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The Apparent Lack of Innovation in web3
web3 is hot and talent is flowing in - but are we really innovating or are we going in circles?
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In the last week, MoonBirds by Proof Collective was dropped and raised a mindboggling 25,000 ETH (~USD$75m) from its primary mint. It’s an insane amount of money for any project to generate initially.
However, hours after the project minted out, a bunch of new projects were being minted. Flipbirbs, MoonBirbs, Zukibirds and Baby MoonBirds to name a few. All derived from the original MoonBirds project and created in the hope of making quick $$$.
Derivative works have existed for centuries in the art world, but in crypto, it’s taken to the next level.
The open and composable nature of crypto means it's easy to simply copy someone’s codebase (or traits for NFTs) and spin up a new project within an incredibly short amount of time (hours versus days/weeks). Collections such as Flipbirbs and Phlipped MoonBirds are literally just the original MoonBird collection but flipped vertically or horizontally.
This affects all parts of crypto. Late last year I wrote about the advent of DeFi 2.0. Unfortunately, the DeFi 2.0 wave ended up evolving into “OHM fork szn” where OlympusDAO served as the flagship project that people copied onto every other Layer 1 chain.
Copycatting in tech isn’t new.
There were ~10-20 search engines that existed before Google came along. But when the world’s smartest and most talented people are moving into web3, shouldn’t we expect more actual innovation?
The S-curve signals the trajectory of innovation within a business, industry or product. At the start, growth is slow, and over time it exponentially grows as Product-Market-Fit gets stronger before plateauing as the product/industry/business matures. For some, a new S-curve begins, and for others, this is the beginning of the end as the product slowly fades out.
In crypto, S-Curves are largely defined through booms and busts. The last cycle was kickstarted with DeFi Summer back in 2020. Before this period, the entire ecosystem faced little growth, but people were building valuable products like Uniswap. Once that found PMF, we saw a huge bull run and now a maturation of the current suite of DeFi products.
Overlapped with this, we saw NFTs come into existence from 2017-2020 without much noise. Enter 2021, NFTs started finding PMF which led to a huge growth in both the value of the NFT market but also the number of NFT collections in existence.
In 2022, we’ve reached a point of maturity for both the DeFi and NFT markets. Easy gains and clear opportunities caused people to take the easy route and create forks and derivatives of anything that looked like a blue-chip project or protocol. We’ve got Automated Market Makers (like Uniswap) on every Layer 1 chain, and we’ve got a new Ape and Azuki derivative coming out every day - the market has hit a point of saturation.
For investors and speculators in the space, it‘s becoming apparent that these are all bound by the valuation of the original protocol or project. It’s incredibly unlikely that any of these forks or projects will surpass the original despite changes in the tokenomics or roadmap.
In that case - does it still make sense to create derivatives and forks?
The project builders - they’re hoping to jump on the bandwagon of the original project and make consumers FOMO about their project. This is because speculators and investors, intuitively feel like they’ve missed the boat when they see a project perform well. As a result, they believe they need to continually move up the risk curve in order to have the best chance of making up (perceived) ‘lost’ gains.
As such, whilst it’s easy to make a quick buck for builders and early speculators, these projects never really take off and value erodes over time. Once in a while, there might be some innovation (like Wonderland’s ecosystem, however, this died for other reasons) which might allow a copycat project to succeed but this is a rare outcome.
So what’s next?
The market runs on narratives. This exists in both web3 and in tradfi markets. At the moment, there isn’t a clear prevailing narrative which results in a sideways market where nothing obvious is happening.
These are also the best times to build. Taking price fluctuations and growth out of the equation allows the serious builders to build and flush out those looking to make a quick buck.
There are legions of developers looking for the next narrative. DAO tooling in particular has been brought up as the next big infrastructure play. However, there aren’t actually that many DAOs out there, which begs the question - how do people who are working on DAO tools know what product to build? Chances are they haven’t really been in a DAO and so might lack the empathy or even exposure to be able to create tools that serve DAOs holistically. At the moment, it seems like these tools are just partially on-chain equivalents of what exists in Web2. As a result, it seems like people are pushing for PMF for tools that are not really that necessary or are based on an untested hypothesis.
And whilst trialling different projects and tools is good, it seems that a lot of money and energy is going to solutions that are solving a made-up problem, or are not solving a problem in its entirety. This leads to undue pressure on Founders and is likely to result in subpar outcomes for investors which could affect people’s trust and belief in web3 as the next frontier. More perversely, excess capital might actually limit or hinder innovation rather than promote it.
Don’t get me wrong, I’m still incredibly boooolish about web3, I just have high expectations for the space given all the talent that’s pouring in.
If you think you’re building something unique I’d love to chat to you! DM me on Twitter :)
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