What Kind of Companies Will Survive the Crypto Crash?

I’ve landed to United States this week to join our Cohart NFT show in LA and I am quite hyped up about the event. On the less exciting news, crypto markets has been not doing so hot. And by not doing so hot, I mean Celsius tanking 70% in 1 Hour after freezing account withdrawals on June 12, 2022. For those who’d like to take a closer look into Celsius meltdown, I recommend you to read a thread written by Jack Niewold — great person to follow on Twitter if you’re in the space.

And then there is Bitcoin dropping below $24,000 and Binance halting its withdrawals, Ethereum dropping below $950 in Uniswap, and so on…My beloved crypto newsletter Decrypt reports all the craziness that’s happening under a new segment called the “2022 Crypto Crash”. The current situation is nicely summarized by Yano on Twitter:

Yikes.

Some of the likely reasons why the crash is happening include the overall state of the economy (e.g. high inflation), regulative pressures, security attacks, Luna crash, now Celsius, and so on…A lot of this is really related to each other. As an example, it was recently revealed by the Nansen’s research team that Celsius was involved in the Luna crash by holding a large amount of UST that is their customers’ money.

After every major protocol crash, we see authors writing about the how and the why the crash occurred. We are talking about the “too big to fail”s of the industry, the players that we never thought could crash. But it happens. In my opinion, apart from the facts listed above, there are two other reasons why we’re having a meltdown right now: a lot of the web3 projects are built on hype 2) web3 remains inaccessible to the every day user.

The first reason (a.k.a. ‘hype factor’) can be explained by taking a quick look at the role Discord plays for web3 applications. There are countless number of Discord channels today. It is impossible to really follow the conversations that are happening in there unless you are a part of just a few groups. Most of us use Discord with the notifications turned off because there are just too many of them. The issue isn’t just quantity of things, it is also the quality. The incentive mechanisms that are around just to create a bigger crowd around a project or just to get some conversations going in the channels may set up the project for success in the short-term, but what happens in the long-run?

Similar issue exists in the DeFi protocols that are now crashing. We see that a lot of them have had issues with promising users really high APYs and then not being able to keep their promises because someone (most times a whale) always discovers the hole in the system. In these kind of bear market times, one crash brings the other just as it happened in the Luna & Celsius case. The projects that try to get users in via highly sweet promises that almost feels too good to be true face what I call the “sweet domino effect” eventually.

The other issue is the inaccessibility of web3. This week I was chatting with a friend from college who works at Meta and when I mentioned that I work for a web3 company she went: “what is web3?” In the bubble that we’re in it feels like everyone knows and understands web3, but the reality is far from that. The space is so new that even people who are fully emerged in web3 feel like there is so much to learn every day (I feel that way for sure). Thus, it is hard to expect someone who is just starting to invest in crypto to understand how everything works. Seeing a project with smart founders, well-recognized name, sweet interest rates is most times enough to have a level of trust in the project for those who are just starting. Even the investors who bring these projects into life don’t go far enough to recognize the holes that could cause issues that we are facing today. I don’t blame them, we’re all learning and making mistakes.

There are fundamental issues with the user experience in web3 projects. Even though I love the lens protocol and I am quite excited for it, every single thing you do in there requires a signature. That totally makes sense, but for every day users who are yet starting to understand the value in web3, poorer user experience like this could be an intimidating factor.

The fix is simple. We need the kind of projects that don’t draw users in with promises like whitelists, high interest rates, incentives that don’t drive meaningful interactions. A project that sustains a long-term success is the one that gathers a community around universal principles that can be applied in web2, web3, or in web5. The companies who are successful in doing so are set to survive the 2022 crypto crash.

I do love projects like Rally that empowers creators and help them with launching their own tokens, or projects like Boys Club that brings people with a common goal together (they do have a great newsletter as well, and I’d like to get more involved with them for sure). It is also the same reason why I love working at Cohart and believe in our project with my heart and soul. Cohart connects visual creators with their consumers in web3. However, there is not a visible element of web3 in the app’s user experience currently. Anyone who uses any other app in web2 can go through our onboarding process and use the app without feeling intimidated. The web3 elements are hidden in details such as the answer to the question: “what happens when I like someone’s video?” We are bridging web3 elements to the web2 user experience so smoothly that if you have no interest in web3 you can still have an amazing experience on the platform. As long as one is interested in a bit of creativity, they will be able to find a niche community for themselves at Cohart.

Disclaimer: I am not a financial advisor. Do not take anything I write as a financial advice, ever.

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