Author:Ryan Watkins

Compile: DeepTide TechFlow

The Tides of Depth: In 2026, the crypto economy is undergoing its most critical transformation in eight years. This article delves into how the market has "soft-landed" from the over-optimistic expectations of 2021 and gradually established a valuation framework based on cash flows and real-world use cases.

The author explains the turbulence of the past four years through the "Red Queen Effect," and points out that with the relaxation of U.S. regulations and the surge in enterprise-level applications, crypto assets are shifting from cyclical speculation to long-term, trend-driven growth.

Faced with a global trust crisis and currency devaluation, this is not merely an industry's recovery, but the rise of a parallel financial system. For investors deeply engaged in Web3, this is not just a shift in perspective, but an underestimated opportunity to enter the market that transcends economic cycles.

The full text is as follows:

Key Points

• This asset class had overly optimistic expectations in 2021; since then, valuations have been rationalizing, and currently, valuations for quality assets have become reasonable.
• With the easing of the regulatory environment in the United States, issues regarding token alignment and value capture have finally seen a turning point, making tokens more attractive as an investment.
• The growth of the crypto-economy is shifting from cyclical to secular long-term trends, and the industry has already generated some valuable use cases beyond Bitcoin.
• The winning blockchain is solidifying its position as a standard for both startups and large enterprises, becoming a hub for some of the fastest-growing businesses globally.
• Due to a four-year bear market that altcoins have experienced, market sentiment has hit rock bottom. Long-term opportunities from top projects have been mispriced by the market, and few analysts account for exponential growth in their models.
• While top-tier projects may thrive in the next era of the crypto-economy, the increased pressure to deliver on expectations and intensified competition from enterprises will eliminate weaker participants.
• There is no force more powerful than the idea that "the time has come," and the crypto economy has never felt more unstoppable than it does now.

Over the past eight years in this industry, the crypto economy has been undergoing the most significant transformation I have ever witnessed. Institutions are accumulating positions, while pioneering cypherpunks are diversifying their wealth. Companies are preparing for S-curve growth, while disillusioned native developers are exiting the industry. Governments are steering the global financial transformation toward blockchain, while day traders remain preoccupied with the lines on their charts. Emerging markets are celebrating financial democratization, while American cynics lament that it's nothing more than a casino game.

Recently, there have been many articles discussing "Which historical period is today's crypto economy most similar to?" Optimists compare it to the period after the dot-com bubble burst, believing the era of speculation in the industry has passed, and long-term winners like Google and Amazon will emerge and rise along an S-shaped growth curve. Pessimists, on the other hand, liken it to emerging markets in the 2010s, suggesting that weak investor protections and a lack of long-term capital could lead to poor asset performance, even as the industry experiences rapid development.

Both perspectives have their merits. After all, history is investors' best guide aside from experience. However, the insights we can gain from analogies are ultimately limited. We also need to understand the crypto-economy within its own macroeconomic and technological context. The market is not a single entity—it consists of many roles and narratives that are interconnected yet distinct.

The following is my best assessment of the stage we have been in and where we are heading in the future.

"Now, here, look, you must run as hard as you can just to stay in the same place. And if you want to go somewhere else, you must run at least twice as fast as this!"

—— Lewis Carroll

In many ways, expectations are the only important thing in financial markets. Exceeding expectations leads to rising prices, while failing to meet expectations causes prices to fall. Over time, expectations swing like a pendulum, and future returns are often negatively correlated with these expectations.

In 2021, the extent to which the crypto economy overextended its expectations far exceeded most people's understanding. In some ways, this overheating was obvious—for example, DeFi blue-chip projects trading at price-to-sales multiples of 500 times, or at the time, eight smart contract platforms having valuations exceeding $100 billion. Not to mention the nonsense around the metaverse and NFTs. But the chart that most calmly reflects this reality is...Bitcoin/Gold Ratio.

Although we have made significant progress, the price of Bitcoin against gold has never reached a new high since 2021 and is actually in a downward trend. Who could have imagined that in what Trump called the "global crypto capital," after the most successful ETF listing in history, and while the U.S. dollar is being systematically devalued, Bitcoin's success as "digital gold" would still be less than it was four years ago?

As for other assets, the situation is much worse. Most projects entering this cycle carry a series of structural issues, which exacerbate the challenges of dealing with extreme expectations:

1. The income of most projects is cyclical.and is premised on continuously rising asset prices;
2. Regulatory uncertaintyHindered the participation of organizations and businesses;
3. Dual ownership structures lead to misalignment of interests between insiders with equity and public market token investors;
4. Lack of disclosure standardsCauses information asymmetry between the project team and the community;
5. Lack of a shared valuation framework, leading to excessive volatility and a price bottom lacking fundamental support.

The combination of these issues has led to most tokens continuously "losing value," with only a few tokens even reaching their 2021 highs. This has a significant psychological impact, as few things in life are more frustrating than "working hard consistently without receiving any rewards."

For speculators and speculators who view cryptocurrencies as the easiest way to get rich, this disappointment is particularly acute. Over time, this struggle has led to widespread burnout across the entire industry.

Of course, this is a healthy development process. Mediocre efforts should no longer consistently produce extraordinary results as they did in the past. The era before 2022, when so-called "vaporware" could create significant wealth, was clearly unsustainable.

Nevertheless, a glimmer of hope in all this is that the aforementioned issues are widely understood, and prices already reflect these expectations. Today, apart from Bitcoin, few crypto-native individuals are willing to discuss any long-term fundamental arguments. After enduring four years of pain, this asset class is now in a position to surprise the market once again.

As mentioned earlier, the crypto-economy entered this cycle with many structural issues. Fortunately, everyone is now aware of these problems, and many of them are gradually becoming things of the past.

First, in addition to digital gold, there are already many use cases that have demonstrated compound growth, and many more are in the process of transformation. Over the past few years, the crypto economy has produced:

• Peer-to-peer (P2P) Internet platformEnable users to conduct transactions and enforce contractual relationships without the need for government or corporate intermediaries.
• Digital DollarsIt can be stored and transferred from anywhere on Earth with an internet connection, providing billions of people with low-cost and reliable money.
• Permissionless ExchangesEnabling anyone, anywhere, to trade the world's top assets across all asset categories in a transparent marketplace, 24/7.
• Novel Derivative InstrumentsFor example, event contracts and perpetual swaps respectively provide society with valuable predictive insights and more efficient price discovery.
• Global Collateral MarketsEnable users to access credit without permission through transparent, automated infrastructure, thereby significantly reducing counterparty risk.
• A democratized asset creation platformEnabling individuals and institutions to issue publicly tradable assets at extremely low costs.
• Open financing platformEnable anyone in the world to raise funds for their business and overcome local economic constraints.
• Physical Infrastructure Networks (DePIN)By crowdsourcing capital and delegating operations to independent operators, a more scalable and resilient infrastructure is created.

This is not an exhaustive list of all the value use cases built in the industry so far. However, the key point is that many of these use cases are demonstrating real value and are continuing to grow regardless of the price movements of crypto assets.

At the same time, with the easing of regulatory pressure and founders gradually recognizing the cost of misalignment, dual equity-token models are being revised. Many existing projects are consolidating their assets and revenues into a single token, while others are clearly distinguishing between on-chain revenues, which go to token holders, and off-chain revenues, which go to equity holders. Additionally, as third-party data providers mature, disclosure practices are improving, reducing information asymmetry and enabling better analysis.

At the same time, the market is increasingly reaching a consensus on a simple and time-tested principle: apart from rare stores of value assets like Bitcoin (BTC) and Ethereum (ETH), 99.9% of assets must generate cash flows. As more fundamental investors enter this asset class, these frameworks will only be further reinforced, leading to increased rationality.

In fact, given enough time, the concept of "autonomous sovereign ownership of on-chain cash flows" could be understood as a paradigm shift of a scale comparable to "autonomous sovereign digital value storage." After all, when in history have you ever been able to hold digital bearer assets that automatically pay you from anywhere on Earth every time the program is used?

Against this backdrop, the winning blockchain is gradually emerging as the monetary and financial foundation of the internet. Over time, Ethereum, Solana, and Hyperliquid have seen their network effects grow stronger, driven by their expanding assets, applications, businesses, and user ecosystems. Their permissionless design and global distribution have enabled applications on these platforms to become the fastest-growing businesses in the world, with unmatched capital efficiency and revenue turnover speed. In the long run, these platforms are likely to support the total addressable market (TAM) for financial superapps, a domain that is currently being fiercely contested by nearly all leading fintech companies.

It's no surprise, in this context, that giants from Wall Street and Silicon Valley are pushing forward with blockchain initiatives at full speed. Now, a new wave of product announcements emerges every week, covering everything from tokenization to stablecoins and everything in between.

It is worth noting that, unlike the era before the crypto-economy, these efforts are not experiments but production-level products, and most of them are built on public blockchains rather than isolated private systems.

As the lagging effects of regulatory changes continue to permeate the system over the coming quarters, these activities will only accelerate. With increased clarity, businesses and institutions can finally shift their focus from "Is this legal?" to how blockchain can expand revenue opportunities, reduce costs, and unlock new business models.

One of the clearest signs of the current situation is that few industry analysts are modeling for exponential growth. Anecdotal evidence suggests that many of my sell-side and buy-side colleagues are reluctant even to consider annual growth rates above 20%, fearing they might appear overly optimistic.

After four years of pain and with valuations now reset, it's now time to ask ourselves: what if all of this really does lead to exponential growth? What if "daring to dream" pays off once again?

"To light a candle is to cast a shadow."

—— Ursula Le Guin

On a cool autumn day in 2018, before starting another exhausting day at my investment banking job, I walked into the office of a senior professor to chat with him about everything related to blockchain. After I sat down, he recounted to me a conversation he had with a skeptical stock hedge fund manager, who claimed that cryptocurrencies were entering a nuclear winter and were a "solution in search of a problem."

After giving me an intensive training session on unsustainable sovereign debt burdens and the eroding institutional trust, he finally told me how he had responded to the skeptic:"In ten years, the world will be grateful that we established this parallel system."

Although it had been less than ten years since then, his prediction now appears remarkably prescient, as cryptocurrencies are increasingly looking like an idea whose "time has come."

In a similar spirit, and also the core message of this article, is to demonstrate that the world is still underestimating what is being built here. Most relevantly for all of us as investors,The multi-year opportunities for the leading projects are underestimated..

The last part is crucial, because although cryptocurrencies may be unstoppable, your favorite token could actually be heading toward zero. Another side of the fact that cryptocurrencies are becoming unstoppable is that they are attracting fiercer competition, and the pressure to deliver results has never been greater. As I mentioned earlier, with the entry of institutions and enterprises, they are likely to eliminate many weak players. This doesn't mean they will win everything and monopolize the technology, but it does mean that only a few native players will become the big winners around which the world is repositioning itself.

The point here isn't to be cynical. In all emerging technology fields, 90% of startups fail. There may be even more publicized failures in the coming years, but this shouldn't distract you from the bigger picture.

Perhaps no technology embodies the spirit of our times (Zeitgeist) more than cryptocurrency. In developed societies, trust in institutions is declining; government spending in G7 countries is unsustainable; the world's largest fiat currency issuers are openly devaluing their currencies; the international order is becoming de-globalized and fragmented; and people are increasingly yearning for a fairer new system than the old one. As software continues to consume the world, AI becomes the latest accelerator, and the younger generation inherits wealth from the aging baby boomer generation, there could not be a better time for the crypto economy to emerge from its niche bubble.

Although many analysts define this moment through classic frameworks such as Gartner's Hype Cycle and Carlota Perez's "Post-frenzy" phase, implying that the best returns are a thing of the past and that a more mundane phase of toolification is about to follow, the reality is far more interesting.

Cryptoeconomics is not a single, mature, unified market, but rather...A collection of products and businesses at different stages of the adoption curve.More importantly, when a technology enters its growth phase, speculation does not disappear; it simply fluctuates with changing sentiments and the pace of innovation. Anyone who tells you the era of speculation is over is likely just tired or simply lacks an understanding of history.

It is reasonable to remain skeptical, but not cynical. We are reimagining money, finance, and how our most important economic institutions are governed. This should be challenging, but it is also fun and exciting.

Your next task is to figure out how best to leverage this emerging reality, rather than writing endless Twitter threads arguing why it is all doomed to fail.

For those who are willing to bet on the dawn of a new era rather than mourn the sunset of the old, passing through the mist of disillusionment and uncertainty will present a rare opportunity in a lifetime.