Original Author: Ignas
Original Compilation: Luffy, Foresight News
You might have spent countless hours trying to capture the next hot narrative in the crypto space. Judging correctly could make you a fortune, while entering too late would make you the bag holder.
In the crypto market, the highest investment returns come from:
Identifying narratives early
Mapping capital rotation routes before others
Exiting when the expected bubble reaches its peak
Locking in profits
Then consider: Will the next wave of narratives arrive? Narratives will cycle, and speculative waves will resurge under the following conditions:
There is genuine technological innovation behind the narrative, allowing it to rebound after the first wave of hype subsides
New catalysts emerge
A dedicated community continues building after the hype fades
I elaborate on my thoughts in the article below:
https://x.com/DefiIgnas/status/1757029397075230846
Taking Ordinals on Bitcoin as an example, we can clearly see 4 waves of speculation from the following chart.
December 2022: Ordinals theory released, with minimal on-chain activity.
March 2023: BRC-20 standard triggered the first wave of activity; cooled down for six months.
Late 2023 - Early 2024: Continuous development triggered the second and third waves.
April 2024: Runes launched, prices soared, then faded within weeks.
Ordinals provided months of positioning time and multiple exit opportunities, while Runes offered only a brief single exit window. The field is currently dormant.
Will Ordinals (including Runes), Non-Fungible Tokens, or other new forms make a comeback? Perhaps. It depends on my narrative scoring.
Analysis Framework
This is a framework for identifying hot new narratives and determining whether subsequent speculative waves will persist. This is a version still being refined, here is my 1.0 formula:
Narrative Score = [( 1.5 × Innovation × Simplicity ) + ( 1.5 × Community × Simplicity ) + ( Liquidity × Tokenomics ) + Incentive Mechanism] × Market Environment
This formula is not perfect, but it shows which factors are important and their weights. Let's break it down!
(Translation continues in the same manner for the entire text)Non-Fungible Tokens (NFT) also face liquidity issues. This is why I once had high hopes for the ERC 404 NFT fragmentation model, which could have provided passive selling liquidity and annual returns through trading volume. Unfortunately, it failed.
I believe liquidity is the primary reason why DeFi options have struggled to rise for many years.
https://x.com/kristinlow/status/1929851536965873977
During recent market volatility, I wanted to hedge my portfolio with options, but the on-chain liquidity was terrible. I had high expectations for the crypto options platform Derive, but its future is now uncertain.
Liquidity is not just about deep order books, continuous inflow of new funds, CEX listings, or high total value locked (TVL) in liquidity pools, which are indeed important. The liquidity formula also includes protocols that achieve exponential growth with increasing liquidity, or projects with built-in liquidity guidance models, such as:
Hyperliquid: More liquidity means a better trading experience, attracting more users, which in turn brings more liquidity
Velodrome's ve 3.3 DEX: Building liquidity through a bribery mechanism
Olympus OHM: Protocol-owned liquidity
Virtuals DEX: Pairing the release of new AI agents with VIRTUAL tokens
Tokenomics
Tokenomics is equally important as liquidity. Poor tokenomics can lead to selling. Even with deep liquidity, the continuous selling pressure from unlocks is a huge risk.
Excellent cases: high circulation, no large VC/team allocations, clear unlock plans, burn mechanisms (like HYPE, well-designed fair launch), etc.
Bad cases: malignant inflation, massive cliff-like unlocks, no revenue (like some Layer 2 projects).
A narrative with a 10/10 innovation score but a 2/10 tokenomics score is a ticking time bomb.
Incentive Mechanisms
Incentive mechanisms can make or break a protocol, or even an entire narrative.
The reStaking narrative depends on Eigenlayer's performance, but token issuance failure (possibly due to complex narrative or weak community) has stalled its progress.
Assessing liquidity in the early stages of a narrative is challenging, but innovative incentive mechanisms can help build liquidity.
I'm particularly interested in new token issuance models. If you've read my previous articles, you'll understand what I mean: when tokens are issued in innovative ways, the market often undergoes a transformation.
BTC hard fork → Bitcoin Cash, Bitcoin Gold
ETH → Ethereum Classic
Initial Coin Offering (ICO)
Liquidity mining, fair launch, low circulation with high fully diluted valuation (FDV, suitable for airdrops but unfavorable for secondary markets)
Points narrative
Pump.fun
Private sale - public sale on Echo/Legion
As the market changes, token issuance and incentive mechanisms evolve. When an incentive model is overused and its patterns are widely known by the market, it means the market has entered a saturation and hype peak.
The latest trend is crypto treasuries. Public companies buying cryptocurrencies (BTC, ETH, SOL) with stock valuations exceeding the value of their crypto holdings.
What is the incentive mechanism here? Understanding this is crucial to avoiding being the bag holder.
Market Environment
The best narratives launched during brutal bear markets or macro risk events (like early tariff wars) can be drowned out. Conversely, in a liquidity-loose bull market, even ordinary narratives can soar.
The market environment determines the following multipliers:
0.1 = Brutal bear market
0.5 = Volatile market
1.0 = Bull market
2.0+ = Parabolic frenzy
Case: Ordinals (April 2024) had innovation, community, initial liquidity, and some incentive mechanism, but its launch coincided with a significant market pullback after Bitcoin halving hype subsided (market environment multiplier ~ 0.3). Result: Mediocre performance. If launched 3 months earlier, it might have performed better.
How to Use the Formula
Score each factor from 1-10:
Innovation: Is it a breakthrough from 0 to 1? (Ordinals: 9, Memecoin: 1-3)
Community: True believers or speculators? (Hyperliquid: 8, VC-dominated projects: 3)
Liquidity: Market depth? (Quick listing on top CEX: 9, Trading like NFT Runes: 2)
Incentive Mechanisms: Attractive and sustainable? (Hyperliquid airdrop: 8, No incentives: 1)
Simplicity: Can it become a meme? ($WIF: 10, zkEVM: 3)
Tokenomics: Sustainable? (BTC: 10, 90% pre-mine: 2)
Market Environment: Bull market (2.0), Bear market (0.1), Neutral (0.5-1)
Scoring is subjective. I gave Ordinals an innovation score of 9, but you might give 5. This formula is just a suggestion of factors to consider.
Using Ordinals as an example:
Innovation = 9, Community = 7, Liquidity = 3, Incentive Mechanisms = 3, Simplicity = 5, Tokenomics = 5, Current Market Environment = 0.5
Plugging into the formula:
1.5 × Innovation × Simplicity = 1.5 × 9 × 5 = 67.5
1.5 × Community × Simplicity = 1.5 × 7 × 5 = 52.5
Liquidity × Tokenomics = 3 × 5 = 15
Incentive Mechanisms = 3
Subtotal = 67.5 + 52.5 + 15 + 3 = 138
Multiplied by market environment (0.5):
Ordinals Narrative Score = 138 × 0.5 = 69
In comparison, Memecoin scored higher in my subjective assessment (116 points):
Innovation = 3 (due to Pump.fun's innovative issuance model, not completely zero)
Community = 9
Liquidity = 9 (integrated into AMM, high trading volume = high LP rewards, CEX listing)
Incentive Mechanisms = 7
Simplicity = 10
Tokenomics = 5 (100% circulation upon issuance, no VC, but small group risk/front-running, no revenue sharing)
Market Environment = 0.5
Summary
Scan narratives early: Use tools like Kaito, Dexuai, focus on innovation and catalysts
Score strictly: Assess honestly. Poor tokenomics? In a bear market? Lack of incentives? Market environment changes, and native innovation in new areas might revive narratives (like Ordinals' AMM DEX)
Exit before incentive mechanisms decay: Sell at token release peak or airdrop landing
Respect trends: Don't fight macro trends. Hoard cash in bear markets, deploy funds in bull markets
Keep an open mind: Try protocols, buy popular tokens, participate in community discussions... Learn through practice
This is just my 1.0 version of the formula, and I will continue to refine it.
