There is nothing like meeting a founder that makes you feel the future will be different. I’ve felt that more times than I can count when meeting a founder working on a web3/crypto project. And yet, it’s hard not to feel that most of the energy and attention in crypto has been consumed by one wave of speculative euphoria to the next — first with ICOs, then DeFi (which amplified token speculation), and most recently NFTs.
These waves have created norms for building that I believe work against the near impossible task of building enduring consumer applications — a focus on the speculator over the consumer, tokenomics over company building, and a web3 vs web2 insularity. A bear market is a great time to change.
The bad habits started with ICOs. For people who saw friends get rich with prescient bets on Bitcoin or Ethereum, FOMO and unregulated global demand took over. ICOs, with their soaring token prices, were the beginning of crypto culture’s emphasis on speculation over utility and tokenomics over company building. I remember sitting at my desk in 2017, watching companies with just a whitepaper raise tens if not hundreds of millions of dollars in seconds. Money had never been so easy.
The industry had time to cool off in 2018 and 2019, but the bad lessons from 2017 were already internalized. When “DeFi summer” arrived in 2020, it renewed the speculative frenzy by financializing the assets and, most importantly, making it possible to collateralize loans with crypto. Then NFTs, with the perfect storm of a truly novel digital primitive + plenty of people who were “crypto rich” and were looking to flex and/or speculate + and of course some very generous monetary policy from the Fed, created the most recent wave of speculation.
And it really was euphoric. Talking to crypto buyers and investors, you’d get the impression there was no such thing as a bad investment in crypto — everything went up. This created a VC feeding frenzy that reinforced a culture of building and investing first forged during the ICO craze. If with ICOs you first wrote a white paper and then sold tokens, and then wrote code, with NFTs you sold NFT cards and then figured out a game, or virtual land before endeavoring to build the metaverse.
In the ICO way of thinking, even in consumer-oriented web3, serving the speculator was the first step before the quest for product market fit and sustainability, tokenomics were more important to figure out than gameplay (as with play to earn), and DAOs became the supposed idealized company end state. As critiques from crypto skeptics grew louder on Twitter, a crypto native insularity took hold, creating an us vs them culture that further entrenched the crypto-way of building.
As if building a mainstream consumer application wasn’t hard enough already! It’s no surprise that web3’s financial use cases, which are much more speculative in nature, dominate the landscape.
Thankfully, as there always are during productive bubbles, speculation has created the demand and funding necessary for critical infrastructure work. Indeed, amidst the euphoria, there have been builders heads down making progress towards the decentralized infrastructure that will enable the cheap, scalable, and secure transactions necessary for mass market applications.
There is still so much work to do. The complexity in crypto’s infrastructure (e.g., layer 2s, cross chain bridges, etc) is still expanding. It will take consolidation and simplification to make it easier for more builders to enter the space. But that won’t be enough. If web3 doesn’t break away from crypto’s culture of building, I fear it will be doomed for yet another wave of speculation with nothing but infrastructure that endures.
If crypto is to have any chance of unlocking mass-market use cases beyond speculation, I believe web3, rather than reject the lessons of web2 must embrace them:
A focus on the consumer, not speculator. Yes consumers are driven by money, but also belonging, status, vanity, connection… these form the lifeblood of consumer motivation. Channeling these motivations are the skills honed by web2 builders. A token that is liquid from the beginning encourages speculation over long term building, and an over reliance on financial incentives (as with play to earn), will make it hard to endure.
Decentralization as a *means* to create consumer value, not the goal itself. Whereas in crypto, decentralization was the raison d’etre (and a regulatory imperative), in consumer, decentralization is valuable only insofar as it creates value for consumers. Web3 builders must figure out what parts of their infrastructure or organization to embrace decentralization, and which parts to embrace centralization. This means embracing the hard work of company building. Sorare and OpenSea are prime examples of this. Trust me, today’s DAOs are not the answer.
Rewarding progress in stages, not all at once. Some projects are huge undertakings that go from 0 to 1 (like novel layer 1s), but as we’ve learned in web2, building enduring consumer applications takes years of focused iteration. Web3 must normalize rewarding founding teams for their progress towards a goal instead of a lump sum at the starting line as if they’ve already achieved product/market fit.
Embracing web2 builders (and yes, investors). I’ll confess my bias here, but I don’t think crypto and web3 have benefited from its insularity. The most powerful ideas come when people from different disciplines assemble to build a team… not a team of specialists. It’s time web3 graduates from the crypto-native sphere into the bigger world.
Tl;dr: This is my open call to web2 builders.🙂 There is a lot of hard work ahead of us, and a lot to prove.
Thank you to Viktor Bunin, Blake Robbins, and Mitch Lasky for feedback on this post.