Notwithstanding the hardships of today’s atmosphere, I believe there is at least some solace in knowing that crisis brings two distinct opportunities.
OPPORTUNITIES FROM CRISIS
First, for investors, corporate finance chiefs, and other institutional capital markets participants, I believe the correction in cryptocurrency valuations and trading volumes precipitated by today’s market rout presents an opportunity to reevaluate their stances on digital assets, their underlying blockchains, and the Web3 evolution they represent.
Second, I believe this uncertain moment presents an opportunity for the global blockchain developer community—a chance to restore the faith of the very stakeholders whose buy-in, engagement, and activation are necessary to realize Web3’s full potential.
Specifically, the travails of BTC, ether, and other mainstream digital currencies, including a number of altcoins and supposed stablecoins, were preceded and have since been bedeviled by a series of high-profile system failures and in the blockchains from which they are produced.
Whether you look to the repeat outages of the blockchain behind Solana, one of the largest cryptocurrencies by market capitalization, or the more recent attack on the blockchain Harmony’s Horizon Ethereum Bridge, a platform enabling interoperability between distinct blockchain networks, the conclusion remains the same. Put simply, I believe it’s that the processes through which many mainstream crypto coins and tokens are mined, minted, and instrumentalized are rapidly approaching obsolescence.
The attractiveness of these systems to the would-be users of their native assets and supported tokens are rightfully being undermined by an apparent incapacity to accommodate market demand (i.e., network congestion), root out bad actors (i.e., prevent 51% attacks), and otherwise remain functional (i.e., scale) when it matters most.
Add to this crypto’s apparent susceptibility to wider market volatility, blockchain’s poor environmental track record, and the waning but nevertheless considerable lacunae of formal accounting principles for digital assets, among other challenges, and I believe the buy-in of institutional capital markets participants is, understandably, in jeopardy.
THE STAKEHOLDER TRILEMMA
To be clear, I believe these stakeholders face a trilemma. They can be cautious and eschew Web3 and its component assets, applications, and advantages outright. They can be cautiously optimistic and hold out for the necessary yet unproven reconfiguration of the predominant blockchains and their corresponding cryptocurrencies. Or they can be bold, look further, and set their sights on the advanced blockchain platforms whose hard-earned supplanting of the legacy networks is already well underway.
While, taken against the backdrop of today’s uncertain economy, it may be difficult to stomach, I believe it’s the third of these options that is superior.
For starters, this is far from the first so-called “crypto winter” to descend on the market. And the records of higher risk-adjusted returns enjoyed by those with careful exposure to cryptocurrencies these last several years speak for themselves. And perhaps unsurprisingly, present trends notwithstanding, institutional investors and, to a lesser extent, CFOs and corporate treasurers have slowly but surely warmed to digital assets—a long-term trend that’s expected to continue.
Then there’s these stakeholders’ deference to the incumbents. Despite claims to the contrary, the monolithic blockchains that serve as the backbone of BTC and ETH, for instance, are hamstrung by unpredictable gas fees (i.e., transaction fees), sluggish block times (i.e., transaction processing times), unworkable upper thresholds for network traffic, and other obstacles that ultimately limit their scalability.
There are, however, more efficient, nimbler, more scalable, and more accessible blockchains. Rather than monolithic, these are modular systems capable of equipping their end-users with the same mechanisms for real-world commerce, operational efficiencies, network security, and other advantages that their increasingly obsolete predecessors are evidently incapable of guaranteeing over the long-term.
These nascent but nonetheless proven blockchains utilize innovative consensus protocols (i.e., transaction verification mechanisms), among other distinctive features, to provide a degree of functionality all too absent from today’s predominant offerings. They offer credible utility to blockchain application and project developers, thus giving them new capacity to build toward the provision of end-user utility which, in turn, will afford enterprise end-users new opportunities to generate value.
WHAT YOU CAN DO
For blockchain application and project developers, this is a time to build solutions that advance operational processes, rather than simply support a new revenue stream. Applications that support, for instance, enterprise value chain emissions data collection, management, and verification for corporates seeking compliance with compulsory climate risk disclosure rules, fulfillment of ESG-linked lending terms, and other emerging needs offer credible utility.
The idea is that these applications, whose function will be driven by the digital assets they support, will afford their enterprise end-users the opportunity to either penetrate emerging financial commodity markets or pioneer new ones altogether. For instance, companies can leverage advanced blockchain applications to tokenize verified evidence of their achieved value chain emissions reductions for tender as carbon credits in voluntary carbon markets.
Indeed, this is a time to lend credence to Web3 investors and end-users who lament that cryptocurrencies possess no intrinsic value and that blockchain is a solution in search of a problem. In response, I believe both blockchain platform providers and the communities of application and project developers they support should reinstate end-user utility as their priority, rather than monetization. I believe then, and only then, can the global community’s faith in Web3 be restored.
By the same token, institutional capital markets participants, a critical cohort of blockchain’s intended end-users, can emerge from today’s “crypto winter” with a better understanding of the features and functionalities that will restore their confidence. Rather than simply an alternative investment vehicle, they can look for utility.
And it’s up to us—the global community of Web3 innovators and entrepreneurs—to help them find what they’re looking for.