The End Times of Native Encryption

I. The Necessity of Compliance

How did cryptocurrency move from niche to mainstream? Over the past decade, decentralized blockchain has provided a regulatory wilderness for the world. Although Satoshi Nakamoto's peer-to-peer electronic payment system did not succeed, it opened the door to a parallel world. In this internet composed of countless nodes, the constraints of law, government, and even society and religion seem trivial.

Operating outside of regulation is a key factor in driving the success of this industry. From the asset issuance that began with ICOs and its subsequent variants, the rise of DeFi, to the so-called super app stablecoins today, all are built on this foundation. It is precisely by freeing itself from the complexities of traditional finance that this industry has come to be what it is today.

However, just as people began to abandon sailing ships and return to the past after the failures of exploring new continents during the Age of Discovery, native encryption also seems to have entered an era of decline. The industry is beginning to seek compliance, attempting to meet the demands of traditional finance, with stablecoins, tokenization of physical assets, payments, and other areas becoming the mainstream of industry development. Apart from this, we are left with pure asset issuance, where a picture, a story, or a string of code has become all that is discussed in daily conversations.

Why have we come to this point? Ultimately, up to now, the blockchain lacks effective means to restrain the malicious behaviors of various entities behind the addresses. We can only ensure that the nodes are honest and that decentralized finance operates without intermediaries. Aside from that, we cannot prevent anything that may happen in this "dark forest." Many things seem to inevitably decline. Non-financial applications are highly dependent on the entities behind the projects. Although blockchain has excellent fundraising capabilities, who will restrain these project parties from using funds reasonably and turning a story into a real project?

The vision of de-financialization cannot be realized solely through improvements in infrastructure performance. If things are difficult to accomplish on centralized servers, how can we expect them to be completed on-chain? We cannot impose proof of work on project parties; perhaps bowing to compliance today is the starting point for future de-financialization, which is ironic but unfortunately unavoidable.

Cryptocurrency is indeed becoming a subset of traditional finance, and the discourse surrounding this ledger is starting to be taken away by the upper echelons. Innovations from the bottom up are decreasing, and opportunities are being compressed; we are ushering in the era of on-chain hegemony.

2. The Dominance of Stablecoins

What is on-chain hegemony? I believe it can be viewed from two aspects: first, stablecoins, and second, a replay of traditional internet stories.

Let's talk about stablecoins. Currently, the stablecoin market is mainly dominated by fiat-backed and yield-bearing stablecoins. Recently, the passage of an important bill has attracted widespread attention. The main content of this bill includes:

1. Define "payment stablecoin" as a digital asset used for payment or settlement, which must be fully backed 1:1 by USD or highly liquid assets.

2. Only licensed issuers are allowed to legally issue stablecoins, and unauthorized individuals or entities are prohibited from issuing them.

3. Issuers must hold reserve assets equivalent to 1:1 with the stablecoin to ensure stability and solvency.

4. Regular disclosure of reserve status is required, and large issuers must undergo annual financial audits and comply with anti-money laundering and counter-terrorism financing regulations.

5. Establish a clear regulatory framework that includes stablecoins under banking regulation rather than securities regulation.

6. Establish licensing procedures, regulate issuing institutions, and enforce anti-money laundering, asset freezing, and destruction mechanisms.

7. Aims to promote the development of the stablecoin industry through a clear legal framework, enhance financial inclusion, and maintain the dominance of the US dollar in the digital economy.

8. Restrict large technology companies from issuing stablecoins without regulatory approval to prevent market monopolization.

The passage of this bill means that on-chain transaction mediums are officially included in the regulatory framework. American companies enjoy the benefits of government bonds, and after gaining control over the currency, the country will have significant control over on-chain activities. This is not only about the continuation of dollar hegemony, but it could also lead to situations where stablecoins in decentralized finance projects are suddenly frozen.

On the other hand, there are yield-bearing stablecoins. Projects like Ethena have good ideas, providing high yields in a bull market while also having relatively high stability. On-chain native stablecoins may ultimately achieve this through Delta-neutral hedging, such as the complex f(x)Protocol or hedging on Hyperliquid with Resolv. However, now various parties are beginning to flood into this field, from traditional hedge funds to market makers and exchanges, all wanting to get a piece of the pie.

This pathological craze has departed from its original meaning. Projects are seizing the market with their accumulated resources and more aggressive strategies, while truly innovative projects are being suppressed, and the threshold for startups is getting higher and higher. Technology and creativity are no longer important here, and whether something is decentralized has become irrelevant. Innovative projects like f(x)Protocol have not received widespread attention; now, the combination of centralized exchanges and high-end quantitative teams is the mainstream. In this competition, yield and convenience are everything.

Although the yield note stablecoin might be a better choice compared to using various strange narratives to take away users' Ether, when this kind of packaging, resembling centralized exchange financial products, becomes the only innovation, it can only indicate that the past approaches were mostly wrong.

3. The Evolution of Asset Issuance

Public chains are the largest asset issuance platforms, and ICOs are the starting point of this game. Everything that follows is a variation; although some narratives and industry processes have emerged, they are now all moving towards traditional internet development. The profit models of certain projects are already very close to Web2, with almost zero feedback to the community, and in this regard, they are even worse than centralized exchanges. The original intention of Web3 was to achieve the democratization of everything, to create together, to build together, and to prosper together, but now it has changed.

Now, major platforms are researching how to create asset issuance platforms, exploring innovative ways to issue assets. Issuance platforms have become the only paradise where native encryption users can get rich, but there are also issues here. In addition to paying fees to the platform, users also have to go through a battlefield-like experience. Asset issuance is also starting to become complex, and it can even develop independently of blockchain.

Starting from the AI framework at the beginning of the year, completely off-chain projects can also issue tokens, and it itself has become an off-chain asset issuance platform. The extreme speculation is actually continuously lowering the industry's baseline. What is the meaning of all this?

Some people are puzzled by Meme, which led to the concept of decentralized science, attempting to allow speculators to speculate and scientific research to innovate. It seems to have found a common ground, but how can studying lab mice and classical mechanics be more interesting than the memes on today's internet and various AI applications? This narrative is also only temporarily popular.

When the market starts to cool down and the narrative fails to connect, asset issuance begins to resemble a Ponzi scheme. Some projects combine multiple strategies, using staking to earn points for new issuances, and new issuances can be staked again, which indeed causes the coin price to soar. However, this naked and direct approach has failed to rekindle people's interest.

In the previous cycle, various flywheels, Ponzi schemes, and narratives left behind treasures like decentralized finance, which indeed sparked a plethora of fresh ideas in the industry. But what can speculation at this stage actually create? I only see a continuous simplification of the issuance threshold, and the accompanying malicious events are equally numerous. Do we need a new set of rules?

4. Attention Economy

In the past, the rise of a project relied on narrative and technology, and could only burst forth after consensus was built. Now we are buying attention, with some projects using points for purchases, while others, like exchanges, use real money to form content creation teams led by opinion leaders. The combination of e-commerce platforms and short videos for marketing is prevalent within the community; compared to the various efforts of founders to explain technology, this approach seems more direct and effective.

Attention is undoubtedly one of the most valuable assets of this era, but it is also difficult to measure. Some projects are trying to quantify it, but the "pay-to-say" model is not really innovative; this has been reflected in early social finance projects. The biggest innovation may be AI-driven, claiming to identify the "value" of information and measure sales capability with AI. However, this model clearly cannot truly capture long-term value, and tokens are becoming a type of "fast-moving consumer goods."

The drawbacks of the points system, I believe everyone has already deeply experienced. If future projects rely on purchasing attention, it's hard for me to evaluate whether this behavior is correct. I can only say that there is nothing wrong with projects striving for marketing, but nowadays there is a trend of everyone engaging in hype. The old encryption era has indeed come to an end. Selling influence for profit has become a mature business, from political figures to exchanges to today's opinion leaders, no project has prospered because of this, everyone is just taking what they need.

Conclusion

Stablecoins will go global, and blockchain payments have become a certainty. However, the indigenous people living here may not need these; we need on-chain native stablecoins, we need definancialization, we need the next wave, and we do not want to live in a traffic-selling Web3.

Time is indeed proving that some early supporters of Bitcoin were right in their views back then, but I still hope they are wrong in the future.