The Daily Gwei - Scarce Resources - The Daily Gwei #356
I’m sure you’re all well aware of just how much money is floating around in the crypto space right now. There are multi-billion dollar funds being raised by VC firms, lots of retail traders throwing money at anything with decent marketing and there is plenty of “old money” pouring into large-caps like ETH and BTC. So in a world where capital is so abundant, what are the actual scarce resources? Well, the answer seems quite obvious to me - talent/developers, attention and legitimacy. Capital is abundant; developers, attention and legitimacy are scarce.
For long-term health and sustainably, projects should optimize for the latter once they acquire the former. There is a major talent shortage in the crypto ecosystem right now - especially in the more technical roles such as smart contract development. This imbalance has been caused by the fact that lots of projects have been able to easily raise money but they are all competing for a very small pool of talent. Add on the fact that a lot of developers have either already made enough money to sustain themselves or they’re happy just making money by coding up MEV bots, and you’ve got an even more extreme shortage of competent people. So in this case, crypto needs to grow its existing talent pool and the only way to do this is to attract developers from the web2 world or have fresh college graduates go straight into crypto. This is obviously going to take time so I figure this talent shortage is going to persist for many years to come. Attention is such an incredibly scarce resource because this industry simply moves so fast. One week you’ll have everyone talking about a certain narrative (this week it’s apparently ‘DeFi 2.0’) and then the next week it turns into something else entirely. Couple this with the fact that the easiest way a project gets attention is for its token to pump and you’ve got yourself a recipe for extreme short-term attention swings. For example, think about all the projects that had attention for a few weeks because their native token went up in price but then they fell off the face of the Earth. This sort of short-term attention can also be extremely damaging to a project team’s morale as they may think they’ve achieved product/market fit but in reality it was just people using the product because the token price went up. So I would say it’s best to optimize for long-term attention using various different methods instead of being happy with bursts of short-term attention. Finally, as Vitalik has written about before, legitimacy is the most important scarce resource. Here’s how Vitalik defines legitimacy:
I suggest reading Vitalik’s piece for more context around this but what I wanted to focus on was what exactly has legitimacy in this industry. I would say that very few things do and when it comes to blockchains themselves, I’d argue that only Ethereum and Bitcoin have legitimacy. At the app layer it becomes much harder and it seems like legitimacy is a function of ‘time in existence’ coupled with social signalling from people who themselves have legitimacy. In other words, gaining legitimacy can be a circular affair where you only have legitimacy because people with legitimacy have signaled that you are legitimate! Okay, that’s a mouthful, but hopefully you see my point and also see why legitimacy is such a scarce resource. Bringing this altogether gets to the point of my tweet above about long-term health and sustainability. It’s not enough to have these scarce resources in short-term bursts - a project needs to optimize for long-term developers/talent, attention, and legitimacy if it wants to have any hope of succeeding - otherwise it’ll simply be relegated to being a footnote in the crypto history books. Have a great day everyone, Enjoyed today’s piece? I send out a fresh one every week day - be sure to subscribe to receive it in your inbox! Join the Daily Gwei EcosystemAll information presented above is for educational purposes only and should not be taken as investment advice. If you liked this post from The Daily Gwei, why not share it? |
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Innovate or Die - The Daily Gwei #355
Thursday, October 14, 2021
Every company will be a crypto company.
Respecting the Builders - The Daily Gwei #353
Monday, October 11, 2021
Fostering an inclusive Ethereum community for everyone.
Early Adopters - The Daily Gwei #352
Friday, October 8, 2021
Enjoy being early even if there are some growing pains.
The Mega City - The Daily Gwei #351
Thursday, October 7, 2021
Ethereum is scaling in more ways than one.
The Great Brain Drain - The Daily Gwei #350
Wednesday, October 6, 2021
Migrating from web2 to web3 never looked so good.
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