Every single one of these web3 companies is going bust. They could all be built without tokens or a blockchain if they wanted to. There are only two things propping up the entire crypto economy, VC funding and fraud. Once the VC money leaves the ecosystem the dominoes will fall.
Yet some VCs are still plowing into web3. There was an article today about how Moellis was getting into Web3 companies. I'm genuinely curious what their thought process is. I tend to be in the camp that web3 is just a bunch of hot air seeing how cryptos been around for quite a while now with few use cases, but I also give benefit of the doubt there could be something there given the nature of tech.
> I'm genuinely curious what their thought process is.
The thought process for VCs investing in crypto is simple: they get a huge discount on the tokens in the raise that they can turn around and dump on retail a few months later for huge returns. Instead of waiting 10+ years for a traditional exit, they can get liquidity in a few months.
As Chamath admitted on the podcast, even when they're on a vesting schedule they can sell the claims to future vesting prior to actually receiving the tokens.
That’s my understanding as well after listening to Crypto Critics and Griftonomics podcasts. Highly recommend both although so much stuff is way over my head. I wish there was a beginner’s version :)
I'd like to recommend a shelf of great to read erudite and intelligible financial history and financial social history and technicality, from which you'd recognize the simulacra, but it wouldn't help very much because this crypto game strips out everything fundamental economic and human from their imaginary systems and leaves solely a caricature of a carcass.
I'm despondent about the overall crypto situation, please forgive me for my cynicism, because I'm genuinely concerned about how many times people can exclaim the king is naked the cupboard is bare the promises aren't merely empty but never had meaning, and yet the socialized penny just won't drop.
This FT article [0] goes some way to describing how vulnerable young and low income people are to false investment scheming. What's needed (very rapidly) is to reveal the full extent of behavioural and technical engineering used in exploitation, instead of blaming the phenomenon on concocted reductio ad infortunium.
Edit,: added for clarity, "...from which...the simulacra.."; corrected "onto" as "on" and thereafter revised with clearer unchanged meaning the rest of final sentence. (and Ed2 sp ip.); E3 people instead of folk ,(mobile sorry) E4 added, "scheming" after "false investment" for clarity.
The discounts are getting smaller and smaller as the valuations go up. A new chain, Aptos, is raising at 2B valuation. Optimism, an ETH Layer2 raised at 1B valuation. Until like last week, it had a circulating marketcap of 100m.
Lots of smaller projects are priced below VC prices. For example, CowSwap is at like 12c when private rounds were at 15c.
I'm guessing that the VC premium pays for privileges like lock up and preferred terms.
VC buying - aka VC selling to greater fool LPs, with purported guarantees trails a wake of retail that fuels their vig.
I know nothing concrete about crypto n.b. but I think I can recognize the structured avarice. If my precis is all that's happening I'd convict this kind of VC instantly.
> Lots of smaller projects are priced below VC prices.
How do you know what the VCs paid? These are private transactions. Sometimes they invest in equity in the business at the published round price, but get tokens for almost free on the side.
Uber makes revenue from customers. Not all investments are good investments but the fact remains that businesses have non-investor participants from which the goal is, in the full course of time, to extract profits. While specific equities may be bad investments, equities in aggregate are positive-sum because investors aim to extract profit from non-investor participants. They may fail! But that doesn't change the goal.
This is not the same as a cryptocurrency which relies solely on later investors to create returns for earlier investors. There are no non-investor participants from which profits can be derived, period. Cryptocurrencies are in aggregate either zero-sum (best case, PoS) or massively negative-sum (worst case, PoW, especially Bitcoin).
This represents a pretty fundamental misunderstanding of, well, investing.
Even PoS is negative sum; developing and hosting nodes isn't free, to say nothing of human capital wasted on attention diverted toward a rube goldberg ponzi lottery in any capacity, right down to this hastily composed reply to your post.
I think the next set of companies will become more smarter in their vesting terms.
Just think about it, if these data point of selling claims get be bought to on-chain then I am sure people and next set of companies will not borrow some such investors.
because of this particular reason I feel DeFi will replace traditional finance first before any other form of crypto companies takes.
A recent IMF admitted that DeFi is 10x efficient than TradFi.I am sure once DeFi get a bit regulated and has better risk management principal embedded into code the system will become more efficient
I also see the recent housing crackdown and loss of money for common people playing an important role of smart contract lead world for the financial safety of the larger population. People are losing trust way faster than they are able to change systems
> A recent IMF admitted that DeFi is 10x efficient than TradFi.I am sure once DeFi get a bit regulated and has better risk management principal embedded into code the system will become more efficient
For the efficiency part. To be fair, traditional finance as an industry operates as a super inefficient, regulatory-captured pyramid scheme. Shouldn’t be too hard to beat.
> For the efficiency part. To be fair, traditional finance as an industry operates as a super inefficient, regulatory-captured pyramid scheme. Shouldn’t be too hard to beat.
They're dense. They don't get it at all.
The "super inefficient, regulatory-captured" part is a feature, not a bug. We want transactions to be reasonably slow and checked by a human somewhere along the way. We want a myriad legal protections.
"pyramid scheme", that's rich, coming from cryptocurrency companies.
All the naive investors who keep making investments in crypto will lose their money, like they have on current round of failing crypto 'banks'. It's both the fact that existing finance is hard to access for poor people, and it's got a lot of regulation that can protect them, and it can cost more, and there are still terrible legal investments (payday loans). But it provides way more protection than defi, which provides none.
With all the large firms (crashing daily) that provided impossible ~19% returns still trying to attract new investors, there's just no defense of the 'industry'.
You can trade Bitcoin on an exchange that never handles Bitcoin. Synthetic securities can always be constructed regardless of how the original securities are represented. In this sense blockchain isn't much better than og paper shares
Moelis advise on M&A though. They get fees from companies doing steps with each other, which they do in both good times and bad (aka restructuring). I didn't think it meant Moelis was investing in those companies.
It's like a lawyer getting into crypto, they do contracts for the companies, they're not buying tokens for themselves.
It seems that they also bet on the hypetrain lasting longer. They are now trying to cancel some of their TSMC orders. [1] They'll probably end up with a juicy profit overall anyway, but perhaps the more clear shovel sellers here are foundries like TSMC and Samsung.
>Yet some VCs are still plowing into web3. There was an article today about how Moellis was getting into Web3 companies. I'm genuinely curious what their thought process is.
I'd hazard a guess that it's something along the lines of "throw shit against the wall and see if anything sticks," or less cynically "run it up the flagpole and see if anyone salutes."
Isn't that pretty much the modus operandi of VCs? Invest in a bunch of speculative ventures and hopefully make all of it (and much, much more) back if/when one or more becomes profitable?
Some VCs, some even with legendary reputations, are going to ruin said reputations from the scams they're pushing. In 10 years much of the sheen of Silicon Valley will have worn off. Tech will be as beloved as banking.
The older protocols that were built in the depth of 2018-19 bear markets will survive. Many of them are also doing wonderfully well in terms of revenue. COMP, MKR, AAVE, CRV all make a ton in revenue and have a well-defined product-market fit.
Crypto projects are tough to value. Their sheer global scale means that they can ramp up revenue and even profits extremely fast. StepN, a move-to-earn app reportedly made $120M in profit in its first year of operation. That might not be sustainable, but what business wouldn't give an arm and a leg to make $120M profits in just one year of operation?
Imo, crypto projects should be valued on 2-3x multiples at max.
> “StepN, a move-to-earn app reportedly made $120M in profit in its first year of operation. That might not be sustainable, but what business wouldn't give an arm and a leg to make $120M profits in just one year of operation?”
Shady securities in the past offered that kind of short-term unsustainable returns too. That’s why it was heavily regulated. This iteration of the same concept should be as well. It’s good news that SEC is now inspecting all of Coinbase’s listings as potential security offerings — better late than never.
Nobody wants to use these move-to-earn, play-to-earn and whatever-else token flywheels if there isn’t a market attached where you can dump the tokens. And those markets aren’t attractive unless the tokens are essentially securities.
Ethereum is a casino, DeFi provides financing for players, and all other crypto tokens are games in the casino. It's all dependant on degenerate players gambling on these ponzi tokens. There's no other purpose for Ethereum or DeFi.
I do use StepN and should be noted that the $120 million was from the first quarter and the project has less than a year online. But that quarter GST and the sneakers were at ATH before the crash and people "invested" more than $1K for a pair of sneakers, earning were $30 dollars a day with a single common shoe and you could reach your ROI in 30 days. The numbers are different now as GST has crashed 98% and people who invested a lot in the first quarter have their ROI in years.
The FitnessFi space has so much potential but StepN has new competition in the space which they are already starting with better ponzinomics and in web3 projects are community driven and StepN community will ape to the next one.
The problem with any -Fi project (GameFi, FitFi, etc.) is always that the tokeonomics get derailed by speculators. In-game economics become unsustainable when outside investors who have no real interest in the game itself start pouring in money. Suddenly prices that might have made for a sustainable year long run become too expensive, pricing out real users.
The way I see it "Move To Earn" is a new web3 business model StepN gets the credit. It is an Australian star-up who has earn $120 million in the first quarter and pivoted their tokenomics each month. The shoes of StepN as company have not been easy to fill in by the team.
> There are only two things propping up the entire crypto economy, VC funding and fraud. Once the VC money leaves the ecosystem the dominoes will fall.
Agreed, web3 was a joke... but the same thing can be said about most of disruptive tech like ride-sharing or food delivery, and even FAANGS are experiencing immense markdowns after the immense amount of liquidity poured into the stock market these 2 years.
Being critical of the nature of this system also requires self-awareness; otherwise it's just projecting.
I've done my due diligence, there is no future in web3. I don't disparage early VCs who invested in blockchain startups because it is their job to put money into companies that could be revolutionary. However, the revolution has failed to materialize. While it may not be obvious to all it should become clearer in the coming months.
When I say 'fraud' I don't mean juicing the numbers or asking forgiveness instead or permission. I'm not talking about things that will receive a slap on the wrist or a fine from a regulator. There is a great deal of organized crime that is the backbone of the industry. A lot of people will deserve to go to prison when the music stops.
web3 is going to thrive whether you like it or not. Primarily because of three reasons:
- Greed. Its absurdly easy to make a ton of money very fast in crypto. As long as that's possible, money will keep pouring into the system.
- Gambling. The global gambling industry is half a trillion every year. Even if you think crypto has no fundamentals and is akin to gambling, it still represents a massive market. Opening a 50x long on a random shitcoin might be the same as yoloing in $10,000 at the roulette table. If the latter can happen sustainably, the former can as well.
- Principles. Crypto/web3/blockchain - whatever you might call it - will continue to attract people at the edge cases simply because of the principles and narratives behind it. Self-sovreignity, privacy, ownership - these are ideas worth pursuing.
If "web2" hadn't shut off its own users from any semblance of ownership in the platforms, or had done more for privacy, web3 would have died in 2017. But because they didn't, web3 will continue to find users simply because of the "privacy + self-ownership" narrative.
More than anything else, I see the massive amounts of money flowing into web3 as a failure of the web2 platforms. If Facebook wasn't such a scummy company, and if Google wasn't tracking everything I do so maliciously, I would have completely ignored web3 as an idea.
> long as that's possible, money will keep pouring into the system
This was an easy-money phenomenon. We have another rates announcement today. I expect crypto to respond like the clockwork leveraged risk asset it models.
> global gambling industry is half a trillion every year
This is a good analogy. It’s one I hear in legislative and regulatory halls in the U.S. and Europe, the money centres crypto depends on for its legal demand.
The VCs largely have downside protection. Retail with get screwed but it’s a risk asset; they always get screwed late cycle and we have resolution mechanisms for that. Crypto company employees, however, stand to be boned.
It’s unclear where the legal risk winds up. My bet is the first layer that has not been talking to lawyers so far. That includes dumb executives and naïve employees working for savvy ones.
> Crypto company employees, however, stand to be boned.
I'm not going to be crying any tears for them. If you got into this from a business perspective you have zero excuse for pretending that you are not also partially to blame for the outcome. They'll be lucky if they avoid jail time in some cases.
> Would stock markets be jumpy after rates announcement?
“Announcement effects appear somewhat ambiguous for the [British] stock market” [1].
For the last year, it’s largely been high P/E tech stocks that have reacted viciously to rates announcements. The rest of the market is less sensitive to small changes in rates (jargon: duration). And/or it’s better at pricing it in ex ante.
Is it zero sum though? Finance in general isn't - it allows people to invest and manage risk.
If I bought a bitcoin at $100 and sold it at $1,000 - who lost money trading with me? The person I bought it from because they could have kept it and made the money I made? No - they were happy to realise their own returns. The person I sold it to? Assuming they still have it, they hold something valued substantially above $1,000 and are quite happy.
The only way for this to be zero sum is if bitcoin has zero value. But bitcoin has at least some utility so now the market is just arguing over how much - and that value changes as bitcoin becomes more accepted / useful.
Cash flow analysis allows us to sidestep thinking about utility and price by drawing a circle around Bitcoin and calculating cash in minus cash out. The only cash in is new investors and the cash out is miners+old investors selling.
The only way the current crop of investors can make money is by getting even more newer investors (ie greater fools). Eventually such a scheme will fail because of the same reason that ponzi schemes fail.
Compare this to something like apple which has an additional cash in (ie the company's profits). So the apple investors can make money without needing more investors.
Correction: for me to get 300k, many people had to aggregate 300k of losses across many different projects.
You make it sound like the market is two participants - me and the guy I took 300k from.
In reality, the market is broad as well as deep. You can lose $10 on one project, make $20 on another, and come out with $10 profit overall. Someone else can reverse that trade and come out with $10 profit as well.
Mathematician here - one who has been paid to write successful option models for Wall Street, for example.
Your argument is wildly wrong because you cannot add negative numbers and make a positive. You simply invent random transactions to come up with a desired outcome, and refuse to look at the big picture.
The whole cryptomarket is a negative sum game, because of the costs of electricity, bandwidth and personnel. For every dollar that goes into the whole cryptocurrency market to buy a coin, less than a dollar comes out, because some of that money is buying mining rigs and generator plants.
This is certain because there is a law of conservation of money in this case. Cryptocurrency neither creates nor destroys fiat currency, so the inputs and outputs have to net equal less than zero.
Why don't you try to come up with some sequence of actual transactions in a "toy" market with a small enough number of participants that you can work through it by hand, not forgetting to take out money from the pot for electricity, network, and personnel? You'll soon see that this network net destroys money - it doesn't create it.
If you don't believe it, I'll write you a math proof, but TBH if you don't understand the explanation above, you'll understand the math proof even less.
A market of one token that was initially worth nothing 1 year ago but the market now sees has value - let's say $100 - because it has some genuine utility - various companies have said they will accept it as payment for a variety of different products.
If you add all the cashflows for trading on this token over the year, $100 has been made. In fact the only way for these cashflows to sum to zero is for the token to be worth zero.
Where did that value come from? It came from the increased utility of the token.
Correct. But overall if you net out the cash flows, the crypto market does not create any new wealth (as opposed to the stock market). Old investors benefit by getting more new investors who themselves are always on the lookout for even greater fools.
As I understand it, either you're good at timing the market or you got lucky. If you got lucky, there's no reason to be so cocky. If you are good at timing the market why aren't you making a fortune on Wall Street?
There's no need to time the market when the market is flooded with cash. You didn't need to be smart or even lucky to make money on practically anything in late 2020-mid 2021.
The trick is knowing when to get out. And for that, simply managing your greed is enough.
You should advertise on youtube then ;-) Lately it seems every youtube video I watch has endless steams of scammy "How do I invest to get good returns". "You should invest with fred johnson crypto, I made 100k off a 10k investment in 1 week".
> If "web2" hadn't shut off its own users from any semblance of ownership in the platforms, or had done more for privacy, web3 would have died in 2017.
Honestly nobody cares about these things. This is just a narrative that was grafted onto Web3 after the fact.
I care about these things and i've been in crypto since before gavin coined web3.
In fact most of the devs I know that started pre-2017 deeply care about these things. Many were around in the OWS groups back in the day, they transformed via bitcoin and now mostly work on eth projects. The cool thing is most of those people who were in it for political reason (rather than the newer investors looking to make quick money, and new devs looking for decent paid job) have made enough money to spend the rest of their lives working on this stuff regardless of it making them any richer.
I think we can outwork and outlast the cynics and keep building the things we think are cool. they hype will come and go, the fraudsters will sweep in during mania and con people regardless of our warnings, the authoritarians will try get the state to make it illegal, the google employees will keep complaining that its not innovative. we'll keep on working towards what we think is right.
Almost everyone I've met in crypto cares about these things.
Sure it is probably not even 1% of projects by number and there are plenty of frauds/scams (which are oviously illegal without any new laws) and even more just really terrible ideas (whatever happened to caveat emptor?), but there absolutely is a sizeable core of projects, founders, devs, and researchers that cares deeply about privacy, freedom from coprorate/government surveillance and control, open source and open protocols, and building a very different online, digital future than the one we are currently headed for.
I think that's worth the effort. Even if that might fail, and even with the collateral damage from scams and fraud (which, again, are already illegal). We accepted cars despite the deaths and injuries and pollution (which we also deal with legally and try to minimise without destroying the benefits of having cars), and they reshaped our society. I expect crypto and privacy tech. to do the same in time. It may even take as long.
Most blockchain tech is a disaster for privacy because it puts all your transactions on a public ledger for all to see. At least with web2 you can delete stuff you've posted.
It also doesn't mean the solution to every problem is to start an MLM scheme around unregistered securities. Kind of a false dichotomy here. Sounds like the answer is to start services that cost human dollars that don't sell data - and definitely don't publish data on a public immutable pseudonymous ledger for all to see.
The problem is that as you said, when the rubber meets the road, the customers don't value privacy - and at the end of the day they're the ones paying.
All the major platforms were built without ownership and without privacy, and this didn't hurt them in the slightest from being some of the most valuable companies in human history. I'm not saying I like it either, btw.
That’s not web2.0 but rather a couple of companies. Nothing prevents anyone else from doing different things with their web applications, and more importantly there’s no indication that magical thinking about blockchains will somehow prevent that business model from continuing.
The blockchain design makes it even easier to mine peoples’ activity and prevents retroactive privacy improvements but, more importantly, the underlying problem is that people like not spending money. Various people have tried micropayments on the web but ads have less friction and don’t bother a sufficiently large group of people enough to pay more than advertisers, not to mention the precedent suggesting that sites will display ads to even paying customers.
Similarly, content hosting has the same failed promise. Blockchains are too inefficient to store the content, which is why all of the “web3” services are so commonly dependent on normal web companies. NFT pirates trying to steal artists’ work are routinely halted by takedown requests to Google, AWS, etc. There are services like IPFS which try to provide less centralized hosting but they’re expensive and have the same issues with most of the actual hosting being on ISPs who are legally required to honor things like DMCA or other illegal content requests.
> Do you have any say whatsoever how your data and content are used by, say, Facebook?
You're describing DRM. It doesn't exist for blockchain either - famously I can copy/paste NFTs all day long. And it's not clear whether most NFTs even provide any copyrights for the content they link to so you still don't even "own" the content in the legal sense.
> Its absurdly easy to make a ton of money very fast in crypto.
Not at all. It's easy for one person to make a lot of money _at the expense of another_. It's a less than zero sum game, though, so each net transaction _cost_ people money todal.
> Self-sovreignity, privacy, ownership - these are ideas worth pursuing.
The ability to evade government regulations and scrutiny is crime.
The underlying idea is that you don't like the laws on financial disclosure, so you want to "get around" them.
As an honest citizen, I see the desire to evade the securities laws as literally criminal intent, which it legally is.
> But there are plenty of real projects that are based on blockchain.
There are plenty of real projects based on blockchain, where if you take the blockchain out or just replace it with tech we've had for 40+ years, nothing of value is lost.
>> They could all be built without tokens or a blockchain if they wanted to
Sure, and all web2.0 tech can be built without AWS or docker. But in many cases, they give you a powerful advantage.
Same with blockchain. What now is happening in web3.0 is not that different from the dot com bubble. But it busted, and then a ton of new profitable companies appeared.
Blockchain tech will for sure have many legit use cases, same with tokens and tokenomics.
Will most of the current crypto companies go bust? Probably.
Does this mean that blockchain and tokens are crap? No.
Well, it will only take as long as for web 1.0 and web 2.0 to find legit use cases.
What's that you say? Those technologies have legit cases from almost day 1, it just took the technology a bit to catch up?
That's just like crypto tech.
Ah, it isn't, you say? Blockchain has the tech but the list of legit and popular use cases only it can solve is almost 0 and we haven't really found new ones in almost 14 years?
I think you've basically defeated your own arguement. These Web3 principles of decentralization are not new, and fully possible to implement with Web2. Bittorrent, DNS, Napster, PeerTube, Matrix, Mastodon... all of them are Web2 software that use the smart principles of Web3 without adopting asinine smart contracts or self-sabotaging governance concepts.
The Blockchain does have problems it can solve, they just got solved by Web2 first. Sorry.
It shouldn't be done, Uniswap solves a problem that cryptocurrency made for itself. Otherwise, Forex trading has been a thing for decades. Failing that, I might be pedantic enough to suggest that it is possible. "The Blockchain" is just a single permutation of many data structures that could handle such a workload. Hell, you could even use PGP signing to replace a Blockchain altogether, designing a peering system that works similar to proof-of-stake, but without the append-only database or mechanical transaction signing. There are hundreds of such theoretical systems that would have no problem handling this, and I think it's pretty silly to assume it "can't be done". Bittorrent navigated a similar problem space without using a Blockchain. IPFS tackled a bigger problem space than cryptocurrency, and implemented things better than a Blockchain would have. By rejecting a Blockchain, IPFS was able to add sophisticated features like versioning, pinning, high-performance DNS resolution and peering that actually scales.
I think you're overestimating how hard this is to fix, and the utility that the Blockchain is providing in something like Uniswap.
You're not wrong that what IPFS and BitTorrent have done is impressive. I'm not a zealot, and I'll be the first to admit that there are lots of things that don't need a blockchain, including things like a hypothetical decentralized Google Docs. But the difference is that those tasks can be solved using clever tricks that make it so you don't need to be too concerned with the order of events.
For example, when designing a google docs clone with collaboration, the naïve way to implement that would be to have all the users' computers be sending messages like "insert character 'a' at position 43", etc. The problem with this approach is that it makes the order of events very relevant - you'll get a different result depending on the order you process the messages. The trick is to give each character a unique ID, and then send a messages like "add a character `a` after the character with id 29239810", and then the order is irrelevant.
It happens that not every problem can be expressed in this order-independent way. In general, the ones that can are those that can be expressed in monotonic logic. For some problems, there's no way not to care about the order of events.
If you're unlucky enough to have one of those problems where you have to care about the order of events, you need some degree of coordination between all the nodes in your network to make sure they agree on the order of events. For a high-security project like uniswap, you also want the additional guarantee that the order of old events that the network agrees on is unlikely to change - it's bad if an event that happened yesterday gets reordered or dropped.
Additionally, we're talking about something decentralized here, so we don't want to assume that everyone on the network is honest. If there's a way that a dishonest person can easily stop the network, or cause honest nodes to get out of sync, or cause the order of old events to change, that's really bad.
It turns out that all the good ways to do that look a lot like a blockchain. I'd be eager for you to prove me wrong here.
