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Xangle's 2024 Crypto Outlook: Winner Winner, Chicken Dinner (4)

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DeFi stands as a sector where the winner-takes-all principle thrives. The abundance of liquidity translates to reduced slippage, heightened stability, lowered operational expenses, and increased profitability, fostering a self-sustaining cycle. It epitomizes the classic winner-takes-all platform.

Nevertheless, as DeFi witnesses a contraction in liquidity due to the Federal Reserve's hawkish approach to rate hikes, the landscape is evolving to emphasize enhanced capital efficiency with the limited remaining liquidity. To make the most of the available liquidity, efforts are underway to optimize the efficiency of the remaining liquidity. This involves (1) structuring the contract architecture into a singleton configuration for optimal swap processes, as seen in Balancer's Single Vault structure, or (2) streamlining swaps by conducting computations off-chain and executing only essential settlements on-chain, exemplified by 1Inch.

Uniswap, the leading DEX protocol, maintaining a consistently high market share in DeFi, has embarked on enhancing liquidity efficiency. The recent introduction of Uniswap V4 brings forth a new swap aggregator grounded in a singleton architecture, amalgamating the vault structure from Balancer V2 with the routing resource efficiency of Ambient. Additionally, Uniswap X, a novel swap aggregator, reinforces Uniswap's role in revolutionizing the DeFi landscape through its substantial liquidity. The initiative to involve community builders is noteworthy, allowing them to develop hooks and callback contracts and directly contribute to Uniswap's ecosystem.

Source: Balancer V2 Docs

However, the unveiling of Uniswap V4 has not been universally praised. Critics argue that V4 reorganizes Uniswap's existing structure rather than introducing a revolutionary change as witnessed in Uniswap V2 and V3. Notably, the architecture of Uniswap V4 draws inspiration from Balancer V2, Ambient (formerly Crocswap), and Cowswap, sparking claims of being a "copycat" solution, albeit with some distinctions. Moreover, the decision to encourage developer participation while implementing a Business Source License (BSL), restricting commercial use of the V4 structure for four years, has raised questions.

Source: Shoal Research 'Ambient Finance: Enhancing AMM efficiency'

It is essential to acknowledge the nuanced distinctions in the detailed structures of these protocols (for a more comprehensive explanation of Uniswap V4, refer to UniswapX — A Deep Dive. As Uniswap, a key player in DeFi's evolving narrative, aligns its trajectory, the trend towards LaaS (Liquidity as a Service) among major DEXs will undoubtedly persist.

1inch introduces Fusion Mode, a swap efficiency solution founded on the Resolver architecture. The Resolver, empowered by staked 1inch tokens, autonomously validates token information (including token quantity, oracle price, and token) on the backend. Operating in conjunction with a set of resolvers and a self-configured off-chain backend verification and invocation structure as the computation layer, the on-chain component executes contracts based on the received computation information, serving as the settlement layer.

Despite the complex KYC (Know Your Customer) authentication process required for Resolver registration, decentralized dApp enthusiasts can actively participate by staking a specified amount of 1inch tokens (st1inch). This approach aligns with decentralized principles, even though the KYC process adds a layer of complexity.

Unlike Balancer's Single Vault solution, which optimizes smart contract structure with a singleton model, 1inch's computation layer operates in a partially centralized off-chain environment, where full transparency is not guaranteed. This unique architecture enhances efficiency in swap operations.

These instances of liquidity streamlining by major DeFi players like Uniswap, Causecheap, Synthetix, and Balancer underscore the ascent of Liquidity-as-a-Service (LaaS). LaaS not only augments capital efficiency but also outsources liquidity logic to an external contractor. These collective efforts towards building a more sustainable DeFi ecosystem demonstrate a proactive approach to stabilizing the market when liquidity returns. This stands in contrast to past practices, where protocols often overlooked maintenance costs and infrastructure improvements amid reduced liquidity.

The DeFi ecosystem within a single chain has traditionally been considered an isolated system, grappling with liquidity disconnects. This issue arises due to the lack of guaranteed computational integrity for destinations beyond the blockchain. Even when liquidity is concentrated on a specific chain, moving liquidity across bridges has been a sensitive topic due to occasional security vulnerabilities, resulting in reduced capital efficiency on other chains. However, with the ongoing decline in liquidity and the stabilization of bridging technology, the effective integration of liquidity across chains has gained prominence. Each bridging solution has evolved beyond basic asset transfer, culminating in a Layer 0, or General Messaging Protocol (GMP), expected to form the foundation for DeFi's transformation from an isolated system to an open and securely interoperable system.

Let's delve into the two primary cross-chain messaging protocols: LayerZero and Axelar ($AXL). Both protocols facilitate communication between endpoints, or gateways, through clients spanning the chain to transmit messages. In the case of LayerZero, relayers and accelerators construct their set of validators to validate the transmitted and received data. This structure's advantage lies in its ability to provide a chain-agnostic response, supporting an expanding array of chains by constructing separate layers with interoperability tailored for each chain.

Source: Layerzero white paper

LayerZero's message delivery involves four components: an endpoint handling the sending, receiving, and verification of messages between chains; a relay carrying the proof of the message between chains; an oracle conveying blockheader information along with the relay; and, finally, a user application managing the sending, receiving, and consumption of the message.

Similar to how bridging is achieved through cross-chain messaging, a crucial aspect that a messaging protocol must encompass is determining "what utilities it will support through messaging." Expanding on this notion, LayerZero is actively laying the foundation for enhanced capital efficiency in DeFi by introducing OFT, a novel standard following the ERC20 token standard; OFTV2, which extends support to non-EVM chains; and ONFT, a multi-chain NFT standard. Moreover, anticipation is growing for the $ZRO token, with LayerZero Labs recently confirming its launch in the first half of 2024, solidifying its position as one of the key protocols to monitor.

Axelar serves as middleware responsible for sending and verifying cross-chain transactions through appchains built with the Cosmos SDK. Employing the Tendermint consensus algorithm to maintain its chain and a distinct message verification mechanism, Axelar is highly compatible within the Cosmos ecosystem, utilizing the IBC protocol. Additionally, it supports inter-chain messaging for over 50 EVM chains, including Polygon, Avalanche, Phantom, Near, and Polkadot.

A distinctive feature is that cross-chain messaging is conducted through a gateway contract for each chain, rather than a separate client. The keys of the gateway contract are sharded based on the stakes of the validators on the actual Axelar hub. When a message request reaches the gateway, each validator on the hub converts their verification results into votes for the sharded keys. This structure necessitates only the deployment of the gateway contract to the supporting chains, offering high scalability without compromising decentralization.

Users are not required to hold $AXL tokens to message, as the fee only utilizes the excess gas cost of the native token. Aggregated native tokens are swapped to create token incentives for Axelar validators and holders through buybacks and burns of AXL tokens.

While the absence of TVL and TVS may be perceived as a disadvantage compared to a layered system, Axelar is one of the fastest-growing GMPs in the space. It streamlines the DeFi ecosystem through broad-chain support, facilitates cross-chain swaps on Ondo Finance ($ONDO), supports CCTP* on $USDC, serves as the flagship messaging layer for JP Morgan's Project Onyx, and expands connections to real-world assets (RWA).

  • CCTP (Cross-Chain-Transfer-Protocol) is a stablecoin issued by Circle. When moving $USDC through GMP, assets from the source chain are burned and minted on the destination chain to maintain a unified total supply across multi-chains.

Introducing Chainlink's Cross-Chain Interoperability Protocol (CCIP), another significant General Messaging Protocol (GMP). While CCIP shares similar functionalities with the preceding projects, it distinguishes itself by specifically targeting players based on private networks, including investment banks and large funds in traditional finance.

In alignment with this objective, CCIP makes certain compromises on the decentralization and trustlessness principles that native messaging protocols typically uphold. CCIP operates relayers that facilitate messages during transmission and a Risk Management Network that, in the event of a risk, may function as a single point of failure (SPOF).

However, this third-party risk assumes a more advantageous position when it comes to onboarding traditional financial institutions. The risk is confined to Chainlink and the set of Oracle nodes that are integrated, aligning with the preferences of traditional financial institutions that seek clear legal responsibility definition.

Smart contract-based messaging expands utility offerings One notable distinction is the reliance on invoking smart contracts. In essence, CCIP operates through relays within CCIP contracts deployed on both chains to transmit and process requests, allowing for adaptable contract-level responses to emerging features.

As witnessed with ERC-20, ERC-1155, 4337, and other standards derived from EIP-20, protocols at the smart contract level exhibit greater scalability compared to GMP at the client level. CCIP's adoption of this architecture is perceived as a strategic move to function by deploying architecture-appropriate smart contracts on a private network established by financial institutions, which formerly utilized payment networks like SWIFT, and communicate based on these contracts. As the intersection with traditional finance, beginning with RWA, becomes more frequent, user experience acknowledging third-party risk and prioritizing the vast number of customers within TradFi who will transition to clients could play a pivotal role in the imminent adoption by institutions.

And there you have it — three major projects striving to address the challenge of cross-chain liquidity disconnection through messaging protocols. In the past, security issues in bridging technology resulted in substantial losses, accumulating to about $3.5 billion. However, as the infrastructure has stabilized and more secure solutions have been researched and released, the ratio of hacking damage to transferred value has steadily decreased.

Notably, Wormhole, which faced significant hacking losses of up to $350 million in the past, recently secured an additional $225 million in funding, underscoring the significance of cross-chain messaging protocols as one of the most prominent themes in DeFi infrastructure moving forward.

A. Discovering opportunities and venturing into real world assets

Up to this point, we've delved into endeavors aimed at securing liquidity within the cryptocurrency market and enhancing its utilization efficiency. However, with diminishing liquidity and diminishing rewards at the DeFi and protocol levels, there is an ongoing endeavor to broaden access to real-world assets beyond the cryptocurrency market. One notable example is the development of infrastructure for indirect investments in real-world assets using protocol economies within DeFi.

*In this section, for meaningful comparison, the term RWA sector excludes cases where specific entities utilize RWAs to manage funds, such as large stablecoins. For RWA-related protocols, we refer to projects that either (1) facilitate the tokenization of real assets or (2) enable the management of tokenized RWA products.

B. Consistent Focus on the Tokenization of Real-World Assets

The process of tokenizing real-world assets through blockchain technology has emerged as a significant catalyst for institutional investor adoption of cryptocurrencies. A study by BCG projected that $16.1 trillion worth of assets would be tokenized by 2030, with established financial institutions like J.P. Morgan's Onyx and Franklin Templeton actively engaging in blockchain projects tailored to explore and test the possibilities of the tokenization economy.

In contrast to the past RWA sector, which concentrated on capital liquidation through tokenizing assets like gold and bitcoin, the future RWA sector is anticipated to undergo two significant shifts. Firstly, (1) protocols are diversifying their functions beyond token issuance into distribution and operation, and secondly, (2) a majority of assets are being restructured around real assets with a basis in cash flow. In this annual forecast's DeFi section, we will explore some promising protocols in the RWA sector expected to evolve and adapt to these trends, especially considering the Federal Reserve's projection of maintaining a high-interest rate policy until the middle of 2024.

  • One of the practical utility values of blockchain is liquid staking of the asset, aiming to generate more value by incorporating various real assets that were previously non-securitizable onto the distributed ledger and utilizing them as collateral.

One of the most notable asset classes in the RWA sector is the U.S. Treasury liquid staking protocol, offering access to short-term U.S. government bonds. With the Federal Reserve increasing interest rates to a 20-year high of 5.5%, creating an appealing environment for risk-free yields, numerous protocols have emerged to cater to the demand for Treasuries, even from within the crypto funds. Two standout examples include Franklin Templeton, a venerable institution with 83 years of history and $1.5 trillion in assets under management (AUM), and Ondo Finance ($ONDO), which has witnessed an impressive 88% growth in TVL in 2023 alone after its launch in 2022.

Firstly, Franklin currently manages $327 million in assets under management (AUM) through FOBXX, a fund that directly oversees bonds under a Registered Transfer Agent license. In terms of practical implementation, Franklin has embarked on tokenizing sovereign bond funds through a dedicated app named Benji Investment. This initiative commenced on the Stellar Lumens ($XLM) network in 2021, and the platform expanded to include Polygon ($POL) in April of 2023. With the total value locked (TVL) more than quadrupling year-to-date (YTD), Franklin stands out as one of the most proactive players in traditional finance, aligning itself with major institutions like JP Morgan and Societé Générale, capitalizing on the upward trend in Treasury rates.

Ondo Finance, on the other hand, achieves indirect exposure to Treasuries by investing in funds that acquire bond ETFs, such as the iShares Short Treasury Bond ETF, and receiving $OUSG as proof of deposit. In contrast to Franklin, Ondo Finance enjoys greater flexibility in utilizing tokenized $OUSG, as it is recorded on a programmable public ledger based on Ethereum Virtual Machines (EVMs) such as Ethereum and Polygon. A noteworthy example is Flux Finance, operated by Ondo Finance. Similar to the birth of the Collateralized Debt Position (CDP) and stablecoin protocol based on the cash flow of LST, Ondo Finance has established a CDP that issues stablecoins with $OUSG as collateral. It's intriguing to observe that the process extends beyond token issuance; Ondo Finance actively manages and exchanges these tokens into major stablecoins such as $USDC, $FRAX, $DAI, and $USDT, enabling their use in decentralized finance (DeFi). This opens up possibilities for novel financial products anchored in Treasury Bills (T-Bills).

In straightforward terms, private credit refers to a situation where a lender, distinct from a bank, raises funds for a borrower or provides liquidity. Particularly after the 2008 financial crisis, during which banks faced certain restrictions on their operations, the private debt market expanded significantly, reaching $1.5 trillion as of August, serving as a benchmark for this interest rate cycle. Following the subsequent increase in interest rates, bond funds issued as private placements are now offering higher yields. The total on-chain private placement loans have also grown by over 84% year-to-date, reaching approximately $210 million, indicating a substantial growth rate. Although this figure is still below the 21-year total value locked (TVL) of $1.54 billion, the more sustainable funding nature is a positive sign from a fundamental perspective.

Essentially, this shift implies that cryptocurrency and DeFi infrastructure will act as an intermediary between existing funds in DeFi and the restricted and unmerged funds in traditional banking. This brings our focus to two protocols often recognized as major players in this domain: Centrifuge ($CFG) and Maple Finance ($MPL).

Centrifuge stands as one of the leading Real World Asset (RWA) projects, having tokenized assets exceeding $469 million since its inception in 2017. The protocol contributes $246 million to the private placement market, holding almost half of the market share. It has introduced a tranche structure that aligns with the characteristics of private placements, primarily borrowed by Securitized Debt Products, and productizes them by separating the expected return and delinquency rate. Notably, Centrifuge has maintained a close relationship with MakerDAO from the protocol's early stages and has experienced rapid growth by supplying senior tranches to MakerDAO within the tranche structure described later.

*Securitized Debt Products are characterized by a tug-of-war between default rates and expected returns, with products separated by risk and anticipated profit. Centrifuge proposed a liquidity pool divided into Senior / Mezzanine / Junior based on risk and implemented it in Tinlake with a simplified dual-token structure. $DROP (Yield) represents the fixed-rate portion of the senior pool, while $TIN (Risk) reflects the floating-rate portion of the junior pool. The junior pool is exposed to higher volatility than the senior pool, resulting in higher yield and risk.

The technical advantages over other tokenization protocols are also clear. In order to efficiently manage a series of processes from securitization of RWA to the governance layer that operates them, the protocol also operates a centrifuge chain consisting of securitization, tokenization, and governance layers, and provides various functions such as multi-tranche, on-chain net asset value (NAV) calculation, and minting of SPV NFTs in the operational liquidity pool as standard within the chain, which can comprise two or more tranche products at the time of commercialization of in-chain securitized assets.

We are also in the process of transitioning to a multi-chain-based liquidity pool in preparation for the future seamless multi-chain DeFi ecosystem. Simply put, a multi-chain-based liquidity pool means that no matter which chain provides liquidity, it is not tied to any other chain, so there is no liquidity disconnection problem. To this end, there are plans to end revenue sharing on Tinlake, which was created in a joint venture with MakerDAO, and migrate to the multi-chain-based architecture described above, while simultaneously reducing the inflation rate of $CFG, which is used for gas and governance. In addition to expanding the scale of simple assets, there are a number of other changes to effectively enhance durability and respond to the upcoming changes in DeFi infrastructure.

Maple Finance is an on-chain credit lending project that started in 2020. In the past, it became a major credit lending market platform for crypto proprietary trading players, reaching a loan volume of $2 billion at one point, making it the leading unsecured lending protocol at the time. However, the FTX bank run and subsequent market crash at the end of 2012, which resulted in a $36M default, put the project's future in jeopardy, and it has since reduced its focus on trading with Web3-native institutions and made a bold pivot into a tokenization platform for products such as tokenized T-bills and short-term tax receivables. Currently, cash-oriented assets such as AQRU's U.S. IRS tax receivables credit notes and Treasury Bills ETF tokenization make up the majority of TVL, with a loan volume of around $82M. In addition to this, the company is preparing to rise from its failure by launching a protocol on the base networkattracting additional investment, and expanding to the Asian market, so it is worth paying attention to whether it can regain the market size it once had.

Last but not least, Goldfinch ($GFI) is a protocol that, although its loan volume is smaller (around $10.3 million) than the previous two protocols, has most actively utilized the capabilities of blockchain by investing in emerging markets (EMs) and acting as a liquidity bridge between developed and developing countries.

The main feature is that it provides capital from developed countries to developing countries such as Mexico and Nigeria. As such, the main RWA portfolios that are eligible for investment range from ABS (Asset-Backed-Securities) backed loans to business development loans provided by whitelisted fund managers. The actual on-chain tranche structure is as follows: the Backers and the LPs provide liquidity, the Backers take out the loan, and a group called Auditors acts as the auditor and determines the suitability of the product, much like a credit rating agency:

Source: Teletype

  1. Borrower: Borrowers who have been KYC'd by Goldfinch will create and fund their own borrowing pools, staking $GFI tokens worth twice the cost of Auditors to set up the pool.
  2. Backers will directly fund the Junior Tranche, specifically prioritizing loss capital. Instead, they will independently conduct due diligence and evaluate borrowers.
  3. LPs do not provide direct capital, but instead fund the Senior Pool, which is ultimately passed on to the Senior Tranche. In exchange for providing a secondary loss pool, the Senior Tranche earns a lower return than the Junior Tranche and is prioritized for repayment in the event of a default.
  4. Auditors assess the borrower's ability to repay at Goldfinch, and borrowers must pass a consensual auditor approval process to form a tranche. You can become an auditor by staking GFI after passing the Unique Entity Check*.

*This is a way to ensure that the entity conducting the evaluation is the only entity in order to defend against Sybil attacks, etc. However, the auditor system has not yet been decentralized since the governance vote was passed in June 2022, and it is confirmed that the auditor system is directly operated by Goldfinch and related companies.

Low new loans compared to high lending rates hinder protocol growth. While Goldfinch has good intentions and decent returns in terms of providing liquidity to emerging markets in developing countries with poor financial infrastructure, there are a few things that need to be addressed. First, new lending has been sluggish since December 2022. As most of the liquidity is in long-term loans of 36 months to over 1 year, the protocol's lending volume has not yet plummeted, but as the market focuses on the RWA and private credit markets, it will be necessary to continue to monitor whether the increased liquidity will be injected into emerging markets and ultimately into the Goldfinch.

Paradoxically, the trend toward greater access to government bonds is also evident in fully crypto-native DeFi protocols. MakerDAO ($MKD), a leading Web3 native protocol, has entered the first phase of its endgame, Pigeon Mode, and has shifted the majority of its cash flow structure from $ETH and $LST to real assets, with over 65% of the protocol's revenue now coming from real assets, including T-bills and RWA. As the importance of real assets continues to be expressed not only by MakerDAO but also by Aave ($AAVE), the first-generation representative DeFi CDP, the tokenization of cash-generating assets in DeFi will continue to grow, and the cash-oriented tokenized RWA market will continue to be a sector to watch going forward.

With such a long and bright future ahead, the RWA sector still has a lot of work to do. First, the current RWA sector is not a self-sustaining market, and more than 75% of its prominence can be attributed to the dramatic increase in the investment value of cash flow assets due to the Fed's interest hike policy. Whereas the private credit market accounted for 56% of RWA TVL and 0% of T-bills in Q2 2022, today, the share of credit loans has declined to 18% and the amount of RWA assets in T-bills has increased to 27% ( With the Fed's policy having such a significant impact on the RWA DeFi sector, it is highly influenced by the Fed's policy and there are question marks regarding its inherent utility.

Accessibility also leaves a lot to be desired. Most protocols have a high minimum investment amount of over $1M based on KYC and AML, making it difficult or even impossible for anyone other than whales or institutional investors to invest in DeFi.

Secondly, different tokenization methods for different types of tokens also hinder the adoption of the RWA sector in DeFi. For example, precious metals such as gold, highly illiquid real estate, carbon credits that have emerged along with ESG meta, credit-backed bonds, and even artworks use different types of tokenization/operation methods depending on the type of physical asset, so the initial issuance cost is still significant.

The Tokenizer

Finally, there's the Oracle problem—there’s no guarantee that positions built with physical tokenized RWA will be atomized with respect to each other when they're liquidated on-chain. In addition to the practical barrier of increased uncertainty about processing time and value, there is a clear limitation that the liquidation of RWA tokens will be delayed when the collateral rate is reduced due to off-chain → on-chain Oracle updates. And there is also an Oracle problem in the process of quantifying service fees such as transaction fees and freight charges that are actually incurred when a buyback occurs, although they are handled by the asset-specific SPV.

In other words, the current high interest rate environment provided by the Fed has driven money into the on-chain RWA market, but there are a lot of loose ends in the sector, including incomplete regulations, unfinished technology, and costs that are not efficient enough. However, we believe that the tokenization of real assets and on-chain RWA markets within DeFi have the potential to disrupt the financial industry if the liquidity that has been generated in the wake of macro is harnessed and a useful infrastructure is built.

In particular, the great advantages of reducing service fees and simplifying complex procedures in the issuance, distribution, and productization of traditional securities remain. Cashlink*, a real asset tokenization infrastructure company, reports that using tokenization protocols can reduce (1) primary market issuance costs, (2) custody and loan servicing costs, and (3) secondary market trading costs by a minimum of 35% and a maximum of 65% compared to current traditional financing methods.

  • Cashlink is a leading tokenization service provider that tokenized €60,000,000 worth of 2023 Fed bonds from Germany’s Siemens onto the Polygon chain, distributing the tokenized bonds to its own traders such as DekaBank, DZ Bank, and Union Investment in the process.

So far, we’ve outlined what we think are the key words in DeFi of 2023 and into 2024, and who we think will be the strongest players in each. This can be summarized as a process of finding additional liquidity within the Web3 as liquidity dries up, improving inefficiencies caused by fragmented liquidity pools, whether they be chains or dApps, and finding new revenue streams outside Web3. However, in this process, the lines between LST and RWA are becoming increasingly blurred. For example, the relationship between staking and LSPs is similar to the business model of an enabler, such as traditional finance where land is pledged as collateral for additional borrowing from banks. In the case of LaaS, it's more like the LP role of traditional finance where they hold liquidity and allow other applications to utilize it. Stablecoins, which we consider to be a product of DeFi, can also be defined as RWA funds that sell products aimed at pegging to the dollar and operate as funds such as capitalized T-bills to earn profits.

While we have been looking at DeFi and DeFi’s trend of adopting TradFi, we are also seeing an increasing number of attempts in TradFi to adopt DeFi. A prime example is Project Onyx, organized by MAS & JPMorgan Project, which includes a messaging layer, DeFi swaps, a private chain SDK, and even major AA players like Biconomy, making it clear that traditional finance giants are keeping up to date with blockchain technology.

In addition, a survey by Citi Securities Services found that 70% of commercial banks are already experimenting with digital assets (DLT, distributed ledger technology) and blockchain. Even within the traditional financial sector, new attempts to use blockchain as a new infrastructure for finance continue to be made on a steady basis.

This technological transformation of financial infrastructure is also occurring in the public sector, with or without private capital. On September 23, 2023, the BIS, which organizes currency swaps, launched Project Mariana*, a project to implement the spot FX market with the use of AMM for cross-border exchange, which borrows from Curve's Stableswap v2 model. In fact, it has the potential to be a much more efficient infrastructure than the existing currency network. In addition, BOCI Hong Kong, an investment banking subsidiary of the state-owned Bank of China, issued a $28 million structured note on Ethereum.

South Korea is no different. Although the CBDC business is mainly conducted on a closed private blockchain, there is a continuous movement to test the clear utility of blockchain, such as unreliability, starting with decentralized databases. With the recent selection of LG CNS and EY Hanyoung for a national CBDC project, it is likely that the regulatory hurdle, one of the biggest barriers to enterprise adoption of blockchain, will be gradually resolved over this year.

In terms of infrastructure, there is also a possibility that the infrastructure that makes the UX increasingly chain-agnostic, such as cross-chain messaging and OFT, will be similar to or better than the existing financial infrastructure. In particular, user-friendly concepts such as EIP4337 Account Abstraction and Intent are being introduced one after another, gradually improving the inconvenient UX. There will continue to be differences between DeFi and traditional finance, such as custody/non-custody, trust/trustlessness, censorship-resistance, and data management. But the essence of finance is the same: the efficient distribution of capital and convenient UX that facilitates it. This suggests that we will soon see the Big Blur, where the boundaries between DeFi (decentralized finance) and TradFi (traditional finance) will eventually be blurred.

In the past, the issuance of NFTs by companies was a simple marketing tool with no clear purpose, resulting in a one-off project. However, if we look at the recent business trends of large enterprises, we can see that they have a clear goal and/or utilization. They recognize that NFTs have the potential to go beyond PFPs, and unlock the limitations or problems of existing business models, provide customers with new experiences, diversify customer touch points to gain control, or strengthen customer engagement and loyalty through self-generated communities. At the same time, we're seeing the word NFT being replaced by more familiar terms such as digital avatars, collectibles, items, memberships, and tickets, depending on how they fit into existing businesses. This is because NFTs are a technology, not a business model in and of themselves.

From a broad perspective, companies are using NFTs in mainly six use cases: 1) post-marketing, 2) Phygital (physical+digital), 3) product authentication and tracking, 4) community and co-creation, 5) IP monetization, and 6) loyalty (see figure below from For better understanding, let's analyze the cases of Starbucks (Odyssey) and SK Planet (UPTN Project), which are most active in blockchain business.

Starbucks unveiled its NFT-based loyalty program, Odessey, in September 2022 and launched its beta service in December. Odessey is a service that allows customers to earn and purchase digital collectibles. Customers can complete missions and earn "journey stamps," which are Starbucks NFTs that can be redeemed for engaging benefits such as "participating in a virtual espresso martini making class" and "touring Starbucks' Hacienda Alsacia farm in Costa Rica. The Odyssey program is currently only available to U.S. residents, and only invited employees and customers can participate.

Source: Starbucks

This loyalty program allows the company to offer its loyal customers an experience that goes beyond just consuming coffee to showcasing the company's history, culture, and how coffee is made, thereby increasing customer loyalty and paving the way for business expansion. The Odyssey program is significant because Starbucks is a global company that grew up with user experience, even before the introduction of NFTs. These unique experiences have created a strong customer demand for Starbucks NFTs, with the first paid NFT collection, The Siren Collection Stamp, issued in March 2023, selling out in less than 20 minutes and trading at $275 as of December 6, up 275% from its initial sale price of $100. Additionally, the Holiday Cheer Stamp was once trading for $2,200 despite being a free sticker.

Source: Nifty Gateway

So, how has the Odyssey program performed and what is the upside? As of December 6, 2023, the total cumulative trading volume of Starbucks NFTs was $3.2M (KRW 4.3B), which generated about $240K in revenue from secondary sales, considering the royalty rate of 7.5%. Combined with the revenue from the first sale, the cumulative revenue from the Odyssey program over a year is around $1M.

The number of stamp holders participating in the program is approximately 42,000, which is 0.056% of the 75 million existing Rewards Program members. If we assume that 1% and 10% of Rewards Program members participate in the Odyssey program, we can roughly estimate $17.8M and $178M in revenue, respectively. Assuming a 10% conversion rate and $178M in sales, Starbucks will achieve 5.5% of its total sales ($32.2B) in 2022 through the Odyssey program.

OK Cashbag, operated by SK Planet's Marketing Platform Division for the past 25 years, initially achieved industry-leading success based on the 'versatility' of points but has recently hit a business-growth wall. Specifically, OK Cashbag started out securing a customer base of 20 million through a strategy of integrating fragmented points into a universal point system through affiliations with over 90,000 stores. Over time, challenges emerged as 1) users and stores started leaving, leading to a reduction in universality, and 2) limitations in the existing point system became apparent in terms of scalability.

Affiliate Vendor:

  • Increase in "cherry-picking" customers who convert their earned points to OK Cashbag and use them at other affiliates.
  • Inability to track data on points and analyze marketing effectiveness


  • Reduced point versatility due to leaving affiliates
  • Decreased attraction factor for younger customers due to partnerships with relatively less popular brands instead of trendy brands

As a result, OK Cashbag users and affiliates began to leave, and the company is currently struggling to attract new users and retain existing customers. For more information on the revenue structure and limitations of OK Cashbag, read “UPTN Project: SK Planet's Arc Reactor”.

In a nutshell, SK Planet has been successful in managing costs in various aspects such as R&D, depreciation, and service costs, centered on the 11Street spin-off in 2018, and has been successful in improving profitability, but has been struggling to grow revenue.

Through blockchain technology, SK Planet aims to achieve both quantitative and qualitative growth by 1) creating a virtuous cycle of improving service effectiveness → attracting new customers and increasing service activity → preventing merchant churn → increasing point universality, and 2) maximizing profits by expanding the value chain. To this end, we have divided the UPTN Project roadmap into two major phases. In Phase 1, various infrastructures will be built, and various contents will be released. In Phase 2, the value chain will be expanded by adding marketplaces and community services based on the services and ecosystem built in Phase 1.

The use of NFTs as tickets is also promising. This can be seen as an example of utilizing the proof of origin and authenticity made possible by the NFT's token ID. Hyundai Card introduced NFT tickets for the 2023 Da Vinci Motel event to eliminate the problem of macro softwares and black tickets, and Seoul Land is also utilizing NFTs for entering events and special lounges by using NFTs as proof of authority.

The content/media industries are also expanding their horizons. Experiments such as MODHAUS’s TripleS to engage fans and build a fandom DAO are also worth noting. HYBE, the company behind the success of BTS, is also planning to build a fan participation platform rather than a HYBE-led platform by introducing Web3 to the fandom community. In this case, Web3 will be used to transfer power to the fan community and drive fan engagement in a decentralized way.

We are no longer living in a time where the word “NFT” can simply be thrown around to attract the public’s attention. But rather, it is a time to present practical, utilitarian, and empirical examples. The public is no longer looking for PFP and art NFTs that are difficult to find value beyond community or artistry. Instead, we’re seeing people go wild for Nike’s OF1 box and participate actively in the .Swoosh program. We believe that only NFTs and Web3 elements that prove their intrinsic value based on clear utility will be able to gain public recognition in the market.

In contrast to the bear market challenges of 2023, the crypto market, as highlighted in Xangle's annual outlook series titled "Antifragile," not only withstood but deepened its resilience. Bitcoin, now firmly established as a financial asset, is on the brink of launching a spot Bitcoin ETF, signaling its readiness to welcome investments from a global investor base. Layer 2, recently emerging from the Proof of Concept phase, is poised to introduce widely adoptable applications.

We believe the current phase marks a transition beyond the Trough of Disillusionment and into the Slope of Enlightenment, particularly in terms of democratizing technology. User interfaces and experiences are evolving to the extent that blockchain services are becoming accessible to the general public. Companies can now initiate blockchain services by operating their own chains, and the development infrastructure has advanced, easing entry for startups into the blockchain space. Legislative efforts on cryptocurrencies by Western and major Asian countries are mitigating business uncertainties, fostering a climate conducive to increased utilization of blockchain technology. Notably, the active involvement of global giants like Nike, Starbucks, JPM, Nexon, and VISA is accelerating blockchain adoption.

While the crypto market remains in its early stages, comprising less than 1% of the global asset market, and the number of individuals actively using blockchain-based services is likely below 1%, this low market penetration presents an alluring aspect. In an industry with vast untapped potential, substantial growth—whether 10x, 50x, or more—is conceivable. Following the crypto winter that commenced in 2022, signs of a promising spring are evident. As we anticipate another winter, it becomes intriguing to observe the use cases that will propel the crypto market through its cycles.

Looking ahead, 2024 is anticipated to be the tipping point for the mass adoption of blockchain services.

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