Written by: YBB Capital Researcher Zeke
Preface
This article is my reflection after watching the speech video of Chris Dixon, a partner of a16z. The theme of his speech is "Is Web 3.0 Dead?" As an idealistic technology investor, Chris has analyzed and reviewed the development of the Internet since the 1990s, and believes that the future of Crypto is still full of potential. But from the current situation, I think the internal situation of Web3 is in chaos. This article is a summary of my recent thoughts on Crypto, and it is also an extension of the previous articles.
1. Gamblers’ needs and geeks’ vision
Chris Dixon mentioned in his speech that there are two mainstream cultures in crypto: one is the speculative "casino culture", and the other is the "computer culture" that focuses more on technological development. I will refer to them here as "gambler culture" and "geek culture". In the process of promoting Web3, the two cultures that should have been mutually exclusive were connected by something called "vision", and eventually pushed Crypto to the mainstream. Since the Bitcoin era, the vision of crypto has been very grand, from a decentralized P2P payment system that is not controlled by individuals, institutions or countries, to Vitalik's world computer, decentralized permanent storage, and the reshaping of the Internet of Things... To put it in a smaller way, there is also my favorite 10k PFP, yes, it is an IP that is jointly promoted to the world by thousands of community members. But unfortunately, these visions are ultimately just visions. "Cash" has become "digital gold", and the ideals and reality of the "world computer" are full of contradictions, and my favorite narrative has become a joke in the circle. The needs of gamblers and the vision of geeks will not always intersect. When a gap appears, decentralization, vision, and mission are no longer important. Just like the hierarchy of needs proposed by Maslow, human needs are in order from the most basic physiological needs to transcending needs. The basic need of mainstream crypto users is to make money. When the technical narrative no longer works, users will go wherever the voice is the loudest, PVP in MEME; Tap to Earn on Ton; at worst, you can go to A-shares and US stocks to find liquidity. Reflected in reality, the focus of our attention has gradually shifted from technical narratives to Powell, ETFs, Trump, and what other memes can be used as MEME in the West today. Sometimes I feel dazed, as if these blond and blue-eyed people are the long-lost Satoshi Nakamoto. However, it is indeed human nature to talk about ideals after a full meal.
At present, the circle often talks about putting aside the technical narrative, looking for increments, creating experiences, and making consumer-level applications, and focusing on high-performance heterogeneous chains. This consensus is actually to let "gamblers" and "geeks" intersect again. If successful, we will enter a new era of diversity, and "gamblers" and "geeks" will become contributors to reshaping the Internet. If it fails, then we will regain the P2P vision and return to the essence of finance (I don't think it can support the future growth of blockchain). But no matter where this road leads, I think it is more important to meet the value needs of ordinary users and have driving force. We often hear the word "falsification", and the basis for supporting this word is mostly that the token price returns to zero, the threshold is too high, etc. But we might as well think about it in other directions. Where is its driving force? I wrote an article last year, which roughly talked about the decentralization of AI computing power. At that time, there was very little relevant information that could be found, but I was full of confidence in this direction, and I also divided it into two chapters to describe its future. With the continuous update of GPT this year and the soaring stock price of Nvidia, the topic of AI has been hyped again and again. Computing power projects are not new today, but unfortunately most of them have no motivation to drive users to use them. In the case of giving up high efficiency, it is difficult to even have one of the three: stability, low loss, and affordability. Compared with most of the TG mini-games today, there is basically no essential difference except for the appearance. They are all waiting to be listed on the exchange to find exit liquidity. The only thing that can be discussed is still the vision.
Today, when generative AI is implemented in every industry, Web3, which lacks driving force, can hardly impress "gamblers". The driving force of Ponzi is human greed, and the driving force of consumer applications is value. Whether it is emotional value or practical value, you must at least provide value. A qualified APP, in terms of the circle, can be various evergreen protocols in DeFi, which meet users' various financial needs such as trading, arbitrage, and gambling. There are many outside the circle. Let's take the early ChatGPT as an example. There are cumbersome payment steps, long queues, various IP interceptions, and account closures, but people still flock to it. In the period of liquidity flooding in 21 years, twelve seed phrase could not stop uncles and aunts from rushing on-chain meme. The two are the same, but the driving force is different. The entry threshold and experience are indeed very important for ordinary users, but they are inferior to dopamine and practicality. After we have solved various abstract problems and lowered the threshold, what is the driving force that can drive non-Web3 users to visit? For a non-speculative Web2 user, Web3 currently provides basically no practicality other than transfers and payments, so where will the incremental growth we imagine come from?
2. Why don’t we talk about decentralization anymore?
I know that the current popularity does not mean that centralized heterogeneous chains will be right in the future, but judging from the popularity of the altcoin market, the momentum of heterogeneous chains is about to overwhelm Ethereum. There are so many criticisms of Ethereum that even Vitalik is calling for the fragmented Ethereum ecosystem to be aligned again. Looking at it from multiple dimensions, Ethereum is indeed still the Apple of Web3, with the largest ecosystem, the highest TVL, and decentralization and security second only to Bitcoin. It's just that today it is more like the "Apple" that Cook took over from Jobs. It is no longer so cool, and no one cheers for its innovation. At least, today, decentralized public chains are no longer directly equated with success.
From the perspective of the development of the technical path, decentralization and security are rare things that require a lot of time to settle. They should be like gold and cannot be artificially recreated. But this method of recreating was thought out by Vitalik and Mustafa Albasan. Decentralization is more like the artificially cultivated diamonds in Zhecheng today. From the best quality Ethereum to the most cost-effective Near DA, there are dozens of sellers. So will Ton or Solana become Layer2 in the future? I think the answer is yes. Of course, due to factional reasons, these two cannot be used as Layer2 on Ethereum. However, Ethereum is not the only one with extreme decentralization and security in Web3. BTC's security, degree of decentralization, social recognition, and consensus mechanism recognition are better than Ethereum, and BTC does not have factions. Even under the idea of 1:1 Fork, as long as a sufficiently native DA solution can be realized in the future, will Ethereum's most proud decentralization and security be turned into bullets shot at itself at that time? How do Ethereum defenders attack heterogeneous chains built on BTC?
From the perspective of the development of ZK technology, since there can be ZK Rollup upward, there can also be coprocessors, ZKML, etc. downward. As the off-chain computing technology of high-performance applications matures, it is not impossible to achieve a balance between scalability, decentralization, and security on Layer 1. So from this perspective, it is not a bad idea to put ecology and experience first without mentioning the old triangular paradox.
3. Is Web3 following the same path as Web2?
Tokenomics is always an interesting topic. We have seen countless complex economic designs, but in the end, only service-oriented project tokens can achieve long-term success through Tokenomics. For example, from Cex, Layer1 to various DeFis, first of all, the simplest reason is the demand problem. Basically, only these projects have real demand and benefits in the blockchain. From the embryonic stage to the mainstream era today, Token has played a key intermediate role in the development of these projects and their communities into giants. The virtuous cycle makes their moats deeper and deeper. The negative example is that many 10k PFPs in 22 years have also engaged in pledge and destruction to try to save the project when they were on the verge of death, but without strong demand, it is meaningless no matter how small the number is.
Another problem is the problem that has plagued token incentives for a long time, witches. Witches are the most troublesome existence for Tokens, and many projects that are eager to complete bottom-up with incentive models have become a bubble. In the past, the only solution that could barely solve this problem was Kyc. Centralized platforms and some compliant projects could still rely on Kyc to avoid witches. But this problem is very complicated for pure on-chain projects. Although Vitalik has also proposed SBT, which is similar to the soul binding in World of Warcraft, there are obviously many logical loopholes. And using Worldcoin's iris is even more unrealistic. Nowadays, the more effective way to prevent witches has turned to Point. Witches can create a large number of addresses and swipe a large number of transactions. But money cannot be counterfeited, just like the computing power of the PoW mechanism. If it cannot be counterfeited, it doesn't matter how many addresses there are, as long as the deposit is set to the maximum or unique in the weight of Point. This method has many advantages for the project party. Point is just a soft promise, and the final right of interpretation is still in the hands of the project party. But for the development of Web3, it is heading in a worse direction. The only ones who can benefit from this kind of activity are the whale, not the real users, and it will not attract users outside of Web3. After the Token is listed, there will be nothing left.
It is not uncommon in this circle to suppress one problem but create another, so why not just not have a token? I have praised the performance of token-free projects many times this year, saying that they are far superior to most competitors in many aspects. They will not be killed by the Ponzi scheme, nor do they have to worry about witches, coin prices, empowerment and other issues. Focusing energy and resources on publicity and ecology can accurately acquire valuable users, thereby expanding the ecology.
What makes me think deeply is, has this become a kind of Web2? Web3 oligarchs like Base provide users with high-quality services and continue to profit from them, but the community cannot share. What is the difference between this and today's Web2? From construction to implementation, Coinbase is the only one in charge. The trump agreement Farcaster in the ecosystem is also handled by itself, and Friend.tech is also excluded for this. Is this a manifestation of the spirit of decentralization? I have to admit that our development path is becoming more and more similar to Web2. The vision of the Internet in the 1990s was to return power and wealth to users. In the Web 1.0 era, TV stations and radio controlled the media, and in the Web2.0 era, the seven giants of Nasdaq controlled the Internet. Now, the oligarchs of Web3.0 are testing the bottom line. Are those bottom-up legends over? I don't know, but I'm sure we are at a crossroads.
4. Scarcity is a double-edged sword
Before the collapse of the Bretton Woods system, gold played a key role in human currency. It has a good advantage: scarcity, and it also has a bad disadvantage: scarcity. From shells to gold, decentralized currency has existed since ancient times. Before humans entered the steam age, scarcity ensured that dictators could not arbitrarily plunder people's wealth, so that society could function normally. When science and technology exploded, scarcity hindered humans from reaching the stars and the sea. Former US President Bush said in a speech in 2002: "In the history of mankind for tens of millions of years, the most precious thing is not the dazzling technology, not the classic works of the vast masters, not the politicians' exaggerated speeches, but the realization of the taming of the rulers and the dream of putting them in cages. I am now standing in the cage and speaking to you." Putting power in a cage is the only way for humans to compromise with credit currency. Currency that is not based on any precious metal is of course the biggest Ponzi scheme in human history, but it has made a great contribution to the development of modern society.
Scarcity is one of the characteristics of blockchain and its value. We emphasize the importance of scarcity all the time. However, sometimes I wonder if excessive scarcity is also hindering our progress. For example, if Bitcoin was born in an isolated country, would its vision be realized soon? 10k PFP is a better microcosm. BAYC, Azuki, and Pudgy are all very successful NFT projects. To be more precise, at least the first two were in the past. At the crossroads of development, they chose three different directions: games, animations, and peripherals. The latter's practical approach allowed it to go against the current and turn things around, but making games or animations or even developing an IP universe is also very cool in my eyes, but scarcity dooms them to fail. As I mentioned when discussing GameFi, the amount of money burned by a 3A game is unimaginable. The limited number of NFTs isolates participants, and the disguised issuance of NFTs will exploit the community. This is like a microcosm of a dictator's economic regulation, and the community's voice is far less than imagined. BAYC and Azuki both eventually fell on the road of the crazy hair growth sub-series. Thinking about it now, I feel relieved.
Of course, the other side of this sharp blade is also reflected in Ethereum. We talked about this issue in the previous article, so we will not expand on it here. Back to the point, when a decentralized project becomes extremely large and enters the mainstream, what should be done about deflation and inflation? Rely on simple rules of code, or listen to the project party with only a few or dozens of people? Or those soul figures? Oh, yes, we also have governance tokens. But governance tokens are meaningless before solving the witch problem. Democratic voting can never be reflected in governance proposals. After all, a16z can veto the vote of a large community with just a few wallets, so what is the point of voting?
5. Business logic cannot be closed loop
When writing the Babylon research report, I thought about a question: how many projects in Web3 can complete the closed loop of business logic? I think at least 95% of the projects cannot, and in most cases this closed loop can only be realized in the white paper. People always build the sink very perfectly when designing it, but they are very idealistic when talking about where the water comes from. Ideally, Babylon and Eigenlayer can mobilize the dormant wallets of Bitcoin and the pledged tokens of Ethereum, thereby eliminating the bubble of LST and bringing security to various long-tail chains, protocols and new projects. At that time, I thought this was also a grand vision. But a doubt punctured my fantasy. How much interest should be paid to the pledgers every year to mobilize the security of trillion-dollar assets to attract BTC whale to flock in? How much share of the trillion-dollars can the long-tail project rent? Where should we find the gap that cannot be closed in the end? I think it may be Token again.
This problem is reflected in every corner of Web3. The same is true for the popular Ton ecological mini-games. After the airdrop, the leading projects such as Catizen will soon prove whether they have real consumer users. Most of the remaining mini-games will die quickly, which is inevitable. In many Asian, African and Latin American countries, Crypto has begun to shine in payment and transfer. A large part of the user groups covered by Ton also come from these countries. What I hope is that based on the user needs of these countries, the next giant will eventually emerge in Mini App.
6. The story should not end on Wall Street
Nietzsche once said: "There is no truth in this world, only perspective." My point of view is from the perspective of pragmatism, and the idealist's point of view may contradict me. But I think we are both right. After all, there is no truth in this world, and we must learn to see new perspectives from different viewpoints. Tolerating "opposition" will be closer to the truth itself than a single belief. Every project I match is also what I love. And there will be at least one common point between the two factions. That is, I hope that Web3 can be on par with the current generative AI and play a role in promoting human progress. The story of Crypto should not stop on Wall Street.
7. Sisyphus
When I was naming this article, I thought of a very suitable Greek mythological figure, Sisyphean. In Homer's epic, Sisyphus is famous for his cunning and wit, which allowed him to hoard a lot of wealth. Every time he felt that death was about to come, he would trick the god of death into putting handcuffs on him, and as a result, no one on earth could enter the underworld. As a punishment from the gods, he was sentenced to push a big stone up a steep mountain. Every time he tried his best and the stone was about to reach the top, the stone would slip out of his hands and he had to push it back again, doing endless labor. In the Western world, the word Sisyphus can also be used to describe "a task that never ends and is futile." But in Camus' philosophical essay "The Myth of Sisyphus," Sisyphus's efforts to climb to the top of the mountain are a symbol of human optimism and resistance. The positive and negative sides of this story are very similar to the current situation of Web3. The night before dawn is always the darkest.
