Dougie: Crypto startups face unprecedented external challenges, the line between crypto and traditional finance is blurring, and market sentiment mirrors the FTX collapse | Empire

Key takeaways

• Crypto startups are increasingly challenged by external forces, necessitating adaptation.
• Bridging the gap between crypto natives and the broader market is crucial for future success.
• The line between crypto and non-crypto products is blurring as builders focus on real-world problems.
• Institutions like BlackRock are influencing the crypto landscape, challenging native startups.
• The current phase of crypto adoption is marked by increased accessibility for non-crypto natives.
• Despite short-term volatility, the long-term trajectory of crypto remains positive.
• The initial DeFi phase laid essential groundwork for future crypto developments.
• The market’s ‘casino’ mentality may not be sustainable for the majority of users.
• NFTs gained early excitement due to perceived value beyond physical assets.
• Future crypto apps must cater to both existing and new users to thrive.
• The current sentiment in crypto is comparable to the FTX collapse, potentially worse.
• Speculative capital is shifting from crypto to other tech sectors like AI and defense.
• The crypto industry is transitioning from an ‘imagination phase’ to a more mature phase.
• Three main sectors—token issuance, stablecoins, and perps—show product market fit in crypto.
• The winners in crypto sectors are often centralized, contrasting with decentralization ideals.

Guest intro

The guest featured on Empire is a prominent figure in the crypto industry, offering insights into the evolving landscape of digital assets. Known for their deep understanding of market dynamics, they shed light on the challenges and opportunities facing crypto startups today. With a focus on bridging the gap between crypto natives and traditional markets, their perspective is crucial for understanding the future trajectory of the industry. This episode covers the blurring lines between crypto and non-crypto products, the influence of institutions like BlackRock, and the sustainability of the current market dynamics.

The challenges facing crypto startups

• Crypto native startups are facing increasing challenges from external forces.

• This is the first time I’ve really seen crypto native startups and builders and investors get challenged by the outside world and I don’t expect that to change

  — Dougie

• Bridging the gap between crypto natives and the broader market is essential for future success.

• We need to accept where the puck is moving and kind of realize a much bigger pie beyond like our little world and the people who actually bridge that gap really well are gonna do very well

  — Dougie

• The involvement of institutions like BlackRock will continue to challenge crypto-native startups.

• I think this is the first time I’ve really seen crypto native startups and builders and investors get challenged by the outside world… I don’t expect that to change

  — GuestName

• For the crypto industry to succeed, it must adapt to the changing landscape shaped by traditional institutions.

• I think for us to win… we need to accept where the puck is moving

  — GuestName

Blurring lines between crypto and non-crypto products

• The divide between crypto and non-crypto products will blur as builders focus on solving real problems.

• I think we are moving towards the future pretty quickly where like that divide really no longer exists and what’s crypto and not crypto becomes like almost impossible to tell

  — GuestName

• Those who refuse to accept the merging of crypto with traditional finance will be left behind.

• I think for the most part will be left behind and I’m also like just not saying like the casino speculative whatever part of crypto is dead either… it’s just not gonna be the only thing

  — GuestName

• The current phase of crypto adoption is different because it is now accessible to non-crypto natives.

• I think there’s a few things that are different… it wasn’t really possible for crypto to get in the hands of like quote unquote non crypto natives… that’s all starting to change

  — GuestName

• The future of crypto applications will need to cater to both existing users and attract new users from outside the crypto space.

• Apps need to be useful to outside users but I think it’s hard to purely build for them… there needs to be some degree of overlap

  — GuestName

The long-term vision for crypto

• The future of the crypto space will continue to evolve despite short-term volatility.

• I still think like over a long term time horizon like this is the future we’re moving towards and there’ll always be like peaks and valleys towards it but I think like in ten years like what I’m saying is gonna hold true

  — GuestName

• The initial DeFi phase was crucial for building foundational elements necessary for future developments in crypto.

• You needed the so in the right after 2020 and and and that whole defi phase I think that was necessary in order to build all the primitives to allow all this other stuff to exist

  — GuestName

• The current dynamics of the crypto market resemble a ‘casino’ that may not be sustainable for the majority of users.

• I think we gradually shifted towards more and more casino y type setups… it is difficult to sustain it on this pure you know two to 10% of of users win and everyone else kind of gets gets blown out over time

  — GuestName

Shifts in market sentiment and capital

• The current sentiment in crypto is comparable to the FTX collapse, potentially even worse.

• To like gauge sentiment in crypto right now like it’s like ftx level yeah like it it feels like I think it’s worse it could be worse right I think it’s worse out of the way it’s somewhere it’s somewhere around there right we can agree on that

  — GuestName

• The crypto market is experiencing a shift from speculative capital to other tech sectors.

• There are other viable very cool tech pioneer sectors that are effectively vampire attacking that speculative bid that would have otherwise flown into crypto

  — GuestName

• The crypto industry is transitioning from an ‘imagination phase’ to a more mature phase.

• I label them as like the imagination phase and the post imagination phase and very clearly like 2020 to probably sometime in 2024 we were in the imagination phase

  — GuestName

The evolution of crypto sectors

• There are three main sectors in crypto that have shown product market fit and significant financial success.

• I think there are basically three things that that people have shown a willingness to pay for… token issuance… stablecoins and then and then perps

  — GuestName

• The winners in the current crypto sectors are largely centralized companies, which contrasts with the original promise of decentralization.

• The winners in these sectors are pretty much like centralized companies… tether is literally an IOU for a dollar in a bank account

  — GuestName

• Prediction markets and privacy-focused projects may gain traction in the future.

• I think prediction markets obviously have potential… privacy should eventually like catch catch a bid

  — GuestName

Adapting to a maturing industry

• The crypto industry needs to pragmatically adapt to the reality that not all founding principles will appeal to the entire market.

• I think there is a crowd out there who like do genuinely and clearly our space exists… it’s time to start like going to the world instead of expecting the world to come to us

  — GuestName

• The idea that maximum decentralization is the optimal path has been proven incorrect.

• I think the decentralization element is not really that big of an issue anymore… the idea that max decentralization is the optimal path went out the window a while ago

  — GuestName

• Future successful companies in the crypto space will be built by identifying specific customer needs rather than solely catering to crypto natives.

• I think that is not how in my opinion like the next generational companies in our space will be built

  — GuestName

The role of blockchain in traditional finance

• The future will likely see traditional finance adopting blockchain technology in a way that is more beneficial for their operations.

• I see a world in which tradfi doesn’t just use it it’s so much better for all of their purposes as well… it seems way more likely that the outcome is that world to me than or something close to that world than not

  — GuestName

• Most companies entering the blockchain space will likely build their own solutions rather than using existing blockchains.

• Most companies probably coming in aren’t going to use existing blockchains in the way that we think they are… they might as well just build their own things

  — GuestName

• Corporate chains may not be great investments but can onboard users effectively through tokenomics that distribute costs to users.

• What it is is they are effectively able to onboard billions of users without having to really pay any cost outside of… the token and most of that cost is bared by users via inflation

  — GuestName

Investment strategies in a maturing market

• The appetite for new general-purpose Layer 1 or Layer 2 solutions has diminished significantly.

• I don’t think there’s like a huge appetite anymore for like a new general purpose l one or a l two… that game has mostly come to an end at this point unless there’s like a damn good reason for you to exist

  — GuestName

• Investments should focus on infrastructure that solves clear problems for application builders.

• If I identify a clear problem that’s like preventing applications that I think should exist from being able to exist then like that’s a great investment

  — GuestName

• Tokens that provide meaningful utility and impact will likely hold value and grow over time.

• There’s like a very short list of tokens out there that I think like do meaningfully capture value and like are building things that I think will… hold up well over time and will grow in terms of usage and importance and impact

  — GuestName

Market dynamics and investor behavior

• Crypto has become a stock picker’s market, unlike previous cycles.

• Crypto has effectively become like a stock picker’s market like you can’t… it just is what it is

  — GuestName

• Current market conditions require multiple positive factors to align for successful investments.

• The tricky thing with the environment right now is that you kind of need multiple things to go right… you need a lot of stars to align for things to go well

  — GuestName

• The current market is characterized by more negative surprises than positive ones.

• There are quite a few more negative surprises than there are positive ones in general

  — GuestName

The cyclical nature of crypto markets

• Risk appetite in crypto can return quickly after a period of selling exhaustion.

• I think you kinda need this washout period of apathy and then a gradual bid in the face of selling exhaustion… risk appetite can come back very quickly because when it does you do have these these massive moves

  — Doug

• Current sentiment in crypto is at an all-time low, with many investors sidelined.

• I genuinely don’t think sentiment has ever been as bad as this in terms of the number of people just completely checked out

  — Doug

• Many arguments against crypto are based on the misconception that overvaluation is a recent realization.

• The stuff has been overvalued on any fundamental metric you can choose for for years

  — Doug

Positioning for future opportunities

• Investors who position themselves well during downturns will be rewarded in the future.

• I strongly believe that like you’re gonna be rewarded down the road for that… I really do think like we are heading towards a better time

  — Guest

• The best investment opportunities arise when conviction is lowest.

• I always believe that like when conviction is the lowest the opportunity is the highest… when everyone believes in something is when they’re most actively involved versus like what I just said

  — Guest

• Crypto offers unparalleled transaction efficiency compared to traditional finance.

• Anytime you interact with tradfi… you kind of quickly realize just how good the the rails are in crypto

  — Guest