Builder Focus
One of the big questions is what can anyone do to help get out of this bear market and get the bull back. There are perspectives and steps to consider.
As noted in a16z’s recently released State of Cryptocurrency 2022 report, cryptocurrencies have historically followed what the authors call a “price innovation cycle.” A wave of rising prices has attracted new builders who will develop new solutions to long-standing problems even as prices fall.
These new applications have revived interest in Web 3.0, bringing waves of users into the space, leading to another rise in the value of cryptocurrencies. Despite the ups and downs, the overall trajectory is one of growth.
The silver lining is that as the hype and excitement about the price hikes diminishes, builders can focus more on developing truly innovative protocols. Recall the major developments that led to the ICO boom, the DeFi summer, and the NFT boom.
Every major rally precedes a phase where imaginative people roll up their sleeves and get to work. We are at such a stage now. Here are four key areas where builders should invest time and talent if they want to ride the next bull market.
Web 3.0 user experience (UX) must improve
The frontier of Web 3.0 is occupied by “early adopters” who are generally more tech-savvy and more willing to try the unknown. However, features and features that appeal to early adopters tend to intimidate less advanced users. This creates a barrier to entry that hinders Web 3.0 adoption.
The biggest barriers to entry are often based on overcoming the technical barriers required to participate in Web 3.0. Users need a wallet to interact with the protocol. The addresses used to send and receive transactions consist of a long string of numbers and letters—a far cry from Web 2.0 usernames and cryptocurrencies.
Plus, it’s a huge responsibility to take on the burden that has historically been done by banks—keeping your own assets. If a user loses their private key and mnemonic phrase, there is no need to call the customer support line. These funds are not available.
The next wave of successful projects will find ways to ease the transition of new users to the field by simplifying these technical barriers and unfamiliar processes involved in entering Web 3.0.
Web 3.0 needs to expand financial services
Basic lending, a core pillar of the traditional financial system, is being replicated across DeFi. By migrating consumer financial products (mortgage loans, auto loans, business loans) to DeFi, it creates opportunities for lenders to generate liquid interest on their crypto assets.
Additionally, borrowers who may not have traditional bank accounts can obtain loans that would otherwise be unavailable — all based on their crypto collateral or proof of eligibility.
That said, bringing TradFi to DeFi is not enough. In order to become the world’s default financial system, DeFi must expand the already ubiquitous core financial services in TradFi, pulling people and institutions into the new realm of decentralized finance.
This is why decentralization is important education. People need to understand the benefits of owning and controlling their financial destiny rather than putting their money in the hands of the bank.
The 2008 financial crisis showed what happens when power and control are concentrated in the hands of a few acting in their own interests rather than the interests of the majority. The core value of encryption is to put the power in the hands of people, not corporations, to own and control their own value.
Builders should focus on enabling Web 3.0 e-commerce
Web 3.0 has the potential to break the shackles of retail giants on e-commerce, giving consumers greater decision-making power. A key factor driving this shift again comes down to enabling a frictionless user experience that delivers the benefits of Web 3.0 and the look, feel, and convenience that users have come to expect from Web 2.0.
For example, new financing options such as “buy now, pay later” services, a staple of Web 2.0 e-commerce, will further drive e-commerce adoption of Web 3.0. Research shows that offering a “buy now, pay later” option at checkout increases conversion rates by 7% compared to traditional card transactions.
Another way to capture the attention of shoppers is to participate through a Decentralized Autonomous Organization (DAO). We are increasingly seeing brands and influencers launching DAOs as a way to turn customers into community members, giving them decision-making power over contests, new product features, and sometimes revenue streams from shared investments.
Looking for capital?building infrastructure
During the California Gold Rush, when 300,000 people traveled across the country to make their fortunes, businessman Samuel Brannan, who provided equipment for miners, made the most money. As Web 3.0 goes through a bear market, more discerning VCs are learning from Brannan’s book to focus their investments on infrastructure.
Infrastructure projects are projects that others can build on — and a recent Messari report suggests that such projects are showing strong signs of growing profitability. This shouldn’t be a surprise. Some interesting things are happening in the infrastructure space.
New infrastructure is enabling permanent file storage, low-cost on-demand and streaming video, and even decentralized wireless networks to power the Internet of Things. With so many new tools to build, who knows what’s next?
Time to roll up your sleeves
Bear markets are not a new phenomenon, which means history has something to teach us. This includes the history of the Internet itself. When the tech bubble burst in 2000 after the frenzy of the late 1990s, it wasn’t the end of the internet. Instead, as the noise and nonsense of projects with poor fundamentals are filtered out, a new generation of stronger projects emerges.
The new wave is characterized by improved e-commerce, increased financial services offerings, enhanced infrastructure and improved user experience. That means it’s an exciting time. History is littered with trading venues for bull and bear markets, and the bull markets that emerge from this period are likely to affect everyday life for decades to come.
Ryan Berkun is the founder and CEO of Teller, an unsecured lending protocol for DeFi. Ryan is an a16z Crypto Entrepreneurship School alumnus, angel investor and mentor to CELO, a mobile-first blockchain optimized for peer-to-peer payments. Previously, Ryan focused on Web 3.0 infrastructure for projects such as Tezos, 0x, and Livepeer.
The Power of The Bear
As a result, many entrepreneurs and businesses may think twice before following through with plans to launch or further develop Web 3.0 projects. This article will explain why builders who have quality ideas and the willingness to adapt should embrace the opportunity to launch and build in a bear market.
Crypto winter 2022 versus 2018
First, it is useful to compare the current bearish cycle to the last one, which occurred back in 2018. DappRadar recently published this blog post, which seeks to compare and contrast the circumstances surrounding each protracted downturn.
The crypto world saw a surge in ICOs (initial coin offerings) in 2017, which led to the market becoming flooded with numerous startups that used cryptocurrency in order to fund their ideas.
Nearly any idea that included the words ‘blockchain’ or ‘crypto’ found itself able to raise large sums, drawing comparisons to the ‘dot com’ bubble’s use of the term ‘internet’ in the late 90s.
The ICO craze led to a large number of poorly planned (and sometimes outright fraudulent) projects, raising millions of dollars with little more than a whitepaper and a roadmap. In many cases, these roadmaps were never completed. Approximately 90% of ICO-era projects failed within six months of their launch.
In 2018, the disillusionment felt by people witnessing the rapid failure of these startups combined with several other factors to create a drastic drop in crypto prices across the board.
The emergence of Bitcoin futures increased interest in shorting, exchange hacks such as CoinCheck led to massive amounts of Bitcoin, Ethereum and other altcoins being sold off and China announced their intention to place an outright ban on cryptocurrencies.
Despite these challenges, a small number of the ICOs and startups established in 2017 continued building innovative new products while responsibly managing their resources in order to survive the ‘crypto winter.’
Many of these projects are still in existence today, with some becoming prominent names in the industry. Some notable examples include BNB, Polkadot, Solana and Avalanche.
In addition, other projects which began their existence in the bear market went on to establish important new sectors, including blockchain gaming, NFTs and metaverse.
The overall growth in the industry can be readily seen in the global cryptocurrency market cap. At the peak of the 2017 bull market, the combined valuation of all crypto projects came in at around $820 billion. Today, even after a year-long slump, the market is still valued at more than $900 billion.
The lesson we can learn from history is that some of the projects launching during this bear market will ultimately emerge as success stories that help shape the future of the cryptocurrency space.
In this way, 2018 and 2022 will prove to be very similar. However, it is also important to acknowledge some of the significant differences between the two periods.
Differences between 2018 and 2022
Greater variety of platforms
In 2018, the only widely used smart contract platform was Ethereum. While projects like Cardano and Polygon had launched ERC-20 tokens, they had yet to deliver working platforms.
In 2022, the landscape looks very different. We live in a ‘multi-chain’ reality, with multiple layer one and layer two technologies vying for market share. This expanded backdrop provides new projects with more choices to choose a platform whose technological capabilities match their specific use case.
The growth of the retail user base
According to block explorer data from Blockchain.com, the number of Bitcoin wallets has quadrupled since January 2018. Bitcoin wallets are not a direct measure of smart contract activity and Web 3.0 but they provide an excellent snapshot of crypto adoption as a whole.
While users and interest wane over the course of a bear market, the overall trend is clear crypto is slowly but surely accumulating more users.
Venture capital involvement
In 2018, talk had begun in earnest about ‘institutional investment’ finding its way into the crypto space. During the last bull market, this speculation became a reality as venture capital investment into both new and existing crypto projects exploded.
While recent data suggests that VC investment is slowing, the first half of 2022 was absolutely massive, with over $14.2 billion invested. Even amid a slowdown in the second half, new funds like Blocktower Capital are establishing themselves in order to take advantage of the lower prices offered by the bear market.
What is clear is that institutional investors are here, and here to stay.
How to enter the market successfully
While launching a new Web 3.0 venture in the middle of a crypto winter offers the greatest possible reward, it also carries with it a large amount of risk. Just as in 2018, projects that prepare and plan poorly may not last long enough in order to weather the storm.
Here is a list of guidelines that can help entrepreneurs give their startups the best chance of success.
Concept matters
In a bear market, having an innovative idea is more important than ever. Both retail and institutional investors are exercising caution and being more selective about the projects that they want to support.
However, this caution also comes with a positive side effect the current market has far fewer speculators who are only interested in making a quick profit. This environment is conducive to building lasting relationships with investors, which ties in closely to the next point.
Build a community
While community is important in every market condition, it becomes absolutely essential to building a foundation during tough times. Plan to keep your supporters engaged with various promotions and offer them a chance to take part in the decision-making process.
Regular communication between core members of the team in the form of AMAs (ask me anything) and informal interactions can keep your community feeling connected to the project and give them the patience to stick with you throughout the bear market.
Create a realistic, sustainable plan
The most common reason projects fail during downturns is running out of capital. Nowhere was this more apparent than in 2018 and 2019, when a number of projects folded despite raising tens of millions of dollars.
The projects that survive are the ones that use solid financial planning principles and treat their crypto startup like an actual business.
Now is the time to build
While the bear market is no place for gimmicky ‘fly-by-night’ projects that rely on simple code forks and gimmicks, it gives legitimate projects the chance to build their business network while perfecting their products.
If you have a solid idea, sound business principles and the willingness to build a community, now is the right time to start.
Featured Image: Shutterstock/Catalyst Labs/Sensvector
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