The problem with crypto

This post was prompted by Li Jin’s piece stating that the barrier to crypto’s mainstream adoption is product-market fit:

I believe that the more significant and urgent barrier to adoption is building things that people want. Web3 has a product-market fit problem, not a UX problem.

Li Jin, The Barrier to Mainstream Crypto Adoption Isn’t UX — It’s Product-Market Fit

Li cites examples like Facebook and the iPhone. Here’s the thing: those are products, but crypto is a technology. TM fit, not PM fit.

Usually, new tech does existing things incrementally better until we discover what the new tech uniquely enables. Like how AI finally went mainstream when ChatGPT made it widely usable, combined with GPT-3 finally being good enough at things people care enough about. Due to its inherent nature, crypto doesn’t have this path.

Crypto’s problem: Innovating on problems instead of solutions

The root of crypto’s problem is innovating on problems rather than solutions. This is a pervasive cultural problem.

For example, see the below investment theses and investment areas of this crypto/web3 fund. 

The fund’s investment thesis:

What began as an experiment in cryptography has become the underpinnings of a techno-populist re-architecture of the internet that allows users to hold onto more of the value that they create.

Variant Fund III announcement

The fund’s investment areas:

  • Protocols addressing the financialization and productivity of NFTs
  • Financial primitives that leverage user ownership to unlock sustainable liquidity network effects
  • MEV derivatives and other net-new markets related to blockspace
  • Stablecoins that prioritize safety, risk management, and mainstream consumer adoption
  • Financial primitives that leverage composability to create net-new functionality, such as lending optimizers and DEX aggregators
  • Financial products that bridge the legacy financial system with DeFi, allowing new users and institutions to cross the chasm

These are innovative problems, not innovative solutions. Will they ever be innovative solutions? Maybe, but they must be valuable problems first.

When you don’t have the benefit of ease of use, you must focus on solving valuable problems with high awareness among users with high willingness to pay. This is not that.

Does crypto have a ‘real’ future?

Maybe, but only once there’s a cultural shift. Today, the crypto community is either obsessed with crypto for crypto’s sake or focused on innovating on problems instead of solutions. That results in a solution in search of a problem.

Some tell themselves that new major innovations start as toys. That may be true, but not every toy is inevitably an innovation. Some stay toys.

The inherent complexities and stigma of crypto mean that it must find a valuable problem that it’s uniquely capable of solving:

  • Valuable problem: High awareness problem serving initial high willingness-to-pay users.
  • Uniquely capable of solving: The barrier to entry is so high that incremental improvements aren’t good enough — it must be the only path forward.

A combination of ‘make something people want‘ and ‘in a non-tail-wagging-dog’ way.

When & how?

If there’s a path for crypto, it won’t be obvious, meaning people focused on crypto likely won’t discover it.

For example, there could be a new, valuable problem due to converging trends that people work on. Then, they may get stuck and realize that a blockchain-based solution is the only option.

As a side effect of solving it, they will bootstrap a network that just happens to be on-chain, exposing new capabilities uniquely enabled by blockchain at scale.

But the crypto/web3 part won’t be obvious or important because nobody cares: it’s just technology that enables a solution. Just like the magic that enables our smartphones, online payments, electric vehicles, or voice assistants. Consumers don’t care about LLMs, they care about what it uniquely enables: ChatGPT and Midjourney.

In fact, I’d wager that the important thing isn’t the ‘currency’ part at all, but what blockchain enables around entitlements, protocols, and related capabilities.

Then once something like that happens, only then will crypto/web3 earn the right to matter.

A closing thought

The future of crypto is far from inevitable.

It only has a future to the extent that it starts solving valuable problems with high awareness among users with high willingness to pay because that’s the only path to escape velocity in cases with such strong headwinds.

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