Original Author: Lao Bai, Partner at ABCDE Capital Research

First of all, this is not a 2049 essay. Due to some family matters, I didn't attend this year's 2049 event, so I missed the opportunity to meet some long-time online friends. Most likely, I will attend next year's 2049 event in Singapore, hoping to meet all the friends I've known for years.

This article mainly discusses some market phenomena observed from a primary market perspective in the past two months, focusing on derivatives, Ton, gaming, and the relatively hot ZK tracks. I believe many of you have read quite a few 2049 essays, most of which are generally neutral with a hint of pessimism, such as VCs and projects running out of money, and the continued lack of breakout applications... All these points are valid. In the past two months, from a primary market perspective, we have also keenly felt that the number of projects in the market has decreased. While a few months ago we could discuss about 20 projects each week, recently it has dropped to around 10. When a good project appears, all VCs are competing for it, giving off a vibe of "more wolves than meat." As for the secondary market, well, let's not even go there...

However, I still want to share some optimistic thoughts, which I'll save for the end, so let's focus on the main topics first.

1. Derivatives

In the past few months, apart from occasionally seeing projects like Aptos and Sui, we basically haven't seen any new on-chain spot Dex or lending projects. Almost all new projects are concentrated in the on-chain derivatives track, mostly contracts and a few options.

The biggest trend in the derivatives track is - the more you do, the more it resembles a Cex.

For example, you can register with an email (MPC wallet technology)

For example, you can trade numerous assets

For example, off-chain high-speed Orderbook

For example, KYC is possible

There are even trading rebates, VIP gold cards, and so on

Overall, the trading experience of derivatives is gradually approaching that of a Cex. Speed and asset quantity are available, self-custody wallets are more secure, trading pairs can quickly become permissionless, retail users can act as LPs against traders (projects are also seen developing neutral strategy hedging for issues where large profits for traders like GLP lead to significant losses for LPs). From a rational perspective, it can be said that with sufficient liquidity and market makers, the overall experience of on-chain derivatives in the next 1-2 years may even surpass that of a Cex.

Of course, user transaction behavior and habits cannot be switched overnight. Binance and OK's industry reputation and derivative experience are indeed okay. If it weren't for the FTX incident, on-chain derivatives might still be struggling. Now at least we can see the possibility of the next bull market starting.

By the way, just a mention of Friend.Tech, do you also think this might be more suitable for on-chain derivatives enthusiasts? For example, a top-tier on-chain derivative allowing a KYC-passed (could use Twitter KYC like FT) Trader to issue their own Share. The Trader's monthly profit share of 10% is automatically distributed to all Shareholders through the contract. Due to the Trader's profit volatility, some months they make a huge profit, while other months they face a big loss. The buying and selling of Shares definitely experience ups and downs, sometimes holding Shares can result in a significant payout, stimulating a rapid increase in the Trader's share quantity, but the following month, due to losses, everyone might rush to sell his Shares... FT's model of non-custodial, curve-hanging "void trading" seems perfect for this scenario. Moreover, there are many ways to play, such as wanting scarcity, initially only allowing Share issuance from the top 100 Traders on the leaderboard. To stimulate trading volume, requiring Share buyers to complete transactions of over 1000U, and so on... Of course, there are many details to consider, such as if the Trader suddenly changes address or stops trading, various technical or economic means can be used to regulate this. As for why the Trader would allocate some of their profits to issue Shares, it could be for reputation, to pre-monetize some future earnings (tax on Share transactions for issuers and buyers), or simply for fun. The Share buyers then gain another perspective on monetization, leveraging small funds for greater potential returns, possibly earning more by getting in early than by trading contracts...

II. Ton

Ton has recently gained popularity, and everyone is full of expectations for such a "pedestal" with 800 million monthly active users, especially with the launch of the Ton Space official wallet this month, which can be seen as a milestone. However, what I want to say is that Ton's ecosystem may be slightly overestimated in the short term.

Firstly, the recent hype around Ton was actually driven by bots, and the users of these bots were originally Web3 Crypto Degens, not traditional Telegram users from Web2. Secondly, the official Ton wallet has actually been online for a year, but it was previously "custodial," and this time Ton Space has become self-custodial. In other words, the built-in wallet has just become more decentralized rather than being a process from nothing to something in many people's eyes.

We have spoken with many projects and foundations in the Ton ecosystem, and so far, we have not seen anything truly "exciting." The Defi ecosystem mostly consists of replicas of projects like Uniswap and Lido. People are anticipating platform-level applications similar to WeChat red envelopes and tipping. The custodial wallets from last year did not become popular, so can this shift to self-custody with Ton Space succeed? Personally, I have doubts.

However, overall, having Telegram with 800 million monthly active users makes Ton a public chain worth paying attention to. Its technological characteristics are similar to ICP, not like ETH, where all nodes reach global consensus through computation, but rather a somewhat decentralized and performance-oriented "local consensus." Therefore, whether in terms of technical architecture or user profile, we believe Ton's momentum is unlikely to rely on traditional Dex, lending, and other Defi suites. It should instead focus more on payment, bots, social, gaming, and other tracks. If there are good projects in these directions, we welcome recommendations or interactions.

III. Gaming

The gaming industry is currently in a state of factionalism.

One type is Web2.5, and the other is blockchain-native games.

Among them, Web2.5 games are becoming more like traditional Web2 games. The first-generation Gamefi like Axie, known for its "rough" playability, has completely disappeared. The new Web2.5 games are becoming more similar to Web2 in terms of playability, with Web3 elements fading away. One could even say that their primary target audience is Web2 gamers. It is only when players find the game fun and develop curiosity and demand for in-game assets that wallets, NFTs, and tokenomics come into play.

Therefore, the new Web2.5 games we see now are no longer striving for a balance between Play and Earn but are aiming to create the ultimate playability, approaching top Web2 games or even Web2 AAA games, while incidentally integrating some Web3 elements to differentiate from Web2 games. Many games are directly launching mobile versions instead of desktop PC versions, with many teams composed of all-star lineups, including employees from giants like Tencent, NetEase, and miHoYo, plus one or two Crypto OGs. The other day, when discussing projects, I even encountered the founder of a legendary game IP from the Web2 world, who has unexpectedly ventured into Web3 "Nth startups." While it is uncertain whether the Web2.5 path will succeed, the increasing number of "geniuses" and funds flowing into this space is visibly evident.

As for the Metaverse games, the question of feasibility seems to be nonexistent. It's a path that is almost certain to succeed, but how long it will take is a very uncertain question. A few days ago, our team members had a close-range experience with various Onchain Games, and the conclusion was "Fun but not addictive, easy to get into but not engaging." How far away is a Fully Onchain Game from being truly "fun"? Perhaps it's just one more market cycle away?

Four, ZK

The hot topic of ZK is no longer ZK-Rollup, but two new types of applications.

One is the co-processor Coprocessor concept represented by Axiom, also known as Storage Proof. Competing products in the market such as Lagrange, HyperOracle, and Herodotus can all be considered. If I were to describe in one sentence what a co-processor is for, I think Dr. Mo Dong from Celer gave the simplest and most understandable explanation - "Empowering smart contracts with the ability of Dune Analytics" (By the way, Celer is also stepping into this race).

The other type is a more general-purpose ZK computation and verification, targeting not only Web3 users but also Web2 users. There are various virtual machine architectures, such as those based on WASM, LLVM, Mips, and of course, Risc0 based on Risc V. Proof systems like Plonky2, Plonky3, Nova, SuperNova are visible. Currently, these types of projects generally face a "lack of use cases" problem. However, in the long run, especially starting from the first principles of blockchain, I think general ZK computation is still a promising track. If the first principle of the Internet is "bringing together or even eliminating spatial distance," then the first principle of blockchain should be "trustlessness." BTC/ETH eliminate trust in on-chain computation through full-node settlement, while General Purpose ZK can theoretically "trustlessly" handle all traditional computing processes through off-chain computation and on-chain verification. What new types of computation or scenarios will emerge once this matures is still unknown and needs to be taken one step at a time.

Five, Final Thoughts

Lastly, a few optimistic words. Although the primary and secondary markets are currently quite cold, the industry as a whole is still very vibrant.

From a technological perspective, in addition to the increasingly mature public chain system, we also have ZK, which aligns with and expands upon the blockchain's "trustlessness" first principle. Moreover, ZK technology is evolving rapidly, comparable to the speed of AI.

From an application perspective, we have the future-proven path of a fully chain-integrated game, which just needs time to materialize. RWAs, the ongoing exploration of Web2.5 games, the continuous evolution of DeFi and NFTs, the fresh exploration of AI+Crypto, the payment potential of the developing world... The future will always bring forth several truly useful scenarios.

From a talent perspective, the proportion of blockchain entrepreneurs from top universities is quite high. It feels like about half of the project founders you chat with are from Harvard, Yale, Oxford, or Cambridge, while those in China are predominantly from Tsinghua University and Peking University, with the occasional Zhejiang University or Xi'an Jiaotong University. In other words, either the world's smartest young people are either doing AI or diving into Web3. The founder of the legendary game IP mentioned above (not the MMORPG "Legend") has ventured into Web3 entrepreneurship. The pessimistic view is that they felt compelled to move because Web2 games are too overwhelming, while my optimistic view is that Web3 is still like the "Westworld," where capable individuals can freely unleash their potential.

So, why be pessimistic? Just build.

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