MT Capital interprets Messari's research report: ETH is in a dilemma, focusing on Solana and AI

By Severin, MT Capital

TL; DR

• **Messari showed a strong bullish outlook on Solana, DePIN, AI + Crypto, and Perps tracks in the report. **
• **From the perspective of analysts’ Holdings distribution, Messari is still the most optimistic about Solana and the AI + DePIN concept. **

Focus on investment themes

Solana：

The rapid release of new products on Solana, the surge in on-chain liquidity, and the ever-expanding availability of developer tools have always been expected.

Technically, upgrades such as Local Fee Markets, QUIC, and Stake-Weighted QOS have significantly reduced Solana’s downtime and made Solana more robust. The emergence of technologies such as cNFT has significantly reduced the cost of Non-fungible Token minting and management on Solana, allowing protocols such as Helium and Render to use cNFT to significantly reduce costs, promoting the prosperity of the Solana DePIN ecosystem.

The market’s expectations for Solana in 2024 are focused on the following areas:

1. Achieve more than 10x increase in throughput and performance with Firedancer and Sig clients. Firedancer enables Solana to process 1 million transactions per second. The improved user experience can attract more developers to participate in and develop on Solana, enriching Solana’s thriving ecosystem.

2. Develop a light client through Tinydancer to allow validators to complete verification work at a lower cost and achieve a higher degree of decentralization.
3. Deploy the token-22 standard to extend Solana’s Token functionality. For example, token-22 will support interest-bearing Tokens, allow complex contract logic to be triggered when Token is transferred, and so on.

Solana’s Local Fee Markets and state compression technology enable the following applications to be “only possible on Solana”.

1. DePIN: Helium, Hivemapper, Render, and others have all migrated to Solana. Render abandoned its Blockchain and switched to Solana for compressible cNFTs, faster transaction speeds, and a composable on-chain order book.
2. Payments: Solana has partnered with Visa to enable users to transact on Shopify using Solana USDC through the Solana Pay add-on at a lower cost and faster speeds.
3. Consumer apps: Very low-cost cNFTs can boost emerging consumers with Non-fungible Tokens as the core. Take DRiP, for example, which works with artists to distribute Non-fungible Tokens to subscribers for free. Since the end of March, it has minted more than 78 million cNFTs to 1.6 million Wallets, while each Non-fungible Token costs only about $0.00036.
4. Decentralized Finance: Extremely low transaction fees and faster final state confirmation enable Decentralized Finance protocols on Solana to create full-chain order book models, providing users with a smoother user experience that other Blockchain networks cannot support.

DePIN, DeSoc, DeSci

In the non-financial sector, Messari is more focused on DePIN, DeSoc and DeSci in the future. The above three tracks have a huge addressable market size and can make more practical changes to the shortcomings of real-world business processes.

Messari pays special attention to the following four sub-segments of DePIN sub-tracks:

1. Decentralized Storage: The current cloud storage market is $80 billion and continues to grow at a rate of 25% per year. Although the cost of Decentralization Storage services is 70% lower than that of cloud service providers such as Amazon S3, the current market share of Decentralization Storage is still less than 1%, and there is still a huge market opportunity for Decentralization Storage.

2. Decentralized Databases: Decentralization databases have been struggling with performance and latency, which are expected to be resolved by 2024. The emergence of applications such as DeSoc, gaming, dynamic Non-fungible Token, ML, AL, etc., will greatly increase the need for Decentralization Databases.

3. Decentralized Wireless Network: DePIN projects such as Helium Mobile are gradually finding their PMF, which has led to growing user adoption. Taking Helium Mobile as an example, in the early days, it attracted users by providing low-cost services and tokens, and the growth of users will further drive the growth of the Token price, thereby attracting more users and paying, turning the growth flywheel.

4. Decentralized AI Machine: The development of artificial intelligence currently faces computational bottlenecks and limitations due to lack of collaboration. DePIN projects focused on AI can solve both of these problems well. Gensyn can provide sufficient Decentralization Computing Power support for AI model training, and Bittensor can enable individuals to participate in open source AI model training. DePIN and AI have a natural combination scenario.

In addition to DePIN, Messari also focuses on DeSoc and DeSci tracks. Similarly, creators contribute $230 billion in revenue to social media, but only a small percentage of creators receive a revenue share. And Friend.tech has shared $50 million in revenue with its creators in just a few months online. Messari believes that DeSoc has the potential to replicate the wave of the Decentralized Finance Summer in 2020.

In DeSci, Blockchain can effectively optimize key processes such as peer review and funding for scientific research, and can promote research in key scientific areas through DAOs and Token sales.

Although DeSoc and DeSci have not yet reached the same out-of-the-loop capabilities as DePIN, Messari is still optimistic about them and expects that the DeSoc and DeSci fields will also produce applications that will bring Mass Adoption.

AI & Crypto：

Messari believes that advances in AI will increase the demand for Crypto Assets solutions, and Crypto Assets represented by Bitcoin are also naturally suitable as payment currencies for AI.

AI and Crypto have the following scenarios:

1. AI Agents can leverage cryptographic infrastructure for payments and autonomous access to digital resources.
2. Innovations such as zkML enable Smart Contracts to securely schedule AI models to support more complex application logic.
3. Tokens provide a way to reward individuals for fine-tuning models and collecting valuable real-world data, and are naturally suitable for combining with DePIN.

Perps

Messari made it clear in its report that if you were to focus on one sub-track of Decentralized Finance this year, it would be Perp DEX.

With dYdX’s migration to a customized Cosmos appchain, dYdX’s central limit order book is better able to provide a trading experience similar to that of CEXs. And given the regulatory pressures faced by CEXs, the distance between dYdX and CEXs is likely to shrink further.

In addition to the Solana-based Perp DEXs (Drift and Jupiter), Synthetix also deserves additional attention. With the launch of the Synthetix Andromeda version, Synthetix will introduce a cross-margin Margin feature that supports multiple new Collateral types, as well as a range of improvements to trading, clearing, and more. Synthetix has also canceled the years-long Token inflation and has the potential to move to Token Deflation. In terms of currency price, Synthetix is also the fourth-best performing DEX year-to-date.

ETH

ETH is currently in a dilemma. It is not as attractive to institutions as the narrative of BTC digital gold, and other L0, L1, and L2 competitors are gradually eating away at the trading volume on Ethereum. Although ETH is not a cost-effective investment at the moment, the Cancun upgrade of ETH is still worth paying attention to. Ethereum’s Cancun upgrade can drop the transaction cost of Rollups by 90%-99%, making Rollups as cheap as other Alt L1s. The delivery date of the Cancun upgrade is one of the most noteworthy dates.

Analyst Holdings

The most interesting thing is Messari’s open analyst Holdings. The chart below shows the distribution of Holdings with the largest gains by Messari analysts in 2023. It can be seen that the main profits of analysts come from the Solana ecosystem and the AI + DePIN concept. This also reflects the fact that analysts have well grasped the head narrative of this rally.

The chart below shows the current HoldingsToken distribution of Messari analysts, with coins that appear only 1 time removed. The main Holdings of analysts is similar to the Holdings of the biggest gainers in 2023, and is still concentrated in the Solana and AI + DePIN concepts. Interestingly, for other tracks that analysts are strongly bullish on, such as DeSoc, DeSci, Perps, etc., analysts do not hold any related tokens.

The image below shows the tracks that Messari analysts liked (tracks that appeared only 1 time have been removed). Similar to the previous situation, the concepts of Solana and DePIN still dominate. However DecentralizationDerivatives has surpassed AI to become one of the most popular tracks for analysts, and the ZK concept has also come to an important level of equality with AI.

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