June 26, 2022 | 3 minutes read

From Hype to Infrastructure

How to Build for Boom when the Crypto Market is Bust

Tomer Niv
Crypto Investor Entrée Capital

So, here we are in June 2022: Bitcoin is down to ~$20k, crypto fund 3ac has entered liquidations, Coinbase has laid off 18% of its workforce (1,100 employees), crypto lender Celsius brought on advisers to prepare for potential bankruptcy, and more. 

Is this the “end of crypto”? 

We believe NOT. Crypto markets move in step with traditional markets both in bull and bear cycles.

There is often a pendulum between hype and infrastructure when the masses adopt new technologies. We see it very clearly within the crypto space:

  • 💫 Hype: The first stage, where a high-risk+high-reward digital asset attracts investors and speculators. This stage creates value quickly for a few people while helping the project raise funds and develop.
  • 🏗 Infrastructure: The second stage with innovative underlying technology that can potentially disrupt a traditional industry. This stage might take more time to create value, but impacts millions once successful.

Bear markets do a good job of driving out companies or startups that are stuck at the hype stage and enable successful companies to strengthen their infrastructure to thrive when the market turns. 

Companies that have successfully moved from hype to infrastructure are those where the use of blockchain is relevant to solving a problem; this is usually due to the natural advantages of blockchain technology, like the efficiency of settling transactions, the transparency of databases, the reduction of network costs, the decentralization of different systems, the ability to prove ownership of digital assets, and more. For example:

  • Bitcoin shifted from hype to infrastructure when major financial institutions adopted it as an alternative store of value in their treasuries. 
  • Ethereum and other smart contract protocols also shifted and disrupted the banking systems by offering programmatic decentralized financial applications.
  • USDC and other stable coins broke through to the infrastructure level by disrupting payments and settlement systems and offering on-chain fast and secured global transactions. 
  • NFTs are moving beyond the hype by disrupting the cultural & art world, and now the metaverse metaphor is beginning to disrupt how we think about eCommerce & social interactions. 

We can also assume that in the near future, we’ll see DAOs disrupting organizations and governance mechanisms. One day soon, the concept of identity might also be disrupted by blockchain-based innovation. 

Some Advice

Those that cry that this is the “end of crypto” are only focusing on the effect of the bear market on the “hype.” If you believe in the long-term vision of Web 3.0 (as we do), markets like this one need to be seen as an opportunity to build, first and foremost, with infrastructure in mind. You can do that by ensuring that: 

  • ⚙️ Your use of blockchain technology actually solves a real problem that can’t be solved without it. 
  • ✅  Your product takes advantage of blockchain core principles, such as reducing the cost of networking, transparency, and cost of verification. 
  • 🪙 The tokenomics (if appropriate) are relevant to your business model and create a network effect.
  • 🧠 There is clear intellectual property and a complex technological moat behind the product. 
  • 💻 You look at the product itself: if it’s a front-end application with no API abilities, then there is less chance it will become a good infrastructure solution.
  • ❌ You do the “redline test”: if you remove the word “blockchain” from the pitch, ask yourself if it would still be the same pitch. If it is, scrap it.

So, if you’re building a crypto startup that includes the above, we’d love to be in touch.