Stubborn incumbency is stalling mass adoption
Recently Singapore has rapidly emerged as a leading contender for the world’s capital for web3 innovation and adoption. In reality, Singapore faces a double whammy. On one hand, it aspires to be a progressive crypto hub. On another hand, it also needs to maintain the image of a savvy government that demonstrates the mentality of the world’s most successful tech unicorns. Both goals are actually at odds with each other. We were taught to practice first principles thinking; breaking down problems to their fundamental truths and building up solutions from that baseline. By removing assumptions and preconceptions, the approach enables innovative reinvention. Unfortunately, neither nation state nor its institutional investors, private or public, have practiced what they preached.
Mass adoption is more than just decentralized finance (DeFi) or non-fungible tokens (NFTs); it is harder to get the masses to participate in what is ultimately financial activities than it is to get them to adopt a service like Uber. This is the foundational reason why mass adoption has been so hard to cultivate. The difficulty compounds when we acknowledge that the average mind is risk-averse and also lazy to learn about the unfamiliar. Thankfully, the benefits of being on chain also extend to affordances outside finance and NFTs.
Technology matters when non-financialized traction matters and no other chain can support that. Currently, most of the motivation propping up metrics like total value locked (TVL) and market cap are directly related to “pumpamentals”, the financial promise that the token would hold its value or even appreciate. Narratives are smoke and mirrors obscuring the true potential of a blockchain that will end when actual traction breakouts into escape velocity. My guess is this would not come from the usual suspects everyone thinks would catalyze the next bull run, like gaming, liquid staking or real world assets. The answer lies in use cases that resemble the times where adoption broke out virally through mobile apps, like what happened with apps like Stepn, however short-lived that was. On hindsight, it was precisely because people were using Stepn for financial motivations that it tapered off dramatically. The motivations for adoption need to be organic and growth needs to sustain beyond initial furor.
Why then have we not seen more of these web2 apps emplaced on chain? Because bringing them on chain makes the user experience comparatively worse. Specifically, Crypto’s foremost programmable blockchain Ethereum and its layer 2s have been found wanting. They are too slow and too cost-prohibitive. Even with the proposed zero-knowledge improvements, other technical bottlenecks will continue to limit performance and by extension restrict what kinds of apps can be run. Will danksharding make running Uber on Arbitrum or Zksync feasible? Can L2s handle peak demand on Visa at 40K to 65K TPS? If that is too much, what about 1700 TPS Visa processes on average? Blockchains would go the same way as every vertical in the tech space- mobile, hosting, GPUs, all the various categories of gig economy apps like ridesharing. Yet everyone demands that we have to regard the prehistoric Ethereum dinosaur as a frontrunner filling the shoes of Apple, Google and Amazon before it. Bonkers.
Markets can be goaded by narratives spun by prominent influencers whose only agency is their sway over how many people they can persuade. In cryptoland, narratives manifest as plot armor that can instill a suspension of disbelief. Speed and cost advantages do not matter wherein in the preceding web technology sector every effort is made to optimize for speed, scalability and performance. What do Uber, Medium, Dropbox, Whatsapp and Coinbase have in common? They all rewrote their apps in Go from the likes of Ruby, Node.js and Python.
In the case of Coinbase, a motivation to optimize their website did not translate into their on-chain aspirations. Armstrong’s case is exceptionally peculiar- he is an industry leader who has spent over a decade working the Silicon Valley circuit, known as the tech startup capital of the world, and made it through a startup’s zero to hero lifecycle of formation, fundraise and IPO. No other figure can be more aware of the importance of scalability and the apparent misalignment is extremely tedious.
The misalignment is a comprehensive malaise that plagues the rest of the crypto intelligentsia. In a tweet lamenting the deficiencies of on-chain central-limit order books (CLOB), popular investor Dovey Wan stated how on-chain CLOBs are failing to replicate the experience of centralized exchanges. Yet modern, performant chains from Solana to Sui have already addressed every single one of those issues (data availability, latency, lack of decentralized sequencer, congestion and gas fees). Performance metrics from speed to costs are not a trivial 2x or 3x difference, but in the neighborhood of 1000x.
Wan is not just a twitter influencer, she is a person of clout frequently invited to speak at crypto’s biggest conferences. When even industry leaders like Armstrong and Wan glaringly ignore solutions that directly address their concerns, is it any wonder adoption has been lacking? Aren’t VCs supposed to be savvier minds that operate by first principles and accurate technical assessment? If they seek to cultivate and foment a future powered by blockchain, why persist in continuing to forward an inefficient chain any distributed systems engineer will disapprove of? For VCs who are supposedly investing in technology, it does not seem like technology matters. It seems like interests are aligned towards making money over actual innovation. Even if there is sentiment bias towards Ethereum, the space in its entirety is barely valued at a little over a trillion dollars. Single companies exist that are valued thrice that and it is still anyone’s game to become the web3 equivalent of Apple, Google or Amazon.
Wanton denial is a byproduct of an industry where short term “pumpamentals” matter more than long term viability. If Singapore is truly a proponent of a financial future powered by crypto, they themselves must lead by example and show everyone else how it is done. And it has… sort of.
Singapore has a history of being egregiously offside when it comes to placing bets on winners. We remember sovereign wealth fund Temasek having to write off the 275M it invested in FTX at the height of the 2021 bull market. Not wrong to suggest it was “FOMO”. Meanwhile, at around the same time near the end of 2021, the Monetary Authority of Singapore (MAS) issued a consumer advisory against Binance and restricted the exchange’s operations in Singapore. Both Binance and FTX fall within the ambit of the tech startup category that advances the future of fintech and the nation state has gotten it so wrong. Much like how it is easily influenced with prevailing thought surrounding Ethereum, so did it decide to support FTX and shun Binance. It is even ironic that a distaste towards Solana might have been influenced by the blunder that was FTX. Clearly, Singapore’s crypto thought leadership lacks clarity, conviction and bears none of the hallmarks of contrarian thinking governed by first principles that is absolutely required in betting for the future.
Now, in 2023, in an experiment conducted in collaboration with the Bank for International Settlements, it has once again conducted itself in a direction that shows it cannot keep abreast with technology. Project Mariana was conducted to explore how CBDCs could be settled between nations. Even as cost efficiency was a stipulated goal in the project, it did not consider central-limit order books (CLOBs) over automated market makers (AMM). What is perplexing is how while CLOBs are a well established trading mechanism used extensively in traditional finance, an exploration of benefits was enacted with AMMs instead. The efficiency benefits of CLOBs over AMMs are well documented. Secondly, there are immense security concerns with solidity, the programming language Ethereum is built on. Interspersed between Ethereum’s first major DAO hack to the most recent prolific exploit on Curve Finance is a series of other exploits amounting to billions lost that have happened because of latent flaws that make smart contracts written in solidity considerably more susceptible to hacks.
Thankfully, there is a modicum of sanity where normal startup philosophy reconciles with blockchain. We do see a rising number of artificial intelligence and Internet of Things startups building for novel use cases on performant blockchains. The timeline of events is almost identical to the transition phase from dial-up to broadband. More focus should be on consumer apps that people already use, just improved with the efficiency benefits web3 affords, such as cheaper Uber rides and $5 unlimited mobile plans alongside an emerging DePIN (Decentralized Physical Infrastructure Networks) industry.
A recent deep dive from VISA is a testament to the changing landscape. Singapore entities like DBS and MAS should be more like Visa, or simply take a leaf out of its own startup movement. Now is the critical time where builders become the world’s leaders that reshape the socio-economy of an Internet that respects digital ownership and Singapore is teetering on a precipice where it might very well miss the opportunity of a lifetime as it plays copycat. This is not just a capitalist aspiration but also extends geopolitically as other nations like Japan, South Korea and Hong Kong vie for a station of influence much akin to Taiwan’s “silicon curtain” owing to its dominance in semiconductors.
