Original author: JoyChen

Looking for keywords in this interview, you will find that the keywords "making money", "opportunity" and "cycle" appear frequently throughout the article - this fully reflects the instability of the cryptocurrency cycle The repeated human nature and the cycle that continues to play out in the currency circle: cycles, human nature, and wealth are intertwined and influence each other in this industry.

However, what we are discussing is not a proven business model, but various explorations in the high-risk, high-return field of the cryptocurrency market, and how to find a stable profit path in a volatile market environment.

Looking back on the development of Solv Protocol, from the outbreak of the ETH ecosystem to the rise of the Bitcoin ecosystem, and then to the financial interest-bearing products with continuously iterated algorithms, each step seems to perfectly fit the growth cycle of the industry. The second episode of the cryptocurrency and blockchain interview show "DripEcho" produced by Waterdrip Capital specially invited Ryan, the founder of Solv Protocol. Since its establishment in 2020, Solv has quickly emerged in the DeFi Summer, experienced two market cycles, and accurately grasped the industry trend that many people have not noticed, providing a new way of thinking about the future of Bitcoin and virtual assets. In the current market turmoil, we invited Ryan to discuss with us how to discover real cyclical opportunities and the new financial experiments that DeFi is conducting in the market.

Panic spreads, and risk aversion

The "gold rush" in the crypto world is gradually cooling down.

As if overnight, market sentiment turned to panic, and investor confidence gradually collapsed in the cyclical market shocks. In the past two years, these former adventurers are re-examining their investment strategies with a more cautious attitude by withdrawing funds and waiting. Of course, for the cryptocurrency industry, the fading of dividends is not just as simple as a market correction. Behind this lies the deeper laws of market cycles and technological evolution.

The price of Bitcoin has fallen again, triggering widespread discussion in the market about whether this round of bull market has ended. Four months after the halving this year, the price of Bitcoin has fallen by nearly 5%. This is the first time that the price of Bitcoin has fallen after the historical event of halving. It even fell below $60,000. At the same time, in the current market, voices of "quitting", "questioning" and "disappearing dividends" are heard one after another; at the same time, some people bluntly say that those who don't understand the industry don't have to look back. All of this, in the final analysis, is just the confusion and reaction of individuals in the face of uncertainty during the market fluctuation cycle.

Have the cyclical dividends disappeared?

In fact, this change has not weakened the confidence of core investors. Investors who have made huge profits in the last bull market still believe in the long-term value of cryptocurrencies and continue to increase their holdings. With the turmoil in the market, some speculators began to withdraw, while investors who truly understand the industry cycle saw new opportunities. Not only Bitcoin and Ethereum, but also began to turn their attention to emerging solutions and more asset allocation methods.

"It will last until about 2028, and the opportunity will still exist. However, compared with the previous cycle, many arbitrage opportunities have been significantly reduced in this cycle." Ryan admitted that the cyclical dividends of the cryptocurrency industry have not completely disappeared. Compared with the traditional market, it still has advantages.

When asked about his views on investors trying to predict the market, Howard Marks, co-founder of Oaktree Capital Management, said, "The biggest mistakes in investing often do not come from recognized risks, but from incorrect assessments of risks." Trying to gain returns through market timing often brings unnecessary risks. Even in the crypto world, there are not many people who can stay calm in the volatility. In this market, most of the early players have withdrawn, and only a few are still holding on. However, this is not the end of the game. With the adjustment of the market, a group of more cautious and rational investors have begun to re-position and turn their attention to long-term holding and new blue ocean strategies.

The transition from SolvETH to SolvBTC may mean that the team is more optimistic about the prospects of Bitcoin. In this regard, the solv team replied in the affirmative: "From 2024 Since the beginning of 2017, we have basically focused on Bitcoin's income assets. The main reason is that the stablecoin and Ethereum markets have become red ocean markets with very fierce competition. The last cycle was a cycle of algorithm innovation and underlying infrastructure innovation. But this cycle has shifted the focus to asset innovation. Whoever can introduce incremental assets into this industry will be able to achieve greater success in this cycle.

In this cycle, creating new assets has become the key, while the influence of algorithm innovation has weakened. The reason why we chose Bitcoin is based on our judgment of the macro market. The demand for Bitcoin's interest rate hike is real, coupled with real usage scenarios such as financial services, mortgage lending and leverage, making Bitcoin the best choice. ”

The battle for retail investors' survival under zero-sum game

"So in the current market environment, is it really possible for retail investors to make money?"

"Anyone who is rational and has made the right choice and holds Bitcoin until now is actually a steady profit. The key is that many retail investors did not like to hold Bitcoin in the past. If they are not operated properly, most retail investors will be eliminated in the volatility."

Ryan and I discussed the real winners of this cycle.

As discussed in the previous article, the current development status of the cryptocurrency market is "the cusp of the storm", VCs, project parties, exchanges or retail investors have taken turns to appear, but few people have really made money. He believes that there are two key steps to be implemented next: one is to "return to the essence", that is, to re-examine and select crypto assets with real value support, rather than blindly chasing short-term hype hotspots; the second is to "stay rational", that is, to adhere to long-term investment strategies in market fluctuations, rather than being swayed by short-term market sentiment.

"This cycle is very different from the past two cycles. Bitcoin's bull market has further enhanced its asset status globally, especially in the process of proving in the traditional financial world, its wealth effect has been increasingly recognized. People who hold Bitcoin are more likely to get certain returns, although the magnitude may not be as high as in the past. This is actually a sign of the maturity of the industry.

Relatively speaking, altcoins are not in an absolute bull market stage now. From a macro perspective, the probability of losing money is greater than the probability of making money by investing in altcoins now."

For the winners in the market, Ryan believes that they are not dependent on luck. "The macro environment is the key factor. When the macroeconomic conditions are good, the chances of making profits are higher; but in the current situation, market capital is obviously more willing to flow into Bitcoin rather than altcoins."

For many retail investors, this situation is frustrating. So has the industry's dividend really bottomed out, and will the next cycle be more severe? Ryan's understanding of this is: "Looking forward, maybe after another decline, market opportunities will become more difficult to grasp. Just like Bitcoin mining, it is not as profitable as before. In the last cycle, mining was still a very good business, but this cycle is just so-so, and the next cycle may be basically unattractive. So, this decreasing trend is like the effect of Bitcoin halving."

Bitcoin's New Mission and DeFi Innovation Road

When the show was recorded, Babylon was conducting an unprecedented social experiment.

It seems that overnight, the role of Bitcoin has changed. Babylon launched the Bitcoin staking mainnet. They want to use this method to prove that the largest crypto asset is about to become the security cornerstone of the PoS system. Bitcoin may usher in the third native use case after value storage and simple payment-staking. By staking, Bitcoin assets can be used to protect the network and earn income, providing a more secure and reliable infrastructure for PoS chains and other decentralized applications, while releasing the potential value of the $1 trillion Bitcoin ecosystem.

One of the recent hot events is that Solv deposited 250 BTC for the first phase of Babylon mainnet pledge, reaching the hard cap and occupying the largest Babylon pledge share in the market. For Solv, this is a strategic layout, which coincides with Ryan's thoughts on Bitcoin assets and the possibility of new applications in his conversation.

The demand for new products in the market is increasing. As a DeFi interest-bearing project, the process of product iteration is actually how to organize the game relationship of assets. "But the stage of algorithm innovation has passed. What people need now is more mature products. The current innovation has reached the top of the pyramid, especially in the field of advanced financial products such as interest rate swaps." Speaking of new gameplay, Ryan believes that although there are still some small spaces for innovation, such as Hyperliquid's algorithm innovation of small currencies has done very well, but the space for these innovations is limited. The focus now is not on new algorithms, but on whether new assets can be introduced. "Whoever can introduce new assets will succeed in this cycle. So, I think it is better to focus on the introduction of new assets than on new algorithms."

This is exactly what countless newcomers who choose to enter the industry are thinking about. What is the temptation of blockchain?

Practitioners are quite frank when facing this topic. "I think 99% of people enter this industry to make money. Although there are a small number of people because of their belief in blockchain technology, most people are still because of realistic economic motivations."

But the reality that has to be faced is that the development of the industry has shifted from pursuing short-term interests to creating actual value. "Especially in the current market environment, it is more difficult to make wealth, and wealth must be obtained by creating commercial value."

This is also the main reason why he chose the blockchain industry. Ryan entered the blockchain industry in 2018 and became one of the first DeFi protocol degen users. The birth of Solv originated from his dissatisfaction with just pursuing economic benefits. "Although the user value and product value of the financial industry are extremely high, the cost of building trust behind it is also huge. For example, to establish a bank and attract huge amounts of funds, it requires national endorsement, which is extremely costly. Compared with traditional finance, blockchain technology builds trust at a very low cost, which makes Ryan realize that the business value of this field is huge. Through blockchain technology, he can build more valuable financial products at a lower cost than traditional finance.

As for the next step, I think Ryan showed a cautious optimism. He set his sights on several key areas: AI, biotechnology or blockchain, which contain unlimited possibilities, especially in financial innovation. He admitted that the competition in the blockchain field is becoming increasingly fierce, but this is also where he thinks it is most worth investing. "I am not in a hurry to enter other fields, because there are still too many opportunities in financial innovation and blockchain technology waiting for us to explore and realize."

Financial freedom and blockchain democracy

Speaking of motivation, we talked about the appearance of economic motivation and the deeper idealistic pursuit. The coexistence of money and ideals is a delicate balance that only a few people can achieve. "I think that although only 1% of people may enter this industry because of their belief in blockchain technology, considering that there are more than 100 million people participating in this industry worldwide, even 1% is quite considerable. These people believe in the early potential of blockchain technology, and although this group of people is small in proportion, they do exist. They see the changes that blockchain can bring to traditional industries."

The pursuit of "freedom" has been the goal of mankind since ancient times. With the development of DeFi, the concept of "financial democratization" has also emerged. Its meaning is: to explore how to enable everyone to participate equally in the global financial system in the blockchain era.

When discussing the future of DeFi, people often ask whether decentralized finance has the potential to completely replace traditional finance. Supporters firmly believe that DeFi's transparency, decentralization and borderlessness represent the future of finance. DeFi advocates like to see themselves as innovators, even rebels, who seek to break the existing order and create a new financial model.

But the reality is that although DeFi is disruptive in technology and concepts, the challenges it faces are equally huge. More importantly, DeFi cannot completely solve all the problems in the traditional financial system. "When the Internet first emerged, people were also discussing whether it would completely replace offline shopping and supermarkets. But in the end we saw that although Taobao and Amazon were very successful, offline economies and stores still exist." Speaking of the future development of DeFi, Ryan emphasized. Just as technology giants have not completely eliminated physical business, DeFi is unlikely to completely replace all the functions of traditional finance. It is more of a supplement and extension of the existing system than a complete substitute.

Now, this dream of "financial freedom" is no longer a 100% ideal, but "is beginning to become a achievable reality." In a discussion at MIT, Michael Casey emphasized that DeFi can be an alternative to traditional financial institutions by reducing bureaucratic barriers and providing financial services on a global scale. Similarly, the World Economic Forum has proposed that the adoption of blockchain in traditional financial services is increasing, and it is expected that by 2027, blockchain technology may significantly change the way global value is exchanged and stored, and it is even possible to tokenize 10% of global GDP.

Many traditional financial institutions have begun to pay attention to and try to integrate DeFi technology. They believe that the future financial world will be a situation where traditional finance and decentralized finance coexist, rather than a life-and-death competition. How far can it go and can it really replace traditional finance? These questions remain unresolved.

"But in this process, we can rebuild high-value financial products at a very low cost, which not only realizes our ideals but also makes money. I think this original intention itself is very good." This may be a future trend of the industry, combining the driving force of ideals and reality to move forward in the industry.

"DeFi cannot completely replace traditional finance, but improves certain inefficient links in a more efficient way. The two are destined to complement each other. International assets that were difficult to reach in the past can now be better exposed to global investors and increase liquidity through blockchain. This approach is particularly suitable for some non-financial assets, such as tickets or other assets that are not fully defined as financial. The traditional financial system has very strict supervision of securities assets, and DeFi can provide better services for the second and third types of non-financial assets."

About Solv Protocol:

The team has been focusing on the development of the Bitcoin track since April. When the BTCFi track had not yet attracted widespread attention, it foresaw its huge potential and took the lead in layout, Related products have been launched.

- The total number of SolvBTC holders has exceeded 200,000, and the total market value has exceeded 1 billion, making it one of the BTC assets with the highest consensus in the entire network.

- The total amount of SolvBTC has exceeded 20,000, second only to Ethereum, TON and BNB Chain, becoming the fourth largest on-chain BTC asset platform, and its scale is above most BTC ETFs.

- The total TVL of Solv Protocol has also exceeded 1.2 billion. It has been ranked in the top 30 of the DeFi Protocol in the entire network since July 2024, and is the absolute leader in the BTCFi track.

The following is a selection of the program content:

JoyChen: The recent market performance is indeed as challenging as we said. This is undoubtedly a difficult time for most retail investors. Therefore, there is a saying in the market: retail investors did not actually make money in this bull market. The wealth effect you mentioned has also been questioned by many people. What do you think of this statement? What kind of people do you think can really make money in such a market environment?

Ryan: I think a very simple example is that if you bought Bitcoin a year or two ago and held it until now, you must have made money. Because compared with the price a year or two ago, the value of Bitcoin has increased significantly. Therefore, anyone who is rational and makes the right choice and holds Bitcoin until now is actually a steady profit.

The key is that many retail investors did not like to hold Bitcoin in the past. They prefer to invest in altcoins because altcoins give them the fantasy of either doubling their money tomorrow or making 10%. For these people, a potential return of 100 times is more attractive because they may have only invested 1,000 RMB or 1,000 USD, and expect to get a high return that exceeds their expected threshold.

JoyChen: From SolvETH to SolvBTC, does it mean that your team is more optimistic about the prospects of Bitcoin?

Ryan: Yes, or we have always had stablecoins and Ethereum-related products. But starting in 2024, we basically focus on Bitcoin's income assets. The main reason is that the stablecoin and Ethereum markets have become red ocean markets with very fierce competition. The last cycle was a cycle of algorithm innovation and underlying infrastructure innovation, such as algorithm innovations such as AMM. But the focus of this cycle has shifted to asset innovation. Whoever can introduce incremental assets into this industry will be able to achieve greater success in this cycle.

JoyChen: When many friends in traditional finance first come into contact with cryptocurrencies, they will ask why the APY of cryptocurrencies is so much higher than that of traditional finance? The yield of traditional financial financial products is usually around 2% to 3%, while the yield of cryptocurrencies far exceeds this figure. As a DeFi project that provides returns, how is Solv's yield guaranteed?

Ryan: In fact, this question is not difficult to understand. In the traditional financial world, the amount of funds is very large, and all parties involved are very professional, so those who are particularly easy to make money have already been made. Traditional finance has developed for decades or even hundreds of years and is very mature. The DeFi world has only been in the dividend period for five years since its birth.

To give a simple example, once arbitrage opportunities appear in traditional finance, they will be quickly digested by the market. But there are still arbitrage opportunities in the cryptocurrency market, especially between DeFi and cryptocurrency exchanges. Sometimes the price of Bitcoin between two exchanges may differ by $100, but not many people go for arbitrage. This is because the market is still in its early stages and there are not many participants, so there are still a lot of profit opportunities.

I think this industry dividend can continue for a few years, but it will eventually enter a more reasonable range. For example, in traditional finance, a quantitative fund may have a drawdown of 1% to 3%, and an annualized return of 8% to 10%, which is already the level of top assets. In the world of cryptocurrency, the annualized rate of return may reach more than a dozen points or even higher, so it is still very attractive to investors in traditional finance. This is essentially the embodiment of industry dividends.

JoyChen: Solv's TVL is close to $1.5 billion. I think TVL may be the most important indicator for retail investors. The psychology of retail investors is usually that since so many people's money is locked in it, it means that the project party will definitely ensure the safety of funds. What advantages does the growth of TVL rely on to be so high? Ryan: First of all, I think it's a question of dividends. BTC itself has huge dividends, so I don't need to convince users too much because there are not many competitors in this field. This is similar to the success of early DeFi projects. Dividends and timing are often more important than personal efforts. Therefore, the main reason why users choose us is because we are making the most professional and best products. Secondly, many people will question why TVL is so high? Is there a risk behind this? In the case of Solv, our products have real business value and product value. Solv is the largest reserve and interest-bearing protocol in the current Bitcoin field. The more Bitcoin we reserve, the more income we generate, which directly increases the overall value of the protocol. Therefore, I think that a TVL of more than a billion US dollars is just the beginning. It can reach 5 billion, 10 billion, or even 50 billion US dollars.

The charm of Defi is that it does not require 500 or 1,000 people to maintain such a large amount of funds. Through code and smart contracts, the labor cost and trust cost are greatly reduced. This allows us to manage this scale with a very streamlined team and strictly tested products, and as the scale expands, the value of the protocol will continue to increase.

Finally, you mentioned the issue of income. Our products are divided into two parts: reserves and income. The core of reserve products is to ensure the transparency of reserves. We have introduced custodians such as Coinbase and Fidelity to ensure the security and transparency of funds. The interest-bearing product line includes creating income for Bitcoin through staking, quantitative income, option trading, etc. Each product has different risks and benefits, and users can choose suitable products according to their risk tolerance. Of course, we also ensure the transparency of assets, but in extreme cases, such as security issues on certain platforms, losses may occur, which cannot be completely avoided.

JoyChen: Overall, Solv's product logic and custody methods are relatively safe, but why do some DeFi projects still have problems with explosions? In which links do these problems mostly occur? Can you talk about this issue from the perspective of the project party?

Ryan: In the last cycle, there were many cases of project explosions, especially in the stage of algorithm innovation. Algorithm innovation inherently brings new risks, because the code is newly designed, and if one party has a weak link, it may be attacked. This is a common problem in algorithm innovation.

However, in the current cycle, the situation has improved, especially in terms of cross-chain bridges and other theft issues, which have been significantly reduced compared to the previous cycle. Now, the problems are more on the asset side rather than the algorithm side. For example, some capital arbitrage strategies may have operational errors, resulting in huge drawdowns or losses. This shows that the risk control ability and strategy selection on the asset side have become more critical.

Click Podcast, YouTube to learn the full program content.

Article citations:

Mit Management Sloan School, World Economic Forum

This article comes from a contribution and does not represent the views of BlockBeats

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