Editor's Note: The author believes that the biggest problem in the crypto field is not talent or capital, but the lack of first-principle thinking, which has led the industry into a cycle of short-termism, extraction culture, and low integrity. The author analyzes the reasons why compounding investors are difficult to emerge, proposes the need to drive long-term thinking from the top and focus on building revenue-generating products, and also criticizes the inefficiency of generic Layer 1 blockchains, suggesting they focus on specific domains and build their own ecosystems to empower token value. Furthermore, the author emphasizes that liquidity token projects should establish an investor relations role to enhance transparency, rather than relying solely on buybacks and burnings, and advocates using funds to expand products and consolidate long-term competitive advantages, in order to break the current nihilism dilemma and achieve sustainable growth. The following is the original content (edited for easier reading): The biggest problem in this field is neither talent nor capital. Simply put, it is the lack of first-principle thinking. This is a culture that must change. That 1% of people need to start driving this field forward. If you've been following my Twitter recently, you'll find that I've been shouting about some extremely low-hanging fruits that seem to have high leverage, look very easy to achieve, but apparently no one "understands" or executes well. Here are some of the views I've expressed: · The real problem is: Why don't more chains use their grant programs to incubate their own dapps and build dapps that are clearly aligned with the chain, rather than hoping these dapps won't abandon the chain in two years? · The reason this industry has the current price trajectory is largely because everyone has the idea that "you have to sell because one day it will go to zero." The reason is that no one has really built good products that people want to keep DCAing into. Crypto needs compounding investors. · "Marketing" in crypto is mostly misaligned with the product in most cases. If you're not a consumer-facing product - say you're a yield platform - why are you even marketing to retail users at all. The best marketing is often price appreciation. And the ones who are best at this are liquidity funds. I will discuss each topic in this article, namely: · Compounding investors, culture, short-termism · Generic L1s are dead, must change · Liquidity tokens and investor relations · Buybacks and burnings are the least bad, not the best I've titled this article "First Principles" because all these views are things I came up with during a simple thought exercise, which is how to use common sense to change the industry today. It's not rocket science. Insanity is doing the same thing over and over again and expecting different results. We've been through three cycles, doing the same thing over and over again - essentially creating a nihilistic, zero-value accumulation, maximum token and app extraction, because for some stupid reason we decided to open a casino every four years, attracting capital from around the world to gamble. Guess what? After three cycles, ten years later, people finally realize that the house, the scammers, the manipulators, the ones selling you overpriced food and drinks in the casino, are taking all your money. The only thing you can show for your months of hard work is how you wiped out all your history on-chain. An industry built on the premise of "I'll come in, make my money, and then leave" will not lead to the establishment of any long-term compounding investors. This place used to be better, used to be a place of legitimate financial innovation and cool technology. We used to get excited about novel, interesting applications, new technologies, "changing the future of (finance) in France." But due to extreme short-termism, maximum extraction culture, and low-integrity people, we've fallen into this perpetual financial nihilism self-cannibalization cycle, which collectively self-triggers when everyone thinks it's a good idea to keep pouring into random scammer tokens because "I'll sell before they scam me." (Seriously, I've seen people say they know the "SBF token" is a scam, but they'll sell to "quickly profit" before getting rugged.) You can say I have no construction experience - that's true. But this is a small field and has not been around for long; working in this field for four years, while collaborating with some of the brightest and smartest funds, has given me a deep understanding of what works and what doesn't. Again, insanity is doing the same thing over and over again and expecting different results. As an industry, we've gone through the same thing year after year - feeling this nihilism after the inevitable price collapse, thinking it's all worthless. I felt this way when NFTs crashed (oh god, it's all a scam), and now people feel this way after the recent meme coin debacles, just as they did during the ICO era. The solution is simple: we just need to start doing different things. Compounding investors are simply assets that only go up over a multi-year time frame - think Amazon, Coca-Cola, Google, etc. Compounding investors are companies with the potential to achieve sustainable and long-term growth. Why haven't we seen compounding investors in crypto? The answer is more nuanced, but essentially - extreme short-termism and misaligned incentive structures. Yes, there are a lot of issues with the structure of incentive mechanisms, and Cobie's article on private capture and phantom pricing covers this well. I won't delve into this too much, as the focus of this article is what we as individuals can do now. For investors, the answer is obvious - as Cobie points out here: you can choose to exit (and you probably should) Indeed, people have chosen to exit: this cycle we've seen the decline of "CEX tokens" as retail participants choose not to buy these tokens; while individuals may not have the ability to change this systemic issue at the system level, the good news is that financial markets are quite efficient - people want to make money, and when the existing mechanisms don't make money, they don't invest, making the whole process unprofitable, thereby forcing the mechanisms to change. However, this is just the first step - to truly build compounding investors, companies need to start instilling long-term thinking in this field. It's not just that "private market capture" is bad, but the entire chain of thought that has led us to this point - like a self-fulfilling prophecy, founders seem to collectively believe "I'll make my money and then leave," with no one truly interested in playing the long game - which means the charts always look like a McDonald's M. The top must change: a company is only as good as its leaders. Most projects fail not because of a lack of developers, but because the top decides to leave. This industry must start to see those high-integrity, high-agency, long-term thinking founders as role models, rather than idealizing the "short-term pump and dump" founders. The average quality of founders in this field is not news. After all, this is an industry that calls people who are just binding pumpfun tokens "developers" - the bar is really not that high. As long as you have a vision that goes beyond the first two months of token launch, you're already ahead of the pack. I also believe the market will start to economically incentivize this long-termism, and we're starting to see that. Despite the recent selloff, Hyperliquid is still up 4x from the initial listing price, which is something very few projects this cycle can boast about. When you know the founders' long-term growth is aligned with the product, it's usually easier to make the "long-term hold" argument. The natural conclusion to this is that high-integrity, high-agency founders will start to capture the majority of the market share, because frankly, when everyone is tired of scams, they just want to work for someone with a vision who won't exit the scam - and there are just too few of those.

Here is the English translation of the text, with the specified terms translated as instructed:

In addition to having a good leader, the establishment of compounding users also depends on whether the product is good. In my view, this issue is easier to solve than finding a good founder. The reason why there are so many meaningless products in the crypto field is that the people who create these meaningless products also have the mentality of "making money and then leaving" - they therefore choose not to take on new problems, but only to fork popular things and try to make money from them.

However, the fact is that this industry does choose to reward such meaningless ideas - for example, the AI agent hype in Q4 2024. In this case, after the dust settles, we will see the usual McDonald's M-shaped pattern - so companies must also start to focus on building profitable products.

No revenue path = no long-term believers/holders = no buyers of the asset, because there is no future to bet on.

This is not an impossible task - crypto businesses do make money. Jito has an annual revenue of $900 million, Uniswap $700 million, Hyperliquid $500 million, Aave $488 million - in the bear market, they continue to make money (just not as much).

Looking ahead, I believe that the fleeting, narrative-driven speculative bubbles will become smaller and smaller. We have already seen this - the gaming and Non-Fungible Token pricing in 2021 was in the trillions, but this cycle, the peak of memes and AI agents is only in the tens of billions. This is a macro-level roller coaster euthanasia.

I believe everyone is free to invest in what they want. But I also believe that people want their investments to generate returns - when games so clearly signal "this is a hot potato, I must offload it before it goes to zero", the roller coaster will get faster and the market size will get smaller, as people choose to exit, or lose all their money.

Revenue solves this problem - it lets you as an investor understand that people are willing to pay for the product, and therefore have a certain long-term growth prospect. When something has no revenue path, it is almost uninvestable on a long-term basis. On the other hand, a revenue path leads to a growth path, attracting buyers who are willing to bet on the continued growth of the asset.

In summary, building compounding users requires:

· Instilling long-term thinking at the top

· Focusing on building profitable products

The universal L1 is dead, it must change

If you sort the Coingecko homepage by market cap, you will find that blockchains occupy more than half of it; apart from stablecoins, Layer 1 chains occupy a large share of value in our industry.

However, the chart of the second largest digital asset after Bitcoin looks like this:

If you bought Bitcoin in July 2023, at the current price, you would have gained 163%.

If you bought Ethereum in July 2023, at the current price, you would have gained 0%.

This is not even the worst part. The 2021 bubble frenzy sparked a wave of "Ethereum killers" - new blockchains aimed at surpassing Ethereum in some technical way - whether it's speed, development language, block space, etc. But despite the hype and massive capital inflows, the results have not met expectations.

Today, four years after 2021, we are still facing the aftermath of that wave - on Coingecko there are 752 smart contract platforms that have launched tokens, and there may be even more that haven't launched.

Unsurprisingly, most of their charts look like this - making Ethereum's chart look relatively good in comparison:

So - despite four years of effort, billions of dollars in capital investment, over 700 different blockchains, only a few L1s have decent activity - even those haven't reached the "breakthrough user adoption levels" that everyone expected four years ago.

Why? Because most of these projects are built on the wrong premise. As Luca Netz pointed out in his article "What is Consumer Crypto", many of today's blockchains follow a generalist approach, each blockchain dreaming that they will "host the internet economy".

But this requires massive effort, ultimately leading to fragmentation rather than penetration, because a product that tries to do everything usually can't do anything well. This is an effort that costs too much money and time - frankly, many blockchains can't even answer a simple question: "Why should we choose you over the 60th blockchain?"

The L1 space is another case of everyone following the same script but expecting different results - they compete for the same limited developer resources, trying to outdo each other in funding, hackathons, developer housing, and now it seems we're even making phones (?).

Let's assume an L1 succeeds. Every cycle, some L1s manage to break through. But can that success be sustained? The success story this cycle is Solana. But here's a view that many of you may not like: what if Solana becomes the next Ethereum?

Last cycle, there was a group of people so convinced of Ethereum's success that they put most of their net worth into Ethereum. Ethereum is still the highest TVL chain, and now even has an ETF - yet the price is stagnant. This cycle, the same type of people are saying the same thing - Solana is the chain of the future, Solana ETF, etc.

If history is any indication, the real question is - can today's victories guarantee relevance tomorrow?

My view is simple: rather than building generic blockchains, L1s should build around a core focus. Blockchains don't need to be all-powerful for everyone. They just need to excel in a particular domain. I believe the future is blockchain-agnostic - it just needs to perform well, and the technical details won't matter as much.

Today, builders have already shown signs of this - founders building D-apps are primarily focused not on the chain's speed, but on the chain's distribution and end-user adoption - does your chain have users? Does it have the necessary distribution to make the product appealing?

44% of web traffic runs on WordPress, but its parent company Automattic is only valued at $7.5 billion. 4% of internet traffic runs on Shopify, but its valuation is $120 billion - 16 times Automattic! I believe L1s will have a similar end state, where value will accrue to the applications built on the blockchains.

To this end, I believe L1s should take disruptive measures and build their own ecosystems. If we use cities as an analogy for blockchains (thanks to Haseeb's 2022 article), we can see that cities started because specific advantages made them viable economic and social hubs, and then over time focused on a dominant industry or function:

· Silicon Valley → Tech

· New York → Finance

· Las Vegas → Entertainment and Hospitality

· Hong Kong and Singapore → Trade-centric financial centers

· Shenzhen → China's hardware manufacturing and tech innovation hub

· Paris → Fashion, art, and luxury

· Seoul → K-pop, entertainment, and beauty industry

Layer 1 is also like this - the demand is driven by the attractiveness and activity they provide; so teams need to start focusing more on being the best in a particular vertical - curating that kind of appeal that draws people into their ecosystem, rather than building all sorts of different exhibits, hoping to attract users.

Once you have that kind of appeal that draws people into the ecosystem, you can build a city around that appeal. Again, Hyperliquid is an example of a team that has done this well and iterated on first principles in this regard. They built an in-house perpetual DEX orderbook, spot DEX, staking, oracles, multi-sig - all built in-house, and then expanded to HyperEVM, which is a smart contract platform for people to build on.

Here's a simple breakdown of why this works:

· First focus on "building the appeal": By first building the perpetual trading product, Hyperliquid attracted traders and liquidity before expanding.

· Control the stack: Owning key infrastructure (oracles, staking) reduces vulnerabilities and creates a moat.

· Ecosystem synergies: HyperEVM now serves as an unpegged playground for developers, leveraging Hyperliquid's existing user base and liquidity.

This "appeal first, city second" pattern mirrors the success of web2 platforms (e.g. Amazon starting with books and then expanding to everything else). Solve an exceptionally good problem, and then let the ecosystem organically expand from that value core.

So I believe blockchains should start integrating their own products, building their own appeal, owning the stack; as the captain, you're the visionary - this allows you to keep your blockchain aligned with your bigger, longer-term vision for L1; and ensure projects don't immediately abandon ship when chain activity starts declining, because everything is built in-house;

Most importantly, this process brings tokenomics to your token - if the blockchain is the city, the token is the currency/commodity that people trade in it; by using it to drive value to the token - people need to buy your token to do interesting things on-chain. It gives your currency utility and gives people a reason to hold it.

Oh, but it's important to remember - just because you specialize, doesn't mean the market demands it. Another harsh reality is that L1s need to work on the right opportunities in the right way. Blockchains need to develop products that people want - sometimes, people don't really want "web3 games" or "more data availability".

Liquidity Tokens and Investor Relations

The next topic is about how I think liquidity token projects should evolve in this space. Simply put - liquidity token projects need to start setting up Investor Relations (IR) roles and quarterly reporting, so that investors - whether retail or institutional, can clearly see what the company is doing. This role is not new or revolutionary - but it is severely lacking in this space.

Yet, this space does very little on the IR front. I've been told by multiple project business development leads, that if you have some kind of "regular call pitching your liquidity token to funds", you're doing 99% more than other projects in this space.

Business development is cool for attracting builders and ecosystem funds, but an IR role that tells the public what the token is doing is better - it's really that simple. If you're a token trying to attract buyers, you need to sell yourself - and the way you do that is not by renting the biggest booth at conferences, or advertising in airports, but by pitching yourself to capital-rich buyers.

By doing quarterly growth updates, you start to demonstrate to investors that the product is legitimate and can accrue value - allowing investors to speculate on the long-term prospects of the product potentially performing well.

As for how you should go about it - a good starting list is:

· Reporting discussing quarterly expenses/revenue, protocol upgrades, numbers, but no MNPI - published on blog/website

· Monthly check-ins with liquidity fund managers, discussing your product/pitching yourself

· Hosting more AMAs

Buybacks and Burns Aren't Bad, But Not the Best Either

The last thing I want to discuss is about buybacks and burns in this space. My view is: if the money doesn't have another use, I think buybacks and burns are a decent use. In my opinion, crypto hasn't reached the scale where companies can rest easy, there's still a lot to be done on the growth front.

The first and most important use of revenue should always be to expand the product, upgrade the tech, and enter new markets. This is aligned with driving long-term growth and building competitive advantages; a good example of this is Jupiter's acquisition spree, where they've been using cash to buy names, acquire products, and acquire key talent in the space.

While I know some people like buybacks and burns, and will call for dividend payouts, my view is that most crypto operations are more akin to tech stocks, as the investor base is a similar type: growth-seeking investors looking for asymmetric returns.

For this, companies directly returning value to token holders via dividends doesn't make much sense - they can do this, but if they use the cash reserves to build a bigger moat that serves them in 5-10 years, that would benefit the product immensely.

Crypto is just starting to enter the mainstream - so it doesn't make sense to start slowing momentum now; instead, cash should be deployed to ensure the next winner stays ahead for a longer time horizon, as despite all prices declining, the crypto institutional setup has never been better - the adoption of stablecoins, blockchain tech, tokenization, etc.

So while buybacks and burns are far better than just taking the money and leaving, they still aren't the most effective use of capital, given how much work there is left to do.

Conclusion

This bear market has started to make people realize the necessity of building revenue-generating products as a path to profitability, and the inevitable need for an investor relations role to demonstrate token performance legitimacy.

There's still a lot of work to be done in this space. I remain optimistic about crypto's future.

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