https://x.com/therosieum/status/1984987750647333350
The ultimate crypto black pill
So I read this article about how the financial incentives in crypto are all out of whack, and while I'd love to be able to debunk what's been said here, this is quite hard to accomplish because the arguments being laid out tend to rest on a very solid foundation. The conclusion is undeniable: the main use-case of most new cryptocurrencies is to extract as much value as possible and then pivot to the next narrative before even finishing the original project.
The same people building NFT platforms in 2021 pivoted to defi yields in 2022 then to AI agents in 2023/24, now they're working on whatever's trending this quarter (perhaps prediction markets?)
They're not wrong to pivot. In many ways, they're playing the game correctly. The problem is, the game itself makes building anything that lasts structurally impossible.
Startup capital rewards this exact type of behavior.
We've seen this play out time and time again as far back as the ICO days of 2016. Development team gets millions upon millions of dollars and becomes so well funded that there's little incentive to actually finish the product. Instead the strategy just becomes more financially sound to simply start a new project using the hot new narrative and get another multi-million dollar raise, be it from VC investors or printing tokens out of thin air and selling them to the public.
Now nobody stays with anything long enough to know if it works. First sign of resistance: pivot. Slow user growth: pivot. Fundraising getting hard: pivot.
Pivot pivot pivot!
Again, no claim is being made that anyone is wrong to try and take the path of least resistance. The only problem is that this path of least resistance leads to a situation where nothing of substance gets built or maintained into the future. The incentives in play seem to guarantee this on a wide scale because, unlike traditional startups, developers in crypto can somehow get away with doing this over and over while still managing to get seed funding.
Perhaps this is due to the fact that crypto seems to have a never-ending supply of boom and bust cycles, whereas this has never been a thing previously. During every boom a new narrative pops up and billions of dollars greedily enter the market looking to make x1000 gains, and all that dumb money flying around makes its way into the hands of the "scammers" who are then financially incentivized to cut and run the second they're offered more money for the next hot narrative.
Every founder makes this calculation:
- Continue developing the current product, it may work out in 2-3 years. If you are lucky, you may get another round of financing.
- Pivot to hot narrative: raise immediately, show paper gains, exit before anyone realizes it doesn't work.
You can probably guess which one gets chosen most of the time.
The market punishes finishing.
A finished product has known limitations.
An "almost finished" product still has infinite potential.
Capital Follows Attention, Not Completion
Hm, aint that the truth
And this isn't a problem just for the founders, VC investors, and other top level management. It's a problem for everyone, right down to the code monkeys and plebs throwing their money at the next new craze.
Your best developer gets offered 2x to go work on the hot new narrative project. Your marketing lead gets poached by whatever just raised a hundred million.
You can't compete because you pivoted away from the hot narrative six months ago, when you decided to actually finish what you started.
Rightly so, even in the scenario where the founder is the "good guy" and "tries to do the right thing" it doesn't matter because the entire rigged system pulls the rug out from under them. This is strikingly similar to politics and even police corruption. It doesn't matter if there are a few good guys swimming around because the entire system is a tidal wave sweeping across the entire sector at all times, wiping out anyone who'd dare stand in the way.
The Catch-22:
Most things built during a hype cycle die with that cycle. Things built between cycles have a better chance.
But nobody builds between the cycles because there is no funding, no attention, and no exit liquidity.
They say build during the bear market, but building during the bear market is quite difficult when the piggy bank runs out of dough.
You can be a principled founder who refuses to pivot, who stays committed to the original vision, who builds for years instead of months. You'll probably also be broke, forgotten, and replaced by someone who pivoted three times in the time it took you to ship v1.
So what does this analysis get wrong?
From a macro perspective, running the numbers, and looking at the situation from a global view... this black-pilled narrative doesn't really get anything wrong. Of course a problem is much easier to identify than a diagnosis. There are no solutions presented, which makes the data itself much more difficult to contest. This is a thing that has happened and seems to keep happening. That much is certain.
Silver linings
However, when faced with these types of questions I think it really forces us to ask and answer the tough questions. Why are we here? What is crypto for? How do we move forward?
It was always obvious to me that pumping venture capital into crypto was going to end badly. Isn't the entire point of crypto to fund and bootstrap itself through community incentives? The combination of VC money plus a token that provides exit liquidity is the primary driver of a lot of these scams. Of course the meme-coin craze required zero funding because there was no product to speak of in the first place using never ending identical clones with a different jpeg avatar. Extract extract extract!
Have we ever considered that the vast majority of these ideas were just bad to begin with and they were never going to work out in any scenario? I've honestly yet to see something in crypto die because it was a good idea but "too far ahead of its time". Most things are just over-marketed fluff that sound good because professional marketing makes it sound good. In reality they just print money out of thin air and extract as much as possible before everyone gets fed up and leaves. I hate to admit it but there are very few actually good ideas in crypto with sustainable economics.
We seem to get a few good pieces of "sticky" technology every narrative that will be around forever, but that's it. We can give ourselves loans using permissionless crypto collateral. Pretty cool. DEFI 2020 ushered in automated market makers which are the foundation of all decentralized exchanges. Even the meme-craze showed us that communities and fair-launches can be more valuable than a vaporous "utility coin". Unfortunately fair-launches were only an option, not a requirement. And lastly, it remains unclear as to how integration of AI into crypto has any value whatsoever (so far).
Point being that crypto ironically (or maybe just predictably) has a severe lack of innovation across the entire sector. We keep trying to adapt "square-peg" models from the legacy economy and bash them into "round-hole" decentralized systems, all the while acting as though this is perfectly reasonable and guaranteed to succeed.
The problem with this line of thinking is that centralized top-down legacy ideology is all but guaranteed to clash with the ethos of bottom-up communal ownership. The second a dev team with centralized control of the product even exists creates a huge red flag right at the starting line. We were supposed to be building things from the ground up with a huge communal baseline, but we don't even know what that looks like because it's so far removed from how we've been doing things for the last thousand years and beyond.
Where are the open-source devs?
Where are the people who want to build things because they are cool passion projects and they don't have to worry about monetization until much farther down the life cycle AFTER it succeeds and needs to scale up? That's the story of Bitcoin right there, and it should be the story of everything else with any merit. Alas, not the case.
Coulda woulda shoulda!
Again this puts us all in a chicken-or-the-egg scenario. Only the extremely financially privileged have the ability to retire themselves early and just tinker around with passion projects for the rest of their days. Even those that have the ability to do so tend to want to be paid for their work regardless. So what we are missing here is a valid way to monetize that doesn't involve venture capital and the ability to print money out of thin air on a whim. ICOs and DEFI were supposed to solve this problem but never did because it was always easier to pretend like it was solved rather than actually solve it. For shame.
Conclusion
It's very evident that crypto is still struggling to solve the dilemma between centralized development and communal ownership. It's easier to fool the plebs into thinking the system is fair rather than actually making the system fair. This is clearly a systemic problem across the entire industry without any type of effective solution in sight. In my opinion the "obvious" solution is for centralized development to be phased out of existence, but those are just words and not an actual working template.
Certainly I loathe publishing such a black-pilled hatchet job in the wake of sweepingly low sentiment, but there's also a lot to look forward to and be thankful for. It's honestly problems like this that keep me bullish on Hive. Because while Hive certainly hasn't solved this problem either: we at least have working infrastructure that can theoretically pay people for their contributions in a decentralized way, which as it happens is the core problem of centralized development.
Community is the key, but how to we empower the plebs to build value where none existed before? To me this feels like the question of the century with no easy answer.