Is Crypto a Sisyphean Revolt?

Author: Zeke, Researcher at YBB Capital

Foreword

This article was written after watching a16z partner Chris Dixon's speech video, titled "Is Web 3.0 Dead?" As an idealistic technology investor, Dixon reviewed the evolution of the Internet from the 1990s to today and asserted that the future of cryptocurrency is still full of potential. However, from my perspective, the Web3 ecosystem is currently in a state of chaos. This article is a summary of my recent thoughts and an extension of the ideas in previous articles.

1. Gamblers’ needs and geeks’ vision

In his speech, Chris Dixon emphasized the two mainstream cultures in cryptocurrency: the speculative "casino culture" and the more technology-oriented "computer culture". I simplify these terms as "gambler culture" and "geek culture". With the development of Web3, these two seemingly opposing cultures are combined by something called "vision", which eventually pushes cryptocurrency into the mainstream. Since the birth of Bitcoin, the vision behind cryptocurrency has been grand: from a decentralized peer-to-peer payment system that is not controlled by individuals, institutions or governments, to Vitalik's world computer, decentralized permanent storage, the re-imagination of the Internet of Things, and so on. On a smaller scale, I personally also love the 10k PFP - yes, the idea of ​​an IP being pushed out to the world by tens of thousands of community members. Unfortunately, these grand visions are mostly just visions. "Cash" has become "digital gold", the concept of a "world computer" is full of contradictions, and my favorite narratives are now the butt of community jokes. The needs of gamblers and the visions of geeks will not always intersect, and when the cracks start to show, decentralization, vision, and mission no longer matter. As Maslow's hierarchy of needs suggests, human needs are met in a specific order, from basic survival to self-actualization. The basic need of most mainstream cryptocurrency users is to make money. When the technical narrative no longer works, people go to the loudest place - PVP on MEME coins, click to make money on TON, or, if all else fails, go to stocks such as A shares or US markets to find liquidity. In fact, our attention has shifted from technical narratives to Powell, ETFs, Trump, and even MEMEs that the West can make up into humor. Sometimes I feel like these blond and blue-eyed people are the reincarnation of Satoshi Nakamoto. Having said that, it is also very human to talk about ideals after having a full meal.

A consensus is forming in the cryptocurrency field to abandon the technical narrative and focus on building consumer experience, finding new users, and developing high-performance heterogeneous chains. In essence, this consensus is to find a way for "gamblers" and "geeks" to intersect again. If successful, we will enter a new era of diversity, with gamblers and geeks contributing to the reshaping of the Internet. If it fails, then we may return to the vision of P2P and the core of the financial system (although I don't think this alone can sustain the future growth of blockchain). Wherever this road leads, I think the most important thing is to meet the value needs of ordinary users and have a clear driving force. The term "falsifiability" is often thrown around, such as the claim that the token price has fallen to zero or the high threshold is evidence. But what if we think about it further? Where does the driving force come from? Last year, I wrote an article discussing the potential of decentralized AI computing power, when there was little information on the subject. I am very confident in this direction and even wrote two chapters to describe its future. With the continuous updates of GPT and the surge in NVIDIA's stock price, AI has become a hot topic. Today, decentralized computing power projects are no longer new, but most of them lack user-driven motivation for success. Without efficiency, they are difficult to achieve in terms of stability, affordability, or low energy consumption. Compared with many simple Telegram games, they are not much different in practical applications. Both are waiting for exchanges to provide exit liquidity, and the only thing that can be said is still vision.

In today's world, generative AI permeates every industry, and it is difficult for Web3 to motivate "gamblers" without a strong driving force. Ponzi schemes are driven by human greed; consumer applications are driven by value, whether it is emotional value or practical value-you have to provide something valuable. A decent application can meet users' needs for trading, arbitrage, and speculation like those enduring DeFi protocols. There are more examples outside of cryptocurrencies, such as the early ChatGPT, where people flocked to use it despite its cumbersome payment process, long queues, IP blocking, and account suspension. In the flood of liquidity in 2021, even a 12-word mnemonic can't stop old people from speculating on meme coins. The logic is the same; the only difference is the driving force. While low barriers and good user experience are important to ordinary users, dopamine and practicality are secondary. After we solve all the abstract problems and lower the barriers, what will drive non-Web3 users to participate? For non-speculating Web2 users, Web3 currently has little use other than transfer and payment. So where will our imagined growth come from?

2. Why don't we talk about decentralization anymore?

I understand that short-term heat does not mean that centralized heterogeneous chains are the future. But judging by the current excitement in the altcoin market, these chains seem ready to overshadow Ethereum. Criticism of Ethereum is so rampant that even Vitalik has called for a realignment of the fragmented Ethereum ecosystem. From every angle, Ethereum is still the "Apple" of Web3 - with the largest ecosystem, the highest TVL, and decentralization and security second only to Bitcoin. But today, it is more like the "Apple" that Tim Cook inherited from Steve Jobs - it is no longer cool, and no one cheers for its innovation. At least for now, decentralization does not seem to be equivalent to success.

From the perspective of technological development, decentralization and security need time to mature. They should be scarce assets like gold, which cannot be easily copied, but the method of copying has been conceived by Vitalik and Mustafa Albasan. In today's world, decentralization is more like artificial diamonds, from the highest quality Ethereum to lower-priced alternatives such as Near DA, which are sold by dozens of vendors. Will Ton or Solana become Layer 2 solutions in the future? I think the answer is yes, but they will not become Layer 2 solutions on Ethereum due to factional reasons. But Ethereum is not the only place where decentralization and security prevail. Bitcoin's security, decentralization, social acceptance, and consensus mechanism are better than Ethereum, and Bitcoin is not a faction. Even with the concept of a 1:1 fork, if a native DA solution can be implemented, wouldn't Ethereum's most proud advantages - decentralization and security - become a burden? How would Ethereum defenders criticize heterogeneous chains built on Bitcoin?

From the perspective of ZK technology, if scaling up using ZK Rollups is feasible, then scaling down using coprocessors or ZKML may also be feasible. As off-chain computing technology for high-performance applications matures, achieving a balance between scalability, decentralization, and security on Layer 1 may not be as far-fetched as it seems. So, from this perspective, maybe it's okay to let the ecosystem and user experience lead for a while without having to get entangled in the ancient triangle paradox.

3. Will Web3 follow the path of Web2?

Token economics has always been an interesting topic. We have witnessed countless complex token economic designs, but in the end, only tokens for service-oriented projects can achieve long-term success. For example, CEX, Layer 1, and various DeFi projects - why? The simplest reason is demand. Blockchain has real demand and revenue mainly in these areas. From the beginning of its birth to today's mainstream era, tokens have played a vital intermediary role in helping these projects and their communities grow into giants. The positive feedback loop deepens their moat. In contrast, think of many 10k PFP projects that tried to save themselves through pledge and destruction mechanisms when they were on the verge of collapse in 2022. However, there is no real meaning in reducing supply without strong demand.

Another long-standing problem is the Sybil attack problem. Sybil attackers are a big problem for token incentives. Many projects that aim to develop from the bottom up through incentive models have ultimately failed. In the past, KYC was the only way to barely mitigate this problem, because centralized platforms and compliant projects could rely on KYC to avoid Sybil attacks. But for pure on-chain projects, the situation is much more complicated. Although Vitalik proposed solutions like SBT (Soul Bound Tokens), which are reminiscent of the soul-bound items in World of Warcraft, these ideas contain many logical loopholes. The iris scanning method using Worldcoin is even more impractical. Today, the most effective way to prevent Sybil attacks has turned to a points-based system. Attackers can create many addresses and spam transactions, but they can't forge currency. Just like the hash power of PoW, it doesn't matter how many addresses they have; as long as deposits account for most or all of the weight in the points system, it works. This approach is beneficial to the project party, and the points are just a soft promise, and the ultimate control is in the hands of the team. But this leads Web3 in a worse direction. Only whales can benefit from this activity, not real users, and of course they can't attract Web2 users. After the token is listed on the exchange, what is left is a wasteland.

It is not uncommon to solve one problem and then another one comes. So why not just get rid of the token? Earlier this year, I praised the projects without tokens many times for outperforming many competitors in every aspect. These projects will not fall victim to Ponzi schemes, nor do they have to worry about Sybil attacks, token prices, or the countless challenges of token utility. By focusing their energy and resources on marketing and ecosystem building, they can precisely target valuable users and thus expand their ecosystem.

I think it is worth thinking about whether this represents a shift to Web2. Web3 giants like Base provide excellent services and continue to profit from users, but the community does not share in the success. How is this different from Web2? From construction to launch, everything is monopolized by Coinbase, and the flagship protocol Farcaster in its ecosystem is also controlled internally, even leading to the marginalization of Friend.tech. Is this a manifestation of decentralization? We have to admit that our development path is becoming more and more like Web2. In the 90s, the vision of the Internet was to return power and wealth to users. In the Web 1.0 era, TV and radio stations dominated the media; in the Web 2.0 era, control has shifted to the hands of the seven giants of Nasdaq. Now, the oligarchs of Web3 are testing the limits. Is the legend of bottom-up innovation over? I'm not sure, but I know we are at a crossroads.

4. Scarcity: a double-edged sword

Before the collapse of the Bretton Woods system, gold played a pivotal role in the human monetary system. Its greatest advantage was scarcity, and its greatest weakness was also scarcity. From shells to gold, decentralized currencies have always existed in history. Before humans entered the steam age, scarcity ensured that dictators could not plunder people's wealth at will and society could function normally. In an era of rapid technological development, scarcity has hindered the rise of mankind. In 2002, former US President George W. Bush said in a speech: "In the thousands of years of human history, the most valuable achievement is not the dazzling technology, not the classic works of masters, not the eloquent political speeches, but the domestication of rulers - putting them in cages. I am standing in that cage now and speaking to you." Putting power in a cage is the only compromise for humans to accept legal tender. Fiat currency without any precious metal backing can be said to be the biggest Ponzi scheme in human history, but it has made great contributions to the development of modern society.

Scarcity is one of the inherent characteristics and value sources of blockchain, and we constantly emphasize its importance. However, I sometimes wonder if excessive scarcity is also hindering our progress. For example, if Bitcoin was born in a more isolated country - would its vision be realized faster? The case of 10k PFP provides a clearer metaphor. Bored Ape Yacht Club, Azuki, and Pudgy Penguins are all very successful NFT projects - at least the first two were like this in the past. At their respective crossroads, they each chose different paths: games, animation, and merchandise. That last approach, rooted in practicality, is what allowed Pudgy Penguins to bounce back against the odds. Meanwhile, making games or anime—or even building entire IP universes—still strikes me as incredibly cool. But scarcity dooms them. As I mentioned in my discussion at GameFi, the cost of creating AAA games is unimaginable. A limited supply of NFTs isolates participants, while issuing additional NFTs dilutes the community. It's like a microcosm of a dictator manipulating the economy. The community has much less influence than people think. Both Bored Ape Yacht Club and Azuki eventually went out of business by releasing sub-series, and in hindsight, it all makes sense.

Of course, this double-edged sword also applies to Ethereum, which I discussed in my previous article, so I won’t go into details here. Back to the topic, when a decentralized project grows large enough to enter the mainstream, how should it deal with deflation and inflation? Rely on simple rules embedded in the code, or the decisions of a small team, or the influence of well-known figures? Oh, and don’t forget governance tokens. The only problem is that governance tokens are meaningless if they can’t solve the Sybil problem. Democratic voting can never be reflected in governance proposals - after all, a16z can veto the approval vote of a large community with just a few wallets. So what’s the point of voting?

5. Closed loop of business logic

When writing the Babylon report, I thought about a question: How many projects in Web3 can truly achieve a closed loop of business? I think at least 95% cannot do it. In most cases, this closed loop only exists in the white paper. People always want to design a perfect reservoir, but they are too idealistic about how the water flows in. Ideally, Babylon and Eigenlayer can activate dormant Bitcoin wallets and Ethereum staking tokens, eliminate the LST bubble, and bring security to various long-tail chains, protocols, and new projects. At the time, I thought this was a grand vision. But a doubt shattered my fantasy. How much interest needs to be paid each year to attract BTC whales and ensure the safety of trillions of assets? How much of the trillion-dollar pie can long-tail projects rent? In the end, the gap left by the closed loop is likely to be filled by tokens.

This problem permeates every corner of Web3. For example, the currently popular Ton ecosystem mini-game faces similar challenges. After the airdrop is over, leading projects like Catizen will soon prove whether they have real consumers. Most mini-programs will soon disappear - it is inevitable. Cryptocurrencies are becoming increasingly popular for payments and remittances in many African, Latin American and Asian countries. A large part of Ton's user base comes from these regions. I hope that user demand in these countries will eventually help a major player emerge in the mini-program ecosystem.

6. The story should not end on Wall Street

Nietzsche once said, "There are no facts, only interpretations." My point of view comes from a pragmatic point of view, which may contradict the idealistic point of view. But I believe that we are all right - after all, there is no absolute truth, and we must learn to see new perspectives through different perspectives. Embracing opposition can bring us closer to the truth than any single belief. Every project I support is a project I love. There is at least one common point between the two camps: the hope that Web3 can stand shoulder to shoulder with generative AI and play a role in promoting human progress. The story of cryptocurrency should not stop on Wall Street.

7. Sisyphus

When choosing a title for this post, I thought of Sisyphus from Greek mythology. Famous for his cunning in Homer's Odyssey, Sisyphus used his wisdom to amass a vast fortune. Whenever he sensed death approaching, he tricked Death into putting on handcuffs so that no one on Earth would enter the underworld. As punishment from the gods, he was sentenced to push a large rock up a steep mountain. Just when he reached the top, the boulder would slip from his hands, forcing him to start all over again—an endless, arduous task. In the Western world, "Sisyphus" is often used to describe an endless, futile task. However, in Camus' philosophical essay "The Myth of Sisyphus", Sisyphus's constant struggle to climb the mountain becomes a symbol of human optimism and rebellious spirit. How similar this duality is to the current state of Web3. The night before dawn is always the darkest.