Author: Kyle, DefiLlama Researcher

Translated by: Jiahuan, ChainCatcher

In the 2026 cycle, the market may finally be starting to favor tokens backed by strong fundamentals. This is not a new idea. From the birth of the first smart contract, early DeFi advocates envisioned bringing infrastructure for financial institutions onto the blockchain. Yet cycle after cycle has shown that the timing was still too early—market participants only wanted prices to go up.

Especially during the 2025 cycle, many market participants believed we had reached an “inflection point”: Trump had just been elected, Gary Gensler had left office, and the White House had a “crypto czar.” But what everyone had hoped for never happened.

Instead, we got the Trump token sucking tens of billions of dollars out of the crypto market, digital asset treasury (DAT) companies driving two sharp run-ups followed by crashes—a “double top”—and then the final blow that crushed the market on October 10: the largest liquidation event in history, which came almost without warning.

Meanwhile, the stock market was rising, especially semiconductor and memory-chip stocks. The S&P kept hitting all-time highs, and sentiment about the economy was broadly optimistic. As a result, many crypto veterans left the market—and I was one of them.

Looking back, depressed token prices, a wave of project shutdowns, relentless DeFi hacks, and the departure of many fund managers all clearly marked the bottom of the bear market. But what made this bear market even more brutal was that hope was completely crushed. We were all waiting for “traditional finance to arrive,” but what we got was a president using a token to extract billions from the market, and crypto insiders dressing up as traditional finance, using Nasdaq-listed holding companies to sell assets to other crypto insiders.

That’s why I think this experience is what left market participants approaching today’s crypto market with the trauma of the past—PTSD. Fortunately, I had a few good friends who convinced me to come back to crypto. At the time, I wrote this:

After the bull market began, I wrote this:

So I think, to some extent, we were all too early. Crypto veterans have been through so many disappointments that it’s hard for them to believe again. From a market perspective, every rally has to start by pushing through skepticism and worry—climbing the “wall of worry.”

But at the end of the tunnel is the dream we’ve been waiting for, the golden path, the last frontier to be explored. Honestly, the era we knew is coming to an end, and a new one is beginning. To be frank, I believe the “internet capital markets” are already taking shape. The focus of the next few cycles will be on how traditional financial markets connect with internet-native assets that give holders a stake in their value.

Of course, none of this is new. I’m pretty sure I said something similar in 2025. Ever since smart contracts emerged, we’ve been steadily moving in this direction. It’s always been more a question of timing than of growth. Every metric points to the same thing: real-world use of crypto continues to grow, even if prices don’t rise.

Investment strategy: choose the right assets and take a long-term view

However, as I said above, the issue is more about timing than a lack of real-world use. So, as an investor entering this market, the first thing I want to emphasize is this: take a longer-term view and prepare for more volatility than ever before.

At times like these, the investing experience I’ve gained in traditional stock markets over the past year is helpful. Many people on X know that the world is becoming more and more like a speculative game. Markets of all kinds are increasingly dominated by bubbles in speculative assets, while the value-investing approach from the days of Benjamin Graham—focusing on fundamentals and looking for undervalued assets—is taking a back seat.

On this point, I strongly recommend reading this article by 0xSmac: (Let The Bubble Wash Over You).

In a market like this, more and more macro news moves prices. Almost every week there’s a new headline: Trump reaches a deal with Iran; the 10-year Treasury yield climbs to a level “not seen since 1990”; a currency crisis, likely involving the yen; pessimism about AI’s prospects or calls for accelerationism; and geopolitical uncertainty.

That’s why it’s worth taking a longer-term view and tuning out the short-term noise. There’s always plenty of noise in the market, and there always will be, but this strategy has worked well in the stock market. I believe it will also become the main strategy for crypto investing in the future. Hyperliquid’s HYPE is the first token that has genuinely given you a chance to “profit by dollar-cost averaging.”

Why are most tokens unsuitable for long-term investing?

You can’t overstate the importance of choosing the right assets in crypto. Crypto market participants have long held an underlying belief: “It’s all a scam, it’ll all go to zero eventually, so you have to sell.” For most of crypto’s history, that was true. But Hyperliquid has opened up a new path: there are some assets you really can keep investing in and make money from.

This matters more than many people realize, because it fundamentally changes how markets work. Many altcoins aren’t suitable for long-term investing for one simple reason: nobody wants to dollar-cost average into an asset that could drop 90%. In the stock market, time is on your side because the businesses behind stocks are expected to grow over time. That’s the logic behind continuously buying the S&P 500: the US economy keeps growing, so you keep buying.

So when businesses in crypto are able to grow sustainably, digital assets begin to have the foundations for genuine long-term investment. This creates a positive feedback loop: business growth → attracts investment → price rises → drives further business growth. That’s how the internet capital markets came into being.

In addition, there are structural reasons why crypto markets have remained in a state of “lemon markets”—where buyers struggle to distinguish good projects from bad ones, and bad projects crowd out good ones:

Tokens with low circulating supply and high fully diluted valuations (FDV) come with massive unlocks and selling pressure. New supply continues to enter the market over several years. Even when a project is doing well, there’s always a group of sellers waiting to cash out.

Unable to become profitable. The product doesn’t truly meet market demand, so it can’t grow sustainably. It can only rely on short-lived narratives that work in a bubble market—here today, gone tomorrow.

Token holders’ interests are not aligned with those of company shareholders. All the value created by the business goes to the company’s shareholders, while the token is basically just a marketing tool. Holding the token doesn’t mean you’re actually entitled to share in the money the business earns.

There’s a lack of disclosure and accountability. In the stock market, companies have to disclose revenue, insider share sales, and risks; fraud has consequences. In crypto markets, insiders, VCs, and market makers hold the keys to unlock schedules, OTC deals, and the real data. Teams can dump tokens, fabricate metrics, or quietly walk away, while investors have virtually no way to hold them accountable. When buyers can’t tell good projects from bad ones, they assume they’re all bad.

What makes a good token?

The problems that have built up over time seem to have finally reached a turning point: the crypto market is starting to find ways to solve the “lemon market” problem. Most market participants are setting stricter standards for what they invest in, which gives project founders and operators clear feedback on what they need to change. For example:

The Ethena team did the following:

Buy back tokens held by early investors who previously sold their tokens.

Align the interests of token holders and company shareholders: the protocol’s intellectual property and the value it creates belong to a foundation and are governed by token holders.

Use revenue for buybacks: put forward a governance proposal to automatically buy back ENA tokens using protocol revenue.

End monthly VC unlocks: the Ethena Foundation and major investors agreed to release investors’ tokens that had not yet vested, ending the previous monthly unlock schedule and removing the ongoing pressure of monthly unlocks in the future.

The market rewarded Ethena for it: ENA is up 95% over the past 14 days. And so a positive feedback loop has taken shape.

So the approach to choosing assets is clear: buy projects that have solved the “lemon market” problem, and avoid those that haven’t. Here’s my checklist. These aren’t absolute rules, but from what I’ve seen, a team should meet most of them—and ideally all of them:

Allow token holders to share in the value created by the business. There are some interesting attempts at this in the market, and investors can accept a project having equity as well, as long as the incentives are structured appropriately. Venice is a good example. At the very least, market participants need to see two things: A) the team values the token; and B) the team won’t transfer value that should belong to the token to the company’s shareholders.

A product that genuinely meets market demand and is profitable. Sustainable growth and profitability are what attract capital to a project. Intuitively, people only want to buy assets that will go up, and prices rise either because valuation multiples expand or because earnings grow. For a business, valuation multiples are mostly outside its control; they depend on market sentiment, narratives, and interest rates. Growing earnings are the foundation for building value and compounding it over the long term. Market narratives change quickly, but growing earnings give people a reason to keep holding.

Token supply. There’s no one-size-fits-all answer here. Some tokens have little potential sell pressure but perform poorly; others have some potential sell pressure and perform well. Overall, though, excessive potential sell pressure is a bad thing because it limits upside. A certain amount seems acceptable. The best teams go a step further and address the issue proactively—for example, Ethena buying back tokens held by investors.

A few additional points in their favor:

Buybacks. I don’t think the amount spent on buybacks matters much unless you’re buying back at a very large scale, like Hyperliquid. For most protocols, it may be better to put that money back into the business. Buybacks are mainly a way to show market participants that the founders value the token. They need to be sized appropriately: if they’re too small, the money is spent without making a difference; if they’re too large, they take funding away from business growth. And on their own, buybacks basically don’t create much value. The market can usually see through that.

Transparency and investor relations (IR). In my view, this should be mandatory. The logic is simple: if you want people to hold your token, you should clearly explain its purpose and value. Public companies already do this—for example, by publishing quarterly reports and holding investor calls. If you want investors to entrust you with their money, you should provide the relevant disclosures and communication.

I may have missed a few factors, but these are the first ones that came to mind. Taken together, the crypto market is repairing itself: real businesses are emerging, teams are improving token value accrual and supply arrangements, and the market is finally starting to reward quality rather than hype. For the first time, digital assets are starting to have value as long-term holdings, not just as trading instruments. But that only applies if you hold the right assets. There are still plenty of bad projects in the market, so choosing the right assets matters more than ever. For those with sound judgment, though, the strategy is simple:

Buy good assets, hold through the noise, and let time do its work.

Finding investment opportunities: start with the sector, then look at the team

Now for the most exciting part: which dishes at this buffet are, in my view, the best picks? There’s a platter of sashimi on the table. One piece is bluefin tuna cheek; the rest is ordinary tuna from a gas station. My job is to figure out which piece is the bluefin.

It’s easier to start with the sector and then look at specific projects. From an investment-theme perspective, only a handful of sectors have proven that their products genuinely meet market demand. So here’s my tier ranking. I’ve left out sectors that currently have no tokens available to trade on the secondary market and can’t be invested in directly, such as prediction markets.

I’ve also written a separate section on my views about onchain markets. In short, I think that, apart from a handful of good tokens, the rest of the onchain projects aren’t even worth spending time on. I wrote this in the post below, but I’ll repeat it here in case anyone missed it:

Simply put, what we’re seeing onchain is the impact of AI-assisted software development. AI is a great fit for small, niche projects that can be built and launched quickly, but rolling it out across a large enterprise is much harder. This creates a strange contrast: large companies haven’t yet seen clear productivity gains, while small startup teams are already using AI to launch products quickly. The result is another K-shaped divide: productivity gains are becoming increasingly uneven across different groups.

Onchain, this makes the “lemon market” problem worse than ever. Before, you could at least say, “Their website looks good; they’ve clearly put some thought into it.” Now, creating that kind of superficial polish costs almost nothing. Every token with a market cap below $10 million looks polished on the surface, and it’s almost impossible to tell whether there’s a real team behind it or just scammers. Ideas have become cheap, too. After Orbio hit an all-time high, we saw 20 different reasoning markets pop up, and there’ll probably be another 200, because anyone can feed Orbio’s website to AI and say, “Make me a copy of this.”

So the advantages of onchain investing can no longer come from the software alone; they have to come from the team: who they are and whether they can deliver. The founders’ abilities and character determine everything. That’s also why I think it’s much easier to invest in established tokens with some scale than to hunt for small coins onchain. A project that reaches a certain market cap has, to some extent, already proven itself. It’s much easier to research 100 tokens with market caps above $1 billion and find the good projects than to research 10,000 tokens with market caps below $10 million, where a new “great idea” launches every hour.

Six key sectors and investment picks

AI inference: real demand from outside the crypto industry

AI inference is the process by which a trained model handles a request and generates a result. It’s the only crypto sector with real demand from outside the crypto industry. Individuals and businesses pay for AI because they need it, not for token incentives. As open-weight models (models whose parameters are publicly available) become more capable and cheaper to use, providing AI services is getting less expensive, allowing businesses to compete with major AI companies on price and privacy.

This is also an investment thesis that everyday retail investors can understand right away. Everyone uses AI, and the explosive growth of some related assets shows that these products are genuinely meeting market demand. I think the current demand for inference reflects the “Jevons paradox”: lower costs encourage more use, which in turn drives up total demand. All the data points to this. The data also shows people moving from frontier models to other types of AI, including open-source models.

Although open-source models may face regulatory scrutiny, there’s no doubt many are already general enough to handle 99% of work needs. So, honestly, people don’t need to use the most advanced models. They want to use AI; they don’t care which specific model it runs on.

I can hardly believe I’m saying this myself: putting all these factors together, if you want to invest in a good AI product while also betting on growing demand for inference, the only assets you can invest in directly are crypto tokens. Semiconductor companies will benefit indirectly from rising demand, but that expectation is already reflected in their prices. Anthropic and OpenAI aren’t publicly listed yet. You can go long on Zhipu, of course, but the Hong Kong market doesn’t offer the same valuation premium. Meanwhile, some tokens let you get direct exposure to this investment thesis. Crypto markets happen to offer one of the best ways to bet on growing demand for inference.

Top picks: VVV and ORBIO　Other options: NEAR and CHIP

I recommend reading this report from Galaxy.

Tokenized stocks and RWAs: how big is the market opportunity?

This is the biggest opportunity of all right now, for one simple reason: it’s still far too small. The US has expanded the global use of the dollar through stablecoins, and the stablecoin market has reached around $300 billion. Tokenized stocks, by contrast, are worth only about $2.5 billion, while the US stock market is worth $69 trillion. Regulation is opening the door, a wave of major IPOs is on the way, and there’s huge demand in countries where it’s difficult to invest in US stocks conveniently.

Top pick: BP

I recommend reading this report from frictionless.capital.

DATs: an opportunity driven by discounts and improving fundamentals

For this section, I’ll quote Evan directly. The following is from Evan’s article:

I think a good opportunity that fits this investment thesis should have the following characteristics:

Trading at a steep discount to the value of its holdings, with mNAV at around 0.15x at the summer lows.

In sectors such as stablecoins and perpetuals, top-tier teams are still shipping products, even when the related tokens are down more than 95% from their all-time highs.

Fundamentals should improve over the next few years as token vesting periods and unlock schedules run their course. For example, USDe supply could grow, basis-trading yields could recover, the strategy of earning spreads and funding rates through spot and derivatives hedging could expand to equity perpetuals, and more institutional partnerships could drive growth in total value locked (TVL) and protocol revenue.

Ultimately, I think DAT companies in the Ethena ecosystem best fit these criteria. Since then, new digital banking products have launched, and USDe’s circulating supply has grown by more than $1 billion.

Top pick: USDE

Privacy: watch ZEC

For this section, let me borrow a little from Lee Goon Wang’s style. Privacy isn’t my area of expertise, and I don’t hold a single ZEC, so I’ll just include a few links to Taiki’s videos.

Top pick: ZEC

I recommend watching the video.

Perpetual DEXs: a growth opportunity going mainstream

Perpetual DEXs have the strongest product-market fit of any sector in crypto: real users, real trading volume, and real fee revenue. They’re in the A tier rather than the S tier only because the market already knows this. Hyperliquid’s success is already priced in, and competition is heating up. The next phase of growth will come as perpetuals go mainstream through apps like Robinhood and Interactive Brokers (IBKR), expanding the market as a whole.

Top pick: LIT / HYPE

Stablecoins: how can you participate in the market’s growth?

Stablecoins are the crypto industry’s most successful product so far, and they’ll keep growing. They’re in the A tier because the biggest winners, Tether and Circle, don’t have tokens that can be bought onchain to share in their business growth, so there are few ways to invest directly in the sector’s growth. Ethena is one of the rare exceptions: it’s a stablecoin issuer with a token that lets holders share in the returns from business growth.

Top pick: USDE

I think crypto assets have finally become investable again. Bad projects are gradually being separated from real businesses, and the market is finally starting to reward teams that do the work. Old hands are still carrying scars from the past, but people face this kind of skepticism and worry at the start of every real bull market.

Take a longer-term view, be prepared for greater volatility, and be selective about your holdings. The edge in this cycle isn’t finding the next get-rich-quick opportunity among tokens worth less than $10 million that someone wrote over the weekend using AI. It’s finding projects with real revenue, tokens that let holders share in the value of the business, and trustworthy teams—and having the conviction to keep holding when others are shaken out by volatility sparked by the latest news.

Buy good assets, hold through the noise, and let time do its work.