Author: YBB Capital Researcher Zeke

Preface

This article was written after watching a video of a talk by Chris Dixon, a16z partner, titled “Is Web 3.0 Dead?” As an idealistic tech investor, Dixon reflected on the evolution of the internet from the 1990s to today, asserting that the future of crypto remains full of potential. However, from my perspective, the Web3 ecosystem is currently in disarray. This piece is a summary of my recent thoughts and an extension of ideas from previous articles.

1. The Gambler’s Demand vs. the Geek’s Vision

In his speech, Chris Dixon highlighted two mainstream cultures within crypto: the speculative “casino culture” and the more tech-focused “computer culture.” I’ll simplify these terms as “gambler culture” and “geek culture.” As Web3 progresses, these two seemingly opposing cultures have been held together by something called “vision,” eventually pushing crypto into the mainstream. Since the inception of Bitcoin, the vision behind crypto has always been grand: from a decentralized peer-to-peer payment system controlled by neither individuals, institutions, nor governments, to Vitalik’s world computer, decentralized permanent storage, the reimagining of the Internet of Things, and more. On a smaller scale, there’s also something I’ve personally loved — 10k PFPs — yes, the idea of an IP propelled into the world by thousands of community members. Unfortunately, these grand visions have largely remained just that — visions. “Cash” turned into “digital gold,” the “world computer” concept is riddled with contradictions, and my favorite narrative has now become the punchline of jokes within the community. The gambler’s demands and the geek’s vision won’t intersect forever, and when the cracks begin to show, decentralization, vision, and mission no longer matter. Just as Maslow’s hierarchy of needs suggests, human needs are fulfilled in a specific order, from basic survival to self-actualization. The fundamental need of most mainstream crypto users is to make money. When the tech narrative stops working, people go wherever the loudest noise is — PVP in MEME coins, tap to earn on Ton, or, if all else fails, find liquidity in stocks like A-shares or the U.S. market. In reality, our attention has shifted from tech narratives to Powell, ETFs, Trump, and even memes that the West can spin into humor. Sometimes I feel like these blond-haired, blue-eyed people are the reincarnation of Satoshi Nakamoto. Then again, talking about ideals after filling your belly is a very human thing.

There’s a growing consensus within the crypto space to let go of tech narratives and focus on building consumer experiences, finding new users, and developing high-performance heterogeneous chains. Essentially, this consensus is about finding a way for “gamblers” and “geeks” to intersect once again. If this succeeds, we’ll enter a new era of diversity where both “gamblers” and “geeks” contribute to reshaping the internet. If it fails, then we may just revert to the P2P vision and the core of financial systems (though I don’t think that alone can sustain the future growth of blockchain). Regardless of where this path leads, I believe what’s most important is meeting the value needs of ordinary users and having a clear driving force. The term “falsifiability” often gets thrown around, with claims of token prices hitting zero or the high entry barriers as evidence. But what if we think beyond that? Where does the drive come from? Last year, I wrote an article that discussed the potential of decentralized AI computing power, back when there was very little information available on the subject. I was confident about this direction and even dedicated two chapters to its future. With GPT’s continuous updates and NVIDIA’s skyrocketing stock price, AI has been a hot topic. Today, decentralized computing power projects are no longer novel, but they mostly lack the user-driven motivation to succeed. Without efficiency, they can hardly deliver on stability, affordability, or low energy consumption. Compared to many simple Telegram games, they offer little practical difference. Both are waiting to list on exchanges to provide exit liquidity, and the only thing to talk about is still just the vision.

In today’s world, where generative AI permeates every industry, Web3 struggles to inspire “gamblers” without a strong driving force. Ponzi schemes are driven by human greed; consumer applications are driven by value, whether it’s emotional or practical value — you have to offer something of worth. A decent app could be like the perennial DeFi protocols that meet users’ needs for trading, arbitrage, and speculation. Outside of crypto, there are many more examples, such as the early ChatGPT, despite its cumbersome payment processes, long queues, IP blocking, and account suspensions, people flocked to use it. During the liquidity flood of 2021, even a 12-word seed phrase couldn’t stop elderly folks from jumping into meme coins. The logic is the same; the only difference is the driving force. While low entry barriers and a good user experience matter to ordinary users, they come secondary to dopamine and practicality. After we solve all the abstract issues and lower the barriers, what will drive non-Web3 users to engage? For a Web2 user who isn’t speculating, Web3 currently offers little utility beyond transfers and payments. So, where will our imagined growth come from?

2. Why Don’t We Talk About Decentralization Anymore?

I understand that short-term buzz doesn’t mean that centralized heterogeneous chains are the future. But looking at the current excitement around the altcoin market, these chains seem poised to overshadow Ethereum. Criticism of Ethereum is so rampant that even Vitalik has called for the fragmented Ethereum ecosystem to realign. From various angles, Ethereum is still the “Apple” of Web3 — boasting the largest ecosystem, the highest TVL, and decentralization and security second only to Bitcoin. But today, it feels more like the “Apple” that Tim Cook inherited from Steve Jobs — no longer cool, and no one is cheering for its innovations. At least for now, decentralization doesn’t seem to be synonymous with success.

From a technical development perspective, decentralization and security take time to mature. They should be rare assets, akin to gold — something that cannot be easily recreated. But the method for recreating this has already been conceived by Vitalik and Mustafa Albasan. In today’s world, decentralization is more akin to lab-grown diamonds — ranging from Ethereum, with its highest quality, to cheaper alternatives like Near DA, all being sold by dozens of providers. Will Ton or Solana become Layer 2 solutions in the future? I think the answer is yes, though due to factional reasons, they won’t do so on Ethereum. But Ethereum isn’t the only place where decentralization and security abound — Bitcoin’s security, decentralization, societal recognition, and consensus mechanism are all superior to Ethereum, and Bitcoin isn’t factional. Even with the concept of 1:1 forks, if native DA solutions can be implemented, won’t Ethereum’s proudest strengths — decentralization and security — become liabilities? How would Ethereum’s defenders criticize heterogeneous chains built on Bitcoin?

From the perspective of ZK technology, if upward scaling with ZK Rollups is possible, then downward scaling with coprocessors or ZKML may also be feasible. With the maturation of off-chain computation technologies for high-performance applications, achieving the 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 ecosystems and user experiences lead for a while, without obsessing over the age-old triangle paradox.

3. Is Web3 Following the Path of Web2?

Tokenomics is always an intriguing topic. We’ve witnessed countless complex token economic designs, but in the end, only service-oriented projects’ tokens tend to achieve long-term success. For instance, CEXs, Layer 1s, and various DeFi projects — why? The simplest reason is demand. Blockchain mainly has genuine demand and revenue in these sectors. From its inception to today’s mainstream era, tokens have played a crucial intermediary role in helping these projects and their communities grow into giants. The positive feedback loop has deepened their moat. In contrast, consider the many 10k PFP projects that, when on the verge of collapse in 2022, tried to save themselves through staking and burning mechanisms. Yet without strong demand, reducing supply holds no real meaning.

Another long-standing issue is the problem of Sybil attacks. Sybil attackers are a major headache for token incentives. Many projects that aim to grow from the bottom up through incentive models end up as failed experiments. In the past, KYC was the only way to barely mitigate this problem, as centralized platforms and compliant projects could rely on KYC to avoid Sybil attacks. But for purely on-chain projects, it’s far more complex. While Vitalik has proposed solutions like SBT (Soulbound Tokens), reminiscent of World of Warcraft’s soulbound items, these ideas contain many logical loopholes. Using Worldcoin’s iris scanning approach is even more impractical. Today, the most effective way to prevent Sybil attacks has shifted toward points-based systems. Attackers can create many addresses and spam transactions, but they can’t fake money. Just like PoW’s hash power, it doesn’t matter how many addresses they have; as long as deposits weigh most or entirely in the points system, it works. This method benefits project teams because points are merely a soft promise, leaving final control in the team’s hands. However, this leads Web3 in a worse direction. Only whales benefit from such activities, not real users, and it certainly doesn’t attract Web2 users. After tokens list on exchanges, what’s left is a wasteland.

The pattern of addressing one problem only for another to arise is not uncommon in this space. So why not just eliminate tokens altogether? Earlier this year, I repeatedly praised projects without tokens for outperforming many competitors in various aspects. These projects don’t fall victim to Ponzi schemes, nor do they have to worry about Sybil attacks, token prices, or the myriad challenges of token utility. By focusing their energy and resources on marketing and ecosystem building, they can precisely target value users, thereby expanding their ecosystem.

What I find worth pondering is whether this represents a shift toward Web2. Web3 giants like Base provide excellent services and continually profit from users, but the community doesn’t share in this success. How is this different from Web2? From construction to launch, everything is monopolized by Coinbase. The flagship protocol within its ecosystem, Farcaster, is also handled internally, which has even led to the marginalization of Friend.tech. Is this a reflection of decentralization? We must admit that our development path is increasingly resembling Web2. In the 1990s, the vision of the internet was to return power and wealth to users. In the Web 1.0 era, television and radio stations held the media reins; by the Web 2.0 era, control had shifted to the seven Nasdaq giants. Now, Web3 oligarchs are testing the limits. Have the legendary stories of bottom-up innovation come to an end? I’m not sure, but I do 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 human currency. Its greatest strength was its scarcity; its greatest weakness was also its scarcity. Decentralized currencies, from shells to gold, have existed throughout history. Before humanity entered the steam era, scarcity ensured that dictators couldn’t arbitrarily plunder people’s wealth, allowing society to function normally. During periods of rapid technological development, scarcity hindered humanity from reaching for the stars. In a 2002 speech, former U.S. President George W. Bush remarked, “In humanity’s millennia-long history, the most precious achievements aren’t dazzling technology, classic works by great masters, or eloquent political speeches, but the domestication of rulers — locking them in cages. I am standing in that cage, speaking to you now.” Putting power in a cage is humanity’s only compromise in accepting fiat currency. Fiat money, unbacked by any precious metal, is arguably the biggest Ponzi scheme in human history, but it has greatly contributed to modern societal development.

Scarcity is one of blockchain’s inherent features and sources of value, and we constantly emphasize its importance. However, I sometimes wonder whether excessive scarcity is also hindering our progress. For example, what if Bitcoin had been born in a more isolated country — would its vision have been more quickly realized? The case of 10k PFPs offers an even clearer metaphor. Bored Ape Yacht Club, Azuki, and Pudgy Penguins are all highly successful NFT projects — at least the first two were in the past. At their respective crossroads, they each chose different paths: gaming, animation, and merchandise. The last approach, rooted in practicality, allowed Pudgy Penguins to defy the odds and make a comeback. Meanwhile, creating games or animations — or even building an entire IP universe — still strikes me as very cool. But scarcity destined them for failure. As I mentioned in my discussion of GameFi, the cost of creating a AAA game is unimaginable. Limited NFT supplies isolate participants, while issuing additional NFTs dilutes the community. This is like a microcosm of how dictators manipulate economies. The community’s influence is much smaller than one might think. Both Bored Ape Yacht Club and Azuki ultimately collapsed due to their rampant issuance of sub-series, and in hindsight, it all makes sense.

Of course, this double-edged sword also applies to Ethereum, as discussed in my previous article, so I won’t delve into that again here. To get back to the main point, when a decentralized project grows large enough and enters the mainstream, how should it handle deflation and inflation? Should it rely on simple rules embedded in code, the decisions of a small team, or the influence of prominent figures? Oh, and let’s not forget governance tokens. The only problem is that without a solution to the Sybil problem, governance tokens are meaningless. Democratic voting can never be reflected in governance proposals — after all, a16z can veto a large community’s yes votes with just a few wallets. So what’s the point of voting?

5. The Closed Loop of Business Logic

While writing the Babylon report, I pondered a question: how many projects in Web3 can truly achieve a closed-loop business model? I believe at least 95% cannot. In most cases, this loop only exists in whitepapers. People tend to design a perfect reservoir but are overly idealistic when it comes to how the water will flow into it. Ideally, Babylon and Eigenlayer could activate dormant Bitcoin wallets and Ethereum staking tokens, removing LST bubbles and bringing security to various long-tail chains, protocols, and new projects. At the time, I thought this was a grand vision. But one doubt shattered my illusion. How much interest would need to be paid annually to attract BTC whales and secure trillions in assets? How much of that trillion-dollar pie can long-tail projects afford to rent? In the end, the gap left by an unclosed loop would likely be filled by tokens.

This issue permeates every corner of Web3. For example, the currently popular Ton ecosystem mini-games face similar challenges. Leading projects like Catizen will soon prove whether they have real consumers after the airdrops end. Most of the smaller games will quickly vanish — it’s inevitable. In many African, Latin American, and Asian countries, crypto is gaining traction in payments and remittances. 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 from the Mini App ecosystem.

6. The Story Shouldn’t End on Wall Street

Nietzsche once said, “There are no facts, only interpretations.” My perspective comes from a practical viewpoint, which may contradict the idealist perspective. But I believe neither of us is wrong — after all, there is no absolute truth, and we must learn to see new perspectives through different views. Embracing opposition brings us closer to the truth than any singular belief. Every project I support is one I love. There is at least one common ground between these two camps: the hope that Web3 can stand alongside generative AI and play a role in advancing humanity. The story of crypto should not end on Wall Street.

7. Sisyphus

When deciding on a title for this article, the figure of Sisyphus from Greek mythology came to mind. Known for his cunning in Homer’s Odyssey, Sisyphus used his wits to accumulate vast wealth. Every time he sensed death approaching, he tricked Death into wearing handcuffs, so no one on Earth would enter the underworld. As punishment from the gods, he was condemned to push a large boulder up a steep mountain. Just as he reached the summit, the boulder would slip from his grasp, forcing him to start over — an endless, laborious task. In the Western world, “Sisyphean” is often used to describe a task that is endless and futile. Yet, in Camus’ philosophical essay The Myth of Sisyphus, Sisyphus’ constant struggle to ascend the mountain becomes a symbol of human optimism and the spirit of resistance. How closely this duality mirrors the current state of Web3. The night is always darkest before the dawn.

About YBB

YBB is a web3 fund dedicating itself to identify Web3-defining projects with a vision to create a better online habitat for all internet residents. Founded by a group of blockchain believers who have been actively participated in this industry since 2013, YBB is always willing to help early-stage projects to evolve from 0 to 1.We value innovation, self-driven passion, and user-oriented products while recognizing the potential of cryptos and blockchain applications.

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