The biggest problem in this space is neither talent nor capital. It is simply, the lack of first-principled thinking. It is a culture that has to change. The 1% need to start carrying this space forward.

If you follow my Twitter recently, I have been on a bout of spastic shoutouts on incredibly low hanging fruit that seem to have high leverage, and looks stupidly easy to do, yet no one seems to “get it” or execute well on it. Here’s some examples:

I will be addressing each topic in this article, namely:

1. Compounders, Culture, Short-Termism
2. Generalized L1s Are Dead And Have To Change
3. Liquid Tokens & Investment Relations
4. Buy Back & Burn Is The Least Worst, Not The Best

I titled this article First Principles, because all of these takes came to me when I did simple mental exercises as to how I would go about changing the industry today, using common sense.

It’s not that deep. Insanity is doing the same thing over and over again and expecting different results.

For 3 cycles, we have done the same thing over and over again - basically creating vaporious, 0 value accrual, maximally extractive tokens and apps because for some stupid reason we decided that every 4 years, the casino opens in this exhuberant fashion that attracts capital from across the world to simultaneously gamble together.

Guess what? After 3 cycles, 10 years, people are finally waking up to the idea that the house, the cheaters, the scammers, the people that rig the machines, the guys that sell you the overpriced food and drinks at the casino, are taking all your money. That all you have to show after months of grinding is your on-chain history of how you lost it all. That a space predicated on “I will come in, make my bag, and leave after I make it” does not lead to the building of any long-term compounders.

This place used to be something better, it used to be a place of legitimate financial innovation and cool tech. We used to get excited about novel and interesting applications, about new technology, about “changing the future of France (Finance)”.

But due to extreme short-termism, maximally extractive culture & low-integrity people, we have descended to this ouroboros of perpetual financial nihilism that was sort of collectively self-inflicted when everyone decided it was a good idea to keep apeing into random scammers coins because “I will get out before he scams”. (Seriously, I saw people saying that they knew the “SBF coin” was a scam, but would sell before they got rugged for a “quick flip”.)

You can say I have no experience building - that much is true. But this is a small space, and not a long-lived one ; having spent 4 years in this space whilst working with some of the best and brightest funds has given me insight into what works and what doesn’t.

Again, I want to emphasise: Insanity is doing the same thing over and over again and expecting different results. We have, collectively as a space, gone through the same thing year after year after year - felt this sense of nihilism, that it was all worthless, after prices inevitably collapse. I felt this way when NFTs collapsed (omg it was all a scam), and now people are feeling it after the recent memecoin fiasco, and people felt it during the ICO era - etc.

It really is quite simple: We just have to start doing different things.

1. Compounders, Culture, Short-Termism

Compounders are simply, assets that go up-only on a multi-year time horizon - think Amazon, Coca-Cola, Google, etc. Compounders are companies, that have the potential to deliver sustainable and long-term growth.

Why have we not seen compounders in crypto?

The answer is more nuanced than this, but basically - extreme short-termism and the misalignment of incentives; Kun makes a really good point here:

Indeed, there are many things wrong with how incentives are structured, and a fantastic article that covers this is Cobie’s private capture, phantom pricing article. I will not be going too deep on that end, because this article is meant to focus on the perspective of what exactly can we do now, as individuals?

And for investors, the answer is obvious - Cobie points it out here: you can simply choose to opt out (and you probably should)

And indeed, people have chosen to opt out: This cycle we have seen the downfall of “CEX tokens” because retail participants have chosen not to buy said tokens; and while individuals may not have the power to change this systemic problem on a systemic scale, the great news is that financial markets are pretty efficient - people want to make money, and when mechanicsms in place don’t do that, they simply don’t invest, making the entire process unprofitable, and thus forcing the mechanism to change.

However, this is just the first step in the process - to truly build compounders, companies need to start instilling long-term thinking in this space. It isn’t just “private market capture” is bad, it’s the entire chain of thinking that got us here - like a self-fulfilling prophecy, founders seems to collectively think “I’ll make my bag and leave”, and no one is really interested in playing the long game - meaning charts always look like the Macdonald’s M pattern.

The top-line has to change: A company is only as good as its leader. Most projects don’t fail because of a lack of developers, they fail because the people at the top decide that it’s time to leave. This industry has to start looking towards the 1% of high-integrity, high-agency, long-term thinking founders as role models to work towards, instead of idealizing the “short-term pump & dump” founders.

It is not news that the average quality of founder in this space is not great. After all, this is a space that calls the people who bond pumpfun coins “devs” - the bar really isn’t high. Just having a vision beyond the first 2 months of the coin launching puts you ahead of the rest.

I also believe that the market will start to financially incentivise such long-termism as well, and we are already starting to see it. Hyperliquid is, despite the recent sell-off, still up 4x from initial launch prices, something very few projects can brag about this cycle. It is generally much easier to make the argument that you want to “hold this for the long term” when you know the founder is aligned with the long term growth of the product.

The natural conclusion of this is that high-integrity, high-agency founders will start taking the lions share of the market, because frankly, when everyone gets tired of scams, they just want to work for someone that has a vision and doesn’t exit scam - and the number of people that do this is so damn small.

Beyond having a good leader, the building of compounders also hinges on the assumption that the product is good. In my opinion, this problem is easier to solve than the problem of getting a good founder. One reason why there’s so much vaporware in crypto, is because the people that create such vaporware have that same mentality of “making their bag and leaving” - they thus choose not to undertake net-new problems, but rather just fork what’s hot and try to make money off of it.

However, it is also a fact that the industry does choose to reward such vaporious ideas - like the AI agent boom in Q4 2024. In such a case, we will see the usual Macdonalds M pattern once the does settles - thus, companies have to also start focusing on building products that make money.

No path to revenue = No long term believers / holders = No buyers of the asset because there is no future to bet on

This is not an impossible task - businesses in crypto do make money. Jito makes 900m in annualized rev, Uniswap 700m, Hyperliquid 500m, Aave 488m - and in a bear market, they do continue making money (just not as much).

Moving forward, I believe that the flash in the pan, narrative-driven speculative bubbles will grow smaller and smaller. We have already seen this - Gaming & NFTs in 2021 were priced at hundreds of billions, but this cycle, memes and AI agents topped out at a couple of billion. It is a euthanasia rollercoaster on a macro scale.

I believe everyone is free to invest in what they want. But I do also believe that people want their investments to return capital - and when the game is so well-telegraphed, that “this is a hot potato, I have to offload it before it goes to zero” type of game, the rollercoaster goes faster and faster, and the size of the market grows smaller and smaller as people choose to opt out, or lose all their money.

Revenue fixes this - it lets you understand, as an investor, that people are willing to pay for the product, and thus have some semblance of long term growth. When something has no path to revenue, it is neigh-uninvestable on a longer term basis. On the other hand, a path to revenue leads to a path to growth, which attracts buyers who are willing to bet on the continued growth of an asset.

To sum it all, building compounders require:

1. Long term thinking instilled at the top
2. Focus on building products that make money

2. Generalized L1s Are Dead And Have To Change

If you sort the front page of Coingecko by Market Cap, you will see that blockchains comprise more than half of them ; Aside from stablecoins, Layer 1s comprise a lot of value in our industry.

Blockchains: BTC / ETH / XRP / BNB / SOL / CARDANO / TRON

Yet, the second largest digital asset to Bitcoin has a chart that looks like this:

If you bought Bitcoin in July 2023, you would be up 163% at current prices.

If you bought Ethereum in July 2023, you would be up 0% at current prices.

That’s not the worst of it. The everything bubble of 2021 sparked a wave of “Ethereum killers” - i.e new blockchains that aimed to outcompete Ethereum in some technological manner - whether by speed, developer language, blockspace, etc. But despite the hype and significant funding, the results haven’t lived up to expectations.

Today, 4 years since 2021, we are still facing the ramifications of that wave - there are 752 smart contract platforms that have launched a token on Coingecko, and probably way more that haven’t launched.

To no one’s surprise, most of them have charts that look like this - which makes Ethereum’s chart looks good in comparison:

And so - despite 4 years of efforts, billions of dollars in funding, 700+ different blockchains, there are only a handful of L1s with decent activity- and even those don’t have the “breakthrough levels of user adoption” everyone was expecting 4 years ago.

Why? Because most of these projects have been building with the wrong ethos. As Luca Netz points out in his article “What is consumer crypto”, many blockchains today follow the general-purpose approach, with each one dreaming that they will “house the internet economy”.

But this requires immense lift and eventually leads to fragmentation instead of penetraton, because a product that tries to do many everything usually fails to do anything well. It’s an endeavour that costs too much money and time - and frankly, many of the blockchains struggle to even answer the simple question of “Why should we build on you guys, instead of on blockchain #60?”

The L1 landscape is another case of everyone following the same script whilst expecting different results - they compete for the same limited developer pool, they try to outcompete on grants, hackathons, dev houses, and now we seem to be building phones (?)

And let’s assume an L1 succeeds. Every cycle, some L1s manage to break through. But does that success last? This cycle’s success has been Solana. But here’s a hot take that many of you won’t like: What if Solana becomes the next Ethereum?

Last cycle, you had a bunch of people who were so convinced in Ethereum’s success, that they held most of their networth in Ethereum. Ethereum is still the chain with the highest TVL, and now even has an ETF - yet, price has stagnated. This cycle, you have the same types of people saying the same thing about Solana - that Solana is the chain of the future, Solana ETF, etc.

If history is any indication, the real question is - does winning today guarantee relevance tomorrow?

Rethinking L1s

My take is simple: Instead of building general-purpose blockchains, it makes far more sense for L1s to build around a core focus. A blockchain doesn’t need to be everything to everyone. It just needs to excel at something specific. I believe the future is blockchain agnostic - that it will just be expected to be performant, and that the technicalities won’t matter as much.

Today, builders are already exhibiting signs of that - the primary concern for a founder building a D-app doesn’t lie so much in how fast the chain runs, but rather in the distribution & end-user consumption of the chain itself - does your chain have people to use it? Does it have the necessary distribution for the product to get traction?

44% of web traffic runs on WordPress, yet it’s parent company Automattic is only valued at $7.5 billion dollars. 4% of internet traffic runs on Shopify, but it’s valued at $120 billion - a 16x larger multiple than Automattic! I believe L1s have a similar end-state in mind, where the value will accrue to the apps building on the blockchain.

To that end, I believe that L1s should do the ground breaking move of building their ecosystem themselves. If we were to use cities as an analogy for blockchains (h/t Haseeb’s 2022 Article), we can see that cities start because of specific advantages that make them viable economic and social hubs, who then later specialize in a dominant industry or function over time:

• Silicon Valley → Tech
• New York → Finance
• Las Vegas → Entertainment & Hospitality
• Hong Kong & Singapore → Trade-focused financial hubs
• Shenzhen → China’s hardware manufacturing and tech innovation center.
• Paris → Fashion, art, and luxury goods.
• Seoul → K-pop, entertainment, and beauty industry

L1s are the same - demand is driven by the attractions and activities they offer; thus, the team has to start focusing more on becoming the best at one vertical - curating that attraction that would drive people into their ecosystem, rather than building a mis-mash of different exhibits in the hopes of attracting users.

Once you have that attraction that drives people into your ecosystem, then you can build the city around the attraction. Again, Hyperliquid is an example of a team that has done this well, and iterated on first principles with respect to this. They built ther native perp-DEX orderbook, spot DEX, staking, oracles, multi-sig - everything in-house, before expanding to the HyperEVM that is the smart contract platform for people to build on.

Here’s a simple breakdown of why it works:

1. Focus on “Building The Attraction” First: By building the perp trading product first, Hyperliquid attracted traders and liquidity before scaling.
2. Control the Stack: Owning critical infrastructure (oracles, staking) reduces vulnerabilities and creates moats.
3. Ecosystem Synergy: The HyperEVM now serves as a permissionless playground for developers, leveraging Hyperliquid’s existing user base and liquidity.

This “attraction-first, city-second” model mirrors successful web2 platforms (e.g., Amazon starting with books, then expanded into everything else). Solve one problem exceptionally well, then let the ecosystem organically sprawl from that nucleus of value.

Thus, I believe that blockchains should start integrating their own products, building their own attractions, owning the stack ; And as the captain of the ship, you’re the man with the vision - this allows you to align your blockchain to the grander, long-term vision that you hold for the L1 ; and it ensures that projects don’t just abandon ship the moment chain activity starts dropping, because everything is built in house ;

To top it all off, this process drives moneyness to your token - if blockchains are cities, the tokens are the currencies / commodity that people transact with; and that value is driven to the token through usage - people need to buy your token to do the fun stuff on your chain. It gives your currency value, and people a reason to hold it.

Oh, but it’s also important to remember - just because you specialize, doesn’t mean the market has an appetite for it. The other hard pill to swallow is that L1s have to work on the right opportunity, in the right way, and the right time. Blockchains have to work on products people want - and sometimes, the people don’t really want “web3 games”, or “more data availability”.

3. Liquid Tokens & Investment Relations

This next topic lies with how I believe liquid token projects should evolve in this space. It’s simple - liquid token projects need to start havng Investment Relations (IR) roles and quarterly reports that allow investors - both retail and professional, clearly see what the company is doing. This role isn’t new, nor is it revolutionary - but it is sorely lacking in this space.

Despite this, very little is being done on the IR side in this space. I have been told by multiple Heads of BDs at different projects, that if you have some sort of “recurring call to pitch your liquid token to funds”, you’re doing 99% more than other projects in this space.

BD is cool in attracting builders and ecosystem funds, but IR roles that tell the general public what the token is doing is even better - it’s really that simple. If you’re a token that wants to attract buyers, you need to promote yourself - and how you do that isn’t in renting the biggest booth at the conference, nor promoting ads at airports, but rather selling yourself to buyers with capital.

In doing quarterly growth updates, you start showing investors that the product is legitimate and can accrue value - thus allowing investors to speculate on a long term future where the product could do well.

As to how you should go about doing it - a good list to start with would be:

• Reports talking about quarterly fees / revenue, protocol upgrades, numbers, but no MNPI - published on a blog / website
• Monthly catchups with liquid fund managers to talk about your product / sell yourselves
• Hosting more AMAs

4. Buy Back & Burn Is The Least Worst, Not The Best

The last talking point I have is regarding buyback and burns in this space. My take is: I believe buyback and burns are a decent use of money, if there is nothing else to do with that money. In my opinion, crypto is not at the size where companies have the luxury of resting on their laurels, and there is much more that can be done on the growth side of things.

The first and foremost use of revenue should always lie in expanding the product, upgrading technologies and entering new markets. This is in-line with fueling long term growth and building competitive advantages ; a good example in this area would be in Jupiter’s acquisition spree, where they have been using their cash to buy names in order to acquire products and important talent in the space.

While I know some people love buyback and burns and would clamour for dividends to be paid, my view is that most of crypto operates similarly to tech stocks, because the investor base are of similar types: high-return seeking investors hoping to hit assymetric rewards.

To that end, it does not make much sense for companies to return value to tokenholders directly through dividends - they COULD, but it would greatly benefit products if they instead used the cash reserves to build larger moats that could serve them well 5 to 10 years down the line.

Crypto is now at a point where it is starting to get mainstream - as such, it does not make sense to start slowing the momentum now; instead, cash should be pouring in to ensure the next winner takes the lead on the longer time horizon, because despite all the prices going down, the institutional setup for crypto has never been better - adoption of stablecoins, blockchain technology, tokenization, etc.

As such, buy back and burns are, while much better than taking the money and leaving, still not the most efficient use of capital, considering how much work there is left to be done.

Concluding Thoughts

This bear market has started to open people’s eyes up to the necessity of building revenue-generating products as a path to profitability, and the inevitable need for legitimate investment relations roles as a way to showcase how your token is doing.

There is much work to do in this space. I remain optimistic about the future of crypto. I am always open to discussions, and as you can tell, I have very strong opinions on certain things. If you ever want to discuss / give feedback, feel free to contact me on Twitter.

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