Giant Leap
A reflection on why we do crypto, what went wrong and what we should be doing about it
Part 1: Why I do crypto
I believe our outcomes in life are largely contingent upon two key parameters
How hard and smart we work
The environment we work in
If you are in an environment that rewards hard and smart work regardless of who you are or where you come from you are likely to do well. Societies that are built on value systems that treat everyone fairly invariably do well. Societies that don't value people differently based on where a person comes from invariably ossify and get left behind till and meet their Darwinian fate.
It is possible to succeed in poorer environments, the probabilities are however are invariably stacked in favor of fairer environments.
The west has financial and technological dominance primarily because law in the west generally tends to be equally enforced. Everything else is a by-product of this simple requirement. The financial, educational, cultural, commercial, technological institutions all stand on a bedrock of fair law.
There are other factors as well, but they are all generally secondary to this core principle.
I do crypto because it presents a realistic pathway by which fair systems can be spread throughout the world regardless of jurisdiction. Someone born in Somalia, Sri Lanka or East Timor should have the same shot at success as someone in the US.
Having a fair framework worldwide will unlock human potential like never before and will lead to wealth and prosperity at an unprecedented scale.
I believe we (those of us in their thirties and forties) will live to see such a day and generations that come after us will find it hard to contemplate how we could live and govern ourselves any differently. This is similar to us wondering how feudalism worked and why it was acceptable.
Every single action I take is directed to bring such a future closer.
Part 2: How and why we lost our way
However the events of the recent past have led me to reexamine how crypto has evolved and come to the conclusion that we have been on the wrong track.
And the reason for the wrong track lies deeper than what I thought before.
When the hacks came in cefi, we said that was not crypto in the first place. It was just human caprice all over again. DEFI was working fine.
When the hacks, scams, exploits came in defi, we attributed it to poorer governance (upgradeability), poor coding, bad UX etc. Note that the big guys (Uniswap, Compound, AAVE etc) have generally done what it takes.
My earlier thought process was that improved UX via account abstracted wallets, human centric designs using optimistic governance was the answer to the troubles.
While I haven't changed my opinion on that, I am generally coming to the conclusion that it won't be enough.
The reason boils down to what games people are playing when they do crypto.
Granted there are many who are invested in crypto because of the mission we share. However most of the retail masses whom we want to onboard into crypto come because of the potential to make a lot of money in a time frame that is implausible anywhere else but a casino.
Terra Luna UST was widely used by a large number of retails because of the insane 20% they were offering to their depositors. No credible institution in trad fi came close to this. No wonder the masses flocked to it.
You can make 5X-10X-50X in a matter of days (especially if we are in a bull run) if you pick the right coins at the right time.
If you think about it crypto due to the nature of the tech, has poorer UX, is more expensive to use and is slower than trad fi alternatives.
The only thing that is 10X superior to trad fi is this potential to make a ton of money in a short amount of time and that is what reels in the masses like moths to the flame.
Except the moths get burnt and consumed by the flames.
LUNA was a ponzi, most of the other crypto projects price action dies down once the hype cycle is done. So the game becomes getting in early enough, build your bags and hype and unload on the unsuspecting retails who come in late.
Liquidity mining is like throwing kerosene on fire, it drives vanity metrics but it inevitably leads to dilution and depressed price later. The objective is always to build a real usable product with revenue but the unfortunate reality is most of these coins and tokens dont solve any real world problems or create value.
Even the credible ones like Compound if you look at their revenue multiples compared to price, and benchmark it against stocks it will make you feel dizzy. And this is after a significant retrenchment in their prices.
Even Bitcoin, the original progenitor of it all is at its very core a ponzi scheme with liquidity mining as its core mechanic. Sure it solved a key problem of how to address the double spending problem without the need for centralized parties but it created a money which has no true adoption in daily commerce.
https://www.linkedin.com/pulse/bitcoin-gold-moresh-kokane/
The idea has always been to get enough people holding Bitcoin and all these other tokens and coins and then steadily build real world use cases around it.
The problem with this approach is the UX is nowhere comparable to trad fi, we try to drive adoption through ponzis and if we ever manage to solve for the UX and real world adoption and have price action that is more closely correlated with value creation, few things will happen.
Due to the fundamental difference in how centralized vs decentralized systems work the UX (help desks, reversibility of transactions for eg) will never be as good. It will come close but will always be marginally inferior.
The returns will start mimicking real world returns which means the 10X that you could make in a short period of time will disappear in favor of more reliable but lower returns.
When crypto is used in a meaningful way in real life, we will most certainly run into resistance from existing state based actors (governments) who will try and snuff out things.
So we are currently building for a scenario where we will have better UX, more sustainable returns, which means lower chances of mass adoption due to a lack of a number go up but a stronger regulatory pushback.
I certainly have no desire to go to jail. Most crypto founders I know of share that feeling.
It leaves a relatively no win situation and as mentioned earlier it really boils down to the games people play when they do crypto atm.
We created currencies without a world to use them in and the more we try to make it easier (stablecoins), the more we look like the systems we are trying to replace.
In the meantime the main game so called users or community play is that of price action: number go up.
This is the primary reason for all the mess we are in. It is not CEFI or DEFI itself, while it makes a difference that is not the core reason for the current state of crypto.
The key reason is we have been playing the wrong game in the first place.
Part 3: Building a new world
Most of the times when you are trying to build something better, it is easier to start from scratch rather than trying to improve what is already there. The US achieved success with its republican institutions because it did not carry the baggage of the old world. When we procreate, we literally go down the level of a single cell where our DNA is remixed and grows into a new being.
Bitcoin tries to insert itself into an existing world but the existing world is well served already and the incumbents have no desire to give way. This is also why you will see Bitcoin maxis making regular fantastical predictions about the demise of the dollar denominated world financial order. The only way BTC takes over as the currency of choice is if everything that is already there goes down in flames first.
Ethereum does it differently, in a sense it is a world building engine. You can use ETH to develop a number of applications on top of it and ETH then also serves as the currency of this world.
The problem is not with Ethereum but the nature of hyper financialized (yet no real value creating) applications we have built on top of Ethereum using liquidity mining fuelled distribution tactics. We built a ton of financial products, several of which are derivatives which by their very nature are complex and something which most retails should not touch in the first place.
Add on top poor coding practices and limitations of the tech you suddenly have a very brittle system that is supposed to secure hundreds of billions of dollars of value.
It is easy to see why we did it, this is what brings the masses in (high yields + opportunity to go 10X quickly) however the level of maturity this technology is at is simply not suited to bring the masses and institutional actors in yet.
When you are dealing with a brand new piece of tech you want to do something that allows the showcasing of its capabilities but still in a low stakes environment.
Hundreds of millions of user funds should not be lost if a particular variable was not declared properly.
We should stop building games whose whole point is “number go up” and build games that are simply fun to play.
There are two key ways to drive adoption, you build things that solve users problems or you build things that users have fun with.
Building stuff whose value prop is the fun element creates a more engaging user experience in a low stakes environment. It allows us to further the state of technology to a place which is far more mature than where it is now without risking user funds along the way.
More importantly it allows us to build a world first and the currency systems later.
Imagine Bitcoin launching as the in-game currency of a game like Minecraft which already had a rich world before the currency came into play. This way the currency does not need to have question marks about its utility or adoption but it launches as a solution to a real need.
In effect you are building a metaverse, a new world that can reflect the value systems you want to further rather than trying to impose them on the existing world.
Blockchain games have been attempted before, but they are either not true blockchain games and have a toxic “play to earn” mechanic.
Exhibit A is Axies. This game had NFTs and an intertwined token, but the game was at its very core a yield farm with a prettier UI.
True blockchain based games use its key feature which is permissionless interoperability.
You build the key mechanics, the physics engine and let other game developers build their own flavors on top of it, similar to what Minecraft or Roblox does but allowing an even deeper change.
A well executed design would effectively then take the role of game engine which can then be reskinned or extended by anyone leading to much faster development and experimentation.
While this is akin to “modding” in the game space it goes far beyond that. In the current environment not all game developers permit modding and definitely none allow commercial modding. Game mechanics represented in the form of blockchain smart contracts can allow anyone to take the kernel and build their own takes of what things should look like without needing permission from anyone.
This can create an explosion of creativity, one of the key reasons for the explosion of DEFI was its composability. We now have the opportunity to do something similar except without putting billions of dollars on the line.
Through the history of PC tech development, it has been games which have acted as the driving force to propel the tech forward.Dark Forest is a great example of what a good blockchain based game can do. These games can drive mass adoption by furthering the state of technology in a low stakes manner.
New technology stacks are emerging. The MUD engine and the OP stack can form part of the key development stack to make true procedurally generated autonomous worlds that reside on the blockchain possible.
When the time is right, decentralized currencies can be inseminated into it. But this time they will already have a whole world ready to use them rather than resist. Liquidity mining has a role to play here but it has to be an enabler rather than being the point in itself.
An ideal state in my opinion would be a transaction obfuscated L2 that is purely designed as a game engine and settles to ETH.
The objective always has to be to create a fun, engaging and immersive environment.
These game worlds can evolve into decentralized metaverses. Persistent extra dimensional worlds that are free from the baggage of the old real world and are also not controlled by any single player such as Meta/Facebook.
Mark Zuckerburg is correct in his big gambit that metaverses will be a thing, in a sense we all already are living in a metaverse. We spend an extended period of time online and we will continue to spend increasingly longer periods in the future. Future online experiences will be more immersive till the online world subsumes the real world.
The key question now becomes should these new worlds be controlled by centralized actors or we should turn them into public goods that are fair and allow everyone equal opportunity.
The story of crypto and its adoption by the masses will define our future.
It's time to take a giant leap towards building a future that we can all be proud of.