A lot has been said about the most recent edition of crypto drama™. We have particularly appreciated the thoughtful analysis by Mario Gabriele and @0xfbifemboy. It feels as though we are stuck in a loop, with the same unfortunate unraveling of projects happening time and time again. Each time, everyday investors are harmed as a result of actions varying from naive to irresponsible or downright deceitful. The crypto skeptics inevitably feel vindicated and a bit more belief is eroded in the promise of this space we call ‘Web3’. At Otterspace, our optimism hasn’t faded and we see an opportunity to build a better Web3 that is less financialized and scammy and more decentralized.
Both the genius of this technology and its curse is the fact that it holds units of value at its core - programmable blockchains run on tokens, and enable the trustless transfer of value between network participants. Given the inherent value-exchange-based nature of early blockchains, the first generation of applications has been centered around finance and trading, and the open and unregulated nature of the space has invited legitimate investors, speculators, and fraudsters alike.
But behind the hyped-up casino (as Mario Gabriele put it), lies another place. In this place, network participants use tokens to share ownership of collective resources and coordinate the stewardship of those resources. While Web3 will always operate on the exchange of tokens, we should take this time to reflect on how we can build it to look less like a casino and more like a flourishing ecosystem.
We’re firm believers that non-financial applications, social identity, and decentralization drive the path to a better Web3. The foundations have been laid for the next generation of applications to be less concerned about trading, finance, and speculation. We see the biggest near-term opportunity for non-financial applications of Web3 in gaming, social, and media - where blockchains are used to give users power over their online experience, digital objects, and algorithms. Non-financial applications like Farcaster and Mirror, and protocols like Lens offer real utility and improvements over their Web2 counterparts. The crypto casino culture is less likely to survive a world in which utility is prioritized over get-rich-quick schemes.
A prerequisite to a flourishing ecosystem of non-financial applications is a foundational identity system. ERC20 tokens unlocked trustless exchange and shared ownership, but without social reputation and identity, network participants suffer no consequences for anti-social behavior. We expect DAOs and non-financial dApps to incorporate elements of pseudonymous social reputation and rewards, thereby reshuffling incentives and hopefully deterring extractive self-interested behavior. Otterspace and several other projects are building the primitives to power this capability. We hope to contribute to an ecosystem where individuals are recognized and rewarded for pro-social behavior and scammers and sybils are thwarted.
Collective interest is also an important theme when considering the value of decentralization. By distributing ownership and stewardship of a collective resource to a large group, we contribute to its resilience. In the case of centralized control over a resource, a single ‘weak link’ can compromise the whole project with one or two poor decisions. Collective governance might be slower but can protect against rogue actors and may also lead to wiser decisions. As we build in the wake of the FTX crash, we must uphold the value of decentralization and strive for a less skewed distribution of power, ownership, and control in the space.
The implosion of FTX hasn’t weakened our belief in the power of blockchain technology, if anything it has strengthened our conviction in decentralization and non-financial Web3 applications. We are optimistic that the space will emerge stronger in the wake of this crash, and are committed to continuing to build towards a flourishing decentralized, user-owned and operated Web3 ecosystem.