The crypto market will usher in a turning point in 2026, with the rise of fundamental tokens. Projects such as Hyperliquid and Ethena solve the "lemon market" problem, and opportunities in AI reasoning, RWA and other tracks are highlighted. Choose good assets, lengthen the cycle, and hold on to them amid the noise.
Author: Kyle, DefiLlama researcher
Compiled by: Jiahuan, ChainCatcher
In the 2026 cycle, the market may finally start favoring tokens with fundamental support. This judgment is not new. As early as the birth of the first smart contract, the earliest DeFi supporters envisioned moving financial-institution-facing infrastructure onto the blockchain. However, cycle after cycle proved that the timing was still too early, and what market participants wanted was simply price increases.
Especially in the 2025 cycle, many market participants believed we had reached a "turning point": Trump had just been elected, Gary Gensler had left office, and the White House even had a "crypto czar." But what was expected did not happen.
Instead, what we got was the Trump token draining billions of dollars from the crypto market, digital asset treasury companies (DATs) driving the market into a "double top" pattern of two rallies and pullbacks, and the final blow that crushed the market on October 10: the largest liquidation event in history, which occurred almost without warning.
At the same time, the stock market was rising, especially semiconductor and memory chip stocks; the S&P index kept hitting record highs, and overall market sentiment toward the economy was relatively optimistic. As a result, many crypto industry veterans left this market, and I was one of them.
Looking back, depressed token prices, a wave of project shutdowns, continuous DeFi hacks, and the departure of many asset managers clearly marked the 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 enter," but what we got in the end was a president harvesting the market through a token, and crypto people putting on the cloak of traditional finance, using Nasdaq-listed holding companies to sell assets to another group of crypto people.
Therefore, I believe it is precisely this experience that leaves market participants still carrying past trauma (PTSD) when facing today's crypto market. Fortunately, I had several good friends who persuaded me to return to the crypto market. At the time, I wrote this:
After the bull market began, I wrote this again:
So, I think that, to some extent, we all came too early back then. Crypto market veterans have experienced too much disappointment and find it hard to build confidence again. From the market's perspective, at the start of every rally, it must advance amid doubt and worry, climbing over this "wall of worry."
But at the end of the tunnel is the dream we have been waiting for, the golden road, the last frontier yet to be developed. To be honest, the era we are familiar with is ending, and a new era is beginning. Frankly, I believe the "internet capital markets" have already begun to take shape. The focus of the next few cycles will be how traditional financial markets combine with internet-native assets that carry equity-like rights.
Of course, none of this is new. I am quite sure I said something similar in 2025 as well. Since the birth of smart contracts, we have been steadily moving in this direction. It has always been more a matter of timing than of growth. All indicators point to the same thing: even if prices have not risen, actual usage of crypto technology continues to grow.
Investment strategy: choose the right assets, extend the time horizon
However, as said above, the problem is more about timing than a lack of real use cases. Therefore, as an investor entering this market, the first thing I want to emphasize is: extend your investment horizon and prepare for more violent volatility than before.
At times like this, the investment experience accumulated in traditional stock markets over the past year is very helpful. Many people on X know that the whole world is increasingly becoming a speculative game. Various markets are gradually being dominated by speculative asset bubbles, and the value investing approach of the Benjamin Graham era, which focused on fundamentals and finding undervalued assets, is receding into the background.
On this point, I strongly recommend reading 0xSmac's article: "Let The Bubble Wash Over You."
In such a market, more and more macro news affects price action. Almost every week brings new headlines: Trump reaching a deal with Iran, the 10-year Treasury yield rising to "levels not seen since 1990," a currency crisis, likely related to the yen, pessimistic views on AI's outlook or accelerationist claims, and geopolitical uncertainty.
Therefore, extending the investment horizon and reducing the interference of short-term noise is worthwhile. The market has always had a lot of noise, and there will be no less in the future, but this strategy has already achieved good results in the stock market. I believe it will also become the main strategy for future crypto investing. Hyperliquid's HYPE is the first token case that truly gives you a chance to "profit through dollar-cost averaging."
Why are most tokens unsuitable for long-term investment?
In the crypto market, the importance of asset selection cannot be overstated. Crypto market participants have long held a underlying belief: "Everything is a scam, everything will eventually go to zero, so you have to sell." For most of the crypto industry's history, this judgment was indeed correct. But Hyperliquid opened a new path: some assets really can be continuously invested in and generate profits.
This is more important than many people realize, because it will significantly change how the market operates. Many altcoins are unsuitable for long-term investment for a simple reason: no one is willing to keep dollar-cost averaging into an asset that could fall 90%. In the stock market, time is on your side, because the companies behind the stocks are expected to keep growing over time. This is the logic behind continuously buying the S&P index: the U.S. economy keeps growing, so you keep buying.
Therefore, when businesses capable of sustained growth emerge in the crypto industry, digital assets also begin to have a real foundation suitable for long-term investment. This creates a positive feedback loop: business growth → attracting investment capital → price increase → driving further business growth. This is exactly how internet capital markets form.
In addition, there are some structural reasons why the crypto market has long been in a "lemons market" state, that is, a market where buyers find it difficult to distinguish good from bad and low-quality projects crowd out high-quality ones:
Tokens with low float and high fully diluted valuation (FDV), accompanied by massive unlocks and selling pressure, with new supply continuously flowing into the market over several years. Even if the project itself is doing well, there is always a group of sellers waiting to sell.
Inability to generate profit. The product does not truly meet market demand, so it cannot sustain growth and can only rely on short-term narratives suited to bubble conditions, here today and gone tomorrow.
The interests of token holders and company shareholders are not aligned. The value created by the business goes to company shareholders, and the token is basically just a marketing tool. Holding the token does not mean you truly have the right to share in the money the business earns.
Lack of disclosure and lack of accountability. In the stock market, companies must disclose revenue, insider stock sales, and risks, and fraud has consequences. In the crypto market, insiders, VCs, and market makers hold the unlock schedules, OTC deals, and real data. Teams can dump tokens, fake metrics, or quietly exit, and investors basically have no way to hold them accountable. When buyers cannot distinguish good projects from bad ones, they default to assuming all projects are bad.
What conditions must a good token meet?
As these problems have accumulated to today, a turning point finally seems to have arrived: the crypto market is beginning to find ways to solve the "lemons market" problem. Most market participants have imposed stricter requirements on investment targets, which in turn gives project founders and operators clear feedback on what to change. For example:
The Ethena team did the following things:
Buy back tokens held by some early investors who had sold their tokens.
Align the interests of token holders and company shareholders: the protocol's intellectual property and the value it creates are owned by the foundation and governed by token holders.
Use revenue for buybacks: propose a governance proposal to use protocol revenue to automatically buy back ENA tokens.
Cancel monthly VC unlocks: the Ethena Foundation and major investors have agreed to release investor tokens that have not yet completed vesting, ending the original monthly unlock arrangement, thereby eliminating the continuous pressure from future monthly unlocks.
The market rewarded Ethena accordingly: ENA rose 95% over the past 14 days. Thus, a positive feedback loop was formed.
So, the approach to asset selection is clear: buy projects that have already solved the "lemons market" problem, and avoid those that have not. Below is my screening checklist. These are not absolute rules, but from my observation, a team should meet at least most of them, and preferably all of them:Enable token holders to share in the value created by the business. There are some interesting attempts in the market. As long as the benefit arrangements are reasonable, investors can also accept the coexistence of equity in a project. Venice is a good example. At a minimum, market participants need to see two things: A) the team values the token; B) the team will not transfer value that should belong to the token to company shareholders.
The product truly meets market demand and has profitability. Sustained growth and profitability are the key to attracting capital to a project. Intuitively, people only want to buy assets that will rise, and price increases come either from multiple expansion or from earnings growth. For a business, valuation multiples are mostly outside its control; they depend on market sentiment, narrative, and interest rates. Sustained earnings growth is the foundation for long-term value accumulation and compounding. Market narratives rotate quickly, but growing earnings can give people a reason to keep holding.
Token supply. There is no one-size-fits-all answer here for all projects. Some tokens have very little potential selling pressure but perform poorly; some have certain potential selling pressure but perform well instead. Overall, however, excessive potential selling pressure is not a good thing, because it limits upside. A certain degree of potential selling pressure seems acceptable. The best teams go further and proactively address this issue, such as Ethena buying back tokens held by investors.
There are also some bonus points:
Buybacks. I do not think the amount of the buyback matters that much, unless you are like Hyperliquid and the buyback scale is very large. For most protocols, reinvesting that money into the business may be better. Buybacks mainly signal to market participants that the founders value the token. Buybacks need the right intensity: too small, and the money is spent without having an effect; too large, and it crowds out the capital needed for business growth. Moreover, buybacks alone are basically of little value. The market can usually see through these issues.
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 use and value. Public companies already do these things, such as publishing quarterly earnings reports and holding investor conference calls. Since you want investors to entrust their capital to you, you should provide corresponding disclosure and communication.
There may be some factors I have 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 beginning to improve 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 beginning to have long-term holding value, rather than just being trading instruments. But the premise is that you hold the right assets. There are still a large number of low-quality projects in the market, so asset selection is more important than ever. However, for people with judgment, the strategy is simple:
Buy good assets, keep holding through the noise, and let time do its work.
Finding investment opportunities: first look at the sector, then the team
Now comes the most exciting part: in my view, which dishes in this buffet are most worth choosing. There is a pile of sashimi on the table, one piece of which is bluefin tuna cheek meat, while the rest is just ordinary tuna sold at a gas station. My task is to identify which piece is the bluefin tuna.
It is easier to first look at the sector, then at the specific project. From an investment theme perspective, only a few sectors have proven that their products truly meet market demand. Therefore, below is my tiered ranking. I have not included sectors that currently have no tokens tradable in the secondary market and cannot be directly invested in, such as prediction markets.
In addition, I have written a separate section on my views on the onchain market. Simply put, I think that aside from a few good tokens, other onchain projects are not even worth spending time on. I have already written about this in the tweet below, but I will repeat it again so everyone does not miss it:
Simply put, what we are seeing onchain is the impact of AI-assisted software development. AI is very good for projects that are small, narrowly positioned, and able to develop and launch quickly, but it is much harder to roll out across an entire large enterprise. Therefore, a strange contrast has emerged: large enterprises have not yet shown obvious productivity gains, while small startup teams have already used AI to launch products quickly. The result is another K-shaped divergence: the productivity gains obtained by different groups are becoming increasingly uneven.
Onchain, this has made the "lemons market" problem more severe than ever. In the past, you could at least say, "Their website looks good; they clearly put thought into it." Now, creating this kind of surface-level polish costs almost nothing. Every token with a market cap below $10 million looks exquisitely packaged on the surface, and whether there is a real team or a scammer behind it is almost impossible to distinguish. Ideas have also become cheap. After Orbio hit an all-time high, we saw 20 different inference markets pop up, and very likely another 200 will appear afterward, because anyone can hand Orbio's website to AI and say, "Make me a copy."
Therefore, the advantage of onchain investing can no longer come only from the software itself; it must come from the team: who they are and how well they can deliver. The ability and character of the founders determine everything. This is also why I think that investing in other tokens that already have a certain scale is now much easier than hunting for small coins onchain. For a project to reach a certain market cap, it has already proven itself to some extent. Studying 100 tokens with a market cap above $1 billion to find the good ones is much easier than studying 10,000 tokens with a market cap below $10 million, where a "good idea" launches every hour.
Six key sectors and investment targets
AI inference: real demand from outside the crypto industry
AI inference refers to the process by which a trained model handles requests and generates results. It is the only crypto sector that truly has 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 with publicly available model parameters) continue to improve in capability and decline in cost, providing AI services also becomes cheaper, allowing businesses to compete with large AI companies on price and privacy.
This is also an investment theme that ordinary retail investors can understand as soon as they hear it. Everyone is using AI, and the explosive growth shown by some related assets also indicates that the products here truly meet market demand. I believe that current inference demand is reflecting the "Jevons paradox": lower costs stimulate more usage, which in turn drives total demand growth. All the data points to this. The data also shows that people are shifting from the most frontier models to other types of AI, including open-source models.
Although open-source models may face regulatory scrutiny, there is no doubt that many models have already become general enough to meet 99% of work needs. So, honestly, people do not necessarily have to use the most frontier models. People want to use AI, and they do not care which specific model is used.
Even I can hardly believe I am saying this: connecting these factors, if you want to invest in a good AI product while betting on growth in inference demand, then the only directly investable option is actually crypto tokens. Semiconductors will benefit indirectly from demand growth, but this expectation is already reflected in prices. Anthropic and OpenAI are not yet public. You can certainly go long Zhipu, but the Hong Kong market cannot give the same valuation premium. At the same time, some tokens allow you to directly participate in this investment theme. The crypto market happens to provide one of the best tools for betting on growth in inference demand.
Top picks: VVV and ORBIO Other options: NEAR and CHIP
Recommended reading: this report by galaxy.
Tokenized stocks and RWA: how large is the market opportunity?
This is currently the largest opportunity among all directions, for a simple reason: its current scale is still too small. The United States has used stablecoins to expand the global use of the dollar, and the stablecoin market has reached about $300 billion. The scale of tokenized stocks is only about $2.5 billion, while the size of the U.S. stock market is $69 trillion. Regulation is opening the door, a batch of large IPOs is coming, and at the same time, there is also huge demand in countries where investing in U.S. stocks is difficult and inconvenient.
Top pick: BP
Recommended reading: this report by frictionless.capital.
DAT: opportunities from discounts and fundamental improvement
For this part, I will directly quote Evan. The following content comes from Evan's article:
I think good opportunities that fit this investment logic should have the following characteristics:
A large discount relative to the value of the assets held, with mNAV at around 0.15x at the summer low.
In related sectors such as stablecoins and perpetual contracts, with a first-class team that continues to ship products even after the relevant token price has fallen more than 95% from its all-time high.In the coming years, as token vesting and unlock periods end, fundamentals will improve. For example, USDe circulation will increase, basis trade yields will recover, the strategy of hedging spot against derivatives to capture spreads and funding rate yields will expand to equity perpetual contracts, and more institutional partnerships will drive growth in total value locked (TVL) and protocol revenue.
Ultimately, I believe the DAT companies in the Ethena ecosystem best fit these criteria. Since then, new digital banking products have launched, and USDe circulation has increased by more than $1 billion.
Top pick: USDE
Privacy sector: Watch ZEC
For this section, let me borrow Lee Goon Wang's style. Privacy is not my area of expertise, and I don't hold a single ZEC, so I'll just include a few links to Taiki's videos here.
Top pick: ZEC
Recommend watching the videos.
Perpetual Contract DEX: Growth Opportunities as It Goes Mainstream
Perpetual contract decentralized exchanges (DEXs) are the sector in the entire crypto industry with the strongest product-market fit: real users, real trading volume, and real fee revenue. It is placed in Tier A rather than Tier S simply because the market already knows this. Hyperliquid's success has already been priced into valuations, and competition is heating up. The next phase of growth will come from perpetual contracts going mainstream through apps like Robinhood and Interactive Brokers (IBKR), driving the entire market to expand.
Top picks: LIT / HYPE
Stablecoins: How to Participate in Market Growth?
Stablecoins are the most successful product in the crypto industry to date, and they will continue to grow. It is placed in Tier A because the biggest winners, Tether and Circle, do not have tokens that can be bought on-chain to share in their business growth, so there are few ways to directly invest in this sector's growth. Ethena is a rare exception: it is a stablecoin issuer that also has a token allowing holders to share in the business growth returns.
Top pick: USDE
I believe crypto assets have finally regained their investment value. Low-quality projects are slowly being distinguished from real businesses, and the market is finally starting to reward teams that do serious work. Veterans still carry the trauma of the past, but at the beginning of every real bull market, people have to face this kind of doubt and worry.
Extend your investment horizon, prepare to withstand greater volatility, and rigorously screen your holdings. The investment advantage in this cycle is not about finding the next get-rich-quick opportunity in some token written by someone over a weekend with AI and valued at under $10 million, but about finding projects with real revenue, where token holders can share in business value, and with reliable teams, and still having the confidence to keep holding when others get washed out by the volatility brought on by the latest news.
Buy good assets, keep holding through the noise, and let time do its work.