Have you heard of the Gartner Hype Cycle?

It suggests that disruptive technologies go through 5 key phases...

1. Technology Trigger

The emergence of a potentially disruptive technology.

2. Peak of Inflated Expectations

Early publicity creates hype for tech with an unproven market fit. In the speculative NFT bubble of 2021, Beeple sold a collage of his artwork "Everydays: the First 5000 Days" for $69 MILLION. Similarly, NBA Top Shot sold hundreds of millions of $ of video-collectible moments. This was probably the peak of inflated expectations.

3. Trough of Disillusionment

Early projects fail to deliver on promises and the public loses interest. I suspect Crypto & NFTs are somewhere around this trough of disillusionment now. NFT volumes and transaction counts on OpenSea have fallen by more than 90% from the peak.

4. Slope of enlightenment

The tech slowly starts to show successful use cases, and gain real adoption.

5. Plateau of Productivity

Broader market applications are successful & the market fit is very clear.

Here, we'll see mainstream adoption & the tech may become omnipresent. If the market is large, the growth may not plateau for a long time.

Here's a more detailed visual of the Gartner Hype Cycle from Wikipedia.

As an investor, the trough of disillusionment isn't a bad place to be.

It's still relatively early - just keep an eye out for the slope of enlightenment.

i.e - crypto use cases that are actually proving to be successful and making a dent (even on a small scale).

In the future, I believe we’ll see a lot more REAL use cases.

I did a visual exploration post about The Future of NFTs that got over 2 million eyeballs on Twitter.

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There’s a lot of fear in the bear market. Every day, new predictions are calling for doomsday scenarios sending the crypto market to 0.

Even in the bear market, things aren’t as bad as you think.

Let's explore some numbers...

There are 4 MILLION monthly downloads for the "ethers" package used by web3 devs to develop dapps. (Up from 1M/month in Jan 2021)

There are 2.4M monthly downloads for the competing web3 package. i.e - devs are still developing.

There are over 51.3 MILLION smart contracts that have been created on @ethereum alone. + Tens of millions on other chains. + Tens of millions in development.

There are ~7.5M transactions taking place on the Ethereum network every week. There have been over 1 BILLION transactions on @ethereum since 2020.

VCs invested $33 BILLION into web3 startups in 2021 alone. And will probably do even more in 2022. There's a long lead time for such investments - these companies & networks are still being built.

The next few years should be fun.

Uniswap has settled over $1 TRILLION worth of swaps since inception. Even right now, there are still ~250k monthly active users on @uniswap swapping tokens.

@LooksRare and @opensea have EACH done over $20 BILLION worth of NFT sales volume in 2022. Even last month (in the midst of a bear market):

OpenSea did $500M+

LooksRare did $220M+

Total Crypto Market Cap is ~$1 trillion.

That's 10x more than 5 years ago.

Total Value Locked (TVL) in DeFi is ~$60B.

That's 10x more than 2 years ago.

And 100x more than 3 years ago.

According to the Gartner Hype Cycle, it seems we are currently in the trough of disillusionment.

I'm encouraging you to see the slope of enlightenment.

I'm not an irrational optimist. I've explored what could destroy crypto before.

I've even dared to question the narratives behind Bitcoin.

But now, I'm encouraging you to zoom out - things are better than you think.

Devs are still building, the networks are still being used.

You're a part of the most significant financial revolution of the century – enjoy the journey. 🙂

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Is crypto going to 0? Let's explore what could destroy crypto.

The last few months have been BRUTAL for everyone invested in crypto.

In a bull market, there's an endless parade of moonboys predicting $1M BTC.

In a bear market, there are just as many doomsdayers calling for $0 BTC.

Given recent events, I went back to revisit my fundamental crypto investing thesis to see if it has been invalidated.

In this article, I'll explore my fundamental thesis and how it could be wrong.

What can destroy crypto, and cause prices to go to 0-ish

US Government bans the use of crypto

Major ETH failure

USDT / USDC collapse

Non-doomsday bear cases to consider

Coins don't capture value

Severe Economic Recession

My fundamental thesis: I believe crypto/web3 will be used to create useful financial products over the next decade that will provide better financial access to people around the world.

As an investor, this can be simplified to:

→ Valuable products are built using crypto

→ crypto adoption ↑

→ coin prices ↑

My thesis could be wrong if:

No useful financial products are built using crypto.

Adoption is threatened by government bans, macro recession, loss of trust, etc.

Winning projects aren't investible (don't exist yet, don't offer coins or coins don't capture value, etc)

+++

So what could destroy crypto?

Let’s explore what could be the end of crypto, and cause prices to go all the way down to 0?

US Government bans the use of crypto (or imposes suffocating regulations)

This could destroy crypto.

But crypto is censorship-resistant, and no one can "ban it"... right?

Technically yes, but if the fiat ←→ crypto onramps/offramps are banned, crypto will not make it.

99% of people will not want to own crypto if it is illegal and not convertible for fiat.

US lawmakers have said in the past that they do not intend to ban crypto, just regulate it.

Regulation is good - it brings trust and safety, which allows for retail and institutional adoption.

So perhaps a full crypto ban by the US is not very likely, but it's always a looming threat.

Though we might not see a complete ban, we might see some extremely suffocating regulation that makes crypto extremely difficult or impractical to use.

Major ETH failure

Example: A major ETH upgrade goes bad and the ETH network fails catastrophically.

A catastrophic, irrecoverable failure of that magnitude in the mainnet is very unlikely but I imagine that could crash ETH and probably the whole market too, shattering confidence for a long time.

USDT / USDC collapse

Tether collapsing would make UST/LUNA look like sunshine and rainbows.

USDT has been around for a long time, and there's a lot of $ riding on the belief that they have the cash to back their tokens.

Stablecoins are a critical part of crypto for investors, traders, farmers, protocols, VCs, institutional investors, and basically everyone in the space.

Many crypto projects have their treasury in stablecoins as well.

Tether (USDT) and USDC have a combined market cap of $100B+.

If either collapses, it could lead to a domino effect where a massive amount of value is wiped out quickly.

The world will also lose trust in crypto if this happens, and it will be very difficult to recover from this.

Tether's website says assets are 100% backed by reserves.

So far, Tether has been able to pay everyone who's tried to redeem USDT for fiat, but Tether FUD is still haunting.

Non-doomsday bear cases to consider 👇

There are some outcomes that would hurt crypto a lot, but probably wouldn't send it to 0.

For example: what if coins don't capture value?

The majority of crypto buying is driven by speculation.

The tokenomics (burning, locking, etc) can increase buy or sell pressure a bit, but the price is still driven by investors, not users.

For example, last year, the ETH network settled $5T+ worth of transactions.

Suppose in 5 years, the network is settling 50T+ worth of transactions.

Is it possible that the $ETH price doesn't go up much even though value settled on the network increases?

What if the networks gain adoption, but the tokens don't accrue much value?

Or what if the networks that gain adoption aren't investible?

For example: @jack's latest project "Web5" has no tokens.

Severe Economic Recession

One of Crypto's momentum drivers is price.

Price → interest / adoption → developers → adoption / price.

Crypto has never been through an economic recession, and there's a lot of pessimism about what this will mean for coin prices.

Downward coin prices means fewer devs, lower interest, and adoption.

The longer the bear, the less attractive the risk/reward for investing in crypto gets.

Currently, Markets are crashing for a few reasons:

Inflation

Rising Interest Rates & QT

Uncertainty from War

Looming Economic Recession

Cascading liquidations from LUNA / UST collapse and reckless leverage (crypto-specific)

Nothing has fundamentally changed that invalidates my hypothesis. So, I am fundamentally still bullish on crypto in the long-term.

But the truth is no one knows what WILL happen.

This is just one model or lens for looking at the market.

"All models are wrong, some are useful".

Follow me on Twitter @shivsakhuja for more crypto insights, thought experiments & visual explainers.

And check out my blog at shivsak.substack.com for more articles like this!

We talk a lot about the practical use cases of crypto, but if you ask your friends and family, chances are that 99% of them aren’t actually using any dapps.

And aside from the crypto casino, they probably don’t have any interest in it.

So where are the real users? Why aren’t all these “use cases” taking off?

Why do most dApps feel like ghost towns?

In this post, I’ll explore a few useful applications of crypto and explain why they aren’t actually being used by the masses just yet.

First, a quick look at the numbers.

According to DappRadar, there are around ~15M users interacting with dapps today.

Let’s assume that DappRadar has incomplete data, and there are really 5x more users = 75M active users. That’s still < 1% of the global population.

Not exactly “mass adoption”

Let’s look at some use cases and understand why they haven’t taken off yet.

Payments

Here’s why I believe crypto payments haven’t gone mainstream yet 👇

web2 solutions are good enough.

web2 solutions already exist for the masses that are “good enough”.

Card payments are convenient enough for retail or online purchases.

Venmo, PayPal, Zelle, Apple Pay, etc are good enough for day-to-day transfers to and from friends.

Transfers using web2 apps are also instant and the apps have interfaces that are super easy to use.

Legacy systems don’t accept crypto yet

You can’t make your mortgage payments using stablecoins (Not yet, at least).

This is partly because of unclear regulations. Over time, with more regulatory clarity, more legacy providers will get the confidence to start accepting or using crypto.

Tax Complications

Crypto payments are taxable events - which adds a lot of complication to your life.

Crypto debit cards are a great concept, but do I really want to have a taxable event that I have to report every time I buy a coffee? It’s an unnecessary complication with no added benefit.

Merchants don’t want to accept crypto.

Merchants stand to gain 2-3% by avoiding credit card transactions but the tax complications and regulatory uncertainty also make it impractical for them to accept crypto.

Also, way more people have credit cards than crypto, so merchants probably expect that most users would pay by card instead of using crypto anyway.

But what about other use cases? Like…

Tokenized Real-World Assets

There’s a lot of value in tokenizing real-world assets like Real Estate.

Tokenization makes assets investable, liquid, accessible, verifiable, and portable.

There are secondary benefits as well, like being able to plug tokenized assets into other smart contracts for lending, borrowing, etc.

Check out our video below to learn more - and subscribe to the channel for more animated explainers simplifying interesting crypto ideas!

But it’s INCREDIBLY difficult to tokenize these assets effectively.

For one thing, there are legal constraints. NFTs and tokens are not accepted as legal representations of real estate or other RWAs in most jurisdictions.

To get around this, most tokenized real estate projects today involve holding companies, with NFTs used to represent shares in the holding company.

But that’s a flawed model because ultimately, you have to trust the holding company.

The company could go bankrupt, the founders could finagle their company structure so your NFTs aren’t worth anything.

The free market could also lose faith in the NFTs, making them illiquid and worth nothing.

There are all kinds of risks there in addition to the regular risks associated with real estate investing.

Tokenized Stocks

There are a lot of benefits to tokenizing equities, but there are also similar problems as there are with tokenizing real estate.

The 2 models I’ve seen for tokenizing equities are:

Trust a centralized party to buy and sell real shares of stock when you buy and sell their tokens. This has the same problem as trusting the holding company for tokenized real estate.

Overcollateralized synthetic stocks The downsides here are:

You have to deposit more collateral than the amount of stock you wish to purchase, which makes it very inefficient. Example: Deposit $150 of collateral to mint $100 of a stock

You risk losing your collateral if the stock price goes up! It’s not a great option for long-term holders, and just generally only useful for some short-term bets or to hedge.

Lending and Borrowing

Loans can be either over-collateralized or under-collateralized.

Over-collateralized loans require you to deposit more collateral than the amount you want to borrow.

So to borrow $100, you might need to deposit $150 worth of collateral (just like overcollateralized synthetic stocks)

This makes over-collateralized loans very inefficient, and only useful for a few purposes.

This probably isn’t what you had in mind when you heard the word “loan”.

Most people who want or need loans aren’t looking for overcollateralized loans.

Under-collateralized loans are more like traditional loans from a bank. You want to borrow $100, but you might not be giving any kind of security deposit or collateral.

But if wallets are anonymous, users could just run away with the funds.

So you need some kind of identity and credit verification system just like in TradFi.

Goldfinch uses centralized intermediaries like banks and fintech companies to do credit assessments and distribute funds to borrowers.

TrueFi lends primarily to crypto-native institutions.

For example, this is a $10M loan given out to Bastion Trading for 180 days at an APY of 8.8%.

But this isn’t exactly decentralized.

“An application is only as decentralized as its most centralized layer”. - @alliancedao

And this kind of borrowing is not really helping to drive adoption from the masses.

The lending use case has some merit since anyone can deposit to DeFi lending pools and earn good interest backed by real loans but it’s certainly not enough for mass adoption.

Gaming

Many don’t understand why gaming should have anything to do with crypto. I’ll deep-dive into this in the future as it deserved a detailed analysis.

The gist of it is this:

Crypto & NFTs provide a way to create in-game assets that are unique, tradeable, valuable, useful, portable and integrated into a broader gaming ecosystem.

But at present, the crypto gaming sector is looking quite bleak.

Most people playing crypto games are only doing so primarily because they can “play-to-earn”.

Now that rewards have dried up in the bear market, most games that raised tens of millions of $ in the bull market barely have a few thousand active users today.

Crypto + Gaming is a great concept, but it should be Gaming + Crypto.

Building a game that people enjoy playing should be priority #1. For games, crypto is just a technology to facilitate transactions and marketplaces for in-game items.

Building games that people actually enjoy requires massive capital and engineering effort – and there’s a very long lead time for successful top-tier games.

I suspect it’ll take a few years to see the crypto gaming ecosystem develop into something real.

Conclusion: Why dApps aren’t seeing rapid adoption

I think the reasons for slow adoption can largely be broken down into:

Regulatory uncertainty

Not solving a problem

Incremental improvements aren’t enough to change behavior

Too complicated to use

So, how and when will real users start using crypto?

Miles Deutscher puts it really well.

“Mass adoption will only occur when dAPPs are created that retail actually WANTS to use. … Protocols need to have an inherent benefit TO users via utilising blockchain.”

Some use cases that I think have a good shot at facilitating mass adoption: Crowdfunding, NFT domains, NFT ticketing, gambling, gaming, cross-border payments, …

If you enjoyed this post, consider following me on Twitter @shivsakhuja, and subscribing to this blog for more such posts.

Feel free to reach out on Twitter DM if you’re working on something interesting!

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