Weekly Waffle: Cometh Consolidation

In the past decade, we have gotten used to a proliferation of new blockchains, side chains, rollups, layers, DeFi, web3, gaming, metaverse, and what-have-you projects. It is so easy to build a community in this age of experimentation. More and more developers are coming onto the market. People cashed out from the last boom market and are investing again, and for those who didn't, promises of token prices to the moon and a “revolution” in this or that space are abundant. This was the Wild West of crypto, the early days following the introduction of a new technology that challenges old paradigms.

NFTs and NFT art, the metaverse, faster blockchains, different consensus models, the race for time-to-finality, the battle over gas fees and transaction speeds, the right programming language, account and smart contract functionality, blocks-per-seconds ... all this excites the minds of crypto folk as much as the invention of electricity, plastics, the automobile, the personal computer, and of course the Internet did in years gone by.

All of these innovations happened in phases: the early adopters — people with dial-up modems, the first race for a better light bulb, the war over operating systems when only 0.04% of the population in the US owned a PC, etc. They are followed by the first decade of experimentation: for electricity it was "what can we electrify?" For plastics: "Is there anything we can’t make out of plastic?" Automobiles and airplanes, airlines even: who remembers the names of all the brands and names that ended up on the landfill of innovation? Remember Olivetti or Bull PCs? You probably don’t. Far more automotive brands have disappeared than are still left. Osram is dominating the field of light bulbs today but there were over 400 manufacturers in the early days.

Have you ever heard of cars by Du Pong, Durant, Duesenberg, Pierce-Allow or Peerless? Companies like Aerocar ( a hybrid car airplane) are now a footnote of history. The once visionary American Motors Corporation was gobbled up by Renault and then Chrysler. Taxicabs by Checker of Michigan were all the rage in the 60s and 70s; he last one left the streets of New York in 1999. DeLoren produced only 9000 vehicles altogether and went bankrupt in 1982.

In IT, who still remembers the modem dialing sound when you connected to AOL, or the crude surfing experience on Netscape, whose visionary code still lives on in other browsers? We all Google and Bing now; only a few people still Ask Jeeves. There were once around 450 operating systems for PCs before Windows; Apple’s OS, and Linux became dominant. My first computer ran “Doctor DOS”, a MsDOS copycat. I used to program databases with Symantec's Q&A. Yes, you can roll your eyes now, but you get the idea.

What the younger adopters of crypto and blockchain don’t realize (because we never learn from history!!) is that the phase of wild experimentation is always followed by two things: regulation, standards, and government involvement (happening now across the globe), and, even more defining for the future of crypto: consolidation.

The majority of car, airplane, and IT companies have all disappeared. But because decentralized networks and blockchain projects aren’t real “companies”, we somehow think they will go on forever as long as the “community” is behind them. That is a terrible fallacy. The majority of blockchain-related projects will not exist in 5 years, and in ten years, the field will look completely different.

Regulation will change the way we organize crypto businesses. AML and KYC are already destroying many pseudonymous business models. 2/3s of the top 100 crypto tokens don’t have a real use case and around 1/3 of them are running out of money, needing to dump tokens as the only source of finance. If you want proof of the sea change look at Kaspa — it went from virtually unknown a year ago to 25th largest asset on the top 100 chart today. It will reach the top 5 in the next bull run.

Metaverse projects — I won’t name names here — went from superhype to barely a soul left using them, just like Second Life went from “the future of social interaction” to “huh?” In just 5 years.

The question is not: will your favorite project surpass its ATM in the next bullrun? The question is: will it still exist?

And once we solve the legal organization of companies around crypto, as the EU’s — and soon the US and some other jurisdictions’ models —? already presage, there will be takeovers, mergers, and a huge market in crypto dealing and wheeling. Corporate lawyers are already preparing for the age of AI-assisted blockchain M&A.

As the Head of Research of the best-regulated and most transparent crypto platforms and “a bank on blockchain rails”, Uphold (uphold.com/transparency/ ), It is my job not only to predict the next phase of innovation but also to shed light on who will be voted off the island in the blockchain survivor game. I have a list handy — but it’s hard to go public with doomsday scenarios. Some projects are clearly in irreversible decline. Others were almost dead before getting a new lease of life. Sometimes it takes just one person to revive a corpse. Sometimes just a line of code. The faster technology moves, the harder it is to predict the outcome or pick the winners.

Technology in the blockchain space changes dramatically and fast. The speed of innovation will further increase with artificial intelligence. Make no mistake: Ray Kurzweil’s singularity is already here. On the way up, throughout the next bull run, some projects will fall behind, and many will disappear. Baskets (assortments of crypto, the way Index Cooperative or Domani are doing them) will be the best vehicles for the more risk-averse investors with FOMO. I’ve put some together for our clients, and they are popular: if you split your money between 8 chains, and two go out of business while only 1 goes to the moon, you can still make a profit even if you have no clue what a Merkle tree is.

This bull run, prepare for a big shakeout, as we endeavor to separate the winners from the losers. The OG crypto mantra was WAGMI, we are gonna make it. The new slogan is NEGMI -- not everyone's gonna make it