Author: Matti
Compiled by: Chopper, Foresight News
There is currently a widespread view in the market that the crypto industry has become an outlet for excess liquidity.
A large number of practitioners are leaving the field. The core reason is that the financial returns from the industry have fallen far short of the expectations established over the past decade. The market ultimately failed to deliver on the vision many once believed in.
This bear market truly marks the end of an era. We need to ask: what exactly are we lamenting?
Looking back, the prosperity of 2021 has been proven to be an illusion. If we apply Gartner's Hype Cycle, 2021 precisely coincided with the peak of inflated expectations.
Now we are facing a moment of clarity. This forces everyone to return to first principles, re-examine token value, strengthen the security of decentralized finance protocols, and explore new application scenarios where crypto technology can generate real value.
Ironically, it could be said that "the only clear fact we see is that uncertainty still prevails." The industry has consistently failed to identify the root causes of failure, thus perpetually repeating the same cyclical, self-reflexive hype loops.
As early as the market validation phases of 2017 and 2021, we fell into a mindset: when you have a hammer, everything looks like a nail. With a massive influx of capital, the crypto industry became a "solution" searching for problems everywhere.
History has long confirmed that "genius is always scarce, but as long as there are gullible people, there will be endless scams." This has also perhaps made crypto assets the most self-reflexive asset class in history.
The foundation of this financial frenzy is the characteristic that tokens can be circulated and traded early on. The excessive proliferation of this characteristic ultimately contributed to the bubble's collapse.
As early as 2024, it became evident that when faced with the choice between "exploring innovation" and "cashing out," the entire industry chose the latter. The industry's incentive mechanisms continuously drove participants to pursue short-term profit maximization. Two years later, we are now experiencing the corresponding consequences.
I have always believed that necessity is the mother of invention. But recently, I gained a new insight: curiosity gives birth to invention, while necessity gives birth to engineering. The frequent DeFi hacks recently are a signal that reality is demanding engineering improvements. Simultaneously, this is also an opportunity to refine first-generation solutions, iterate continuously, with token models being a crucial part of that.
However, curiosity cannot be forced from the outside. It stems from genuine passion, not profit motives. Rewards can complement curiosity, but they cannot be a prerequisite for frontier innovation.
Behind the shattered illusions lies a shift in industry culture. 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 trough of disillusionment falls precisely in the middle of the curve. And this position is also the inflection 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 by no means easy; the process inevitably involves multiple iterations, continuous failures, and constantly facing the severe tests of reality.
In a sense, we are back to the starting point. But this does not mean all past efforts were worthless. Even if the industry temporarily stagnates, asymmetric investment opportunities still exist. At the individual level, there remains a chance to shape the future.
The real risk at present is discarding the essence for the dross, negating everything wholesale. Even the most steadfast believers and evangelists are now choosing to leave. Where the market once envisioned a trillion-dollar future, what has ultimately landed are merely a couple of hundred digital asset treasury enterprises.
On Crypto Venture Capital
Many viewpoints 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 significantly more difficult.
Focusing on the crypto sector, limited partners (LPs) accustomed to "achieving high returns in four-year cycles" are leaving disappointed. But it is essential to clarify: the supernormal returns in the crypto industry from 2016 to 2021 were an exception in the venture capital field, not the norm.
During that period, cryptocurrency was packaged as a revolution, a new asset class. An immature market was flooded with capital, far exceeding the industry's effective capacity to absorb it. The frenzy peaked in 2021, followed by a prolonged clearing cycle where short-term speculation dominated. Until now, the industry has entered a consolidation phase.
The book "Manias and Imitations" discusses the nature of technology bubbles, stating: "The revolution may still land — Britain is still covered in a railway network. But the utopia imagined by the manic participants will never come true."
More noteworthy is the reversal of ideology. The original cypherpunk subculture that gave birth to Bitcoin is now actively aligning itself with Wall Street and regulators, with the industry's fate firmly tied to the hands of policymakers.
This is not merely ironic but a characteristic feature of bubble cycles. Consider the Google case: this company once publicly warned that advertising would harm search quality, yet ultimately built a vast commercial empire on advertising. Returning to the discussion in "Manias and Imitations":
"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 joined the movement against monarchical absolutism, only to become a dictator himself. Such cases are quite typical, not exceptions: if you are determined to destroy a powerful system, you often end up building an even stronger one. And this new system is also constrained by evolutionary laws, replicating many characteristics of the system it replaced."
It can be said with certainty that the industry has abandoned the crypto utopian fantasy. The revolution did not arrive as scheduled. Instead, the industry has been absorbed by the existing system (or, from a different standpoint, assimilated, corrupted). The industry has made many compromises, which was the only viable path after the industry devolved into 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 phase; the phase of disillusionment is the inflection point, after which we step into the rational deployment phase. Different phases call for entirely different investment strategies.
The crypto industry is no longer a frontier exploration sector; it is becoming a business. It's neither good nor bad, just the industry maturing. Current new crypto projects are broadly divided into five categories, each with different practical value:
- Stablecoins
- Prediction Markets
- Tokenized Assets / RWA
- Perpetual Contracts
- Artificial Intelligence & Smart Agents
To some extent, cryptocurrency is eating fintech, or one could say fintech is assimilating cryptocurrency. This is far from the DeFi revolution people imagined. The crypto industry needs to find killer applications beyond stablecoins within the boundaries permitted by regulation.
Nevertheless, we believe that in the coming years, the crypto sector can still give birth to enterprises with long-term viability. We will continue to seek top founders to build quality products.
Reconciliation
Two seemingly contradictory views coexist in my mind. First, cryptocurrency is changing the fundamental ways value is stored and transferred. Second, cryptocurrency is evolving into a commercial sector that adheres to existing financial rules.
I try to reconcile them this way: cryptocurrency might permeate daily life in imperceptible ways. Transformative change often occurs quietly, only becoming clear in hindsight. The most profound shifts rarely arrive accompanied by grand slogans of "trillion-dollar market caps." They will simply embed themselves silently into the existing system, blending into public consciousness.
The crypto industry is often more creative in adversity; it's harder under the spotlight. Those truly driven by curiosity will rethink and rebuild everything. There is still much to build, and many goals worth persevering for. I still choose to believe.
