Flowtrack

The Helium network has continued to innovate and carve out its place in the mobile space. Not only does Helium mobile have 112k+ subs for its mobile plan, but it also recently introduced the carrier offload (beta). A potentially slept-on strategy, Helium's carrier offload helps to fill gaps in coverage and to meet demand for major mobile providers. Major providers (think T-mobile, AT&T, etc) can offload coverage to Helium mobile hotspots. This synergy is very intriguing, as its a win-win for both parties. Major telecom companies save on infrastructure costs such as building new cell towers to meet demand by offloading coverage to Helium hardware. Helium hotspot providers see a major influx in demand and therefore HNT burn. While adding subscribers to Helium's mobile plan is the ultimate goal, in the meantime, carrier offload can massively increase demand for Helium hardware and decrease the burden on traditional telecom's and save them money. Still in its beta phase, carrier offload boasts impressive numbers in the short time it has been live (see below). DePIN is a sector that has seen varying degrees of success thus far, but Helium could be in the early stages of mainstream adoption. Users may be routed through Helium hardware and experience better UX without even knowing it. Helium is a great example of the power of decentralized networks enabling efficiencies and reducing costs for the consumer. It is likely the first of many examples of DePIN reducing friction and costs, and we look forward to the increasing adoption and revenue of these networks.

Sentiment around DeFi has picked back up the past few weeks. Once the most exciting sector of the entire industry, and since put on the back burner, could the DeFi that we know and love make a true comeback? We think so. Let's dive in. Following the exuberance for DeFi in 2020 and 2021, many tokens experienced a long bear market, and many assets are still down over 80% from their all-time highs. Interest in these protocols and their tokens waned, partially due to the fact that many of the tokens did nothing aside from give holders governance rights. Not only that, but tokens were used to heavily incentivize users in early days to bootstrap the protocols. These incentives put pressure on tokens, as many tokens were given out for different activities - an "expense" to the protocol that outweighed the profits they were generating. Fast forward to today, and the original protocols from DeFi summer are much further along in their emissions schedules and have a solid user base generating real profits. Take Aave for example - over 90% of its tokens are now circulating, it's doing roughly $60M in net revenue (annualized using past 30d), and it has drastically reduced token emissions. Now revenue > token incentives. Couple improved economics with their new proposal (https://lnkd.in/eqcXA2Xh) where excess profits are used to buy back AAVE and distribute it to stakers, and there is lots of renewed interest in AAVE. Perhaps this is short-term hype, or perhaps this is the beginning of a larger trend of DeFi giants returning to prominence. As liquidity returns and economic conditions improve, the market is likely to recognize these as legitimate businesses generating impressive revenue.

Decentralized Physical Infrastructure Networks (DePIN) have been largely overlooked as a sector thus far this cycle. However, there are many promising fundamental metrics showing early signs of real growth for wireless, mapping, and other verticals within DePIN. Much like Ethereum showed us what was possible with smart contract blockchains (ICO's, DeFi) in the early days, last cycle Helium showed us that there is a market opportunity for crypto networks to improve efficiency of physical infrastructure businesses. Just like other blockchains came in to compete with Ethereum (fueling the L1 trade), other DePIN networks have sprung up to either compete with Helium or to attack other verticals such as mapping, compute, and others. When the market began to pick up in Q4 2023, SOL led the market. However, in Q1 2024, DePIN began to outperform even SOL. DePIN has since cooled off with the overall market, but perhaps the DePIN outperformance in Q1 gave us a glimpse into what may happen when risk-on conditions return in earnest. Lastly, DePIN networks are tackling market verticals with large total addressable markets (TAMs). It is still very early days for most of these projects, however, many launch at very reasonable valuations, unlike many of the non-DePIN projects of late launching at multi-billion $ valuations. Take a couple DePIN leaders for example - Helium (HNT) is trading just above $1B FDV and Hivemapper (HONEY) just under $500M FDV. Compared to infrastructure trading at multi-billion $ valuations with low floats, these high growth projects at reasonable valuations and more tokens circulating are more attractive. DePIN is a sector that has yet to really gather momentum like meme coins or AI have. However, as the market realizes the potential these networks have and the efficiencies and reduction in CapEx they provide, DePIN could really catch on in a huge way.

On the road to chain abstraction and users knowing less about which chain they're using, cross-chain protocols are becoming increasingly important. Below is an overview of why we think bridges and cross-chain messaging will grow exponentially in the coming months and years. ⬇ As more chains were launched, early iterations of bridges were less secure and were a very simple one chain to another, bi-directional route. Now there are many cross-chain protocols with better security and UX competing for volume and users. Security tradeoffs and design choices are a discussion for another time. However, to put it simply, a bet on cross-chain is a bet on the proliferation of high-performance blockchains and the increasing velocity of exchange of value across them. Betting on leading cross-chain / interoperability protocols can be considered an index on the growth of many L1's and L2's launching today. Perhaps holding a cross-chain token trading at a reasonable valuation is a better bet than a basket of L1/L2's with inflated fully-diluted valuations (FDVs). Take Across (ACX) for example. It has become a leading bridge, consistently sitting in the top 3 in terms of bridge volume. ACX launched at a low valuation and has seen consistent growth over the last year, which is being reflected in its price. Similar to how DeFi protocols were valued largely based on TVL during and after DeFi summer, bridges have begun to be valued by the market based on bridge volume. If you expect bridge volumes to increase across the board, protocols with tokens absent of supply overhang likely reprice accordingly over the coming months.

On the road to chain abstraction and users knowing less about which chain they're using, cross-chain protocols are becoming increasingly important. Below is an overview of why we think bridges and cross-chain messaging will grow exponentially in the coming months and years. ⬇ As more chains were launched, early iterations of bridges were less secure and were a very simple one chain to another, bi-directional route. Now there are many cross-chain protocols with better security and UX competing for volume and users. Security tradeoffs and design choices are a discussion for another time. However, to put it simply, a bet on cross-chain is a bet on the proliferation of high-performance blockchains and the increasing velocity of exchange of value across them. Betting on leading cross-chain / interoperability protocols can be considered an index on the growth of many L1's and L2's launching today. Perhaps holding a cross-chain token trading at a reasonable valuation is a better bet than a basket of L1/L2's with inflated fully-diluted valuations (FDVs). Take Across (ACX) for example. It has become a leading bridge, consistently sitting in the top 3 in terms of bridge volume. ACX launched at a low valuation and has seen consistent growth over the last year, which is being reflected in its price. Similar to how DeFi protocols were valued largely based on TVL during and after DeFi summer, bridges have begun to be valued by the market based on bridge volume. If you expect bridge volumes to increase across the board, protocols with tokens absent of supply overhang likely reprice accordingly over the coming months.

Following Aerodrome's (decentralized exchange) implementation of Slipstream (their concentrated liquidity offering), volume has exploded. Aerodrome presents one of the most interesting investment opportunities in DeFi today, backed by a powerful L2 growth trajectory. Following Ethereum's Dencun upgrade, the "rent paid" to L1 by L2s is markedly lower, translating to an order of magnitude reduction in fees for L2 users. Base has been a clear beneficiary of this, seeing daily transactions explode and being a top 5 blockchain by DEX volume. Aerodrome has steadily grown volume since inception. In the most recent epoch, Aerodrome saw volume of almost $1.8B, while total DEX volume on Base for the same period was just over $4B. This represents almost 50% of the volume on Base. We expect Base to continue to grow over the coming months/years, and Aerodrome will be a major beneficiary. This innovative DEX is showing very promising signs, and we're excited to see what the future holds as the Base ecosystem expands further.

Last week, Fantom's much anticipated Sonic upgrade went live, as over 80% of the Opera nodes are now upgraded to the new Sonic tech. This is expected to give Fantom similar performance as high throughput blockchains like Solana. Fantom was once a top 5 blockchain by TVL and volume, being one of the top Ethereum competitors. The FTM token was also one of the best performing assets last cycle. Since then, the ecosystem has been less relevant, but Sonic could potentially revive the chain and ecosystem/community. The growth of Fantom last cycle was impressive, reaching $8B in TVL (top image below) and $5B in weekly volume at the peak (bottom image below). Similar to how Solana (and SOL) was beaten down in the bear market due to the collapse of FTX, Fantom has had struggles for different reasons. A technical upgrade could be the beginning of a revival for the chain. Aside from technical upgrades, Fantom is undergoing a rebrand to Sonic, accompanied by a brand new "S" token that will trade 1:1 with FTM. Furthermore, they plan to establish the Sonic Foundation with an ecosystem fund as well as Sonic Labs. The focus is to build out a thriving ecosystem of dapps to leverage the new Sonic tech. With chains such as Polkadot, Avalanche, and Cardano trading at $10-20B FDV, and Fantom trading at ~$2.7B FDV with potentially similar performance to Solana, FTM seems undervalued here.

Recently, "VC coins", aka low circulating supply, high FDV tokens have come under attack from many in the crypto community. Are these tokens a worse investment than those that have been around for a while and have built a community? Firstly, let's define what we mean by low circulating supply and high fully-diluted valuation (FDV). Typically, when a project launches their token, they will launch with 5-15% of the supply in circulation. Recent high-profile projects have been launching with high valuations and low supply. This is fine in a bull market, particularly when conditions are frothy, such as the conditions we had in 2021. However, we see that, eventually, the token unlocks over time overwhelm the demand. Early investors that are up multiples naturally take profit as their tokens unlock. The below tokens (left) were selected because they all launched at multi-billion $ valuations and most with roughly 10% of the token supply circulating. None have outperformed BTC in 2024, and most have extremely poor performance. Looking at tokens that have been around longer and have >70% in circulation (right), it paints a bit of a different picture (we have attempted to stick to more infrastructure-focused projects to compare apples to apples). At least thus far in 2024, the market has chosen to not be exit liquidity for high FDV token launches with many upcoming unlocks. Instead, market participants have been attracted to meme coins or projects that have been building for years and have a strong community of holders. Perhaps new projects can be carried to even higher valuations in a strong bull market. However, tokens with reasonable valuations, few token unlocks remaining, and a strong community and holders may be the best bets in crypto.

As we enter May 2024, BTC has been consolidating for a couple months in reaction to geopolitical and macro instability. However, this period of consolidation could be ending soon. Inflation increased slightly to 3.5% last month, and around the same time, tensions escalated in the Middle East. Flows out of Bitcoin coincided with the unfavorable macro conditions, with 7 straight days of net outflows. Coinbase, the largest crypto exchange for US customers, posted a strong earnings report for Q1 on Thursday, providing the market with much needed good news for the first time in a while. (https://lnkd.in/gMQzTwiP) Then, last Friday, the jobs report signaled a weakening in the employment data. This data being a main focus of the Fed, the market began to price in rate cuts again, and markets experienced a relief bounce. Also on Friday (5/3/24), crypto market participants were surprised to see Grayscale's GBTC with net inflows, for the first time since the launch of BTC spot ETFs, ending a months-long streak of outflows. This potentially signals an end for one of the main headwinds for BTC price. After a great start to 2024, we got a ~23% correction on BTC. This magnitude of pullback is commonplace during strong bull markets, and can even be considered healthy, as the market digests negative macro news and reloads for the next leg higher.

Bitcoin's "Halving" event is expected later tonight, currently expected around 9pm EST. This will halve the new block reward from 6.25 today, to 3.125 BTC per block. This reduction in new supply has typically taken a few months to impact price. Also, this cycle, we have a new demand vector in the form of the Bitcoin ETF in the US. Higher demand and the regular reduction in supply could have interesting implications for BTC price. So far, the current cycle for BTC (green on chart) has closely resembled the 2016 cycle (purple) from a timing and performance perspective. If this were to continue, we could expect a slow grind higher for BTC for the next 12-18 months with short-term pullbacks along the way.