Coin Market Evolves into a 'Equity' Concept

The perspective on coins in the cryptocurrency market is changing from mere assets to 'equity' in a company. From this perspective, it is crucial whether the project actually generates revenue and excess profits, and has a structure to return those profits to investors. This is emerging as an essential condition for coins to be recognized as equity.

Ultimately, the perception that the coin market is fundamentally identical to the stock market is spreading. The prevailing logic is that there is no reason to invest if there is no profit-generating capability from company services and a structure for those profits to return to investors. This particularly suggests that large amounts of capital are moving from mere speculation to projects capable of generating profits based on actual services.

Funds flowing into the crypto market primarily originate from two sources. The first is revenue generated from users utilizing crypto services, mainly in the form of exchange fees. The second is interest income from US short-term Treasury bills, which serve as collateral for stablecoins. These two fund flows are currently driving the growth of the crypto market.

US short-term Treasury bills have acted as a key tool for on-chain financial recovery since the 2022 bear market. Stablecoin issuers began purchasing US Treasury bills and returning the interest generated to investors, marking the first genesis of tokenization. Without Treasury bill interest income, investors would have to be compensated solely from supply and demand, which would make them less competitive than other dollar-based financial products. Therefore, Treasury bill interest plays a crucial role in strengthening stablecoin competitiveness and serving as a foundational asset for capital inflow.

When US short-term Treasury bill interest rates are 3.5%, DeFi (Decentralized Finance) interest rates become much higher. This is because when stablecoins are continuously deposited, the deposited funds must be lent out like a bank to generate new value. If there is high demand for collateralized loans in on-chain finance, higher interest can be demanded from depositors. Typically, profits, excluding intermediary fees of 50-60 basis points, are distributed to depositors.

Stablecoin inflow is a key driver accelerating credit creation in the DeFi market. For example, when 100 won enters, this capital expands into a larger credit market of 200 won, 300 won, or more, through repeated deposits and loans. This forms a virtuous cycle of deposits and loans within the crypto market, contributing to the overall market size.

The entities generating the most profit in the crypto market are exchanges. This holds true for both centralized and decentralized exchanges. The success of an exchange not only brings immense profits in itself but also plays a crucial role in driving the growth of underlying chains and related ecosystems. Exchanges provide market liquidity and platforms for various projects to be traded, thus exerting significant influence across the entire ecosystem.

While a decrease in interest rates might initially seem challenging for the on-chain financial market, it actually leads to an increase in coin prices and trading activity. When coin prices rise, users' demand to borrow more funds using their Ethereum, etc., as collateral increases. This boosts the revenue generated from lending services, allowing investors who deposit stablecoins to earn higher returns. In the low-interest rate period of 2021, there were cases where lending services yielded over 10% returns.

When interest rate hikes are anticipated or actually occur, the interest rates on US short-term Treasury bills rise, increasing the profits of stablecoin issuers like Circle. Circle's business model involves receiving dollars, purchasing short-term Treasury bills, and sharing the resulting interest income with partners while still generating profit. Thanks to this structure, stablecoins become even more attractive as a hedge position during periods of rising interest rates.

Currently, the on-chain financial market is in a period of stagnation due to high interest rates. The high market interest rates have created many better alternative products. Investors do not feel the need to enter the on-chain financial market, risking smart contract vulnerabilities. This situation has also led to a slowdown in the growth of stablecoin issuance.

Recently, in the coin market, projects have been continuously implementing 'buybacks' (repurchasing their own tokens) with their excess profits, leading to an increase in token prices. This is a method of directly returning value to investors and is part of a strategy to align service value with token value. These movements contribute to gaining investor trust and strengthening market competitiveness.

Coins are no longer just coins; they have taken on the character of 'equity'. This shift leads investors to treat various startups in the on-chain coin market like stocks. If a project does not implement shareholder return policies such as share buybacks, it receives negative evaluations in the market. Leading companies like Hyperliquid are standardizing buybacks, clearly indicating a paradigm shift in coin investment.

On-chain finance holds a structural advantage over traditional Wall Street financial firms in terms of cost efficiency and operational speed, which are difficult for them to match. Traditional financial firms, with their high offline transaction costs, find it difficult to manage assets at a fast pace, such as through buybacks. While not yet overwhelmingly superior in user convenience, on-chain services already handle sophisticated transactions and may face regulatory hurdles in the future.

The recent surge in buybacks was largely influenced by changes in the political environment following SEC Chairman Gary Gensler's retreat. In the past, buybacks were considered a violation of securities law and subject to regulation. For this trend of buybacks to continue, it must be codified through 'Clarity' legislation or similar means to secure legal stability. Otherwise, buybacks risk fading away as a temporary phenomenon.

Buybacks play a crucial role in supporting and increasing coin prices. There is a growing consensus that without buybacks, maintaining the value of coins in the DeFi ecosystem is difficult. Successful projects like Chainlink have demonstrated their value through buybacks. Concerns are also raised that if clear legislation (Clarity) is not established, many projects currently growing thanks to buybacks could collapse without a trace.

Concerns exist that some coin projects, such as LayerZero, have not yet clearly established their identity and are eyeing stock listings (IPOs). A coin project should have an identity as a coin project, but showing interest in listings can cause value conflicts between coin holders and stock shareholders. This could negatively impact the project's direction and investor trust in the long run.

A coin company listing its shares on the stock market can have a fatal impact on the token's value. The moment shares are issued, the token can, exaggeratedly speaking, become 'worthless paper.' This is because if corporate equity can be secured through shares, there is no need to buy tokens. Due to the shareholder profit distribution structure, it also becomes difficult to implement token value return policies such as buybacks after a stock listing, so a coin company's stock listing can be interpreted as a very clear 'death signal'.

Uniswap previously attempted to list its development company on the stock market. This led to investor backlash and a significant drop in the price of Uniswap tokens. However, Uniswap recently came to its senses and declared it would conduct buybacks with the profits it earns. Following this decision, the Uniswap token price surged two to three times, once again demonstrating the importance of aligning coin value with service value.