Forward the Original Title‘The Death of Stagnation’

What is the point of being on-chain? Our latest piece explores this question from an economic perspective and proceeds to examine history for clues.

We lay a case for cathedral building instead of trench warfare—an alternative that asks for the death of stagnation.

Note: This is the brief version of an article published on our newsletter. Read the whole story here.

Working in crypto can often feel like tossing your brain cells into a vortex of headlines and spinning it at the speed of light. One could mistake meme market shenanigans to be symbolic of everything that happens within the industry. As AI-native products march on to large user bases, those within crypto could be susceptible to wondering whether all of this is worth it.

Capital formation in crypto historically required some form of proof of labour. Meme markets eradicated the need for it entirely. Surely one can rally around culture and vibes, but it is revenue and PMF that keep groups of people together. Unless, of course, you are building a cult. But the human mind is not hardwired to be a part of tens of thousands of cults at the same time. This is the great challenge of all meme assets—an inability to stay relevant for long enough.

The Age of Memesis

Meme assets are as innovative as lending or interest rates used to be. Humanity is still grappling with figuring out what can happen when asset issuance and trading can happen at the click of a button. The cycle is familiar—euphoria, bubble, burst—a pattern we’ve seen throughout history. Economists often dismiss bubbles as reckless and destructive, but in reality, destruction precedes life. Much like in nature, new growth follows collapse. We are at a destructive tail end of such a cycle, which begs the question of why any of this matters.

To answer that, we need to follow the money. The chart below, using data from TokenTerminal, shows how revenue has evolved over time. And is rather symbolic of how the industry is evolving. Historically, L1s used to capture the vast majority of fees. But over time, exchanges and stablecoins started capturing more value. Part of the reasoning is that smart contract-enabled financial interactions made it possible for developers to capture transaction fees without running a whole network.

Over time, a crop of applications emerged which were seasonal in nature but highly financialised. Think @friendtech or @pumpdotfun. FriendTech made $27 million in revenue over its lifetime. PumpFun has made over half a billion. While they aren’t decentralised, they capture large enough margins on large enough pools of money to enrich shareholders. How can any of this value flow back to users?

Crypto Adjacent Users

We have been observing a few ventures do just that. @layer3xyz for instance benefits from retaining its users over the long haul. The longer a user interacts with the product, the better deals Layer3 can negotiate on their behalf. Individual users build a reputation and a history of transactions over time. As a new product, would you rather have a user base of complete newcomers or one filled with people who have already engaged with similar products? This approach has worked well for Layer3. As of writing, they have returned nearly $5.8 million to users.

The crypto industry has 30-60 million monthly transacting users. Compared to the 3 billion people online, that’s a drop in the ocean. But most crypto products aren’t expanding the user base. They are competing for the same small group of people. In essence, what you have is sectoral cannibalism. A point in time when a market does not grow fast enough to accommodate multiple players within it. So teams compete either on (i) pricing (ii) incentives or (iii) features to a point where they die due to a lack of margins.

What is the alternative? To build products that can go mainstream because both moats and margins exist there today. To create products that onboard new users rather than recycle the same ones. The popularity contest we have within crypto for who has the highest TPS or who is more “aligned” works for the feeds but does not pay the bills. Layer3 intrigues us because they are not going after the users that are here and now. They are expanding the pie. And capturing a share of the value generated.

This theme of expanding the pie is not native to Layer3. Teams like @gudtech_ai and @nomyclub are working towards making transactional agents that can take user inputs, contextualise information and do transactions.

What does that mean? Chatbots have existed since at least 2015. Being able to get information from a bot is in itself not interesting. Gud and Nomy are abstracting the complexity of buying assets across chains with AI-driven agents. Instead of manually signing multiple transactions, users can simply type: “Buy 50 po with my eth on base.”, and the agent handles the rest. This is how crypto goes mainstream.

The age of applications is here. If cash flow, revenue, moats and user retention really do matter, then applications will be the ones that carry out that mission. Infrastructure has matured to a point where arguing about TPS makes little sense. Our lack of willingness to let go of those heuristics is just another sign of stagnation.

The big question, then, is can the market for crypto-adjacent users be just as big? Can they grow to be a few hundred million users in the next five years? And what would it require to build a world like that?

The next frontier is the intersection of crypto and real-world networks.

Take @frodobots and @dp_proto, which use token incentives to map geospatial data. Frodobots sends physical robots to users, who then ride them through cities to collect urban navigation data. Proto, on the other hand, uses mobile sensors to create dense urban maps.

Both models enable trustless, crowdsourced data collection.

A variation of using the crowd to source data for website monitoring is now happening with @UpRockCom.

Prism, a SaaS platform by UpRock, offers an alternative uptime monitoring system with DePIN precision. Their network, comprising nearly 2.7 million devices worldwide, forms the backbone of UpRock, the core consumer product that powers Prism. When developers need insights, they can tap into UpRock’s userbase—many of whom earn rewards for running its mobile and desktop apps to collect data. Could this work on fiat rails? Definitely. But try making millions of micro-payments across 190+ countries each day and let me know how that goes. UpRock uses blockchains to accelerate payments and maintain a verifiable, open ledger of past payments. It ties it all together using their core token (UPT). As of writing, the team burns UPT when external revenue comes in through Prism.

All of this doesn’t imply that there isn’t a boom-bust cycle playing out within crypto. The charts for the average AI project look like this:

There is much that needs to be done at an age where speculation outruns the value a product offers.

Cathedrals, not Trenches

What we see with meme coins today is humanity grappling with what can be done with money when assets can be issued and traded as fast as sending a text message. We’ve been here before. In the 1400s, we were coming to terms with what can happen when interest rates apply to capital. In the 1700s, we discovered the power—and chaos—of trading corporate stocks. The South Sea Bubble was so bad that the Bubble Act of 1720 was set up to forbid the creation of joint stock companies without a royal charter.

Bubbles are a feature. Perhaps even a necessity. Economists write them off negatively but they are how capital markets identify and evolve into new structures. Most bubbles start off with a surge of energy, attention and quite possibly an obsession with an emerging sector. This excitement pushes capital into anything investable, driving up prices. I saw this obsession recently with agent-based projects. And if it wasn’t for the combination of financial incentives (token prices) and hype, we would not have nearly as many developers exploring that sector.

We call them a “bubble” because they burst. But price declines are not the only outcome. Bubbles drive radical innovation. Amazon did not become “useless” in 2004. Instead, it laid the foundation for what we know today as AWS, which went to power the modern web. Could an investor in 1998 have known Jeff Bezos would pull that off? Probably not. And that is the second aspect of bubbles. They create enough variations of an experiment to bring out a winner at the end of it.

But how do we do enough experiments to see winners? That’s where we need to focus on building cathedrals instead of just dancing in the trenches. My argument is that meme assets aren’t inherently bad. They’re great testbeds for financial innovation. But they’re not the long-term, revenue-generating, PMF-finding games we should be playing. They are the test tubes. Not the lab. To build our cathedrals, we’ll need a new language.

To bring death to stagnation, one has to look inwards to the monsters that lie within. Generated via Midjourney.

What will happen next is that high-agency individuals will create a parallel game where they build their own cathedrals. Instead of chasing clout on crypto-twitter, they will listen to and build for the marginal person on the internet. And they’ll make their money—not from the blessings of exchanges, but from actual product revenue. The fuel for this will come from the same crisis of faith I had at the beginning of this article. People will start asking, “Why am I even here?”, and switch the games they play.

This split between revenue-generating tools and those that don’t will be crypto’s great divide. At the end of it, we will no longer be talking about working in crypto, just like nobody says they “work on the internet” or “on mobile apps” anymore. They talk about what the product does. It is a language we should be speaking more often.

I was trying to pinpoint what really irked me. Was it the fraud? The meme assets? Not quite. I think the real pain came from recognising the gap between effort and impact in crypto—especially when compared to AI. Sure, we have stablecoins but we also have all these other innovations that people barely know or talk about. And that felt like stagnation to me.

Stagnation is death in a market that is constantly evolving. If you stagnate, you die. But if you kill stagnation, you survive. And that is the irony behind “death to stagnation”. To protect life, you must be willing to kill what is innate and core to you. That’s the cost of evolution. Of relevance. Crypto is at that crossroads now. It must choose to kill parts of itself so that the bits that can evolve and dominate have a fighting chance at growing beyond infancy.

Disclaimer:

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