Current Situation of the Crypto World: Lack of Innovation and Rise of Intermediaries

After attending the Consensus conference in Hong Kong, I returned to the mainland to communicate with some industry friends. Although familiar faces are still active, the overall atmosphere of the market has undergone subtle changes. It is neither the frenzy of a bull market nor the panic of a bear market, but an unprecedented state of alienation that makes even seasoned practitioners feel unfamiliar.

In the current environment, the entire industry seems to have only one business model left: selling digital coins.

Imbalance of the Three Pillars of the Industry

Looking at the development process of the crypto world, its operation mainly relies on three key links:

1. Value creation: Meeting user needs through technological innovation, such as Bitcoin, Ethereum, stablecoins, etc.
2. Value discovery: Uncover potential assets through venture capital and trading pricing.
3. Value circulation: Build sales channels with various intermediary institutions to promote the flow from the primary market to the secondary market.

In an ideal state, these three links should support each other and develop together. However, the current market presents an unbalanced situation where the first two are shrinking while the third is thriving.

The project party no longer focuses on user needs and product quality, and venture capital no longer deeply studies industry trends. The entire market is filled with one voice: “How to sell tokens?”

Resource Monopoly and Lack of Innovation

In a healthy market environment, the three links should be closely connected: the project party focuses on product research and development to meet user needs; investment institutions provide capital support to profit at the right time; circulation channels enhance capital efficiency.

However, discussions in the current crypto world rarely involve innovation opportunities, product development, or user needs. Even though there are still hotspots in certain niche areas, it is difficult to stimulate entrepreneurial enthusiasm. Institutions in the secondary market generally adopt a wait-and-see attitude, with new projects reaching their peak upon launch, and the liquidity of speculative tokens has dried up.

In this case, the main active participants are market makers, agencies, and other intermediaries. Their focus is on how to package data, strive for listing on large trading platforms, and develop marketing strategies.

Market participants display a high degree of homogeneity, all striving to compete for the increasingly scarce available funds. Leading resource providers (including quality projects, large trading platforms and their listing departments, strong market makers, and agencies) have formed a solid interest alliance. Funds flow from investors to venture capital, then to top projects, ultimately injected by retail investors, nourishing this community of interests.

The Decline of Innovative Spirit

After the collapse of a large trading platform in 2022, the crypto world experienced a period of darkness. However, unlike the current situation, a large amount of capital was locked in venture capital and secondary funds at that time. This capital had a self-sustaining function, allowing for investment in startup projects, creating value, and attracting new funds into the market.

Now, a large amount of funds are absorbed by intermediaries, and project parties only seek to go public for arbitrage, becoming intermediaries between venture capital and the secondary market, no longer focusing on value creation, but solely on building “shell” stories. From a business logic perspective, if downstream distribution channels account for a large portion of the costs, it will inevitably compress upstream research and development and operational investments.

Therefore, the project party simply gave up on product development and used all the funds for promotion and listing. After all, projects without actual products and users can still successfully go public. The current promotion can even be packaged as a “network hotspot” drive; the less investment in products and technology, the more funds can be reserved for listing and price increase.

The evolution of the innovation path in the crypto world has become: “Building an appealing narrative → Rapid packaging → Seeking relationship listings → Cashing out and exiting.” Products, users, and value creation have become the self-comfort of idealists.

Market Dilemma Dominated by Middlemen

On the surface, it appears that the project party uses the funds for listing and price manipulation, seemingly benefiting all parties involved: funds gain exit opportunities, retail investors have speculative space, and intermediaries earn substantial commissions.

However, in the long run, the loss of positive externalities leads to the continuous expansion of intermediaries, resulting in a monopoly where the commission rates keep increasing. Upstream project parties cut product development costs, face regulatory pressure and high commission fees, leading to a serious imbalance between risk and return, ultimately choosing to exit. The zero-sum game among downstream retail investors intensifies, the profit-making effect disappears, and a large number of investors exit.

Essentially, intermediaries (such as exchanges, market makers, agents, and communities) are service providers and do not directly create value and positive externalities. When service providers and those who take a cut become the largest beneficiaries of the market, the entire market becomes like it has cancer and will eventually decline due to the depletion of nutrients.

Periodicity and Rebuilding Hope

The crypto world is ultimately a cyclical market.

Optimists believe that after this liquidity-crisis low, a true “value renaissance” will eventually arrive. Technological innovation, new application scenarios, and new business models will reignite the passion for innovation. Innovation never stops, and the bubble will eventually dissipate. Even a faint light may become a beacon guiding the way.

Pessimists believe that the bubble has not completely burst yet, and the crypto world still needs to undergo a deeper “great reshuffle”. Only when intermediaries have no profit to gain and the dominant market structure collapses can true reconstruction begin.

During this process, practitioners will go through a chaotic period filled with doubt, internal struggle, burnout, and self-doubt.

But this is the essence of the market - cycles are destiny, and bubbles are also the prologue.

The future may be bright and brilliant, but the road to brightness is destined to be long and arduous.