Web3 investment institutions speak for the industry: Good things always take time, Crypto is still making progress

Original title: Good Things Take Time

Written by: Gaby Goldberg , TCG Crypto , Bridget Harris , Founders Fund

Compiled by: Yangz, Techub News

The current pessimism on CT is stronger than ever. Admittedly, in an industry where price drives sentiment, it is understandable that people are confused about the industry's prospects and its application scenarios. However, if we take a step back and observe, we will find that most of the FUD is actually unnecessary. It is important to see the achievements that the industry has made. After all, good things always take time.

Industries have use cases, you just haven't noticed. Many people in the industry want the industry to evolve in a certain way, either exactly as they expect it to, or in parallel with how other industries have evolved for a long time. However, development is different for every industry, especially considering the development process of a brand new asset class from 0 to 1. It's easy to get angry about the stagnation of the industry when faced with a bubble in our own industry. But this is not the case. Below we will try to introduce you to the current state of the cryptocurrency industry and how it is getting better.

Looking at the industry as a whole, over 66% of cryptocurrency users live in developing countries, while users in low- and middle-income countries continue to show sustained demand for cryptocurrency (India, Brazil, and Vietnam have the highest cryptocurrency adoption rates in the world as of March 2024). Cryptocurrency adoption in the United States is also high, but Americans do not necessarily need to use cryptocurrency to avoid inflation or obtain a more stable currency relative to the US dollar. In contrast, users from developing countries see cryptocurrency as a necessity , a mechanism that protects them from the influence of their own governments and financial systems (which are often incomplete). For example, in Latin America, it is very common for people to "immediately exchange their wages for USDT or USDC" after receiving their wages. In addition, more than a third of Latin Americans have used stablecoins for daily consumption, indicating that many companies have begun to accept cryptocurrencies. Globally, USDT on Tron has performed particularly strongly, with a circulation of approximately $60 billion and approximately 44 million unique addresses. In short, the use of dollar-backed stablecoins around the world has become a killer use case for cryptocurrency.

As Scott Alexander points out in “Why I’m Not Infinitely Hostile to Crypto?” , “If people try to get into the industry and all they see are monkey GIFs, it’s not crypto’s fault.”

In the above examples, cryptocurrency is seen as a technology product. If it is simply viewed as a "rail", there is an entire ecosystem of applications and use cases on it, which can bring a better user experience than the Web2 era. Polymarket, the world's largest prediction market, is such a breakthrough application. Polymarket is unique in that it is based on cryptographic infrastructure. For such applications, cryptocurrency has a competitive advantage, and there are many obvious reasons , as well as many uncommon reasons:

Polymarket is a powerful emerging example of how cryptocurrency can unlock use cases that were previously impossible to scale, and in many ways faster than traditional news sources, it is evolving into a new form of media that is both a source of truth, a peer-to-peer social platform, and a mechanism for participation that incentivizes correctness (or at least as close to correctness as possible given the information available).

We can even see a live updated Polymarket embed on Substack:

These small successes continue to accumulate, slowly bringing cryptocurrency into the mainstream.

The final point about Polymarket is that the team has been working on the same vision for a long time. They kept working on it even though their trading volume was at a low level for nearly five years. Even when the company was almost shut down by a $1.4 million fine from the CFTC, they did not waver. The cryptocurrency industry is always inherently biased towards "what's happening now", and people often don't realize how much time and effort it takes to "achieve success overnight".

Pudgy Penguins is another cryptocurrency company that has successfully broken through the circle. Its products are currently being sold in Target, Walmart, and Walgreens in the United States (more than one million toys have been sold to date). Pudgy Penguins is not the type of "silently build and wait for users to come". Instead, the company actively provides products to its existing user base. Specifically, Pudgy Penguin is developing an easy-to-use L2, a game based on blockchain elements, and a show, all of which revolve around its cute brand image (initially just an NFT series). It is worth noting that Pudgy Penguin first made a lot of efforts in community distribution before building the underlying infrastructure for its stack. This is exactly the opposite of what most L2s do at present. Most L2s choose to build technology first, and then try to guide the community and attract applications to be built in their ecosystem.

To attract users, Fat Penguin has come up with some creative ways, for example, each physical toy comes with a QR code that can be redeemed in the Pudgy World game ( Webkinz style ). By slowly introducing cryptocurrencies to users and ensuring that they have fun in the process, these users are more likely to stay engaged and explore cryptocurrencies more deeply.

Bridge provides critical infrastructure for many projects in the consumer application space. The company’s focus is on stablecoin APIs, specifically issuance and reconciliation (which was a company-scale problem that projects had to solve internally before Bridge modularized it). Bridge has proven that doing one (important) thing well is a robust path in crypto, and they have an impressive list of clients for it. What looks like a simple API is actually quite complex under the hood. Enterprises can integrate with Bridge to instantly convert between fiat and stablecoins (or different forms of stablecoins), while Bridge takes care of all the KYC and compliance. Despite stablecoins being a core use case for crypto, it has been difficult to find solutions that can convert quickly and compliantly . Additionally, there are many different stablecoins, and each platform usually prefers one. Bridge solves this problem in a flexible and easy-to-use way.

One of the most common complaints in the cryptocurrency space, especially for newcomers, is wallets. Which wallet to choose, how to choose one that connects to the most DApps, and whether there are alternatives is a problem for many users. Fortunately, vendors like Dynamic, Privy, Capsule, and Coinbase WaaS are solving this problem for cryptocurrency applications and users, allowing individuals to conduct on-chain activities without downloading third-party wallet applications or hosting seed phrase. Constantly fixing integrations, managing updates, and adding new wallets as they are released (ensuring that TAM is not limited) is a problem that consumes significant engineering resources of companies. On the user side, the pain points are also obvious. Without these embedded wallets, users may not have a supported wallet (or, if they are new to the industry, they may not have a wallet at all). Simplifying the onboarding process for new users is key to the industry achieving mass adoption. In this regard, these companies (many of which have only been founded in the past few years) play a key role.

In summary, as an emerging industry, we still have a long way to go, but we cannot ignore the achievements along the way. Ultimately, if you believe that the financial system should be fast, global, low-fee, accessible and for the people, then cryptocurrency is the only ultimate goal.

It is important to note that every new thing will experience growing pains or outright opposition as it matures. When printing first came out, it was strongly opposed by religious authorities because it would weaken their control over information. Islam directly banned printing, and Swiss scholar Conrad Gessner "asked the authorities in European countries to implement a law to regulate the sale and distribution of books." Because in his opinion, ordinary people should not have access to so many books. At the end of the 15th century, Italian writer Filippo di Strata wrote : "The pen is a virgin, but the printing press is a whore."

If the printing press is a prostitute, then the analogy for the public's view of cryptocurrency may not be very appropriate. But for the sake of progress, we are willing to accept this criticism. Embracing the strange means knowing that new technologies often look "weird" at the beginning.

We also acknowledge that the vast majority of experiments in the cryptocurrency space will probably not succeed. But if you insist on this view, you fundamentally misunderstand the development process of breakthrough technologies. This idea is not new. The maturity of the Internet required us to say goodbye to internal server farms, network loops, and Sony's AIBO robot dogs. It is a natural and healthy evolution as people try new technologies. The "power law" of successful products is exactly what investors follow when entering these fields.

Many of the breakthrough applications in this cycle benefit from new infrastructure that simply did not exist in the previous cycle. Yes, there seems to be more infrastructure than applications, but without a strong underlying framework, applications cannot really exist or scale. Since most of the infrastructure is ready, innovation in applications is also accelerating.

Joel Monegro proposed the famous "fat protocol" concept in 2016, that is, in a blockchain network, most of the value comes from the protocol rather than the application layer.

We believe that modularization of the protocol layer compresses the value capture share of that layer, leaving more wiggle room for the application layer. Applications can take advantage of the modular components of the protocol layer and combine and match them according to their needs, ultimately bringing a better experience to users (and making more money). Today, users basically pay for applications through the front end, and these front ends are increasingly abstracting the protocol layer.

Interestingly, many of the issues facing Ethereum application developers today are often not technical, but cultural, due to the modularity of the infrastructure. For these builders, the ecosystem they choose to build on is critical to their brand, community, and sustainability. Sometimes, these applications will call themselves "projects built on xxx L2", but if the L2 is not sustainable, it will reduce the value of their products and brands. Building on Solana is unified because everyone defaults to building on the same single platform, while Ethereum raises a key question for developers: where should I build? "Any deployment" is not really an option either, as most chain abstraction protocols are not yet ready. When the ecosystem becomes more important than the application itself, a parasitic relationship between the two will occur, and the application and ecosystem will compete for the same limited attention.

The reason for all this may be that Ethereum has invested zero in marketing, forcing L2 to create its own brand and style. This trusted neutral approach has created a rich and diverse L2 ecosystem, but it has also led to fragmentation. Vitalik emphasized this in a recent article , comparing L2 to a cultural extension of Ethereum itself, "For subcultures, L2 is the ultimate arena of action." In fact, these subcultures may be the best incubators for emerging applications. In these incubators, users are attracted by advantages such as low fees, the community is close-knit, and builders emerge in large numbers. In addition, the culture of the underlying L2 can also help its applications strengthen and grow their own culture. Of course, from an infrastructure perspective, many L2s on Ethereum are maturing, allowing more applications to exist and expand.

We have been through multiple bull and bear cycles and know that infrastructure breeds applications and applications breed infrastructure. The cycle continues, and the emerging technologies we complain about are the products that enable low-fee chains, better distribution, and higher-quality user experiences, all of which ultimately drive adoption. We still have a lot of work to do, but it is worth affirming that despite the collapse of giants such as FTX, constant regulatory resistance, and wild market fluctuations, we have achieved some results. Our industry is still small and in its early stages, and the work we do should be positive-sum. It's time to rekindle the ambition in our hearts. As the old saying goes, good things take time.