Is there one? A way forward?
There surely was one in 2018, when the ICO bubble finally bursted, together with its tower of half-truths and broken promises. There was too much unrealized potential, too much land in sight for the big crash to be the end of it all. Granted, the land was far, the way there foggy and uncertain, but new shores seemed clearly on the horizon.
To some extent, cypro’s previous big crash was a relief. After two years of constant noise pollution, over promising and under delivering, finally, some quietude and still waters that allowed us, the few survivors, to re-think and change course.
With hundreds of projects having crashed under the weight of their own nonsense, and regulators suddenly and harshly awakening from their awe-induced coma, most of the industry started to ask itself - what can actually be done with this technology that hasn't been done before?
In many ways, this was the overall sentiment in which what we now call DeFi made its first steps. Decentralized Exchanges, Automated Market Making, bonding curves and bridged ledgers were true technological developments and infinitely more interesting than the overhyped vaporware of the 2017 bullrun, and they all emerged out of silence.
The original business model behind early DeFi was solid, even cooperatively humble to some extent. Instead of Centralized Exchanges collecting fees on trades and listings, LPs would now collect this money and share it with the public. This was a good idea, a useful one even.
But good ideas are not enough. The moment the solid returns generated by LPs started to drop, as is to be expected for a high-in-demand investment opportunity perceived as low-risk, the circus had to be opened once again.
Now, on top of transaction fees, you could earn made up gov tokens, lock them up in farms, to earn even more made up tokens which can then be reinvested and staked in yet another farm. Then came uncollateralized stablecoins, backed by tokens which are backed by those same stablecoins; Manna from the Skies, Ponzinomics.
It never made sense, because it didn’t have to. You only need to make sense if you're trying to achieve something in the real world, if you’re aware of the fact that your actions have consequences and you’re striving for the best outcomes.
DeFi could have made lots of sense if it would have tried to serve something real, something that’s not itself. Instead we got traders trading with traders, inventors investing in investors, a money Ouroboros, consuming its own tail.
This was our second chance, crypto. There might be a third one, but it’s not guaranteed. After the last crash there was land in sight, unexploited potential, cheap money and an uninterrupted narrative of infinite growth; Number Go Up.
We can still sense land out there, beyond the fog. But this time, when we hit Terra Firma, the game plan needs to be different. We live in a world with limited resources, heading towards ecological disaster, and maybe a disruptive collapse of long-standing social and geopolitical pillars, and not necessarily in a good way. If we want this industry to survive, we need to make sure that it’s good for something beyond leveraged token trading.
This is why we are forming Winterproof, an alliance of projects, open-source developers and DAOs, committed to building crypto infrastructure with the actual needs of global markets, society and the bisophere in mind.
As the recent market crash has shown once again - profits that don’t stem from value provided are unsustainable in the long run. If everyone around you is getting rich, without solving anyone’s problems, alleviating pain points or addressing human needs - you can be sure that the end is nigh; winter is on its way to weed out the rent seekers and reward those who have something to sell that people are willing to buy.
In this sense, it is important to understand the difference between buying and investing. Investors never really buy the things they seem to buy. What they are buying is an opportunity to sell at a later stage and take profits. By all means, this activity is an important part of all markets - this way society manages risk and facilitates growth. But if this is the only thing happening in your industry, you can bet safely that it won’t get very far.
Each supply chain needs someone at its end, willing to pay for a product and actually use it. When you buy a new smartphone, you pay money and receive the new device. In theory at least, both you and the seller should now be better off than before and the transaction should be complete. The buying party should have no need to find someone else willing to buy the same phone at a higher price in order to be content with it.
If our projects don’t serve consumers in this way, or at least serve other projects that do, we can be sure that winter won’t be kind to us.
To be clear, this failure to address the actual public exceeds the normal crypto-discourse revolving around “adoption”. True, web3 applications can be confusing to use, controlling your own keys is scarry, and the overall aesthetics of the space is condescendingly hostile to users. All of this may be a problem, but it is not THE problem. The problem is that we haven’t provided much value, beyond more opportunities to play around with yet more speculative assets - something traditional finance has already been ramming down people's throats since the mid-70s.
Winter is coming. It’s time to build shelters.
As self-evident as all of this may sound, it since long isn’t as straightforward as it used to be. Providing value to consumers isn’t a one-man-show, especially not in crypto.
The founding ethos of DeFi coined the term “Money Legos” to describe the way in which different projects cooperate, use, feed into and build on top of each other to provide composite products that add value at each step to create something which the developers of the individual building blocks couldn’t or didn’t imagine. The way has truly become wiser than those who walk on it.
Trying to work against this logic, building one-stop-shops and closed company-ecosystems while resting on patents and protected IP will provide diminishing returns as time goes on. If we want to compete successfully, we’ll have to learn to cooperate.
Resilience comes from flexibility, from being able to change, from finding your niche in the larger scheme of things and from being valuable to those around you.
This is what survives Winter, and these are the values the Winterproof Alliance seeks to promote.
Winter will be harsh, and no one can guarantee us anything. We can however identify a few principles, or rules of thumb if you will, that may see us through and realize the potential our industry still holds.
If we want to have a real impact on the world, do good in it and see others join us, we should ask the following question about projects we consider to engage with:
- Real Economic ImpactDoes the project impact the “real economy”? Meaning - does it directly enable or facilitate the production/exchange of goods and services? (note: tokens are not goods and services)
- Real Human ImpactDoes the project address problems of people who are not traders or investors?
- Disruptive CapacityDoes the project provide something that would be impossible or unfeasible without DeFi/DLT?
- True Decentralization Decentralized computing and infrastructure aside, does the project at its core also decentralize wealth and power? Will the market, society and the world be more equitable as a result of it?
- AccessCan non-crypto natives use the product without having to learn how its tokenomics and technical underpinnings work?
- Synergistic PotentialDoes or can the project interface with others in the space, in ways that allow third parties to build composite products on top of it, following the “Money Legos” model?
- Future proof sustainabilityCan the project survive without destroying the planet and human society? In other words - if and when regulatory requirements crack down on unsustainable practices, will it survive? This includes minding your carbon footprint, equitable labour practices, non-extractive economic dynamics, etc.
This framework is the first draft of principles under which the Winterproof alliance has forged itself . We’ll be defining, debating, and expounding them with protocol leaders in the Winterproof Discussions starting in June 2022.
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