Has the Crypto Utopia Crumbled? The Industry Faces a Turning Point After the Frenzy Fades

The crypto industry is no longer a frontier for pioneers; it is becoming a business.

Written by: Matti
Compiled by: Chopper, Foresight News

There is a prevailing view in the current market that the crypto industry has become a release valve for excess liquidity.

A large number of practitioners are exiting the field. The core reason is that the financial returns promised by the industry fall far short of the expectations built over the past decade. The market ultimately failed to deliver on the visions that many once believed in.

This bear market truly marks the end of an era. We need to ask ourselves: what is it that we truly mourn?

Looking back, the prosperity of 2021 has been confirmed to be just an illusion. If we apply the Gartner Hype Cycle, 2021 coincided with the peak of inflated expectations.

Now we are entering a moment of clarity. This forces everyone to return to first principles, re-examine token values, solidify the security of decentralized finance protocols, and explore new application scenarios that can generate real value from crypto technology.

Ironically, we can say, "The only fact we can see clearly is that it is still full of uncertainties." The industry has never clarified the root causes of its failures, thus continuously repeating the same cyclical and reflexive hype cycle.

As early as 2017 and during multiple market validation phases in 2021, we fell into a mindset: with a hammer in hand, everything looks like a nail. Under the influx of massive capital, the crypto industry has become a "solution" looking for problems.

History has long confirmed that "genius is always scarce, but as long as there are gullible people, scams will continue to proliferate." This has made crypto assets perhaps the most reflexive asset class in history.

The underlying foundation of this financial frenzy is the characteristic of tokens being tradable early on. The overabundance of this characteristic ultimately led to the collapse of the bubble.

By 2024, it will be evident that between "exploring innovation" and "harvesting monetization," the entire industry has chosen the latter. The industry's incentive mechanisms continuously drive participants to pursue short-term profit maximization. Two years later, we are now bearing the corresponding consequences.

I have always believed that demand spurs invention. But recently I have gained new insights: curiosity spurs invention, while demand drives engineering implementation. The frequent DeFi hacking incidents are signals that reality is prompting engineering transformations. At the same time, this is also an opportunity to refine initial solutions and continue iterating, with token models being an important part of this.

However, curiosity cannot be externally induced. It comes from a heartfelt passion rather than a profit motive. While returns can complement curiosity, they cannot be a prerequisite for cutting-edge innovation.

Behind the shattered illusions is also a cultural shift in the industry. People are gradually recognizing a key reality: we are no longer in the early days of the industry. But for excellent builders and investors, this is merely a challenge, not an insurmountable obstacle.

If we overlay the technology adoption curve with the hype cycle, the valley of shattered illusions coincides with the mid-point of the curve. This position is also the turning point mentioned in Carlota Perez's theory.

The core challenge remains unchanged: the crypto industry is attempting to reconstruct the financial industry from scratch. This is no easy task; the process will inevitably involve multiple iterations, continuous failures, and facing the harsh realities of numerous tests.

In a sense, we have returned to the starting point. But this does not mean that all past efforts were in vain. Even if the industry is temporarily stagnant, asymmetric investment opportunities still exist. On a personal level, there are still opportunities to shape the future.

The real risk now is to discard the essence and embrace the dross, to completely deny everything. Even the once most steadfast believers and advocates are choosing to exit. The once envisioned future of a trillion-dollar market has ultimately resulted in only a mere 200 digital asset treasury companies.

Discussing Crypto Venture Capital

Many opinions claim that "crypto VC is dead" or is about to die. I do not agree. Venture capital itself is facing an industry crisis: fund return multiples (DPI) are below expectations, and fundraising has become increasingly difficult.

Focusing on the crypto track, those limited partners (LPs) accustomed to "high returns every four years" are disappointed and exiting. But it needs to be clarified: the super high returns in the crypto industry from 2016 to 2021 were an exception in the venture capital field, not the norm.

During that period, cryptocurrencies were packaged as a revolution, a new asset class. An immature market was flooded with massive amounts of capital, far exceeding the industry's effective absorption capacity. The frenzy peaked in 2021, followed by a long clearing period, where short-term speculative behavior dominated, leading to the current stage of industry consolidation.

The book "Frenzy and Imitation" explores the essence of technological bubbles, stating: "Revolution can still land - the UK is still covered by a railway network. But the utopia imagined by frenzied participants will never come true."

More importantly, the ideological reversal is worth noting. The original cypherpunk subculture that spawned Bitcoin is now actively aligning with Wall Street and regulatory bodies, with the industry's fate firmly tied to policymakers.

This is not merely ironic but a characteristic inherent in the bubble cycle. A reference can be made to the case of Google: the company once publicly warned that ads would harm search quality, yet ultimately built a massive commercial empire on advertising. Returning to the discussion in "Frenzy and Imitation":

"This is one of the most extreme cases of ideological reversal in history. To find similar phenomena, one can look back to Martin Luther, a devout Catholic priest who ultimately split the church; or Napoleon, who engaged in the anti-monarchical movement and ultimately became a dictator. Such cases are typical, not exceptions: if you are determined to destroy a powerful system, you often end up building another even stronger system. This new system is also constrained by evolutionary laws and will replicate many characteristics of the object it replaced."

It can be confidently said that the industry has abandoned the fantasy of a crypto utopia. The revolution has not arrived as expected. On the contrary, the industry has been absorbed by the existing system (from different perspectives, it can also be called assimilation or corruption). The industry has made many compromises, which is also the only viable way out after the industry became a speculative casino post-2021.

We can also use Carlota Perez's theory to understand this transformation: the utopian vision corresponds to the early deployment; the phase of shattered illusions is the turning point, after which we will enter the rational deployment phase. Different stages require entirely different investment strategies.

The crypto industry is no longer a frontier for pioneers; it is becoming a business. There is no good or bad, just the industry maturing. Current new crypto projects can be broadly categorized into five types, each with different practical values:

• Stablecoins
• Prediction Markets
• Tokenized Assets / RWA
• Perpetual Contracts
• Artificial Intelligence and Smart Agents

To some extent, cryptocurrencies are consuming fintech, or it can be said that fintech is assimilating cryptocurrencies. This is far from the envisioned DeFi revolution. The crypto industry needs to find killer applications beyond stablecoins within the boundaries allowed by regulation.

Even so, we believe that in the coming years, the crypto track can still give birth to enterprises with long-term viability. We will continue to seek top founders and create quality products.

Reconciliation

In my mind coexist two seemingly contradictory viewpoints. On one hand, cryptocurrencies are changing the underlying ways of storing and transferring value; on the other hand, cryptocurrencies are evolving into a commercial track that adheres to existing financial rules.

I try to reconcile the two: cryptocurrencies may permeate daily life in subtle ways. Transformations often occur quietly, only becoming clear in hindsight. The most profound changes rarely come with grand slogans of "trillion-dollar market value." They will quietly embed themselves into the existing system and integrate into public consciousness.

In adversity, the crypto industry is more likely to burst with creativity, while it is harder to do so under the spotlight. Those who truly harbor curiosity will rethink and reconstruct everything. There are still many things waiting to be built, and many goals worth pursuing. I still maintain my belief.

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