area in DeFi, just a narrative) was born when Olympus DAO was invented. Olympus DAO brought a protocol-owned treasury and interest-bearing tokens bagged stablecoin OHM to the market. This created an influx of different Olympus DAO forks and suddenly we had a new narrative called DeFi 2.0. After Olympus DAO, there’s a new fork popping up almost every day, all promising huge APY’s and whatnot. Wonderland is(was/is/was) one of the most successful OHM forks out there.

I include TOMB forks to the DeFi 2.0 narrative as well as the concept of protocol-owned liquidity and LP-pools, while we are not yet there, it could very well come someday.

DeFi 3.0

Many of us start crypto investing by buying Bitcoin (not an altcoin, but the coin), Ethereum, or some other altcoin and keep that in our bags without doing anything with it. However, in DeFi 3.0 concept, yield farming and passive income methods are being created anew. Liquid staking, NaaS (nodes as a service), reflectors, FaaS (farming as a service), and other “new” concepts are being launched.

When we think about yield farming, in DeFi 1.0 it was easy being a yield farmer as there was pretty much only Ethereum you could use to do the yield farming. However, today we are already starting to live in a multi-chain world and cross-chain asset bridging to make the best yield for our tokens.

FaaS creates easy yield farming opportunities and a few of the protocols that offer this already are MCC, SCC, CCC, all referring to something *chain, giving you the multi/cross-chain investing while only using one chain or a token.

You can also think about it from the perspective of giving your money to a fund and trusting that the fund makes the best investment decisions on your behalf. Something not that many think about.

Stablecoin And Liquidity Wars

If you think about stablecoins like UST, USDC, and USDT, you might have probably noticed how USDT is the defacto trading pair in centralized exchanges. USDT’s deep liquidity and dominance in every major centralized exchange have made trading fast, easy, and sometimes even fun (when you win).

However, when we are in the DeFi space, things don’t work with USDT as the main trading pair. Thus we have a narrative called Curve Wars or Convex Wars. Curve (DEX) was primarily focused on stablecoin swaps by offering the lowest slippage (difference between how much you get and what you want to get) and the lowest fees.

Curve liquidity pool example, swap MIM for another stablecoin

You might remember that if you want to trade something in a DEX you need LP’s and if you have a LP that does not have enough liquidity that trade is impossible to do. So the aim is to create liquidity pools that are deep in liquidity so the trading can have as low slippage and fees as possible.

This shows you that DEX’s need deep liquidity for traders to show up and use the platform for various purposes. When it comes to Curve and the veCRV (vote escrow Curve token), it enables users to vote each week on where the next set of CRV emissions (token rewards) will be directed i.e. to which liquidity pools. Meaning that some pools will get more rewards than others.

While LP’s will get their usual trading fees as rewards, they can also lock their CRV tokens and vote for the next emissions to be directed to the LP they have a good position in already. So now you can see that the ones who control the veCRV votes, control the emissions, which in return creates deeper liquidity for their LP.

Curve proposed future gauge weights (reward/emissions allocations)

Convex comes to the picture as a way to get boosted veCRV tokens in the form of cvxCRV (Convex Curve token) and what makes it even more awesome is that it’s liquid, meaning that you can trade your staked position at a 1:1 ratio on the Curve DEX. The concept goes deeper as usual, but the key thing is that you can get boosted position and a liquid token when using Convex.

A short explainer of how Convex works with Curve

So this creates the effect of DAO’s and other protocols to go and use Convex and get a massive voting power to be used in the Curve protocol to get even deeper liquidity for their own token like MIM or FRAX for example, which are big players in the Convex Wars.

Now, this all leads to the massive FTM run mid-January 2022, because a narrative of Fantom season was born and it was born from the fact that Andre Cronje and Daniele Sestagalli started to create a similar solution like Curve and Convex to the Fantom ecosystem.

Overall the name of the game is to generate as deep liquidity as possible so that trading and the usage of the token expands and makes DeFi a happier place for us to use and live in.

Web 3.0

Web 1.0 was the first iteration of the World Wide Web and users were primarily consumers of content, not creators of content. Web 2.0 brought the innovation where users started to generate content on the internet. Social media, web browsers, search engines, all of these started to flourish and the Web 2.0 era can be seen as somewhat of a major milestone in digital communication.

Web 3.0 is about data innovation and how the data is presented to you. Semantic Web helps users find the content they are looking for more easily as it’s less about keywords and more about semantics. 

Web 3.0 might just be about the world’s information and not something that Google decides to show you or not show you. Information is unlocked and accessible for everyone in the same way and from multiple applications and everywhere.

As we have seen Web 2.0 evolve, Web 3.0 is more or less something we can see and understand when we live that day and age.

Other Crypto Narratives

  • Privacy
  • Payments
  • DAO’s
  • Security
  • Cross-Chain
  • Multi-Chain
  • ETH-killers
  • Big Data
  • Oracles
  • Identity
Social_Media_AVATAR_2022_v2
Written By Juha Ekman

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