What Happened to Crypto?
The declining relevance of Ethereum.
If you were a long time believer in Ethereum (like myself), this week has stung.
The primary pro-Ethereum media company Bankless is making a narrative pivot.
Meanwhile the Ethereum Foundation has been losing some momentum as it experiences tremendous employee churn.
Perhaps capital matters more than vision.
For a while it seemed that people really united around Ethereum’s cyperphunk ideals. Teams built their protocols under open source licenses, crypto developers enjoyed location and lifestyle freedom. Security researchers offered their services without any expectation of compensation.
But there were several healthy capital flows behind these movements:
+ Venture capital Firms saw crypto as the dominant narrative post-Covid and eagerly funded both infrastructure and applications. The token model ensured early returns and compounding without the need to deliver value to a specific customer persona. Well-funded portfolio companies threw conferences and parties and sustained various service providers (audit companies, agencies, individual contributors, etc.).
+ DAOs light on team but heavy on capital turned to grant programs to keep developing their roadmaps in a compliant but often inefficient way. These grant programs also sustained a cohort of “independent developers” and companies that started specializing in DAO politics and services.
+ Speculative capital was attracted by the promise of liquid tradable onchain assets and various instruments on top of them, creating tangible net inflows and revenues for both VC funded companies and DAOs, fueling the feedback loop.
Ethereum wasn't necessarily playing the role of “product” in this economy as it just became a facilitation layer.
The hope was always that the alternative economy of VC-funded firms, protocols and DAOs would grew bigger than the existing financial industry or move too fast for it to catch up.
Unfortunately, it didn't. Fintech companies like Stripe and Ramp execute faster than even the most productive crypto companies and are likely to capture much of the surplus of this cycle.
The Ethereum ecosystem is now in a state of narrative paralysis. Uncertain what it wants to do: continue creating public goods for companies like Stripe to monetize or continue advocating for an alternative without the execution apparatus to make it real? Or actually have a strategy for once.