Behavioral economists often state that markets are made of people, not rational agents. Human factors like emotion, biases, and social influences impact our investment choices, which breed irregularities and inefficiencies. We experience this daily, even outside of markets. It creates perfect imperfections and keeps the world interesting.
Crypto markets are no different, in that Housecoin can pump because houses are too expensive, just buy $HOUSE and Fartcoin has no ceiling because hot air rises. And hey, your protocol drives revenue but who cares, it’s boring and we would rather gamble on shit (pun intended). Psychology often overcomes logic, and while more extreme, it’s no different than how we’ve experienced volatility in traditional markets of the past.
Where there’s an issue, though, is using what's been successful to date as guidance for what to build in the future. Businesses are probabilistic, and context has a huge effect on human behavior. In today’s environment, the lights are off – we mostly don’t know our users, or care if they’re real or not. We value market caps and trading volume, many of which have little or no rationalization. We oscillate in the winds of regulatory clarity. And, before last week (woo!) we were severely limited in what we could build for users on major platforms like iOS.
Revolutions in financial accessibility have catalyzed the cryptoeconomy and should continue to accelerate this space. But this isn’t the pure means by which we should be thinking about what crypto’s future could be. And its existing measures of success shouldn’t be a logical blueprint of how we bring new products and experiences to market. People have gotten used to operating in the dark, and our previous innovations have become limitations for creativity and practical adoption.
Today, crypto's user base increasingly consists of trading bots rather than actual people, creating an odd dynamic where products optimize for algorithmic agents to inflate growth metrics rather than prioritizing real human users. And that’s backwards. For this industry to really expand its purpose, the development of apps need to be in service of users, not blockchains. Sure the best chains should have the best apps; but that’s not happening organically with the current incentives.
for the past five years, VCs funded protocols, which funded grant farmers to build chains, which funded liquidity farmers to slush capital between chains, which funded MEV farmers to extract fees.
the ponzi is now failing, and crypto has nowhere to go but up.
utility is coming.
the ponzi is now failing, and crypto has nowhere to go but up.
utility is coming.
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The reason? Infrastructure’s financial dominance in crypto has been incredibly lucrative for both institutional and retail investors, and has set a methodology on how to extract value regardless of adoption. Blockchain’s “success” is extremely faulty and gamified, to the point where presuming this is the “real” way we value infrastructure is also completely dishonest. And that has created secondary effects as to how application developers think they should be bringing their products to market. I believe these are irrational “truths”:
Audience: The foundation for users was originally set by bots utilizing and trading L1’s, L2’s and supplemental infrastructure, therefore those bots are foundational user segments to target for applications.
“Success”: The measures by which we presume the success of infrastructure – TVL, Fees, etc. – is how we should be gauging the success of applications. Measuring the ultimate value of blockchains is still a constant debate – so how can that be the guiding light towards what applications should be?
This restriction of both audience and outcomes is not the right mental model to think creatively about expanding the value of the cryptoeconomy. Today’s strategies are not effective in getting more users into crypto – achieving 'scale' in crypto today often just means recycling the existing customer base by offering them similar products, rather than bringing new users into the ecosystem. This is fed by the presumed desires listed above. And the cycle continues.
“But this is hard”. Ya, it’s hard! But there’s a way forward. Capital must own their role in evolving the space and move beyond their short termism which favors high velocity products over long-term, durable products. To note, this isn’t just a crypto problem but a broader consumer problem; ephemeral app development far outweighs lasting experiences over the past five years. To this, investors must be comfortable knowing that the stepping stones built by applications will drive far more access and adoption than what exists today. And those applications must be desired by and in service of a wider range of users. Without the constraints of feeling that every crypto application needs to drive transaction volume and monetize from the onset, more entrepreneurs will feel flexibility to build shit that people actually want to use. The lights start to come on and we can see a path forward.
The job of a venture capitalist is to generate outsized returns by taking leveraged risk on innovation and underwrite 0 to 1 market creation and growth opportunities.
Instead we just got a series of pump and dumps.
Instead we just got a series of pump and dumps.
As I wrote in The Consumer Crypto Paradox, scaling experiences in crypto without the burden of financializing everything on first contact can broaden ideas and render more durable, lucrative results in the long run:
“Everyone hates the paywall. But the only reason the paywall works is because there is something on the other side worth giving a shit about. If every experience on the internet had a paywall where you had to convert before knowing what was on the other side, you’d say no. Now substitute paywall with “deposit funds”. See?
This is also why I believe we see so much of the same product. If you are building in crypto, you are conditioned to follow a process where money is exchanged from the first point of contact. And where that works best today, for founders and investors, is launching a new L1, exchange, DeFi platform, lending protocol, payments tool, etc. Not to say there isn’t value in these products, in fact most are pretty revolutionary versus their incumbent competitors. But the willingness to be creative beyond them has reverse incentives, and that should change.”
No one’s wrong—success stories still emerge. But we must agree this path isn’t the way forward.
Today, crypto tries to approach two sides of the market: the existing crypto users and those outside. For the latter, it comes in the form of trying to put existing services, for example adtech or data storage, on the blockchain. But for that to actually be impactful, it needs to be proven at a decent scale in partnership with applications that are willing to adopt it and show results – increase ROI, reduce costs, additive business lines. Sure, we can develop blockchain based ad networks and attempt to integrate them in existing, non-crypto platforms. This has been on the docket, and attemped, for nearly 10 years. And we can preach the benefits of NFTs and tokens as means by which to better reward and engage subscribers. But the power for it to be proven repeatedly within our own applications will open the flood gates way faster than trying to offer it against an existing web2 solution. We felt close in 2021 and 2022, but most incumbent brands swung the way of AI and got distracted. Crypto, in web2 land, was still unproven and that’s on investors and builers. We must fund durable projects and let them thrive.
Turning on the Lights.
In just seven months, the context of crypto has changed. While the lights have been off for most of this industry’s lifetime, recent regulatory clarity (GENIUS ACT & FIT21) and guidance has powered an electrical grid that we must take advantage of. This, alongside Apple lifting iOS restrictions allowing Bitcoin, Crypto payments and NFTs can set an entirely new era of consumer innovation and distribution surging.
It’s imperative we set expectations accordingly and widen the opportunities for founders to develop freely towards products that favor broad user adoption, engagement and necessity above all else. That means patience in times of turbulence, and seeing a bigger picture beyond infrastructure and unlocks.
I believe now is the time crypto needs to develop against itself. While we should continue pushing the purposes of what’s already been proven, we should also look at this prior version as competition for the new: take what we’ve done badly, and double down on building against that.
I, for one, am excited and anxious to invest towards this future.
Thanks to Jonathan Moore, Aaron Wright and David Phelps for their eyes and ears.
it's a fine example of quality writing on this topic.
Back w/ the 41st edition of Paragraph Picks, shining a light on some great posts from the past week or so ⤵️
@darkstar critiques crypto’s obsession with infrastructure metrics and algorithmic growth, urging builders and investors to refocus on human users, durable products, and long-term impact. "Success in crypto has become a loop of infrastructure funding itself — with little regard for actual adoption." https://darkstarcrashes.xyz/build-for-humans-not-hashrates
@debbie profiles @ted, a Farcaster OG & power user turned team member, whose journey from aspiring doctor to DeFi to Farcaster shows how belief, curiosity, and connection can reshape the internet. "You realize just how steep the climb is to make consumer crypto work. But being part of such a focused and passionate team makes it all feel worthwhile." https://paragraph.com/@debbie/meet-a-maverick-ted
@dbarabander writes about how a decentralized ecosystem of autonomous agents (if it emerges) will require crypto to provide the trust, payments, and verifiability needed to function at scale in a low-trust environment. "It will be very difficult for the agents in the long tail to build the sufficient reputation needed to earn the imprimatur of trust." https://blog.variant.fund/agents-in-a-bazaar
Crypto lost the plot by investing & optimizing for bots, not people — growth hacks over utility, speculation over substance. The next era demands real products, built for real users. It’s time to turn the lights on and invest with intention. 👇 https://darkstarcrashes.xyz/build-for-humans-not-hashrates
In a recent blogpost, @darkstar explores the flawed rationale driving current crypto innovations, arguing that the focus on bots and off-kilter metrics hinders true user-centric development. A shift towards understanding real user needs is essential for the industry’s evolution.