Dialogue with Fejau: The Next Round of the Bull Market for Digital Assets is Finally Here

Policy loosening, what are institutions really interested in?

Source: The Rollup

Compiled by: Blockchain Simplified

The sudden implementation of SECToken's innovation exemption is officially ending years of crypto "financial nihilism."

As meaningless governance tokens accelerate their clearance, a trillion-dollar migration of on-chain assets has begun. However, beneath the revelry, dark currents are stirring: 75% of tokens are destined to become cannon fodder, while how to reconstruct the valuation of the remaining 25% that truly possess cash flow as "on-chain equity" remains a question. In the face of a global fiat currency devaluation led by fiscal policies and unusual movements in U.S. Treasuries, top institutions have already shifted to an extremely anti-fragile barbell strategy of "real income protocols + hard currency against quantum storage."

Standing at the turning point of the complete convergence of crypto and traditional finance, understanding this underlying capital revaluation and relay logic will determine the direction of your wealth in the coming years.

1. Regulatory Breakthrough and the Wave of Tokenization: The Underlying Reconstruction to Escape "Financial Nihilism"

Host: Welcome back to "Tokenization Tower." Today, we have Felix Javin, the content head of Blockworks, and our macro advisor.

The industry dynamics in the past 24 hours have been nothing short of crazy. The SEC has released a policy for the innovation exemption of tokenization. Before the official release of the document, the market had already caught wind of it, and it seems that many traditional funds will accelerate the process of asset tokenization and on-chain transition. The super narrative of tokenization is speeding up comprehensively. I would like to hear your in-depth analysis of this new regulatory framework and how investors should reposition themselves in this new phase.

Felix Javin: Clarifying regulatory boundaries is a qualitative change for this industry.

Since 2020, under the regulatory period led by Gary Gensler, the SEC has generally adopted a hardline enforcement logic of "replacing rules with litigation and cease-and-desist orders." No one in the crypto industry knows where the red line is, and the resistance to compliance innovation is immense. Over the past decade, the industry has built robust blockchain networks and decentralized underlying facilities, but as soon as a business touches on securities attributes, entrepreneurial teams face extremely high unknown legal risks. For example, top protocols like Uniswap may face sudden Wells notices at any time. This state of "dancing with shackles" has greatly suppressed genuine financial engineering innovation.

This is also the core reason why the market has been mired in "financial nihilism" for the past five years, with speculative funds flooding into meme coins. Speculative trading has its market position, but for a long time, the industry has been forced to halt its native exploration of the financial underpinnings, and the vast majority of protocols can only issue "pure governance tokens" that lack substantive cash flow rights.

With the new SEC and CFTC policy shift, the crypto regulatory sandbox mechanism has officially been put on the agenda, and the standards for fundraising limits and disclosure exemptions have begun to clarify. Coupled with the potential advancement of the Clarity Act in the future, the industry finally has a clear compliance action guide. The high efficiency, round-the-clock transparency, and instant settlement characteristics of blockchain networks can finally be fearlessly invested in real financial business experiments.

Previously, apart from a few targets with real protocol income and buyback logic, I held a long-term cautious attitude towards the vast majority of governance tokens with no value capture mechanisms. But now that compliance channels are open, assets can truly solidify value and feedback to token holders, the entire market's underlying assessment framework must be completely reset and reconstructed.

Host: Looking back at our discussion at the Brooklyn Permissionless event last year, the "revenue narrative" and whether "staking is dead" sparked widespread industry discussion. At that time, the market pain point was the high inflation and low actual returns prevalent in public chain networks, and investors were generally questioning whether there truly existed investable business entities in the crypto market that could generate cash flow.

If we break down the trend of tokenization into second and third-order effects: protocols like Aave, Uniswap, Morpho, Hyperliquid, Lighter, and Aerodrome were previously seen as the core architecture of the crypto-native economy. However, with the implementation of regulatory exemptions, this paradigm is being completely restructured. They are transforming into the settlement cornerstone of the future trillion-dollar global on-chain financial system. This scale is not limited to the several trillion dollars of total crypto market capitalization or the hundreds of billions of dollars of DeFi TVL, but points to a massive pool of tens of trillions linked to traditional assets. This reset has profound implications for the actual impact on on-chain underlying protocols.

Felix Javin: Taking on-chain borrowing as an example. The reason the 2008 global financial crisis caused systemic collapse lies in the black-box operations between financial institutions: no party in the market could accurately penetrate the true leverage, underlying asset quality, and the real depth of assets being multilayered and re-mortgaged.

In decentralized borrowing protocols represented by Aave and Morpho, the counterparty risks of all liquidity pools, collateral health, and real-time liquidation lines are completely transparent around the clock. If Wall Street had this level of transparency back then, the impact range of the systemic crisis would have been significantly reduced, and market participants could have precisely isolated bad debts instead of treating the entire balance sheet as toxic assets and selling them off in panic due to liquidity fears.

This underlying logic's penetration into traditional finance is highly disruptive. The market is currently enthusiastically discussing tokenized stocks, which can solve the barrier issue for retail investors in immature markets to access core assets like U.S. stocks. However, what is even more explosive is the long tail and structurally complex traditional financial assets—such as government bonds and structured derivatives that include different maturities, complex duration structures, and yield curves. Such targets often suffer from liquidity fragmentation and delayed price discovery mechanisms in traditional over-the-counter markets. If blockchain networks can achieve instant delivery, frictionless settlement, and comprehensive leverage penetration monitoring across the system, the productivity unleashed by tokenization in this field will be immeasurable.

2. From Mindless Buybacks to Corporate Finance: The Maturity Watershed of Protocol Value Capture

Host: An open, transparent, and round-the-clock borderless market is forming, which is precisely the core vision that Satoshi Nakamoto proposed in the Bitcoin white paper after the 2008 banking crisis. Traditional institutional allocators have begun to recognize the clearing and settlement advantages of on-chain infrastructure. But the reality is: in the face of this wave, what exactly will institutional funds buy?

If a giant asset management firm tokenizes its fund shares through Securitize and deploys them in the Morpho Vault, does that mean investors only need to buy Morpho's governance token accordingly? Is this transmission path really that direct? Where does the actual allocation logic of institutional investors fall?

Felix Javin: The large-scale onboarding of assets onto the chain has become a foregone conclusion, but the inflow of capital onto the chain does not equate to the appreciation of all associated tokens.

We are still in a chaotic transition period. Approximately 75% of crypto tokens lack any binding value capture relationship with this wave of asset tokenization, which is a cognitive blind spot for many retail investors. Only the remaining 25% of tokens with substantive income capabilities—i.e., those with protocol dividends, buybacks, or direct mapping of underlying cash flows—are being assigned a certain liquidity premium by institutions and smart money.

In the previous regulatory cycle, entrepreneurial teams generally adopted a fragmented dual structure of "off-chain company equity and on-chain non-revenue tokens" to avoid securities compliance risks, resulting in the commercial benefits earned by protocols remaining within the corporate entity, and token holders unable to enjoy any economic dividends. With the regulatory breakthrough, this dual structure is rapidly being cleared and accelerated in the market.

Taking Morpho's single structured advancement and Ethena's recent push for value return and token buyback governance as examples, the capital market is beginning to give strong positive pricing to protocols with clear economic models and transparent financial disclosures. However, once the market crosses the rough stage of "buying in when there is income," the next core proposition is: how to assign a reasonable valuation multiple to the free cash flow of these on-chain protocols?

This must return to the foundational logic of modern corporate finance (Corporate Finance 101): when a protocol or enterprise generates retained earnings, what is the optimal capital allocation path—full dividends, open market buybacks, or reinvesting funds into business development and ecosystem expansion?

The crypto industry has previously overlooked this dynamic game of capital allocation. For example, Hyperliquid chooses to use nearly all platform fees for open market buybacks and destruction to boost token prices, while projects like Pump retain greater flexibility in capital allocation.

From the perspective of mature investors, if a protocol has a strong business moat, investors prefer the management team to possess professional and rational capital reallocation capabilities. Blindly buying back 99% of protocol fees is not necessarily the optimal solution. If these profits are retained for developing new financial derivatives, recruiting core R&D personnel, or building liquidity ecosystems, thus exchanging for future dozens or even hundreds of times market cap growth, this capital efficiency is clearly higher than the short-sighted direct buyback. As Morpho's founder Paul adheres to the philosophy: the pursuit is exponential expansion of the protocol over the long cycle, rather than splitting profits entirely in the early stages to satisfy short-term fluctuations in the secondary market.

Host: Hyperliquid's flywheel effect has made it a model that various protocols are eager to imitate, but this mechanism clearly has its lifecycle limitations. In traditional secondary markets, if the management of a high-growth company chooses to reduce the profit distribution ratio from 99% to 90%, since the market has already fully discounted the full buyback, its asset valuation often suffers a severe shock.

Executing buybacks at $90 versus executing buybacks at $9 is a completely different concept for capital return rates. As on-chain protocols begin to require management to make more complex discretionary decisions, the industry is transitioning from rough narrative speculation to mature financial stratification: some protocols possess continuous blood generation capabilities and rational capital allocation, some protocols are transitioning through exploration, while a large portion of air tokens lacking a commercial closed loop will be completely eliminated.

Felix Javin: Modern crypto finance has completed a full technological spiral: first, the construction of decentralized underlying networks, followed by the seamless integration of traditional financial analysis systems.

This does not mean that buying tokens must involve constructing complex discounted cash flow models (DCF) like traditional investment banks, but the market needs to face a core fact: the essence of mature finance is the continuous assessment of how an entity should weigh the optimal capital structure between high-cost borrowing, equity issuance, share buybacks, dividend distributions, and reinvestment.

In recent years, due to high-pressure regulatory restrictions, the industry has been forced to engage in horizontal internal competition on homogeneous underlying infrastructures. Currently, the expansion and throughput performance of blockchain's underlying layer are sufficiently abundant, and the cost of initiating transactions on the Ethereum mainnet and layer two networks has significantly decreased. With the compliance green light shining, crypto assets are officially entering a new stage of "on-chain equity securitization" fully integrated with traditional financial analysis.

Host: This aligns with my asset allocation structure. In the current configuration framework, the core positions are primarily supported by a "barbell strategy" consisting of two parts:

On one end are protocol assets with stable cash flows and real profitability on-chain; on the other end are hard currency store-of-value assets that exhibit strong reflexivity, ambiguous value capture, but clear monetary attributes—mainly consisting of Bitcoin, traditional gold, Zcash, and Ethereum. Although these assets lack the traditional dividend discount logic, their transparent monetary policy and rigid supply caps provide extremely high revaluation elasticity against the backdrop of continuous depreciation of fiat currencies.

From a macro perspective, the global liquidity landscape is undergoing subtle changes: U.S. Treasury Secretary Scott Bessent is about to launch a long bond repurchase plan; Federal Reserve Chairman Worcester maintains a high threshold for interest rate hikes in September; Arthur Hayes' narrative of global fiat currency competitive devaluation is accelerating; coupled with massive AI capital expenditures rising to the level of national industrial competition, it is difficult for fiscal and monetary policies to proactively slam the brakes before the midterm elections.

Arthur Hayes believes that the marginal influence of the Federal Reserve is declining, and the world is entering a monetary expansion cycle led by fiscal policy. In the face of this macro tide of global credit currency devaluation, what is your allocation logic and macro deduction?

Felix Javin: The barbell strategy is the most anti-fragile approach to the current macro environment, and my asset base is similarly constructed based on this logic.

From a macro dimension, the relative voice of the Federal Reserve compared to the U.S. Treasury and the economic decision-making layer of the White House is continuously diluted, and the global macro mechanism is shifting from being driven by a single monetary policy to being dominated by fiscal deficit expansion and debt management.

Taking Treasury Secretary Scott Bessent's bond repurchase actions as an example, this move contains deep financial gamesmanship. Typically, the U.S. Treasury's bond issuance scale, duration structure, and repurchase plans are clearly guided in each quarter's refinancing announcement (QRA). However, just two weeks after the last QRA was published, the Treasury suddenly bypassed established expectations and announced that the repurchase limit for long-term U.S. bonds would be doubled from $2 billion to $4 billion.

The underlying motivation for this sudden intervention points to the rare coordinated intervention in the foreign exchange and bond markets between the U.S. and Japan over the past 30 years. Japan's Ministry of Finance previously reported a monthly foreign exchange report showing that its holdings of U.S. Treasury bonds plummeted by $87 billion in a single month. As one of the largest overseas holders of U.S. bonds, Japan was forced to sell U.S. bonds on the open market to support the yen's exchange rate and curb the sharp depreciation of the yen against the dollar, thereby repurchasing yen.

When the yields on 10-year and 30-year U.S. Treasury bonds continue to challenge the critical psychological barrier of 5%, the selling pressure from overseas sovereign capital poses significant liquidity pressure on the long end of U.S. bonds. The Treasury's urgent initiation of an unexpected long bond repurchase is primarily aimed at absorbing liquidity shocks, stabilizing the surge in long-term yields, and ensuring the smooth operation of the U.S. Treasury market.

Once the Treasury and sovereign institutions begin to make substantial financial interventions in the exchange rate and bond markets, store-of-value assets that resist inflation and prevent fiat currency dilution will undergo systematic revaluation. At the time the repurchase news was announced, both gold and Bitcoin experienced a pulse-like surge. The recent pullback in gold is mainly due to the market's excessive defense against the Federal Reserve's interest rate decision; while Bitcoin had already undergone significant deleveraging, short covering provided stronger bottom support.

Host: Recently, during the Jackson Hole Global Central Bank Annual Meeting, Federal Reserve Chairman Worcester showed a clear rejection of the so-called "forward guidance." The market is currently highly focused on his actions at the September interest rate meeting. Do you think the Federal Reserve will choose to force a rate hike to maintain the central bank's credibility?

Felix Javin: From a probability distribution perspective, the likelihood of a Federal Reserve rate hike in September is low, but this heavily depends on the upcoming inflation and employment data.

If the core CPI month-on-month growth rate exceeds 40 basis points, coupled with overheating labor market data, the Federal Reserve may be forced to implement a defensive credibility rate hike. However, the current drivers of inflation stem from AI computing power and infrastructure capital expenditures at the societal level. Such structural investments in the early stages of construction inherently push up upstream costs, and blindly tightening monetary policy cannot effectively resolve supply-side frictions.

The Federal Reserve's current independence is being constrained by multidimensional political and fiscal pressures. Treasury Secretary Bessent maintains extremely frequent high-level contacts with the Federal Reserve, and the White House continues to release policy demands to lower borrowing costs. Bessent has explicitly pointed out that the central bank's monetary policy should not excessively counter cost shocks driven by the supply side, which effectively compresses the Federal Reserve's space for aggressive rate hikes.

Additionally, the internal divergence within the Federal Open Market Committee regarding the interest rate path has become public, with the voting committee highly divided. If the market interprets a potential rate hike as the "last remedial shoe dropping," long-term yields may actually decline due to a fall in term premiums; but if the market sees it as the prelude to a new tightening cycle, asset pricing will face comprehensive chaos. Overall, even if the Federal Reserve avoids actions before the election due to political cycle considerations and drops a shoe in December, the overall trend of liquidity easing cannot be completely reversed.

IV. Position Construction and Quantum Defense: Selection Criteria for Long-Cycle Assets

Host: Returning to specific operational configurations: aside from the basic holdings of stocks, bonds, and commodities, on the side of crypto assets, how do you plan your core position layout in the face of future interest rate fluctuations and macro liquidity projections for 2027?

Felix Javin: My holding system follows a strict multi-layer isolation logic:

On the "monetary store-of-value end" of the barbell, it mainly consists of Bitcoin, physical gold, and Zcash. I gradually established a base position during Bitcoin's bottoming phase, but after further research into privacy protection and on-chain settlement attributes, I chose to rebalance some liquidity into Zcash.

From the perspective of sovereign and high-net-worth capital allocation, public chain accounting mechanisms lacking absolute privacy have limitations in specific financial scenarios. Macro allocators like Ray Dalio have long viewed physical gold as a top-tier asset with no credit risk, one of their main cautious considerations regarding Bitcoin is that the complete transparency of on-chain assets often conflicts with sovereign-level privacy needs, while fully controlled shielding pool technology compensates for this shortcoming.

A deeper strategic risk that is often overlooked by the mainstream market is the long-term threat posed by quantum computing to modern cryptographic systems over the next five to ten years. For long-term institutional funds, the prerequisite for store-of-value assets is that they must possess absolute certainty in cross-cycle holdings over the next several years or even decades; allocators cannot afford the tail risk of being forced to make emergency technical migrations due to the underlying cryptography being breached.

The Zcash team has made clearer advancements in post-quantum cryptography and anti-quantum algorithm migration paths, and the efficiency of collaboration within the developer community on security architecture is more proactive; in contrast, Bitcoin's core ecosystem, due to extreme governance decentralization, has been relatively slow to respond to protocol upgrades in the face of quantum threats. From a long-cycle perspective of two to three years, assets with strong privacy and clear anti-quantum routes possess significant upward valuation elasticity.

On the other end of the barbell are the native platform assets with high cash flow accumulation and solid moats, such as Hyperliquid and Lighter.

In terms of fund management, I advocate a strict "three-account isolation mechanism":

• First Layer: Core savings account, primarily allocated to large-cap index ETFs, Bitcoin, and spot assets with long-term anti-fragility, with a holding period of two to three years, completely avoiding short-term timing;
• Second Layer: Productive capital account, dynamically allocating to top Web3 infrastructure and core on-chain financial protocols with real income, dividends, and reinvestment capabilities;
• Third Layer: High-elasticity trading account, using a small proportion of risk capital to capture short-term momentum events.

It must be ensured that the short-term excess returns obtained in the trading account can be smoothly reversed back into the core spot account of the first layer regularly, rather than letting profits be repeatedly exposed to systemic fluctuations in short-term contract trading, ultimately leading to a roller coaster of paper wealth.

V. Institutional Funding Perspective and Marginal Buyers: Penetrating the Evolution Path of 2026-2027

Host: Over the past year, the crypto industry has experienced a deep existential crisis in the face of the explosion of general artificial intelligence. A large amount of capital and public opinion has flowed into the AI track, and crypto practitioners have questioned whether the technical narrative of decentralized networks has been marginalized by the times.

As Bitcoin gradually rebounds from deep liquidation and recovers key moving averages, coupled with the official implementation of SEC tokenization regulations, the sentiment across the industry is undergoing a dramatic turnaround. However, in every cycle's advancement, we must objectively assess the core proposition: who exactly is the "next marginal buyer" of assets at different valuation stages?

The market is currently at a critical point of transition from the existing crypto natives' game to institutional capital. The first batch of buyers consists of native practitioners who previously missed out and are waiting for a pullback; followed by high-net-worth individuals, compliant ETFs, and family offices as long-term capital. How do you view this capital relay process?

Felix Javin: This evolutionary path aligns with the objective laws of capital rotation.

The rebound momentum initiated from the bottom region is mainly driven by the passive short covering of excess shorts in the market, combined with some funds taking profits from the high valuations of AI hardware computing power and storage sectors, seeking reallocation to relatively undervalued areas.

The ensuing deep water zone will be entirely dominated by long-term compliant capital. When institutional investment committees begin to conduct systematic reviews of on-chain targets, their evaluation framework will thoroughly shift towards the stringent logic of traditional asset management:

• The legal definition of on-chain tokens is converging to "digital equity securities operating on high-performance distributed networks";
• Investment committees will not pay for ambiguous community consensus; they require penetrating the underlying business models, examining the real pre-tax profits generated by the protocols, the safety of valuation multiples, and the reasonableness of governance teams in capital allocation;
• On the store-of-value end, compliance risk control departments will rigorously verify technical audit roadmaps; any assets facing potential cryptographic failure or gaps in anti-quantum technology will struggle to pass the risk control review of ultra-large long-term trust funds.

For secondary market investors, understanding this shift in institutional perspective is key to determining whether assets can enjoy liquidity premiums in the coming years.

Host: By the way, a question about off-market cross-border allocation: do you hold positions in SpaceX in the private market? How do you view its long-term potential?

Felix Javin: I have allocated to SpaceX. The decision logic for this investment is directly linked to its technological barriers.

With deep tracking and use of cutting-edge AI technology, after experiencing deeply integrated data model tools, it is clear that high-value proprietary data is becoming the absolute moat for the next generation of AI systems. The real-time telemetry data, communication networks, and native data accumulation with the X platform that SpaceX and its ecosystem possess are constructing extremely high compound technological barriers.

For this part of the allocation, the multi-year lock-up period does not pose a liquidity concern. Many seasoned macro investors choose to treat it as a super growth stock across cycles for ultra-long-term holding, even expecting it to become one of the highest market cap business entities globally in the future. When the underlying technology and business model demonstrate overwhelming generational advantages, participating at relatively reasonable valuation ranges and holding long-term is the most direct investment approach to cope with the depreciation of fiat currency liquidity.

Host: A very thorough breakdown. Thank you, Felix, for the in-depth sharing.