Tomasz Tunguz - What the FTX Fiasco Means for Web3
Tomasz TunguzVenture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. What the FTX Fiasco Means for Web3
During one of the toughest years for technology in more than a decade, the web3/crypto segment is suffering the worst. Inevitably, this crash will evoke disillusionment in the technology & the space. Earlier this week, FTX, a top crypto exchange became insolvent. Recently valued at $24b, FTX is the third major crypto company to collapse in 2022 due to insolvency: Three Arrows Capital & Terra complete the trio. In these three cases, each used cryptocurrency as collateral. When the collateral’s value disintegrated, the business defaulted. FTX’s trading arm, Alameda, borrowed against FTX’s token called FTT. Terra used their currency Luna to maintain a peg for their stablecoin UST. Three Arrows borrowed against their crypto holdings to invest in Luna & defaulted on their loans when Luna crashed in value. In addition, hackers have stolen more than $2.3b of assets from projects year-to-date. The rotten cherry atop this mud pie: across the top 100 crypto projects, the typical token has lost 75% of its value since January. Those are rough stats. But broad rejection of the advances is as myopic as unmitigated zealotry for the innovations of web3. Carlota Perez’s Technological Revolutions & Financial Capital lends some perspective on this crypto winter. Both Ben Thompson & Jerry Neumann have great overviews of the book. In short, technology advances have an installation phase when frenzy for an innovation drives speculative investment, with periods punctuated by rapture & collapse. Web3 remains in the installation phase when a technology exists & the promise of many new businesses outshines the reality. These cycles take 50 years & we’re about a decade into web3. The aftershocks of these three foundation-shaking earthquakes in crypto will include regulatory oversight, weaker investor interest, & broader skepticism which are healthy advances. Protecting consumer dollars with regulation reinforces credibility in financial institutions. Fewer dollars in the ecosystem will focus builders on viable business models.Investors will value these companies based on revenues. We’ve been here before. “All of the money poured into tech companies in the first half decade of the Internet Era created an infrastructure and economic foundation that would allow the internet to mature. The dotcom bubble created several multi-trillion dollar companies twenty years later. That gloom will continue to cast over the ecosystem until a founding team figures out a way to assemble decentralized databases, tokenomics, wallets, & NFTs into a product that changes the world. |
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