This is a text playback of the Merlin Monday livestream from February 24, 2025. You can watch the original video HERE.

TL;DR

Shift Towards Influencers and Decentralized Platforms

• Influencer Dominance: Influencers gained more influence over VCs

• DEX vs. CEX: DEXs showed stronger organic volume than CEXs, which relied to arbitrage and market maker.

Concerns About Centralized Exchanges

• Panic Mode: A few exchanges are panicking over retail users and token price declines.

• Market Adjustment: Token valuations are correcting, with solutions expected in 1-2 years.

Updates on Merlin and Security Concerns

• Fork12 Testing: Testing a fork to improve TPS and introduce new features.

• BRC-20 and Runes Product & Campaign in March: Developing a new product for minting tokens across blockchains, including Ethereum and Solana.

• Security Focus: Emphasizes wallet vigilance, with Merlin assisting Bybit in tracking hackers.

Comparison to Previous Market Cycles

• Unique Cycle: This cycle is different from 2017 due to Bitcoin’s resilience and ETFs.

• Mid-Cycle Shift: Jeff sees this as the end of the first half, with focus now on liquidity solutions for CEX/DEXs.

Q: You just got back from consensus, the major event and Hong Kong. Could you kind of dive into that a bit, what that was like?

Jeff: At the event, there were many Chinese community builders and VCs, exchanges, but surprisingly, there were also a significant number of Western community builders. This year’s event felt very different from last year’s. Last year, people were mostly following the usual pattern—holding events, branding their protocols, and engaging with VCs and exchanges. This time, influencers had much more influence than other attendees. We had a private dinner with a top-tier exchange—50 people, including 20 founders and 20 influencers, but no VCs or liquidity funds. The focus was on building relationships with influencers, as they have a significant impact on meme trading and on-chain activities. They are closer to the active on-chain space and know things that traditional VCs often don’t.

This shift is, in my view, a positive change. The conversation was largely about memes and AI, though some AI-listed companies seemed less active. Our team didn’t hold an event—we kept a low profile and simply attended others’ events. In terms of trading volume, it seemed like decentralized exchanges (DEXs) were outperforming centralized exchanges (CEXs) at that time. While the current volume may be lower, it was notable that a large portion of CEX volume was driven by arbitrage, wash trading, and market makers, whereas DEX volume felt more organic and healthier.

Another observation was the general sense of disappointment among some attendees. People still held hope for the future, but many seemed disillusioned. When I asked a group of close friends whether they were going to ETHDenver, most had planned to attend a week before Consensus. However, when we spoke with them at Consensus, none of them were actually going.

Q: Given the shift towards influencers over traditional VCs and the rise of decentralized platforms like HyperLiquid and Solana capturing significant volume, do you think centralized exchanges are losing their influence and power? From your perspective, attending these events and engaging with the industry, do you sense that they are starting to panic or feel threatened by this shift?

Jeff: 100%, DEX are panicking and 100% they understand the issue but are unable to solve it. For instance, if you look at the charts of tokens listed on major exchanges like Binance, Upbit, OKX, and Bybit, they all show a similar pattern—declining prices. This is a problem, and retail investors are voicing complaints about how builders are dumping their tokens in this cycle compared to the last one. However, if you think about it critically, it’s not entirely the case. If builders can drive up the token price with higher trading volume, they’ll ultimately make more money.

From a self-interested perspective, even someone purely focused on profit would realize that if the token price keeps dropping, nobody benefits—market makers, exchanges, retail investors, or even the project's team. Everyone loses. This is an obvious issue that people are now accepting, and they are looking for solutions.

I don’t believe the builders this cycle are worse than in the previous cycle. In fact, it’s likely better because there have been fewer incidents like Luna or FTX, and there’s less leverage being used. However, we’re still facing a challenging market, which feels like the worst of both the bear and bull cycles combined.

The second point is that everyone is panicking. You can see that CZ hasn't tweeted about the on-chain contract before, but now he is promoting it, which is unusual.

That token was listed on Binance in just one day, which had never happened before. That’s a clear sign of panic. The token’s market cap then dropped to $80-70 million, whereas if it had been listed on Binance two years ago, it could have reached $7 billion, heavily promoted by CZ. Clearly, they are struggling to find a solution. Listing memes leads to a decline in prices, and once a token is listed, it’s seen as the right time to sell. This is new “consensus”.

So, yes, they are panicking. Everyone is trying to find a solution, and I’ve personally noticed some improvements. People are actively searching for ways to address this situation, but it will take time.

Q: It sounds like there's a lot of concern in the market, which often leads to the opposite direction. Do you see any exciting developments or gaps being addressed this time around, or anything that could make this cycle more fun and engaging?

Jeff: I wouldn’t be overly bullish at this stage because everything still seems unclear. However, there are promising developments, especially with RWA, which I believe has strong potential in many use cases. I think Ethena is doing well, and Solv is making great strides, particularly with the introduction of BTCFi. Many other large projects, like PayFi, are integrating Web2 products into Web3. While these efforts may not seem formal at first, the way they are being built will undoubtedly have a positive impact on the industry. Memes have their place, but if 99% of tokens we trade are memes, I don't believe the industry will grow in the long run.

Q: Do you think the oversaturation and overlisting of meme coins is the main issue centralized exchanges are identifying as the problem, especially as RWA begins to unlock mass adoption and offers more substantial solutions than what we typically see in the space?

Jeff: They are panicking, afraid of losing all their retail users. However, retail users primarily use their platforms to dump tokens to the next audience that’s less discerning in this environment. Right now, people are adjusting their standards. Some are saying the listing price is still high, but in my opinion, that’s nonsense because listing prices are not determined by anyone—they’re dictated by market forces, by demand and supply. Market makers establish the depth, but users are too driven by FOMO to buy, pushing the price up quickly before it plummets.

The market is readjusting the valuation of these projects. When I speak with some VCs, they say we should be more bullish on protocols with positive revenue and profits, not on those with unclear goals. I think that’s BS. For example, Solv and Merlin have been generating positive income and revenue throughout the past year. Yet, people aren’t valuing that. If they truly valued revenue, they should be buying into protocols with positive income now, rather than supporting those claiming to have cutting-edge technology but no income. Take movement, for instance—it may be valued at $10 billion, yet their Miannet is still in beta.

They are focusing on high-frequency, functional chains, but they don’t have a live mainnet yet. Right now, people still don’t fully understand what they’re talking about. The market is likely still adjusting to this new valuation model, and this process will probably continue for the next one to two years.

Q: Don't you think the valuation model will eventually shift from speculative hype to a more traditional perspective, where companies or blockchains generating positive revenue are valued higher?

Jeff: I hope so. If the market evolves, as you often compare US trading volume with Stacks, it doesn't seem to reflect this value at all. I believe this change is necessary, as it would attract more serious builders into the ecosystem. However, if it doesn't happen, we might see another four-year cycle repeat itself.

My biggest disappointment is that after all these years in the community—since I bought my first Bitcoin in 2012—very little has changed. While I'm not a big fan of Ethereum, I have to admit it has made significant progress. People now trust on-chain protocols like DeFi, DEXs, and lending protocols, and they continue to use them every day.

Take GMX, for example. Despite having only around $200 million in TVL, it represents a revolutionary model, and people are actively trading on it. Yet, its valuation is far from what it deserves when compared to meme coins, which are valued in the billions. GMX should be valued at $10 billion or more.

Q: Do you think that once TradFi enters the crypto space and starts valuing projects like Merlin based on real revenue and fundamentals, rather than speculation, we'll start seeing more accurate valuations, even though we might be one or two years away from that shift?

Jeff: Solana, for example, faced a huge crisis before, but they stayed focused, with great builders like Magic Eden and Jupiter leading the way. Despite not achieving their success in the way we envisioned, they still managed to succeed in their own way. I believe strong builders will endure these challenging times and strive to innovate differently. Looking at emerging Layer 1 chains, I think Solana has done a much better job than others in terms of user engagement and adoption. On the other hand, some teams that claim to be more advanced have yet to prove their point. Over time, it will become clear who is genuinely building, but these moments are certainly the most challenging.

Q: You mentioned that today was a big event for Merlin, marking the third event for the proof-of-stake mechanism you're offering. From my understanding, it's set at 15%. Is that APR fixed, or does it fluctuate over time? And it says long term. So do I lock my Merlin in for like a year or is there like different time levels? And the response you’ve gotten so far.

Jeff: The APR stays at 15% unless we officially launch the POS with different nodes. Until then, it remains fixed. It operates more like liquid staking, allowing you to log in and withdraw anytime, with just a seven-day waiting period. This is definitely shorter than most staking protocols on public chains.

I think the first and second stages are doing well today. After two or three hours, we had around 36 million staked. As of now, it's about 42 million. It seems like people are withdrawing tokens from exchanges because they don’t expect a big pump and dump in the short term, so they prefer to stake on-chain.

This encourages people to take their tokens off exchanges and put them on-chain, which helps foster a more united community. Before the POS launch, there were about 210 million tokens on centralized exchanges. Now, that number is down to about 130 million, meaning over 80 million tokens have been withdrawn. If this trend continues, it will not only build confidence but also attract new investors who haven’t yet bought into the token. I’m not trying to promote the token, but I think this explains the rationale behind what we're doing.

Q: Given the current market conditions, do you see Merlin's 15% staking offering as an attractive opportunity for long-term growth, especially for those looking to earn yield while holding tokens?

Jeff: Here's a personal story from my own experience. I used to hold a significant amount of BitTorrent tokens back when they launched. In 2019, the price dropped severely, but I bought more at the bottom. They had this single-token staking feature on a livestream platform, where they used BitTorrent technology to support it. Initially, the yield was 200%, but it eventually dropped to 25%. I held onto those tokens for two years, as the price didn’t change much during that period.

Then, in early 2021, the price shot up—doubling or even tripling in a single day. I decided to withdraw my tokens, only to be told I had to wait 14 days. Naturally, I was frustrated, but once the withdrawal period was over, the tokens had increased in value tenfold. It saved me from dumping everything into the market too soon.

This experience taught me an important lesson: if you believe in a project and the team is still actively building, holding onto your assets for the long term can ultimately reveal their true value.

We’ve definitely considered introducing time locks, as well as additional yield-earning features. For example, the idea of locking assets for six months or even a year is something we’re exploring, especially for users who prefer to secure their assets. The concept is similar to what we’ve already designed—something you can lock in and forget about, without worrying about accessing it prematurely. This type of functionality is definitely something we would like to roll out eventually.

Q: Have you considered adding a time lock feature, where users can earn yield by locking their assets for a set period, such as six months or a year, to further secure their assets?

Jeff: We are considering this, including for BTC, as we currently have multiple products that can help users earn more Bitcoin. For example, imagine you had Bitcoin during the Merlin’s Seal, and you staked it a year ago. If you then staked it into Merlin or Solv, you would have earned points and tokens. Bitcoin rose from $40K to $96K. Even though prices might not be ideal now, it’s a valuable way to protect assets. If you kept Bitcoin in a centralized exchange wallet, you might lose it eventually. For Bitcoin, we can’t offer a 15% yield, as that would be unsustainable, but a 5% to 8% yield is still excellent. Bitcoin is something people typically hold long-term and are unlikely to sell.

Q: Are there any other updates with the Merlin side of things?

Jeff: We are currently testing the fork12 update, with the system running at fork9. The direct upgrade from fork9 to fork12 will significantly improve the TPS, and we are still in the testing phase. Once completed, we’ll be able to implement a wide range of possibilities that we’ve been imagining but could not previously execute.

We’ve seen some hype around the Bitcoin BRC-20 and Runes communities, and we’re exploring ways to contribute to that. One idea we’ve been working on involves a native app on the OKX Wallet. With this app, users can mint BRC-20 or Runes tokens using Ethereum, Solana, BNB, USDT, USDC, and other tokens directly through the OKX Wallet. One major challenge we identified earlier is that, despite the ecosystem’s growth, it’s difficult for people outside the community to engage with it. For instance, Solana users have never been able to mint inscriptions, which seemed impossible. However, with the OKX Wallet, Solana users can now mint inscriptions and sell them on platforms like DEX, which is a significant step forward.

I believe this is great news for external users. We have developed the product, but we are unsure about the right time to release it. We’re currently waiting to see if BRC-20 or Runes tokens are being minted by others, so we can align our marketing strategy accordingly. Additionally, we are actively working on integrating AIs around BTC.Fun, though I don’t think now is the best time for marketing efforts.

We had planned a campaign for early March, but we’ll wait until then to provide step-by-step instructions during the show. Recently, there have been numerous security incidents, so I urge everyone to be cautious with their wallets and diversify them across different channels. I’m happy to report that Merlin has not experienced any security issues, but many projects, including decentralized exchanges and DEX on Stacks, have been affected. For instance, one of my friend’s projects, Infini, was hacked for $50 million. Fortunately, they were able to compensate all affected users, and the community has shown strong support.

At this time, it’s critical for users to remain vigilant about their wallets. We have been working with Bybit to monitor suspicious addresses through their API to ensure hackers don’t move funds into Merlin. Before the recent exchange hacks, we observed hackers transferring Bitcoin from other exchanges to Merlin. We have assisted both institutions and law enforcement in tracking these activities and identifying those responsible.

Q: With the BRC-20 and Runes debate resurfacing, and the Chinese community becoming energized around BRC-20, while the Western side focuses on Runes, do you think these two standards will succeed independently or eventually merge? As a builder supporting both standards and able to bridge them on Merlin, how do you view this situation?

Jeff: As I’ve mentioned before, I dislike when things become overly political, with people focusing on which side they prefer. When we were first dealing with BRC-20, ARC-20, and various meta-protocols, people didn't care about those issues. But now, it seems that everyone is losing money, and I want to emphasize that some builders are trying to bridge the gap. For example, I’ve noticed Uniset and Fractal working on initiatives to bring things together, which I think is positive news.

To make inscriptions great again, I believe we need two things: innovation and new narratives. A few new tokens won’t change the situation. Remember last year when people were talking about "BRC-20 is back," but nothing changed. We need true innovation. The second requirement is bringing outsiders into the space. It’s been two years now, and if people haven’t learned about Bitcoin Layer 1 wallets, UTXO, or RBF, they probably won’t learn it next year either. The reality is, many haven’t grasped it because it’s not easy. People don’t have time or patience to learn the intricacies of a culture or ecosystem unless there’s a significant incentive, such as free entry or a reward. That's why tools like UniversalX that help users trade across different chains, like using Solana and BNB, should be implemented in the Bitcoin ecosystem as well. Many users don’t have time to learn about your specific ecosystem unless you make it easy for them to participate.

Q: Why do you think BRC-20 MASK, has picked up so much steam, especially since its launch on March 9th, 2023?

Jeff: I think the rise in popularity can be attributed to several factors. First, many Chinese influencers have been actively sharing about it, and people are growing tired of the typical Solana PvP dynamics. Additionally, the people behind this project has put significant effort into it, which sets it apart from other scammy twitter accounts. They've built their narrative carefully and even had a twitter account registered back in 2009, tweeting about Bitcoin-related topics. So, the community has put in real work, which makes it more likely to gain traction. However, I believe that just one, two, or even five tokens won't change much in the long run.

Q: As someone from the 2012 class, do you remember 2017, when it was projected to be a huge year for Bitcoin, but it actually took until January or February 2018 for the peak? Does this year feel similar to you in any way?

Jeff: Yes, I think this cycle is different. I remember 2017, as it was the first time I used Binance. Before they were founded, they had a meeting with me where they discussed their plans for Binance. At that time, I was the CEO of a company with thousands of employees, and I didn't pay attention, which turned out to be my biggest mistake, missing that opportunity. But anyway, looking at the current cycle, it's unlike any other before.

The ETF situation has changed the dynamic, and people don't feel like it's a bear market. If you compare it to previous bear markets, Bitcoin usually had a sharp drop, followed by all the altcoins going down. But right now, Bitcoin is holding up while many altcoins are losing value. Even if Bitcoin hits $80K, I would still say it's high because in the past, it would have dropped 40-50%, but now it’s more like 10%.

I don’t think this cycle is over yet. People are still adjusting what they learned in the first half of this cycle. At Consensus in Singapore, I spoke with builders who are figuring out how to be successful in the second half, how to solve the issues on centralized exchanges (CEX) and decentralized exchanges (DEX). We’re seeing many cabal draining liquidity from people to make more money. I've noticed many influencers posting about their new Ferraris and expensive watches, which sends a bad signal.

I think most people are focused on solving these problems to save the market. So, I don’t feel like this is the end of the cycle, but definitely the end of the first half. The first half has already brought a lot of changes, and people are understandably worried, as we've never seen this kind of situation before.