Original author: Kyle, DefiLlama researcher
Compiled from the original by Jiahuan, ChainCatcher
In this market cycle of 2026, the market may finally be starting to favor tokens backed by strong fundamentals. This is not a new idea. As early as the birth of the first smart contract, the earliest DeFi advocates envisioned bringing infrastructure designed 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.
This was especially true during the 2025 cycle, when many market participants believed we had reached a “turning 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 siphoning billions of dollars out of the crypto market, digital asset treasury (DAT) companies driving two “double-top” rallies, and the final blow that crushed the market on October 10: the biggest liquidation event in history, which happened 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 relatively optimistic. Naturally, many long-time crypto participants left the market, myself included.
Looking back, depressed token prices, a wave of projects shutting down, a steady stream of DeFi hacks, and many fund managers leaving the market were all clear signs of a bear-market bottom. But what made this bear market even more brutal was that hope was completely shattered. We were all waiting for “traditional finance to arrive.” Instead, we got a president using a token to extract money from the market, and crypto insiders dressing up as traditional finance to sell assets to other crypto insiders through Nasdaq-listed holding companies.
I think this experience is exactly why market participants still carry the trauma of the past (PTSD) when they look at crypto today. 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 again:
So I think, in a way, we were all too early. Long-time crypto participants have been through too many disappointments to find it easy to believe again. From the market’s perspective, every rally has to get started amid doubt and anxiety, climbing the “wall of worry.”
But at the end of the tunnel is the dream we’ve been waiting for: the golden road, the last frontier to be explored. Honestly, the era we’ve known is coming to an end, and a new one is beginning. I truly believe that “internet capital markets” are starting to take shape. The focus of the next few cycles will be how traditional financial markets connect with internet-native assets that have equity-like characteristics.
Of course, none of this is new. I’m sure I said similar things in 2025. Ever since smart contracts emerged, we’ve been steadily moving in this direction. It has always been more a question of timing than growth. Every metric points to the same thing: even if prices haven’t risen, the real-world use of crypto technology continues to grow.
Investment strategy: Choose the right assets and take a longer-term view
But as I said above, the problem is more about timing than a lack of real-world use cases. 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 extreme volatility than ever before.
At times like this, the investment experience many of us have gained in traditional stock markets over the past year can be really useful. 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 speculative-asset bubbles, while the value-investing approach of Benjamin Graham’s era—focused on fundamentals and finding undervalued assets—is being pushed into the background.
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 will affect prices. Almost every week brings a new headline: Trump reaches a deal with Iran; 10-year Treasury yields rise to “levels not seen since 1990”; a currency crisis, likely involving the yen; pessimism about AI’s prospects or calls for accelerationism; and geopolitical uncertainty.
So it’s worth taking a longer-term view and reducing the impact of 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 become the main strategy for crypto investing in the future, too. Hyperliquid’s HYPE is the first token that has genuinely given investors a chance to “profit by dollar-cost averaging.”
Why are most tokens unsuitable for long-term investment?
You can’t overstate how important asset selection is in crypto. Crypto 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 much of crypto’s history, that was true. But Hyperliquid has opened up a new path: some assets really are worth investing in consistently, and you can make money doing so.
This matters more than many people realize because it significantly changes how markets work. One major reason many altcoins aren’t suitable for long-term investment is simple: no one wants to keep dollar-cost averaging into an asset that could fall 90%. In the stock market, time is on your side because the businesses behind stocks can grow over time. That’s the logic behind continually buying the S&P 500: the U.S. economy keeps growing, so you keep buying.
When businesses in crypto are able to grow sustainably, digital assets finally have the foundations for long-term investment. This creates a positive feedback loop: business growth → investment flows in → prices rise → the business grows further. That’s how internet capital markets are formed.
There are also structural reasons why the crypto market has remained a “lemons market” for so long—a market where buyers can’t distinguish quality from junk, and bad projects crowd out good ones:
Tokens with low circulating supply and high fully diluted valuation (FDV) come with huge unlocks and selling pressure, as new supply continues to enter the market for years. Even if the project itself is doing well, there’s always a group of sellers waiting to sell.
Unable to turn a profit. The product doesn’t genuinely meet market demand, so it can’t grow sustainably. It relies instead on short-lived narratives suited to a bubble market—here today, gone tomorrow.
Token holders and company shareholders have misaligned interests. All the value created by the business goes to company shareholders, while the token is basically just a marketing tool. Holding the token doesn’t mean you actually have a right to share in the money the business earns.
A lack of disclosure and accountability. In the stock market, companies must disclose revenue, insider stock sales, and risks, and they face consequences for fraud. In crypto, insiders, VCs, and market makers have access to unlock schedules, OTC deals, and the real data. Teams can dump tokens, fabricate metrics, or quietly walk away, while investors have virtually no recourse. When buyers can’t distinguish good projects from bad ones, they assume they’re all bad.
What makes a good token?
After all these problems piled up, we seem to have finally reached a turning point: the crypto market is beginning to find ways to solve the “lemons market” problem. Most market participants are demanding more from their investments, 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 them.
Align the interests of token holders and company shareholders: the protocol’s intellectual property and the value it creates belong to the foundation and are governed by token holders.
Use revenue for buybacks: Submit a governance proposal to automatically buy back ENA tokens using protocol revenue.
End monthly VC unlocks: The Ethena Foundation and major investors have agreed to release investors’ unvested tokens and end the existing monthly unlock schedule, eliminating the ongoing pressure from monthly unlocks in the future.
The market has rewarded Ethena, too: ENA is up 95% over the past 14 days. A positive feedback loop has formed.
So the approach to selecting assets is clear: buy projects that have solved the “lemons market” problem, and avoid those that haven’t. Here’s my checklist. These aren’t absolute rules, but from what I’ve seen, teams should meet at least most of them, and ideally all of them:
Let token holders share in the value created by the business. There are some interesting approaches in the market, and investors can accept a project having equity as long as the incentives are aligned. Venice is a good example. At a minimum, market participants need to see two things: A) the team cares about the token; and B) the team won’t divert value that should accrue to the token to company shareholders.
A product that genuinely meets market demand and can turn a profit. Sustainable growth and profitability are what attract capital to a project. Intuitively, people 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. Sustained earnings growth is 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 selling pressure but still perform poorly; others have some potential selling pressure and perform well. Overall, though, too much potential selling pressure is a bad thing because it limits upside. A certain amount seems acceptable. The best teams go further and proactively address the issue—for example, Ethena buying back tokens held by investors.
A few additional positives:
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 reinvest that money in the business. Buybacks are mainly a way to signal to market participants that the founders care about the token. They need to be sized appropriately: too small, and the money is spent without making a difference; too large, and it takes funding away from business growth. Buybacks alone also have little value. The market can usually see through these issues.
Transparency and investor relations (IR). In my view, this should be a requirement. 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 results and holding investor calls. If you want investors to put their money in your hands, you should provide the necessary disclosure and communication.
There may be other factors I’ve missed, but these are the first ones that come to mind. Taken together, the crypto market is repairing itself: real businesses are emerging, teams are improving how value accrues to tokens and how token supply is managed, and the market is finally starting to reward quality over hype. For the first time, digital assets are beginning to have value as long-term investments, rather than just trading instruments. But that depends on holding the right assets. There are still plenty of low-quality projects in the market, so choosing assets matters more than ever. For discerning investors, 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 best part: which dishes at this buffet are most worth picking, in my view. There’s a whole spread of sashimi, but one serving is bluefin tuna cheek and the rest is ordinary tuna from a gas station. My job is to figure out which one is the bluefin.
It’s easier to start with the sector and then look at specific projects. From an investment-theme perspective, only a few sectors have proven that their products genuinely meet market demand. So here’s my tier list. I’ve left out sectors that currently have no tokens trading on the secondary market and can’t be invested in directly, such as prediction markets.
I’ve also written a separate section about my views on on-chain markets. In short, I think that apart from a handful of good tokens, other on-chain projects aren’t even worth the time. I’ve written this in the tweet below, but I’ll repeat it here in case anyone missed it:
Put simply, what we’re seeing on-chain 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 much harder to roll out across large enterprises. This has created a strange contrast: large companies haven’t yet seen obvious productivity gains, while small startup teams are already using AI to launch products quickly. The result is another K-shaped divide, with productivity gains becoming increasingly uneven across different groups.
On-chain, this makes the “lemons market” problem worse than ever. In the past, you could at least say, “They have a nice website, so they must have put some effort in.” Now, that kind of surface 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 inference markets spring up, and there’ll probably be another 200, because anyone can hand Orbio’s website to AI and say, “Make me a copy.”
That means the advantage of investing on-chain can no longer come from software alone; it has to come from the team: who they are and whether they can deliver. A founder’s ability and character determine everything. That’s why I think it’s much easier to invest in established tokens that have already reached a certain scale than to hunt for small tokens on-chain. Reaching a certain market cap means a project has, to some extent, already proven itself. It’s much easier to research 100 tokens with market caps above $1 billion and identify 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 crypto
AI inference is the process by which trained models handle requests and generate results. It’s the only crypto sector with genuine demand from outside the crypto industry. Individuals and businesses pay for AI because they need it, not because of token incentives. As open-weight models (models with publicly available parameters) become more capable and cheaper to use, it also becomes less expensive to provide AI services, allowing businesses to compete with major AI companies on price and privacy.
This is also an investment theme that ordinary retail investors can understand immediately. Everyone is using 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 in this direction. It also shows that people are moving away from frontier models toward other forms of AI, including open-source models.
Open-source models may face regulatory scrutiny, but there’s no doubt that many models are already capable enough to meet 99% of work needs. So, honestly, people don’t have to use the most cutting-edge models. They want to use AI; they don’t care which specific model they’re using.
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 betting on growing demand for inference, the only assets you can invest in directly are actually crypto tokens. Semiconductor companies benefit indirectly from rising demand, but that expectation is already priced in. Anthropic and OpenAI aren’t public yet. You could go long on Zhipu, of course, but the Hong Kong market doesn’t offer the same valuation premium. Meanwhile, some tokens let you invest directly in this theme. Crypto happens to offer one of the best ways to bet on growing demand for inference.
Top picks: VVV and ORBIO Other options: NEAR and CHIP
Recommended reading: this report from Galaxy.
Tokenized stocks and RWAs: How big is the opportunity?
This is the biggest opportunity of any sector right now, for a simple reason: it’s still too small. The U.S. has used stablecoins to expand the global use of the dollar, and the stablecoin market has reached around $300 billion. Tokenized stocks, by contrast, total only about $2.5 billion, while the U.S. 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 investing in U.S. stocks isn’t easy.
Top pick: BP
Recommended reading: this report from frictionless.capital.
DATs: Opportunities from 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 around 0.15x at the summer lows.
It operates in stablecoins, perpetuals, and related sectors; has a world-class team; and keeps shipping products even though its token is down more than 95% from its all-time high.
Fundamentals should improve over the next few years as vesting and unlock periods end. For example, USDe’s circulating supply could grow, basis-trading yields could recover, strategies that hedge spot positions with derivatives to capture spreads and funding rates 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 meet 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: Keep an eye on ZEC
For this section, let’s 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
Recommended viewing.
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 ranked A rather than S only because the market already knows this. Hyperliquid’s success is 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 picks: LIT / HYPE
Stablecoins: How can you participate in the market’s growth?
Stablecoins are the most successful product the crypto industry has built to date, and they will continue to grow. They’re ranked A because the biggest winners, Tether and Circle, don’t have tokens you can buy on-chain 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 generated by business growth.
Top pick: USDE
I think crypto assets have finally become investable again. Low-quality projects are slowly being separated from real businesses, and the market is finally starting to reward teams that do the hard work. Long-time participants still carry the scars of the past, but people face this kind of doubt and anxiety at the start of every genuine bull market.
Take a longer-term view, be prepared for greater volatility, and be highly selective about your holdings. The investment edge in this cycle isn’t finding the next get-rich-quick opportunity in some token with a market cap below $10 million that someone came up with over the weekend using AI. It’s finding projects with real revenue, tokens that let holders share in the value created by the business, and reliable teams—and having the conviction to keep holding when others are shaken out by volatility sparked by the latest headlines.
Buy good assets, hold through the noise, and let time do its work.