Translated by: Blockchain in Plain Language

I. Bowing to Compliance

How did the crypto industry move from the margins to the mainstream? Over the past decade, decentralized blockchain systems have provided a regulatory frontier for the world. Satoshi Nakamoto's vision of a peer-to-peer electronic cash system may not have fully materialized as expected, but it opened a door to a parallel world. In this world, laws, governments, society, and even religion cannot exert control—a world existing on countless nodes, transcending centralized control of the internet.

Existing outside of regulation can be said to be the core driving force behind the early success of the industry. From the ICO boom and its countless derivatives, to the DeFi explosion sparked by UNI, and now the emergence of so-called stablecoins and other super applications—each significant milestone is rooted in the ability to break free from the complex constraints of traditional finance. The essence of shaping today’s crypto industry lies in stripping away the bureaucratic entanglements of TradFi.

But ironically: like the Age of Exploration choosing to abandon ship and return to port after failing to discover new continents, the crypto world seems to be retracing its steps. The turning point may be the approval of Bitcoin ETFs, or perhaps Trump's return to the center of power. Regardless, the purest form of the crypto era seems to be coming to an end. The entire industry is scrambling to chase compliance, striving to meet the demands of traditional finance. Stablecoins, RWA, and payment scenarios have become the new mainstream. Beyond that, what remains is only pure asset issuance—a picture, a story, a contract address; these have become our last remaining topics of conversation. The "Meme coin chain" is no longer a pejorative.

How did we get here? Over the past two years, I have explored this question from various angles, but ultimately it comes down to: blockchain still lacks effective means to constrain the malicious actors behind wallet addresses. We can ensure the honesty of nodes and create permissionless DeFi, but we cannot prevent everything occurring in this dark forest. The decline of many narratives is inevitable. NFTs, GameFi, and SocialFi heavily rely on teams from the real world. Blockchain has significant advantages in financing, but who supervises how these teams use the funds? Who ensures that stories can turn into real products?

The vision of non-financial applications cannot be realized merely through infrastructure upgrades. If things cannot be well managed on centralized servers, why should we expect blockchain to do it better? We cannot impose proof of work (PoW) standards on project teams. The current shift towards compliance paradoxically may mark the beginning of the "non-financial crypto era". This is a bitter realization—filled with contradictions yet increasingly unavoidable.

Cryptocurrency is being reduced to a subset of the traditional system. The power written on the ledger is being stripped away from the bottom up. Grassroots innovation is dwindling, and opportunities are shrinking. What lies ahead is likely to be an era of on-chain hegemony.

II. Stablecoins

What does on-chain hegemony mean? In my view, it manifests in two aspects: the rise of stablecoins and the repetition of old stories from the traditional internet.

First, let’s look at the former. The current landscape of stablecoins is dominated by fiat reserve and yield-bearing stablecoin (YBS) models. A significant event has occurred recently in the fiat reserve space—the passage of the so-called "Genius Act." Here’s a concise summary of its core content:

• Definitions and Issuance Restrictions: “Payment stablecoins” are defined as digital assets used for payment or settlement, sufficiently backed 1:1 by high liquidity assets such as the US dollar or short-term government bonds. Only licensed and regulated entities are legally allowed to issue stablecoins; unauthorized individuals or entities are strictly prohibited from issuing.

• Reserve and Transparency Requirements: Issuers must hold reserves equivalent to the issued stablecoins to ensure solvency and stability. They are required to publicly disclose reserve conditions regularly, and issuers with a market value over $50 billion must undergo annual financial audits and comply with anti-money laundering (AML) and counter-terrorism financing (CFT) requirements.

• Regulation and Compliance: A clear regulatory framework has been established. Stablecoins are not treated as securities but are regulated under banking laws (not SEC). Mandatory enforcement of licensing approval processes, anti-money laundering oversight, asset freezing, and destruction mechanisms is required.

• Innovation and Financial Inclusion: The act aims to provide a clear legal framework to promote the development of the US stablecoin industry, enhance financial inclusivity, and solidify the dominance of the dollar in the digital economy.

• Restrictions on Large Tech Companies: Without regulatory approval, large tech companies are prohibited from issuing stablecoins to prevent monopolistic behavior.

Long-standing concerns about the potential collapse of Tether have largely become a thing of the past. Downstream payments are gradually entering the mainstream, and the mass adoption of blockchain is finally beginning to take shape. But what does it mean when stablecoins are subject to strict regulation? How will other countries respond? The reasons for the success of stablecoins are well-known and need not be elaborated.

The passage of this act effectively hands over control of on-chain transaction mediums to the United States. Private companies enjoy the benefits of US debt, and nations holding monetary control now have tremendous sway over blockchain systems. Setting aside concerns about the continuation of dollar hegemony, imagine if all stablecoins in a DeFi protocol suddenly froze—that no longer seems a fictitious panic.

On the other hand, yield-bearing stablecoins (YBS) are gaining momentum. Ethena's vision is grand—offering yields comparable to UST during bull markets while boasting stability far higher than the latter. As I mentioned before, truly native on-chain stablecoins might ultimately depend on Delta-neutral strategies, such as f(x)Protocol or hedging on platforms like Hyperliquid. However, it seems everyone wants a piece of the YBS pie. Initially, it was traditional hedge funds, followed by market makers like DWF, and now even trading platforms are getting involved. They may never become the next Tether, but they are vying for shares in the ENA market.

This fervor for YBS has clearly deviated from its original intent. Project teams are using their initial capital and increasingly aggressive strategies to snatch market share. True innovation is being drowned out, and the barriers to entry for startups are continually rising. In such an environment, technology and sophisticated design become trivial, and decentralization becomes irrelevant. Highly innovative protocols like f(x) are largely overlooked. Today's winning formula has transformed into CEX infrastructure plus elite quantitative teams. In this war, APY and user convenience dominate everything.

Choosing YBS may be better than swapping ETH for JPEGs or chasing absurd narratives, but these CEX-packaged yield products have ironically become the only recognized "innovation" of this cycle, highlighting how far off past development paths truly were.

III. Asset Issuance

Public chains have evolved into the largest asset issuance platforms, with ICO marking the start of this game. Everything since has been a variant, but at least it has spawned new narratives and pushed the industry forward. However, the current trend is clearly regressing to traditional internet development models. Platforms like Base and Pump have business models almost identical to Web2, contributing almost no value back to the community—in some respects, they are even lagging behind centralized exchanges (CEX). The original vision of Web3 was democracy, co-creation, and shared prosperity, but that ideal has lost its meaning.

This is just the first point. Nowadays, every lead must explore how to become an asset issuance platform, and what innovative asset issuance truly means. Launchpads have become the last bastion for native crypto users to realize dreams of wealth. Yet even here, the ecosystem is unhealthy. Users must pay the platform or tools like GMGN to participate, making the experience akin to shooting across trenches. Asset issuance is becoming increasingly convoluted, and in some cases completely occurs off-chain.

Admittedly, NFT and GameFi projects have never achieved full decentralization, but they at least have on-chain components. They have driven infrastructure development and helped the industry gain mainstream attention. From the AI frameworks earlier this year, we now see completely off-chain projects issuing tokens—some of which are asset issuance platforms themselves, never touching the blockchain. Extreme speculation is dragging the entire industry’s baseline lower. What is the meaning of all this?

CZ and Vitalik, confused by the fervor for meme coins, introduced the concept of DeSci (Decentralized Science): to let speculators speculate while allowing true innovation to occur in the field of science. This seems like a rare overlap of interests. But can studies on lab mice and classical mechanics truly compete with today's internet memes and bizarre AI products? This narrative is merely briefly popular. After AI and DeSci cool down, celebrity coins have taken the stage—from Trump in North America to President Milei in South America—squeezing the last liquidity from the market.

As the market cools and narratives fail to rotate, asset issuance resorts to Ponzi schemes. The "Virtuals" model combines Binance's Launchpool with Alpha strategies: staking tokens to earn points for participation in launches, then staking newly issued tokens. Prices do indeed skyrocket. However… this blatant trick no longer excites me. What comes next? The supposed internet capital market “Believe”?

I cannot be sure. But in the last cycle, amid countless flywheels, Ponzi schemes, and fleeting narratives, we at least welcomed DeFi—a true gem that birthed a multitude of innovations. And what might emerge from this new wave of speculation? All I see is the continuous lowering of issuance barriers, along with a surge in malicious behavior. Perhaps what we truly need is a brand new rulebook.

IV. Attention

In the past, the rise of a project relied on narrative and technology—stimulating consensus, thereby driving growth. Now, we are buying attention. Platforms like Blur utilize point systems to purchase attention; trading platforms create MCN-style organizations around KOLs with real capital. This is a perfect replica of Pinduoduo + Douyin strategies in the crypto sphere. Compared to founders hustling at various summits to promote technology, this new path is clearly more direct and effective.

There is no doubt that attention is one of the most valuable assets of this era, but it is extremely difficult to measure. Kaito is attempting to quantify it. Although "Yap-to-Earn" is not a new concept—SocialFi attempted it long ago—Kaito adds AI elements, claiming to assess the “value” of information and quantify influence. However, this model cannot capture long-term value. Tokens are becoming fast-moving consumer goods.

We have all experienced the drawbacks of three-phase point systems, and I have reviewed Blur's impact in previous articles. If future projects must rely on purchasing attention, it is hard to judge whether that is right or wrong. Aggressive marketing is not without merit. But the entire ecosystem seems to be sliding towards a culture of universal hype. The old crypto era is indeed coming to an end. Monetizing influence has become a mature business—whether it’s the President of the United States, Binance, or today’s internet celebrities. None of this can bring long-lasting prosperity. Everyone is merely taking what they need.

Conclusion

Stablecoins are going global. Blockchain-based payments are unstoppable. However, the native residents of this space may not even need these. What we need is truly on-chain native stablecoins, non-financial use cases, and the next wave of real innovation. We do not want to live in a Web3 world entirely built on traffic monetization.

Time is proving that some Bitcoin OGs may not be wrong. But I still hope they are.

Article link: https://www.hellobtc.com/kp/du/08/6423.html

Source: https://ybbcapital.substack.com/p/the-twilight-of-native-crypto