#Payments14 Jul

The Crypto Development Market Cycle

Alisa Tkach

Crypto has become notorious for its volatility from a speculative perspective

Crypto has become notorious for its volatility from a speculative perspective

To many onlookers, the arena of Web3 can seem chaotic at best, but for long standing industry participants, beneath the madness lies a somewhat clear cyclical nature. For traders, this has become evident in the until-recently clearly delineated bull/bear cycles that determined momentum, tied closely to Bitcoin’s halving cycles roughly four years apart. However, on an even more fundamental level, patterns marking periods of fresh innovation and development have come to the fore. 

In their 2022 State of Crypto report, VC firm a16z dives into this phenomenon, positing a template for defining crypto development cycles.

The Crypto Development Cycle

Defining the Cycle

In many traditional markets, price is often a lagging indicator of performance. However, in the always-on, rapidly innovating world of crypto, the converse is true. Price attracts interest, which in turn promotes new ideas and activity, leading to further innovation, resulting in the creation of new projects and startups. A16z terms this feedback loop “the price-innovation cycle”, evidence of which is plentiful across crypto’s 13 year history.

While each cycle is driven in part by specific narratives, the wealth of volume and liquidity created by interest in dominant sentiment motivates builders to innovate further, as has been observed in DeFi’s explosion since emerging as an obscure digital asset class in 2020. For those who remember, DeFi Summer was marked by the rapid growth of Yearn Finance (YFI), and saw many teams fork and iterate on the YFI protocol to capitalise on fresh interest through further innovation. While those forks are long forgotten, the space has continued to innovate further, and Mercuryo is proud to count DeFi industry leaders Nexo and 1Inch among its partners.

The Scaling Wars

Smart contracts supporting Layer 1 (L1) blockchains present a clear example of the price-innovation feedback loop stretching back to Ethereum’s launch in 2015. While Ethereum still claims the title of smart contract king in 2022, new contenders have emerged in the wake of 2017’s bullrun, and have in fact formed some of the highest yield investments in recent years. Ethereum’s prominent valuation increased interest in the use of smart contracts for on-chain products, while also exposing the chain’s limited scalability – facing issues of high fees, slow transaction times, and general network congestion. 

Consequently, a frenzy of development has seen the emergence of several competing chains utilising novel alternatives to Proof-of-work (PoW) consensus, primarily in the form of Proof-of-stake (PoS) solutions such as Avalanche, Fantom, Polygon, and Hedera Hashgraph. Entirely independent, non-EVM (Ethereum Virtual Machine) compatible chains such as Solana have also gained significant popularity as potentially cheaper and faster alternatives to ETH’s high barrier to entry. While these chains have faced their own struggles at scale, these innovations represent the manifestation of new ideas as projects and startups, which were by and large built during the quiet of crypto’s 2018-2020 bear market.

As with any other narrative, it remains to be seen which projects will survive the purge of the latest drawdown and go on to innovate further, commanding greater market share. However, it’s reasonable to say that fundamentally useful projects like ETH aren’t going anywhere – simply due to their widespread utility and adoption, which continues to increase at breakneck speed for the industry as a whole.

Adoption

How Mercuryo is Staying Ahead

Keeping abreast of the many innovations in the cryptosphere is a challenge in itself – with fresh competing narratives emerging more and more rapidly. However, the past has illustrated a powerful constant – utility largely endures regardless of market conditions, and indeed prevails once positive price action returns en masse.

By contributing to crypto’s core infrastructure, Mercuryo’s cryptopowered payments solutions are insulated from the volatility of the speculative market. Instead, these products serve to move adoption forward for the entire industry by implementing accessible, easily integrated payment rails bridging the worlds of Web2 and Web3.

While utility is crucial, adaptability is also vital in the rapidly changing blockchain landscape. Mercuryo is constantly researching evolving user needs in order to continue building successful products that solve pressing problems at the forefront of global transacting.

If you’d like to get involved, join us!

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