“Frustrated by the industry”: 5 things that are terribly wrong in crypto

Crypto enthusiast Amir Bolous concludes that most of the crypto is speculation. He has divided his critique into five groups and described the most critical parts of the industry, including DeFi, NFTs, GameFi, Zero-knowledge, and DAOs. His message probably has some good points but wouldn’t it be so bad? Let’s figure it out. 

I am disappointed in the crypto industry

According to the author, he came to the space in the first place due: 

• credible neutrality;
• ownership;
• interoperability;
• verifiability;
• permissionless;
• coordination;
• immutability;
• incentives;
• censorship-resistance etc.

But he doesn’t think we should hold ourselves “to lower standards because of these values.” He says the main question is, “what applications are solving real-world problems?” The author is sure that people aren’t going to use a crypto product just because it’s ‘decentralized’; they want convenience and won’t settle for something that doesn’t solve a problem. 

“Most of the respondents do not answer this question, and, what is important, are crypto veterans, meaning people who have been in the industry for six years or more,” said Amir Bolous. 

By “solving problems application,” the author means applications that solve problems for people and have users that are not just using it to speculate and gamble elaborately. 

“The main thing I’ve been trying to reconcile is the difference between the narratives of what crypto can enable in theory and what that ends up looking like in practice today, and the answer to the latter is genuinely mostly speculation and gambling or just solutions to problems the product is creating,” he said. 

Probably, it is not unfair to claim that almost all of crypto is speculation and gambling. Still, just the author dissects general patterns in any domain in crypto and comes to the following conclusions. 

What’s wrong with…

DeFi

How much of DeFi is helping bank the unbanked or offering practical financial solutions for people? The author says that there are only four products in DeFi today that are solving concrete problems in the space with consistent usage across macro conditions:

• Uniswap (or DEX equivalents like SushiSwap or Curve);
• Aave;
• Compound;
• makerDAO.

So he doesn’t know; maybe the end game of DeFi is not to be entirely permissionless for retail users, maybe it’s some protection that TradFi offers, perhaps it gives users who want to speculate the risk/reward of doing so. For others, it’s just a more convenient, digital form of some select services.

It’s worth mentioning that the author is not suggesting DeFi is a dead end or that DeFi will end up looking closer to TradFi than most people realize (although I do think there’s a lot of truth in this); I’m just saying that almost all of DeFi usage today is currently speculation and gambling and that average retail users will probably not care about this. 

NFTs

Practical use cases of NFTs that have garnered many usages have ended up with NFTs working similar to collectibles in the real world. Amir Bolas says most NFT volume is people trading them to make money.

Look at NFT overall daily volume (original Dune query here). You can see volume now has decreased back to pre-Aug 2021 days – how much of that spike in volume and demand can be attributed to hype and speculation, where people tried to take advantage of the time to make money? It’s hard to determine empirically, and NFT trades are not the only measure of whether people still use NFTs. Still, it’s an important data point to keep in mind about whether users are returning to NFTs or not the same way a startup, after it gets press, will have a spike in users that drops back to an average little higher than usual.

You can find more information about NFT speculation here. 

Gaming

Gaming is one of the ones the author is most optimistic about. However, if you look closely, a lot of gaming volume has been “play-to-earn,” which was again just an extension of speculation and gambling.

According to the author, the exception is the game Dark Forest because the team intentionally avoided having some tokenomics a term for all the factors that go into the value of a cryptocurrency that people could use to speculate or earn money. 

Zero-knowledge a way to verify the truth of information without revealing anything else about the data itself or the prover

The author says that he is pretty excited by zero-knowledge, but there are very few practical ZK applications widely used today that solve real problems.

“Their use in I would classify under infrastructure, which is hinged on actual demand for applications on blockchains being built that are used for purposes other than mostly speculation,” said the author.

And part of it is that ZK is still new, and the tooling is not super mature, so these applications are probably still a couple of years out, but there just aren’t many real-world usages today.

DAOs a decentralized autonomous organization, a type of bottom-up entity structure with no central authority

Amir Bolous believes that the DAO structure will slowly converge toward an LLS-like design. The main reason is that these have been around long enough to be battle-tested against all problems arising due to challenging coordination.

So, in terms of what DAOs are solving, I think they’re just an organizational structure for things (communities, companies, groups of people) in crypto, so they are solving a problem. Still, will the average retail user care about DAOs if they are not actively involved in crypto? My question is, why should they?” he said.

In conclusion, the author says that a lot of crypto space, maybe because of its roots in cypherpunk culture, tries to reinvent the wheel on things that regular financial and governmental structures have tested for a very long time and produced battle-tested solutions for. And some of these innovations do make sense in a new environment. But many of the changes are trying to do things that we’ve already figured out don’t work in the real world (e.g., purely algorithmic stablecoins or undercollateralized stablecoins broadly).

What do you think about that, guys?

You can find the full version of the original post here.