Exploring TON, Meme Coins, and the Future of Crypto with Ryan Connor

In a recent episode of Unlayer, hosts Saul and Dave sat down with Ryan Connor, a researcher at BlockWorks, to discuss the current state of the cryptocurrency market, the potential of TON (The Open Network), and the phenomenon of meme coins. This in-depth conversation provided valuable insights into the evolving landscape of blockchain technology and digital assets.

The Current State of the Crypto Market

Ryan Connor, drawing from his background in macro investing, offered a nuanced perspective on the current state of the cryptocurrency market. Despite some recent turbulence, including Germany's selling of Bitcoin and the asset's price dipping below $60,000, Connor remains optimistic. He emphasized that the current market conditions are not as dire as previous crises, noting, "It's not a massive leverage unwind. An exchange hasn't committed fraud. The government isn't cracking down on all the crypto on ramps and off ramps. Things could be much worse."

Connor's view highlights the resilience of the crypto market, especially when compared to past challenges. He points out that as long as the United States isn't facing a recession, which current macroeconomic data doesn't suggest, the market should be able to weather the current volatility. This perspective offers a reassuring outlook for investors who might be concerned about short-term price fluctuations.

The Importance of Long-Term Thinking in Crypto Investing

One of the key takeaways from Connor's analysis is the importance of adopting a long-term perspective when investing in cryptocurrencies. He contrasts this approach with the short-term focus that often dominates market discussions, stating, "I'm doing my best to reorient myself, and I've done a really good job of that over the past few years and thinking of on longer time horizons being more fundamentally oriented."

This shift towards longer time horizons and fundamental analysis is crucial for navigating the volatile crypto markets. Connor suggests that investors who entered the market during the bear market and focused on fundamentals are likely to be in a better position than those trying to time short-term price movements. He notes, "So long as you had like one or two winners, like you're fine and you're happy with your cycle returns and you really don't have to like play this game of hot potato that I think everyone who's been getting in over the last few months has been playing."

The Evolving Landscape of Cryptocurrencies

The conversation touched on the changing perceptions of different cryptocurrencies within the market. Connor observed a trend where many investors are focusing primarily on Bitcoin, Solana, and Ethereum, while becoming increasingly bearish on other altcoins. This shift in sentiment reflects the maturing of the crypto market, with investors becoming more discerning about the long-term viability and value proposition of different projects.

However, Connor also highlighted several areas of opportunity within the crypto space, including:

1. Meme coins, which he describes as "super interesting and investable"
2. The intersection of crypto and AI, which is changing markets and creating new opportunities
3. DeFi protocols that can generate real revenues and are trading at realistic valuations

These areas represent potential growth sectors within the crypto ecosystem, offering opportunities for investors who are willing to look beyond the most well-known assets.

The Challenge of Value Accrual in Crypto Tokens

One of the key issues discussed in the podcast is the difficulty in understanding how value accrues to many crypto tokens, particularly those associated with Layer 2 solutions and DeFi protocols. Connor points out that this lack of clarity is a significant source of investor frustration and apathy in the current market.

He explains, "It's very hard to see how value from the actual protocol relates to the token price. You're just talking about the L2 tokens. I think the reason they're not, they're not doing very well is because obviously there's this large overhang, so there's lots of tokens coming onto the market. But it's also the fact that the value isn't accruing to them."

This disconnect between protocol value and token price is a critical issue that the crypto industry needs to address to attract and retain long-term investors. Connor suggests that clearer value accrual mechanisms and more transparent tokenomics could help alleviate this problem.

The Potential Impact of Ethereum ETFs

The discussion also touched on the potential impact of Ethereum ETFs on the market. While many in the crypto community are excited about the prospect of ETH ETFs, Connor offers a more cautious perspective. He points out several factors that could lead to disappointment:

1. Timing: The launch of ETH ETFs coincides with the summer months when traditional finance tends to experience lower volumes and less attention from key decision-makers.

2. Portfolio allocation: Many asset allocators may have already filled their crypto allocation with Bitcoin ETFs, leaving little room for Ethereum exposure.

3. Diversification benefits: ETH's high correlation with Bitcoin and recent underperformance may make it less attractive from a portfolio construction perspective.

Connor summarizes this view, saying, "ETH has highly correlated to Bitcoin and over the last year or more, it's underperformed. It's not exactly clear that ETH adds diversification and expected return benefits to a portfolio for a trad fine investor, especially when they're over allocated."

The Rise of TON (The Open Network)

A significant portion of the conversation was dedicated to discussing TON (The Open Network) and its potential impact on the crypto ecosystem. Connor acknowledges the excitement surrounding TON, particularly due to its relationship with Telegram, a major messaging platform with a large user base.

He states, "TON coin and the TON ecosystem are two of the most interesting things in crypto today. TON coin is interesting because the valuation is so high and the TON ecosystem is interesting because they have this very unique relationship with a gigantic web2 company that seems to really want to integrate it into its business."

The potential for TON to leverage Telegram's massive user base for distribution is seen as a significant advantage. Connor compares this to other successful tech companies that have used their distribution channels to enter new markets, such as Apple's entry into payments or Microsoft's growth in cloud services.

Challenges Facing TON

Despite the optimism surrounding TON, Connor also highlighted several challenges and potential drawbacks:

1. User engagement: While Telegram boasts a large monthly active user (MAU) base, the daily active user (DAU) to MAU ratio is relatively low compared to other social and messaging apps. This could impact the potential for monetization and user adoption of TON-related features.

2. Fragmented distribution: Unlike WeChat in China, which has a homogeneous market, Telegram's user base is spread across diverse regions and cultures. This fragmentation could make it more challenging for developers to create widely adopted applications on the TON ecosystem.

3. Developer onboarding: The programming language used for TON, FunC, is less popular and potentially more challenging for developers compared to languages used by other blockchain platforms like Solana (Rust) or Ethereum (Solidity).

4. Valuation concerns: Connor notes that TON's current valuation may be pricing in much of the potential growth, stating, "It's trading at 950 times fees. I think the median L1 or L2 token is trading at 500 or 600 times fees. The L1 is trading at 130 times fees, arbitrum is trading at 100 times fees. The growth is priced in."

These challenges highlight the need for a balanced approach when evaluating TON's potential and considering investment in the ecosystem.

The Phenomenon of Meme Coins

The conversation also delved into the fascinating world of meme coins, which have become a significant part of the crypto ecosystem in recent cycles. Connor views meme coins as an extension of traditional gambling, capitalizing on the human desire for short feedback loops and the potential for quick gains.

He explains, "I think that meme coins are an extension of that trend. So meme coin trading, you can make money over short time frames. That's the short term feedback loop that you need. It preserves the potential to make multiples on capital. It increases fun in the same way that gambling does, but further reduces that mental friction of risk taking."

Connor draws parallels between the meme coin phenomenon and the growth of sports betting apps, noting that both tap into similar psychological drivers and social dynamics. He points out that even though most participants don't make money in the long run, the social aspect and entertainment value keep people engaged.

The Future of Meme Coins and Social Trading

Looking ahead, Connor sees potential for further innovation in the meme coin and social trading space. He highlights the evolution of platforms like PumpFun, which has integrated features like social streaming and launchpad functionality. The success of these platforms, with PumpFun reportedly generating $60 million in total revenue, demonstrates the significant market appetite for these types of products.

Connor also mentions the potential for a "TikTok for meme coin trading" that could serve up relevant memes to users based on their preferences and behavior. This concept highlights the intersection of social media, entertainment, and financial speculation that characterizes the meme coin phenomenon.

The Role of Speculation in Crypto

While speculation has been a driving force in the crypto industry, Connor acknowledges that unbridled speculation can have negative consequences, particularly when integrated into social applications. He suggests that a more measured approach might be necessary, stating, "I think it needs to be more tamed and like tailored and like slowly allowed on these platforms over time, which goes against the ethos."

This perspective highlights the ongoing challenge in the crypto industry of balancing the innovative and speculative aspects of the technology with the need for sustainable, user-friendly applications that can drive mainstream adoption.

Advice for Aspiring Crypto Analysts

The conversation concluded with some valuable advice for those looking to become analysts in the crypto space. Both Connor and the hosts emphasized the importance of intellectual curiosity and hands-on engagement with the technology. Connor advises, "Just keep doing things like crypto is the easiest place to kind of put yourself up out there... Everyone wants to talk to you in crypto. So just keep doing things. Just keep talking information like you generate information that's feedback."

This advice underscores the open and collaborative nature of the crypto industry, where sharing knowledge and engaging in ongoing learning are key to success.

Conclusion

The conversation with Ryan Connor provided a wealth of insights into the current state and future potential of the cryptocurrency market. From the challenges facing major players like Ethereum to the exciting possibilities of emerging platforms like TON and the ongoing phenomenon of meme coins, the discussion highlighted the dynamic and evolving nature of the crypto ecosystem.

As the industry continues to mature, it's clear that a balance between innovation, speculation, and sustainable value creation will be crucial for long-term success. For investors, analysts, and enthusiasts alike, staying informed, maintaining a long-term perspective, and engaging actively with the technology will be key to navigating the exciting but often unpredictable world of cryptocurrencies.

Facts + Figures

• Ryan Connor is a researcher at BlockWorks and co-host of one of their shows.
• Bitcoin's price was below $60,000 at the time of the podcast recording.
• Germany was selling Bitcoin, contributing to market volatility.
• Americans wagered $90 billion in casinos and gambling apps in 2022.
• PumpFun, a meme coin platform, has generated approximately $60 million in total revenue.
• PumpFun had one day where it outpaced the daily revenue of Ethereum.
• Telegram has approximately 900 million monthly active users.
• Telegram's daily active user to monthly active user ratio is around 15-20%, lower than typical social apps (40-80%).
• TON is trading at 950 times fees, compared to median L1 or L2 tokens trading at 500-600 times fees.
• Ethereum's highest month in revenues was November 2021 with 1.8 million in fees and MEV.
• Ethereum's most recent month saw 160 million in fees and MEV, a 90% decline from the peak.
• The use of the Chinese yuan for cross-border payments has risen from 0.5% historically to as high as 3-4%.
• The DXY (US Dollar Index) is up about 50% against competing currencies since the 2008 lows.
• Hamster Combat, a TON-based game, claims to have 250 million users.
• Pixel Verse, another TON-based app, has 9 million subscribers and gets 2-4 million views on its YouTube channel.

Questions Answered

What is the current state of the cryptocurrency market?

The current state of the cryptocurrency market is characterized by some volatility, with Bitcoin trading below $60,000 and Germany selling its holdings. However, Ryan Connor believes the situation is not dire, as there hasn't been a massive leverage unwind, exchange fraud, or government crackdown on crypto on-ramps and off-ramps. He suggests that as long as the US isn't facing a recession, the market should be able to weather the current volatility.

How important is long-term thinking in crypto investing?

Long-term thinking is crucial in crypto investing, according to Ryan Connor. He emphasizes the importance of focusing on longer time horizons and fundamental analysis rather than short-term price movements. Connor suggests that investors who entered the market during the bear market and focused on fundamentals are likely to be in a better position than those trying to time short-term price movements. This approach helps investors avoid the "game of hot potato" often played by those who enter the market during bullish periods.

What are the challenges facing TON (The Open Network)?

TON faces several challenges despite its potential. These include a relatively low daily active user to monthly active user ratio on Telegram compared to other social apps, fragmented distribution across diverse regions and cultures, potential difficulties in developer onboarding due to the use of the less popular FunC programming language, and concerns about its current valuation. Connor notes that TON is trading at 950 times fees, which is significantly higher than other L1 and L2 tokens, suggesting that much of its potential growth may already be priced in.

How does Ryan Connor view the phenomenon of meme coins?

Ryan Connor views meme coins as an extension of traditional gambling, capitalizing on the human desire for short feedback loops and the potential for quick gains. He sees them as part of a broader trend in consumer retail risk-taking, similar to the growth of sports betting apps. Connor believes that meme coins are here to stay, despite their volatile nature, due to their ability to provide entertainment and social engagement alongside the potential for financial gains. He notes that while meme coin activity may decrease significantly during market downturns, it tends to expand over longer crypto market cycles.

What advice does Ryan Connor give for aspiring crypto analysts?

For aspiring crypto analysts, Ryan Connor emphasizes the importance of intellectual curiosity and hands-on engagement with the technology. He advises continually doing things in the crypto space, as it's an open and collaborative industry where sharing knowledge is encouraged. Connor suggests that becoming an expert in a niche area of crypto can be particularly valuable, as it can make an analyst stand out to potential employers. He also highlights the importance of generating and sharing information, as this creates feedback loops that enhance understanding and expertise in the field.