What are the three key factors for the growth of the Web3 industry? Cryptocurrency analysts offer a unique analytical framework.
Cryptocurrency researcher Ignas believes that the growth of the cryptocurrency market is primarily driven by three forces: technological innovation, token issuance, and market narratives. If all three are met simultaneously, it can be expected that a project or industry will experience rapid growth, which can be used to determine market trends.
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Key Drivers of the Cryptocurrency Market
Technological Innovation
Token Issuance
Market Narratives
Rapid Growth Does Not Guarantee Long-Term Success
Technological innovation is the key to progress and can bring unique growth momentum to new projects. Without technological innovation, an industry will stagnate and gradually disappear.
Bitcoin started it all, and then Ethereum enabled more complex transactions through smart contracts. The bull market in 2017 was initiated by the invention of ERC-20 and ICO. The key to the last bull market was NFT and DeFi, with AMM, lending protocols, algorithmic stablecoins, and others being unique technological innovations at that time.
By this, it can be said that technology is usually the first driving force behind the market, allowing people to imagine and generate narratives.
The catalyst for this bull market also sees many potential new technological innovations, including:
Maturity of Layer2 technology and RaaS (Rollups as a service)
Account abstraction and intent-driven design
RWA
Bitcoin ecosystem’s narrative and DeFi
Rehypothecation
The advancements in these various technologies accumulate the energy of this market and help drive market sentiment, becoming a force for the growth of the cryptocurrency market.
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However, not all technological innovations are equal when it comes to making money. Other factors need to be considered as well.
Token issuance is essentially like printing money and can attract everyone’s attention. The inventions of ERC-20 in 2016, AMM and liquidity mining contracts in 2020 were powerful token issuance tools, especially the latter’s liquidity mining, which successfully served as a catalyst for the previous bull market.
Token issuance used to be difficult and expensive, requiring a fork of the Bitcoin network and enough nodes to support the successful issuance of new tokens. Well-known examples include BCH and BSV. But as the industry matures, token issuance has become easier and easier.
Liquidity mining creates a positive feedback loop for projects.
Similarly, not all technological innovations can be transformed into profitable tokens. Some technologies are particularly difficult to tokenize and monetize, such as account abstraction or soul-bound tokens, while RaaS and competitive chains are very suitable for tokenization, thereby increasing ecosystem activity.
Storytelling captures people’s imagination and beliefs, creating a powerful community.
Storytelling gives life to the technological and token economic models, turning them into something that people can connect with, believe in, and become a part of. Without compelling narratives and belief in the potential of these tokens, there will be little or no motivation for new users to join and invest in the ecosystem.
Celestia’s narrative of “Hold TIA to receive airdrops” is a powerful story, even though few people truly understand the significance of Data Availability (DA) technology. But a good story helps maintain its valuation.
The more innovative the technology, the stronger the storytelling ability. Relying solely on narratives can boost tokens, but without genuine innovation, tokens will be sold off just as quickly.
Whether it is technological innovation, token issuance, or market narratives, if two or all three of them can be met simultaneously, it can maximize the market’s growth momentum.
DeFi has three key pillars. It drives technological innovation through smart contracts and self-custody, converts innovative value into token participation in the market, and has a powerful narrative of creating a new financial system, which is why DeFi grew rapidly at the time.
However, whether a project can succeed in the long term is still determined by many other factors, including product strength, regulatory risks, brand management, completeness of the business model, and even unforeseeable black swans.
Terra’s UST is a notorious example, but it successfully captured the three pillars by leveraging the “innovation” of algorithmic stablecoins, driving the currency flywheel with a massive structure, and the narrative of 20% APY passive income, resulting in astonishing growth but subsequent failure.
When evaluating whether a new project has the opportunity to attract market attention in a short period of time, this framework can be used to analyze and better grasp the current market trends.
Ignas
Market Trends
