The CryptoCurrency Industry Is In A Giant Feedback Loop

The CryptoCurrency Industry Is In A Giant Feedback Loop


Overview

The CryptoCurrency industry, and to a large extent, the overall Blockchain industry, has an input/output problem creating a feedback loop of progress, one that dwindles in strength as growing numbers of projects fail to capture outside usage from the mainstream. Let's start by defining what we mean by input and output.

Input

Input comes from the companies developing new blockchains, to create new cryptocurrencies, new DApps to play video games which mint assets on the blockchain, or upgrading existing solutions (ex: SAI -> MCD).

Output

The output is what results from all that, the ability to experiment with new technologies, use bleeding-edge financial platforms to accelerate our day-to-day monetary transactions, and leverage stablecoins for flash loans to take advantage of arbitrage opportunities.

The Problem

For us to get more input to continuing generating output on an expanding scale, the output we procure needs to go somewhere. It needs to be directed both to people already responsible for creating the input (revenue for companies, liquidate an overcollateralized loan, payout for a pool-together round), and people that are capable of generating new sources of additional input (the "mainstream"). 

The Solution

To do this, we need the mainstream; The companies using web 2.0 domain name management that could be blockchain-based naming systems or the traders using traditional fiat markets who could be loaning and borrowing using algorithmic stablecoins. It's the money that isn't stale and already committed, the untapped gold mines that can power new sources of, and sustain existing sources of input.

The Reality

Unfortunately, this is seldomly the case. The total value of money locked up in DeFi ecosystems like MakerDAO, and Compound that's increasing? It's just coming from addresses old addresses, or maybe even a new address generating from HD wallets is receiving a transaction from an exchange. It's money that's already in the pond. 

For clarification, one only needs to look at the trend of market caps for various assets, and the overall total market cap. Except for a small number of projects, the long term trend is down as wealth continues to consolidate amongst a few top players, a symptom of the larger feedback loop which has captured many projects in its net. 

Even for those projects which don't use a CryptoCurrency or don't have individual blockchains, The same tale is accurate, with many failing to make existing business models work or failing to create new business models, with web 2.0 continuing to proliferate.

Until the feedback loop gets broken, and output directed where it needs to go, the outlook for many projects is bleak, a downward spiral from the once-great highs of 2017 and 2018.


silent-observer
silent-observer

I'm a software engineer working in the Blockchain industry with a passion for self-hosted solutions. My blog will primarily focus on controversial facts and opinions about the Blockchain industry that I've noticed while working in it.


Ecosystem Overviews And Analysis
Ecosystem Overviews And Analysis

Various posts about the distributed ecosystem

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