Betting on the Swing
“Betting on the Swing” – a cartoon that illustrates how the crypto industry’s economics is currently dangerously dependent on the next market swing.
The crypto companies that have managed to benefit from the last bull run and survive the current bear market are those that have their own token (e.g. Polygon, Avalanche).
The revenue model of these companies depends upon the increase in value of their token (since they normally retain a large percentage of the currency treasury), transaction fees from people buying/selling their token and potential realized value from startup companies they have invested in getting acquired or going public.
With these companies falling over themselves to reduce transaction fees (currently in the sub $0.10/transaction) and only a handful of startups that realized dollar returns in the last bull cycle, the great hope is that the retail boom will return and the token prices will shoot back up again.
However, this is a really challenging way to build a business and makes any form of long-term investment planning difficult to pull-off.
Rather, the industry needs to start thinking of new business models where web3 can provide value to the customer while offering healthy unit economics.
The best chance for this is in the DeFi (distributed financial services) industry – for example the asset tokenization industry which BCG forecasts as a $16 trillion business opportunity by 2030.
Assets (such as real estate) that are tokenized can reduce the threshold investment sizes from millions of dollars to just thousands of dollars, thereby democratizing access to financial products that were only available to institutions.
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