Crypto: The Futile Struggle of Sisyphus?

Preface:

This article is my reflection after watching Chris Dixon, partner at a16z, speak on the topic "Is Web 3.0 Dead?" As an idealistic tech investor, Chris examined the evolution of the internet from the 1990s to today and believes the future of Crypto remains full of potential. However, from where I stand today, I think Web3 is in a state of chaos. This article summarizes my recent thoughts on Crypto and expands on pieces I've written before.

I. What the Gambler Wants vs. What the Nerd Envisions:

Chris Dixon noted that there are two dominant cultures in crypto: a "casino culture" rooted in speculation, and a "computer culture" more focused on building technology. I'll call them "gambler culture" and "nerd culture" for short. In the push to move Web3 forward, these two seemingly opposed cultures are held together by something called "vision" — which ultimately is what's supposed to bring Crypto into the mainstream.

Since the Bitcoin era, crypto has carried grand visions: a decentralized P2P payment system controlled by no individual, organization, or government; then Vitalik's world computer; decentralized permanent storage; reshaping the Internet of Things... On a smaller scale, there were my beloved 10k PFPs. Yes, they were IP pushed into the world by thousands of community members. Unfortunately, these visions have largely remained dreams. "Digital cash" became "digital gold," the ideals and reality of the "world computer" are riddled with contradictions, and my favorite narratives became the laughingstock of the industry.

What the gambler wants and what the nerd envisions don't always intersect. When the gap appears, decentralization, vision, and mission stop mattering. Like Maslow's hierarchy of needs — where human needs progress sequentially from basic physiological needs to self-actualization — the core need of the mainstream crypto user is to make money. When the tech narrative stops working, users will go wherever the noise is loudest: PvP in memes, Tap to Earn on TON, or even chasing liquidity in A-shares and US equities.

Reflected in reality, our collective attention has gradually shifted from tech narratives to Powell, ETFs, Trump, and the latest memes from the West. Sometimes I feel like these blond guys are the real Satoshi Nakamoto, who disappeared long ago. But human nature is to talk about ideals only after you've had enough to eat.

Right now, the industry commonly discusses abandoning the tech narrative, chasing incremental growth, delivering experiences, building consumer-grade apps, and focusing on high-performance heterogeneous chains. The reality is that this consensus is an attempt to reconnect "the gambler" and "the nerd." If it succeeds, we'll enter a new era of diversification where both camps become contributors to reshaping the internet. If we fail, we'll have to retreat to the P2P vision and return to the essence of finance — which I don't think can sustain blockchain's long-term development. But whatever path this leads to, I believe what matters most is meeting the real value needs of ordinary, motivated users.

We often hear the word "counter-evidence," and most of the supporting evidence is tokens going to zero, barriers too high, and so on. But we can also think about it from the other direction — what's the incentive? Last year I wrote a piece on decentralizing AI compute power. At the time there was very little relevant information, but I believed in the direction and even dedicated two chapters to describing its future. This year, with ChatGPT's continuous updates and Nvidia's surging stock price, the AI narrative has been hyped over and over again. Compute power projects are no longer novel today, but unfortunately most of them lack a compelling reason for users to actually adopt them.

While lacking efficiency, stability, low friction, and affordability is already hard enough to achieve — compared to most mini games on Telegram today, there's no fundamental difference other than the surface. They're all waiting to list and looking for a liquidity exit. The only thing left to discuss is still the vision.

In today's world, where next-generation AI is penetrating every industry, a Web3 with no real incentive will have a hard time attracting "gamblers" anymore. The incentive driving Ponzi schemes is human greed; the incentive driving consumer-grade apps is value — emotional or practical, you have to deliver at least some value. A qualifying app in industry terms might be the various evergreen protocols in DeFi that meet users' diverse financial needs like trading, arbitrage, and speculation. In the outside world, there are plenty of examples. Take early ChatGPT: there were clunky payment steps, long queues, IP bans everywhere, and account suspensions — but people still flocked to it. Back in the liquidity-rich days of 2021, not even a twelve-word seed phrase could stop aunts and uncles from rushing to buy shitcoins. Same logic, different incentive.

Entry barriers and UX genuinely matter to everyday users, but they're secondary to dopamine and practical utility. Once we've solved the various abstraction problems and lowered the barrier to entry, what's the actual incentive for non-Web3 users to come in? For non-speculative Web2 users, Web3 today offers no real utility beyond transfers and payments. So where exactly does the incremental growth we imagine come from?

II. Why Don't We Talk About Decentralization Anymore?

I know that temporary popularity doesn't mean high-performance heterogeneous chains will be the right fit for the future — but just from the market heat around these "imitation" chains, their momentum has nearly overtaken Ethereum. There's no shortage of criticism of Ethereum; even Vitalik has called for reorganizing the fragmented Ethereum ecosystem. Looking at it from multiple angles, Ethereum is still genuinely the Apple of Web3 — the largest ecosystem, the highest TVL, and the second-highest degree of decentralization and security after Bitcoin. It's just that today's Ethereum feels more like the "Apple" after Cook took over from Jobs: no longer cool, and no one cheers for its innovations anymore. At the very least, it seems like decentralized public chains today are no longer a direct synonym for success.

From a technology development perspective, decentralization and security should be rare goods that take a long time to accumulate — they should be like gold, not something that can be artificially manufactured. But that manufacturing method has been figured out by Vitalik and Mustafa Albasan, and today decentralization is more like a lab-grown diamond from Zhecheng: from the highest-quality Ethereum to the most cost-effective Near DA, with dozens of sellers. So will TON or Solana become Layer 2s in the future? I think the answer is yes. Of course, due to factional reasons, neither of those two could become Layer 2s on Ethereum. But in Web3, decentralization and security don't flow exclusively from Ethereum. BTC's security, degree of decentralization, social recognition, and consensus mechanism perception all surpass Ethereum — and BTC has no factional baggage. Even with a 1:1 fork approach, as long as a sufficient native DA scheme can be implemented in the future, could Ethereum's proudest decentralization and security become the very bullets aimed at itself? How would Ethereum defenders criticize heterogeneous chains built on BTC?

From the perspective of ZK technology development, since upward ZK Rollups are possible, downward coprocessors, ZKML, and so on are also possible. When off-chain computation technology for high-performance applications matures, achieving the balance between scalability, decentralization, and security at Layer 1 is not entirely impossible. So from this angle, setting aside the old trilemma and letting ecosystem and experience lead is not out of the question.

III. Is Web3 Following the Path of Web2?

Tokenomics has always been a fascinating topic. We've seen countless complex economic designs, but in the end, only tokens from service-oriented projects can achieve long-term success through tokenomics — think CEXs, Layer 1s, and various DeFi projects. The simplest reason is still the demand problem. On the blockchain, fundamentally only these types of projects have genuine demand and real revenue. From the early days to the current mainstream era, tokens have played a critical role in how these projects and their communities became giants. The virtuous cycle has only deepened their moats over time. On the other hand, projects like many of the 2022 10k PFPs tried to rescue themselves through staking and token burns when they were near death — but without strong underlying demand, that's meaningless no matter how much you tinker.

Another long-standing problem is the token incentive issue: sybil attacks. Sybils are the biggest headache in token distribution. Many projects that tried to achieve a bottom-up model through incentive structures have turned into bubbles as a result. In the past, the only solution was KYC. Centralized platforms and some compliant projects could still rely on KYC to avoid sybils. But for fully on-chain projects, this problem is far more complex. While Vitalik proposed SBTs analogous to World of Warcraft, there are clearly a lot of logical gaps. And Worldcoin's iris scanning approach is even more impractical. Today, the more effective method to prevent sybil attacks has shifted to Points. A sybil can generate a massive number of addresses and rack up a huge volume of transactions — but money can't be faked. Like the PoW mechanism for compute power, if it can't be faked, it doesn't matter how many addresses exist, as long as Points weighting is set to be proportional to or uniquely tied to deposits. This approach has many benefits for project teams: Points are just a soft commitment, and the right to interpret them ultimately stays in the project team's hands. But for Web3's development, it's heading in a worse direction. Only whales benefit from this, not real users, and it won't attract users from outside Web3. After the token launches, all that's left is a mess.

Pressing down on a gourd only to have a ladle pop up is not uncommon in this space — so why not simply abandon tokens altogether? This year I've praised several tokenless projects, noting that their performance across many dimensions far outpaces their competitors. Not swept up in Ponzi models, with no need to worry about sybils, token prices, empowerment mechanics, and all the rest — by focusing their energy and resources on going public and building ecosystems, they can precisely attract high-value users and thereby expand their ecosystems.

What gives me pause is whether this has become a form of Web2-ification. Web3 behemoths like Base provide users with quality services and continuously extract value from them — but the community can't share in the upside. How is that different from Web2 today? From building to landing, Coinbase takes everything, and the ace protocol in their ecosystem, Farcaster, is also built in-house. They even squeezed out Friend.tech in the process. Is that an expression of the decentralization ethos? It has to be admitted that our development path is looking increasingly like Web2. The vision for the internet back in the 1990s was also to return power and wealth to users. In the Web 1.0 era, TV and radio stations controlled the media; in the Web 2.0 era, the Nasdaq's seven giants controlled the internet; and now, the Web3 power players are testing the limits. Are the legendary bottom-up stories over? I don't know, but I'm certain we're standing at a crossroads.

IV. Scarcity Is a Double-Edged Sword

Gold played a central role in human monetary systems before the Bretton Woods system collapsed. It had one great advantage: scarcity. It also had one great disadvantage: scarcity. From shells to gold, decentralized currency has existed since ancient times. Before humanity entered the steam age, scarcity ensured that autocrats couldn't arbitrarily plunder the people's wealth, and society could function normally. But during periods of explosive technological development, scarcity has held back humanity's journey to conquer the cosmos. In a 2002 speech, former U.S. President George W. Bush said: "The most precious achievement in thousands of years of human history is not brilliant technology, not the towering classics of the great masters, not the rhetoric of politicians — it is the realization of taming rulers, the realization of the dream of putting them in a cage. I am standing inside a cage to speak with you."

Putting power in a cage is the only way humanity has reconciled itself to fiat currency. Money not backed by any precious metal is arguably the greatest Ponzi scheme in human history — yet it has contributed enormously to the development of modern society.

Scarcity is one of blockchain's defining characteristics, and also one of its core values. We constantly emphasize the importance of scarcity. Yet sometimes I wonder whether excessive scarcity is holding back our progress. For example, if Bitcoin had been born in a more isolated country, would its vision have been realized sooner? The 10k PFP era is a better micro-illustration. Bored Ape Yacht Club, Azuki, Pudgy — all very successful NFT projects, or more precisely, at least the first two were successful in the past. At developmental crossroads, they chose three different directions: gaming, animation, and merchandise. The latter's pragmatic approach allowed it to turn the tide against the current, but building a game, an animated series, or even developing a full IP universe also seemed genuinely exciting in my eyes — it's just that scarcity caused the others to stumble. As I said when discussing GameFi: the cash burn rate of a AAA game is unimaginable, limited NFTs exclude participants, and inflated NFTs exploit communities. This is a micro-illustration of the authoritarian economic control model, and the community's voice is far smaller than imagined. Bored Ape Yacht Club and Azuki ultimately failed down the path of frantic sub-chain inflationary expansion — and looking back on it now, I actually feel relieved.

Of course, the other edge of that sharp blade is also reflected in Ethereum. We discussed this in a previous piece so I won't belabor it here. Coming back to the main point: when a decentralized project grows enormously and enters the mainstream, how should we approach deflation and inflation? Do we rely on simple code-based rules, or do we listen to a project team of just a handful or a few dozen people? Or figureheads? Oh right — we also have governance tokens. But governance tokens are meaningless until the sybil problem is solved. Democratic elections can never be authentically reflected in governance proposals. After all, a16z can overturn the approval of a large community with just a few wallets — so what's the point of voting?

V. Business Logic That Can't Close the Loop

When writing the Babylon research report, I found myself thinking about a question: how many projects in Web3 can actually close their business logic loop? I think at least ninety-five percent cannot. In most cases, closing that loop can only be achieved on paper in a whitepaper. People always design a perfect sink, but when it comes to discussing where the water actually comes from, they get far too idealistic.

In an ideal state, Babylon and EigenLayer could mobilize Bitcoin's dormant wallets and Ethereum's staked tokens, thereby deflating the LST bubble and providing security for many emerging long-tail chains, protocols, and projects. At the time, I thought this too was a grand vision. But one doubt shattered my illusion. To mobilize trillions of dollars in assets for security purposes, how much annual yield would need to be paid to stakers to attract BTC whales to pile in? How much of those trillions could long-tail projects actually afford to rent? And where will the gap that ultimately can't be closed be found? My guess: tokens, once again.

This problem shows up in every corner of Web3, and the mini games thriving in the TON ecosystem today are no exception. Leading projects like Catizen can quickly prove whether they have genuine consumer users after their airdrop. The rest of the mini games will quickly fade away — that much is inevitable. In many countries across Africa and Asia, Crypto is beginning to shine in payments and remittances. A large share of the user base that TON reaches also comes from these countries. I hope that, grounded in the real needs of users in those countries, the next giant might finally emerge from a Mini App.

VI. The End of the Story Shouldn't Be Written on Wall Street

Nietzsche once said: "There are no facts in the world, only interpretations." My interpretation comes from a pragmatist's perspective, and revisiting the idealist view may be the opposite of mine. But I don't think either of us is wrong — after all, there are no absolute truths in this world, and we must learn to see new perspectives from different vantage points. Embracing "contradiction" gets us closer to truth than blind belief. Every project I pair together is one that I genuinely care about. And there will be at least one thing in common between the two factions: they hope that Web3 can align with today's next-generation AI and play a role in advancing human progress. The story of Crypto should not end on Wall Street.

VII. Sisyphus

When choosing a title for this piece, I thought of a Greek mythological figure who fits remarkably well: Sisyphus. In The Odyssey, Sisyphus is known for his cunning and intelligence. His cleverness allowed him to accumulate tremendous wealth. Whenever he felt death approaching, he would trick Death into wearing handcuffs. As a result, no one could enter the underworld anymore. As punishment from the gods, he was condemned to push a boulder up a steep mountain. Each time he gave everything he had, just as the rock was about to reach the summit, it would slip from his grasp and he would have to push it back up again, trapped in an endless labor. In the Western world, the word "Sisyphean" can describe "a futile and endless task." But in Camus's philosophical essay The Myth of Sisyphus, Sisyphus's relentless struggle to climb to the summit symbolizes human optimism and the fighting spirit of mankind. The positive and negative sides of this story mirror the current state of Web3 remarkably well. The darkest hour is always just before the dawn.