$TRUMP triggered expectations of Trump taking office. Which assets may usher in a "American compliance spring"?

With Trump about to once again enter the White House and take office as President of the United States, investors are full of expectations for the future of the crypto market. Since Trump won the presidential election, Bitcoin has surpassed the $100,000 milestone. And Trump’s official $Trump hit a total market value of $82 billion in just two days, soaring 472 times since the opening. Alphas from other American celebrities and politicians emerged. "The president will issue coins" not only gives a boost to the crypto market outlook, but the influx of more liquidity into Solana both on and off the market will also further aggravate the rise of the Solana ecosystem.

During last year’s election campaign, Trump promised that all Bitcoin currently held by the U.S. government and all Bitcoin purchased in the future would be included in the “National Strategic Bitcoin Reserve.” Within an hour of taking office, he will end the government’s crackdown on cryptocurrencies and propose policies that will promote the overall development of cryptocurrencies. If Trump can truly deliver on these promises of support, the United States may greatly accelerate the popularity of cryptocurrency and become the "global cryptocurrency center."

We expect that Trump will prioritize the promotion of the FIT21 Act ("21st Century Technology and Financial Innovation Act"), so that tens of thousands of cryptocurrencies can be almost clearly distinguished as "commodities" and "securities" under the reasonable supervision of the SEC and CFTC. Promote a new round of entrepreneurship and innovation under supervision. Traditional VCs and funds can enter the game under the guarantee of compliance, raising the market value of the entire crypto market to a new level. For us investors, different types of cryptocurrencies have different risk characteristics. The price fluctuations of "commodity" cryptocurrencies may be related to factors such as market demand and supply, while security cryptocurrencies may be affected by factors such as project party operations and market expectations. With clear classification, we can also more accurately assess the risks of the cryptocurrencies we invest in and make more reasonable investment decisions.

1. FIT21: Clarify the attributes of “commodities” and “securities”

From a U.S. regulatory perspective, since 2015, whether cryptocurrency is a "commodity" or a "security" has been debated by the SEC and CFTC.

SEC’s basis for determination: Howey Testing

-Is there any financial investment involved?

-Are there any profit expectations?

-Is there a common subject?

The CFTC bases its judgment on:

-Is it substitutable?

-Is it marketable?

-Is it a certain scarcity?

In the Financial Technology Innovation Act for the 21st Century (FIT21 Act) passed by the U.S. House of Representatives in May this year, a broad digital asset regulatory framework was established by clarifying the regulatory responsibilities of the two regulatory agencies and updating existing securities and commodities laws. . The framework characterizes cryptocurrencies (digital assets) other than stablecoins into two categories:

- "Digital Commodities", exclusively regulated by the CFTC

- "Restricted digital assets" are actually similar to securities, but are not explicitly stated, and are exclusively regulated by the SEC

Hereinafter referred to as "commodities" and "securities".

FIT21 proposes five key elements for distinguishing whether a cryptocurrency is a security or a commodity

• Howey Test : Consistent with the SEC's long-standing judgment, if the purchase of a cryptocurrency is considered an investment and the investor expects to make a profit through the efforts of the entrepreneur or a third party, it is generally considered a security.

• Usage and Consumption : If a cryptocurrency is used primarily as a medium for consuming goods or services, such as a token that can be used to purchase a specific service or product, it may not be classified as a security, but rather as a commodity.

• Degree of decentralization : The bill places special emphasis on the degree of decentralization of the blockchain network. If the network behind a cryptocurrency is highly decentralized, with no central authority controlling the network or “backdoor” to the asset, the asset will be considered a commodity.

• Functional and Technical Characteristics : If a cryptocurrency primarily provides financial returns or allows voting in governance through automated processes on the blockchain, they are likely to be considered securities.

• Market activity : How cryptocurrencies are promoted and sold in the market is also an important factor. If a token is marketed primarily for the expected return on investment, it may be considered a security.

From the perspective of use and consumption, public chains and PoW tokens are more in line with commodity standards . Their common characteristic is that they are primarily used as a medium of exchange or payment method, rather than as investments with the expectation of capital appreciation. While these assets may also be purchased and held speculatively in real markets, they are more likely to be treated as commodities from a design and primary purpose perspective.

The bill mentions, “If no relevant person individually owns or controls more than 20% of the voting rights through relevant persons in the past 12 months, this indicates that the digital asset has a high degree of decentralization.” This usually means that no single entity or small group has control over the operation or decision-making of the asset. From this perspective, a high degree of decentralization is an important factor driving assets to be regarded as commodities, because it reduces the control of a single entity over the value and operation of the assets, consistent with the characteristics of commodities, that is, mainly for exchange or use, while Not for return on investment.

From the perspective of functions and technical characteristics, utility tokens governed by DAO are more in line with the standards of securities . “If a cryptocurrency primarily provides financial returns or allows voting to participate in governance through automated processes on the blockchain, they will be considered securities” because this indicates that investors are expecting to receive benefits from the efforts of third-party enterprises.

There is a paradox, what if a utility token also has a high degree of decentralization in terms of governance? Shouldn't it be defined as a commodity?

The point that should be considered here is, is the holder 's main purpose of holding the asset to obtain economic returns (for example, through asset appreciation or dividends), or is it to use the asset to conduct transactions and other activities on the platform or network?

In the context of the approval of the ETH spot ETF application (form 19 b-4), the definition of ETH is more inclined to functional use, and the nature of its pledge and governance is more to maintain network operation rather than economic returns . Therefore, in the future, L1 digital assets similar to ETH can theoretically be regarded as commodities as long as they meet prerequisites such as the degree of decentralization.

From this perspective, if the governance direction of protocols governed by DAO, including DeFi and L2, is closer to obtaining economic returns or dividends , their positioning is more likely to be defined as securities.

Therefore, based on the FIT21 bill only, we temporarily treat L1 tokens as commodities, and protocol tokens and L2 tokens with DAO governance as securities.

At the same time, we found that this result is basically consistent with the results of the Type 1 (digital commodities) and Type 2 (equity governance tokens) methods proposed by Frax Finance. It will be explained in detail in the third part.

Although passed by the House of Representatives back in May, FIT21 has yet to come to a vote in the Senate. JPMorgan analysts believe that several stalled cryptocurrency bills, including FIT21, may be quickly approved when Trump officially takes office.

With Trump about to enter the White House, FIT21 may be coming soon and will create a stable and effective regulatory environment for the healthy growth of the crypto market. It is necessary to continue to pay attention to the progress of the bill (House of Representatives √ - Senate - President's signature).

The bill clearly defines the concept of decentralization. No one can control the entire blockchain network alone, and no one who owns more than 20% of digital assets or voting rights is likely to be regarded as a "digital commodity." The definition of commodity cryptocurrencies is expected to strengthen the expansion of these cryptocurrencies in the payment field. At the same time, with a high degree of decentralization, more ETFs may come out. The SOL ETF is expected to become the third crypto spot ETF after the ETH ETF, as stated by Geoffrey Kendrick, head of foreign exchange and digital asset research at Standard Chartered Bank, and Anthony Scaramucci, founder and managing partner of Tianqiao Capital. There is also XRP and LTC which have surged recently due to ETF rumors.

As for "restricted digital assets", that is, security tokens, such as DeFi, the FIT21 bill will be more conducive to DeFi compliance and may even trigger "mergers and acquisitions." Whether it is entrepreneurship or traditional finance, investing in DeFi projects will become more convenient . Considering that traditional financial institutions represented by BlackRock have embraced the crypto market in recent years (promoting the listing of ETFs and issuing U.S. debt assets on Ethereum), DeFi is likely to be their key layout area in the next few years. Traditional financial giants As for the fate of crocodiles, mergers and acquisitions may be one of the most convenient options, and any relevant signs, even just the intention of mergers and acquisitions, will trigger a revaluation of the leading DeFi projects.

**2. In-depth analysis of L1, L2, and DeFi. Are they commodities or

securities?**

Bitcoin BTC

The value of commodities depends on labor time, in other words, the realization of labor time; the value of securities depends on the profit margin, in other words, the realization of profit expectations.

A commodity is an economic product, usually a resource, that is completely or substantially substitutable. That is, the market treats instances of the good as equivalent or nearly equivalent, regardless of who produced them.

Bitcoin is the first, most popular, and largest cryptocurrency by market capitalization. The total number of Bitcoins is constant at 21 million. Through the PoW consensus mechanism, the process of "miners" and "mining" and the acquisition of labor products, human labor is condensed, which can be transferred, traded and generated through money as a consideration, corresponding to the persistence of Property actually enjoyed by owners in real life has use value and exchange value.

At the same time, its computing power distribution, node distribution and network hash rate and other indicators continue to rise, making it the most decentralized cryptocurrency. To date, no cryptocurrency can compete with Bitcoin in terms of decentralization.

The core idea of ​​Bitcoin is to establish a decentralized currency payment system that anyone can participate in without government or bank approval or supervision. After more than ten years of development, Bitcoin is now used as legal tender in El Salvador and the Central African Republic. Countries such as the United States, Australia, Canada, and the United Kingdom have allowed Bitcoin to be used for legal payment.

Therefore, Bitcoin is an undoubted “digital commodity” in terms of its degree of decentralization and usage.

Ethereum ETH

As the first blockchain network to support smart contracts, Ethereum is known for its decentralized applications, ERC token standards, security, decentralized features, and innovation in the financial services field, providing developers with the ability to build and Deploying the infrastructure for decentralized applications also promotes the development of popular tracks such as DeFi and GameFi.

Crypto enthusiasts often refer to ETH as "digital oil", why?

First of all, ETH plays the role of basic fuel in the Ethereum network, used to pay transaction fees and serve as the fuel for transactions, that is, Gas. You have to use it to pay for various operations, such as sending transactions, purchasing services or goods, deploying smart contracts, etc. This is similar to how oil is used in the real world as fuel and energy, a fundamental resource that drives a variety of activities and applications. From this perspective, it is more inclined to commodity attributes and is mainly used as a transaction medium or payment method.

As applications on Ethereum continue to increase and network activities become more frequent, such as DeFi and GameFi, the demand for ETH continues to grow. This increase in demand is similar to the increase in demand for oil during industrialization, driving the value of ETH upward. At the same time, DeFi mining and LSDFi derived from ETH can be regarded as interest paid to ETH holders, which is a commodity premium.

It is worth mentioning that from the perspective of additional issuance and burning, the annual issuance rate of Ethereum ETH is even lower than that of Bitcoin BTC. Even in extreme narrative frenzy such as xxFi Summer, the amount of burning may be greater than the amount of additional issuance. deflationary situation. This deflationary characteristic is similar to the scarcity of oil resources.

Since Ethereum switched to a PoS mechanism, the issuance mechanism of ETH has undergone significant changes. PoS rewards users for holding and staking ETH, thereby maintaining network security. This mechanism links newly issued ETH to the security and vitality of the network.

When Ethereum uses the POW mechanism, a block is generated approximately every 14 seconds, and the generator of each block receives a reward of 2 ETH. In fact, the number of new ETHs added each year is approximately 4.5 million (that is, approximately 12,300 ETH per day). release).

When the POS mechanism is adopted, the additional issuance model also changes: that is, the rewards for staking verifiers. The more pledges, the lower the yield, and the less the pledges, the higher the rewards, achieving self-regulation.

As can be seen from the table below, after adopting the POS mechanism, when the annual ETH inflation rate is determined not to be higher than 1.71%, the range of new ETH is roughly 180,000-2.09 million per year (that is, about 496-5,700 per day) ).

In 2021, the Ethereum Foundation introduced the EIP-1559 “burning” mechanism.

EIP-1559 improves the transaction fee structure of Ethereum. The BaseFee (base fee) in each transaction will be completely burned, and the Priority Fee (priority fee) will be paid directly to the miners.

This means that the higher the network usage, the higher the BaseFee that reflects the degree of network congestion, and the more ETH will eventually be burned.

Let us look at the status of burning and supply during the PoW and PoS periods through specific data.

As can be seen from the figure below, EIP-1559 was officially launched in August 2021. Since this time, 4.54 million ETH have been burned, and an additional 7.81 million have been issued, which means the actual number of additional issuances is as high as 781-454 = 3.27 million.

As can be seen from the figure below, in September 2022, Ethereum completed The Merge and converted to the PoS mechanism. Since this time, 1.91 million coins have been burned, and an additional 1.87 million coins have been issued. In fact, after switching to PoS, the issuance and burning status is generally deflationary, about -40,669 coins.

It can be clearly seen from these two sets of data:

1. From the perspective of burning, from August 2021 to September 2022, it was at the early stage of the end of the last bull market. In 11 months, the burning volume was as high as 454-191 = 2.63 million coins.

This time period is at the beginning of the end of the bull market. According to the Gas price in the figure below, Gas remains between 30 and 156 US dollars, and on-chain activities are still frequent. High network usage and high burn.

But it cannot be balanced with the new number of coins during this period, which was as high as 781-187 = 5.94 million.

2. From the perspective of additional issuance, from August 2021 to September 2022, when it was still the PoW consensus mechanism, 5.94 million new coins were issued. However, since the switch to PoS in September 2022, only 1.87 million new coins have been issued.

Therefore, the issuance volume of PoS is much lower than that of PoW mechanism.

With the parallel issuance and burning mechanisms, we expect that when the market’s attention is focused on the Ethereum network and triggers a new wave of phenomenal narrative frenzy similar to DeFi Summer and AI Meme Season, transaction volume will increase significantly. If the transaction volume is large enough, we have a chance to see that the amount of ETH burned will exceed the amount of ETH issued, resulting in a deflationary phenomenon.

However, the current market focus is not on the Ethereum chain. The transaction volume and gas fees are relatively low, the issuance exceeds the burning, and it is in a state of inflation. According to statistics from ETH Burned, in the past seven days, a total of 18,199 ETH were issued and 8,711 were burned, which means that the total amount actually increased by only 9,488, which has controlled the inflation rate well.

As shown in the figure below, Ethereum currently adds about 0.411% per year, but compared with the PoW version of Ethereum 3.716% and Bitcoin 0.83%, it has remained low.

Finally, still from a regulatory perspective, the Ethereum network is highly decentralized and does not have a centralized control entity. Although there is a known founding team, current operations and development mainly rely on the community. Upgrades at the protocol level come directly from proposal governance.

Observing the top 10 ETH holdings, except for the ETH 2.0 pledge contract, which accounts for 46.06% of ETH, the rest of the ETH holdings, whether personal wallet addresses or contract addresses, account for no more than 3%.

According to FIT21's decentralization method, this further supports the commodity attributes of ETH.

Similar to other L1s of ETH, they are all Gas tokens of their own chain, and they are the core of the ecosystem built around it. The token holding address does not exceed 20%, and we all think it is a commodity. But here we need to focus on L2.

ETH L2

The Ethereum ecosystem is already very large, with not only the ecologically prosperous L1, but also more than a hundred L2s with various verification forms such as Rollup, Optimium, zkRollup, etc. Each L2 has its own ecosystem.

The degree of decentralization of L2 block producers is not as important as L1, which means that tokens are not necessary, Optimism and Arbitrum have previously worked well without tokens. ETH has a special function in all L2, that is, the Gas token of all L2 .

Why does L2 use ETH as the Gas token?

The birth of Ethereum L2 is designed to improve Ethereum's scalability and reduce transaction fees, while inheriting Ethereum 's security and data availability .

The first is security. All transactions on L2 ultimately need to be confirmed and stored on L1. The second is data availability. In order for L2 data to be verified by the Ethereum main chain and ensure legitimacy, transaction data on L2 must be published to Ethereum. Both processes require the use of ETH to pay settlement fees and DA fees on Ethereum.

To pay L1, even if L2 's own native token can be paid, the token is essentially converted to ETH first . For example, Starknet is the first L2 among several well-known L2s to plan to support paying Gas with its native token STRK, but it leaves the validator to bear the conversion of STRK <-> ETH and make exchange rate quotes through a third-party oracle.

So what is the significance of the existence of L2’s own native token?

This comes back to the L2 chain itself. Although in terms of security, L2 is as secure as L1. However, L2 usually uses a centralized sequencer node in the execution layer of processing transactions, which is responsible for transaction sorting and packaging . Although this centralized design can provide a better user experience, lower fees and faster transaction confirmation, it also brings potential censorship risks. For example, a centralized sorter can maliciously review user transactions, extract MEV, front-run, etc.

That being the case, how can we decentralize the sorter? The current answer is tokens, decentralized through governance and block rewards. For example, token holders can participate in network governance by voting and determine the operating rules and parameters of the sequencer.

This also explains why the vast majority of L2s issue their own tokens, but most of the actual uses are just to participate in governance.

Therefore, L2's native token is not essentially the Gas of its own chain, nor does it necessarily need to develop an ecosystem around this token (most of which are still ETH). It is only suitable for network governance and staking, and is more likely to be used at the regulatory level. Classified as security attributes.

DeFi

The DeFi Summer of 2020 is a real round of applications blooming, with a large number of new protocols emerging, and old protocols such as UniSwap, Maker, and Aave reaching new highs. Every new chain, every Layer 2 launched, basically has the three big things: Swap, stablecoin, and lending. These three major items are being commercialized in large quantities in every chain.

From a utility perspective, DeFi protocols provide financial services and products that are essentially similar to products in the traditional financial field, and traditional financial products are usually regarded as having security properties.

Moreover, most current DeFi protocols are still in a " partially decentralized " state. Decentralization is only reflected in the application and governance layers, but the underlying code is still controlled by the core development team. This makes DeFi only suitable to be “securities” in FIT21. At the same time, according to the Howey test, DeFi protocol tokens that meet the following conditions: investment, profit expectations, common entities, and profits coming from the efforts of promoters or third parties, should also be defined as securities.

Let's take Maker as an example. Maker is one of the core lending protocols in the DeFi ecosystem and has earned approximately US$25 million in revenue in the past 30 days.

MKR is its governance token and currently has a governance role. MKR holders can participate in the governance of Maker and vote on changes and updates to the protocol, including adding new types of mortgage debt positions, modifying existing types of mortgage debt positions, modifying sensitive parameters, etc.

Here we focus on analyzing the token mechanism of MKR.

Maker manages and adjusts the supply of MKR tokens through its unique stock buyback model. The core of this model is a mechanism called the "Surplus Buffer", which is the primary destination for all revenue from the Maker protocol. The primary purpose of the surplus buffer is to provide a first line of defense against loan shortfalls.

When a loan gap occurs, funds from the surplus buffer will first be used to cover the gap. The Maker protocol will cover the debt by issuing additional MKR tokens only if the surplus buffer is insufficient to cover the shortfall. (There is currently no additional issuance data on the entire network, but the average daily transaction volume on the chain is as high as 120 million US dollars)

It is worth noting that the surplus buffer has a set upper limit. When the funds in the surplus buffer exceed this upper limit, additional Dai will be used to repurchase MKR tokens, and the repurchased MKR tokens will be destroyed before June 2023. This mechanism is designed to reduce the total supply of MKR, thus providing value to existing MKR holders.

So far, 22,368.96 MKR tokens have been repurchased and burned, accounting for 2.237% of the total supply.

However, this mechanism will be replaced by the newly launched smart burning engine in July 2023. When the protocol surplus funds exceed $50 million, Maker will automatically repurchase MKR and burn it. Otherwise, it will be accumulated from Uniswap regularly. LP (replacing the previous direct repurchase and destruction). Since July 2023, more than 22,335.1 MKR (approximately US$35.19 million) have been repurchased and burned, accounting for approximately 2.23% of the total, with an average daily burning volume of 40.31 MKR (approximately US$63,500).

A total of 22,368 MKRs were destroyed before June 2023, but after the launch of the new combustion engine in July 2023, a similar number of 22,335 MKRs were destroyed in just 18 months. However, the accelerated burning rate is not due to the mechanism, but to the RWA narrative that emerged in late 2023. Maker officially began to implement RWA in early 2023 and introduced U.S. debt. At that time, the revenue from the RWA part already accounted for more than half of Maker's total revenue.

Although MKR has a burning mechanism in paying stability fees to reduce the circulating supply through destruction, giving it a certain degree of scarcity , it has a chance to be classified as a commodity only based on the judgment of the CFTC.

But considering the protocol level, even though current DeFi protocols usually use agency contracts or multi-signature wallets to upgrade the protocol to minimize centralization issues, the management authority of smart contracts is still controlled by a few people. At the same time, because token holders have governance rights, DeFi protocol tokens such as MKR are more likely to be classified as securities according to FIT21.

Here we will focus on Uniswap’s native token UNI.

Whether it is transaction volume, user base, or technological innovation, Uniswap has always occupied an unshakable leadership position in the DeFi field.

Two months ago, Uniswap Labs officially announced the launch of the Ethereum L2 network Unichain based on OP Stack, which is scheduled to be launched on the mainnet in January 2025. The launch of Unichain is not only a technological innovation, but also brings new usage scenarios and economic value to the UNI token, bringing about changes from governance tools to productive assets.

First of all, UNI tokens will become the core of the Unichain network, because in order to become a validator, the prerequisite is to pledge UNI tokens. Unichain's verification network adopts a unique economic model that encourages users to stake UNI tokens to participate in network governance and income distribution.

This mechanism is equivalent to adding the practical function of staking to UNI, making it no longer just a governance token. While staking, users can not only help maintain network stability, but also obtain actual benefits through transaction fees and block rewards.

Whether it is the previous protocol governance or the current upgrade to an ETH L2, UNI is more inclined to securities attributes.

Jito is the leading LSD protocol in the Solana ecosystem, and its TVL has been steadily reaching record highs in 2024. In the recent Meme craze, Jito’s MEV earnings captured by its memory pool have made its LST token jitoSOL’s annual interest rate as high as 8%, far exceeding stETH’s 3%. That is, the greater the Meme craze on Solana, the higher the APY of jitoSOL.

As the governance token of Jito, JTO has governance voting, MEV dividends, staking and other uses. This is similar to shareholder rights in traditional securities and may be more inclined to security attributes.

3. Decoding the unique classification method of the founder of FXS

Sam, the founder of the old algorithmic stablecoin Frax Finance, proposed the concepts of type 1 and type 2. He believes that L1 Token is a Type 1 category, and other than all dapp Token and L2 Token are Type 2 category.

This is basically consistent with the conclusion drawn from our above study.

His judgment logic is:

L1 tokens (ETH, SOL, NEAR, TRX, etc.) are the "sovereign scarce assets" of their own chain economies. They are the most liquid assets on the chain. Dapps accumulate it, use it to build DeFi, and incentivize liquidity, making it a safe-haven asset in crises. In fact, if you think about it, it is similar to the usage and consumption in FIT21. L1 tokens are mainly used as a medium for consumer goods or services. Users use L1 tokens to pay or purchase services, and the protocol builds services around L1 tokens. . L1 tokens are the “core tokens” of the on-chain economy.

Dapps issue their tokens to L1 asset holders through liquidity, ICO, DeFi, airdrops, and other innovative forms, thereby making L1 assets “interest-bearing.”

The dapp token represents the actual human labor/GDP in that economy. L1 tokens generate interest on the labor of the people building the on-chain economy.

L2 tokens are generally not a sovereign scarce asset in their digital economy, even though they have half the ingredients: an on-chain economy and vibrant builders. They belong to "type 2". In fact, some L2s don’t even have tokens.

SOL is doing very well, not because TVL has gone up or because people expect billions of dollars of SOL to be burned/received in some distant year. ETH has had billions of dollars in revenue/burn and it 's not performing any better than SOL. The real reason why SOL is rising is because the Solana on-chain economy uses it in liquidity pools, memecoin transactions, DeFi, and you need to use it to participate in the Solana network state.

Sam finally expressed his vision to make FXS, which should belong to type 2, cross over to type 1. How will this be achieved?

FXS has been Frax Finance’s governance token for the past four years.

Frax Finance launched the Ethereum L2 blockchain Fraxtal in February 2024. It is very similar to the Unichain we mentioned above. Only by staking FXS can you become a verifier of the chain. In our conclusion and that of Sam, this still falls into the category of type 2, or securities.

With Fraxtal, FXS actually has its own on-chain economy. But there is still a lack of an opportunity to become a "core asset" of this economy.

In February 2025, FXS will become Fraxtal's Gas token through the Fraxtal hard fork and be renamed FRAX.

This approach makes FXS become type 1, FSX becomes the core asset of this on-chain economy, and all dapps must be built around FXS. Compare it to Uniswap, which also makes its own chain. Even with Unichain, the core is still built around ETH, not UNI.

Frax Burn Engine

It is worth paying attention to the Frax Burn Engine, a burning mechanism that will be launched in the future. The figure below shows the concept of the FRAX burning engine. In addition to serving as Fraxtal's Gas, the FRAX token will also be used to support other infrastructure services in the ecosystem.

• Frax Name Service, as well as Future Services, hint at some official agreement to burn all/part of the revenue in the form of FRAX.

• EIP-1559 is Ethereum’s burning mechanism, and FRAX may adopt a similar mechanism to reduce supply by burning transaction fees.

The figure below shows the relationship between the burning and issuance of FRAX tokens. There are three main variables: Burn, Supply and Emissions.

• The red line represents the burning rate, which gradually increases over time. This means that as the ecosystem develops, a portion of FRAX tokens will be burned periodically, reducing the number of tokens in circulation.

• The yellow line represents supply, which reaches a peak and then begins to decline. This corresponds to an increase in the burn rate, indicating that the burn mechanism helps control the total supply of tokens and prevent inflation.

• The green line represents the issuance rate, which is higher initially and then gradually decreases. This may be related to the issuance of new tokens, which will decrease as the ecosystem matures.

• The "DEFLATIONARY FRAX" marked in the figure indicates that the FRAX token has deflationary properties. Deflation means that over time, the number of tokens in circulation decreases, which usually causes the value of individual tokens to rise, thereby increasing the wealth of holders.

• The dotted line in the graph represents the immutable hard cap, which means there is a fixed upper limit on the total supply of FRAX tokens. This design helps enhance the scarcity of the token, potentially increasing its value

**4. “Containing beauty” may become a new trend: Which assets will usher

in the “spring of US compliance”?**

In the months following the U.S. election, XRP experienced significant gains following Solana’s lead. Recently, Ripple President Monica Long said in an interview that Ripple’s leadership has been in direct contact with the incoming U.S. government and that she expects an XRP spot ETF to be approved “soon.” LTC was closely followed, with Canary Capital recently filing an application for a Litecoin ETF with the SEC, and LTC prices soaring. XRP and LTC have become the most favored assets of American capital after Solana.

In anticipation of the passage of FIT21, traditional American VCs/funds may vigorously purchase tokens related to American concepts. So, from this perspective, which tokens will become popular in the eyes of American capital after SOL, XRP and LTC?

We have listed the top 100 tokens with protocol income in the past year. You can select the most suitable tokens based on protocol income and "US" content.

In terms of L1, the most consistent tokens are Avalanche (AVAX) and Near Protocol (NEAR). Since L1 is a commodity, it has the opportunity to be applied to become an ETF.

• Avalanche ranks 24th in terms of protocol revenue, and its development team, Ava Labs, is based in the United States and has recently hinted at opening dialogue with the new U.S. administration. At the same time, Avalanche is extremely active in cooperation with traditional institutions, and has cooperated with JPMorgan Chase Onxy, Franklin Templeton and Citibank to create tokenized funds. American VCs such as a16z, Polygon, Galaxy, and Dragonfly invested in it in the early stages;

• Near ranks 57th in terms of protocol revenue and has received early investment from American VCs such as a16z, Coinbase, Pantera, and Electric.

On the L2 side, the most consistent tokens are the well-worn Arbitrum (ARB) and Optimism (OP). The protocol income is distributed among 30-50 people. The team members are mainly located in the United States, and they have received investment from American VCs such as a16z and DCG.

There are mostly tokens that meet the requirements in DeFi. These DeFi protocols contain a relatively high amount of "U.S." and are more or less ambiguous with American institutions. They are Maker (MKR), Uniswap (UNI), Aave (AAVE), Ethena (ENA), Ondo (ONDO), Aerodrome (AERO) and Curve (CRV).

• Maker ranks 8th in terms of protocol revenue, with revenue as high as US$168 million in the past year, but only ranks 85th in total token market value. In addition to being led by an American team, American VCs such as Pantera and a16z also invested in it in the early stages.

• Uniswap ranks 9th in terms of protocol revenue, with revenue reaching $121 million in the past year. Uniswap was created by American developer Hayden Adams and received the SEC's Wells Notice. There are also investments from American VCs such as Pantera and a16z.

• Aave and Ethena are also far ahead in terms of protocol revenue, with 14 and 15 respectively. They were recently purchased by the Trump family project World Liberty.

• As the only RWA protocol in the top 100, Ondo is famous for its partnership with BlackRock’s BUIDL fund. It was recently purchased by the Trump family project World Liberty, and has also received investment from American VCs such as Coinbase, Tiger Global, and GoldenTree.

• Cruve and Aerodrome, which have recently partnered with BlackRock, are also worthy of attention.