It’s Time to Build a Sustainable Blockchain Ecosystem

The answer lies in identifying blockchain ecosystems that offer builders the tools to build, launch, and scale real companies with sustainable valuations — opportunities with genuine long-term potential, rather than just another meme-driven gamble. One that will start to resemble an actual stock market of sorts.

In today’s Web3 environment, it’s evident that people are tired of seeing more infrastructure companies seeking funding. Instead, they are eagerly anticipating the emergence of the next groundbreaking consumer application. Although describing what a “consumer application” involves can be a topic for its own article, it’s essential to first grasp why venture capitalists (VCs) persist in investing in infrastructure. The truth is that venture capital seeks a 100-fold return – similar to discovering the next Solana. Larger VC firms spread their risks by diversifying their portfolios, hoping that one major success will compensate for the failures. However, even among VCs, there’s an increasing understanding that infrastructure investments won’t generate returns without a significant increase in applications being developed on them.

A frequent complaint about venture capitalists is that they’re reluctant to fund consumer apps, but this isn’t entirely correct. For instance, following the success of Axie Infinity in 2021, numerous VCs poured billions into the GameFi sector, seeking to duplicate that achievement. Although it’s unlikely much of that money will be returned as profits, it’s evident these investments were targeted at consumer applications, even if they were also attempts at DeFi apps disguised as games with Ponzi-like token structures. Regardless, these GameFi projects represented consumer-focused endeavors.

Investment companies (VCs) tend to back successful consumer applications once they identify a clear winner. To illustrate, since Polymarket’s recent surge in popularity, around 40 similar platforms have emerged. The key point is that VCs, who aim to make profitable returns for their investors, can sometimes adopt a ‘me-too’ approach when it comes to investing, imitating the moves of market leaders – a financial game of “keep up with the Joneses.” Notably, those leaders are often the ones with the deepest pockets.

Moving forward, let’s delve into the idea of real-world applications being constructed on a resilient blockchain foundation within an active community of developers and users. Some foresee a future with a vast user base of a billion or more, while others believe that the technology isn’t yet fully prepared for mass adoption, with some even considering it as a potential bubble. Instead of indulging in speculation, it’s more beneficial to focus on what a flourishing blockchain application community might resemble. In this context, the specific blockchain isn’t crucial – no single chain has risen to undisputed dominance. In much the same way that telecom companies have found success globally, we can expect multiple blockchains to prosper simultaneously.

What a healthy ecosystem looks like

Given a robust and efficient blockchain structure, how might it impact the experience of tens or even hundreds of millions of users as they effortlessly engage with each other in the future on-chain? Furthermore, what advantages could this scenario offer to individual investors, such as retail buyers, and venture capitalists for potential returns on their investments?

In this kind of market, global builders could enjoy the flexibility to select the blockchain that best suits their unique requirements and resources provided. Once chosen, these builders would brainstorm and establish companies, develop their projects, and ultimately introduce them to the market. The optimal scenario would involve securing venture capital investments as they gain momentum. After demonstrating the success of their model, they could potentially issue a token on exchanges, using the funds raised to expand their operations in line with their token economics.

Significantly, these businesses might secure funding at more practical evaluation levels, as they’d have to prove they are creating genuine ventures with robust revenue structures. In this scenario, blockchain technology could generate income from the space utilized by these products. Builders would benefit as the worth of their tokens grows, venture capitalists would realize profits through token releases, and centralized exchanges would gain from users buying and selling tokens. Alternatively, larger corporations might acquire these projects in a mutually profitable manner for all parties involved.

If the concept of this model seems familiar, it’s likely due to its resemblance to the Web2 era. Typically, companies follow a pattern: they develop a basic functional prototype, attract users, secure venture capital investments to expand, and either get bought out or list on the stock exchange via an Initial Public Offering (IPO). These firms acquire funding at fair market prices and concentrate on developing enduring businesses with investors who recognize their long-term growth potential.

As an analyst, I find this model intriguing for retail investors like myself. Instead of blindly investing in infrastructure projects with inflated prices or risky memecoins with slim prospects, we can consider backing companies debuting on various chains at more realistic valuations that show promise for growth. For instance, a shrewd investor might choose to support a company whose token starts at a $10 million valuation, believing in its potential to deliver value to users and grow substantially over time, possibly reaching a value of $100 million or more.

In this context, we might encounter situations where numerous projects in sectors like DeFi, SocialFi, GameFi, and everyday consumer applications coexist. Since each project operates on distinct blockchains, unique sets of metrics are needed to identify those with high potential for success. This ever-evolving landscape would be thrilling for experienced investors, as it offers opportunities to discover novel strategies for assessing and investing in on-chain businesses using cutting-edge evaluation techniques.

Initially, there may be blunders when assessing and funding these companies, but eventually, the market will adjust, moving away from speculative returns towards thoughtful investments. Investors would learn to spot hidden gems by employing sound investment tactics, leading to a gradually evolving market that’s more resilient over time. It’s important to acknowledge the ever-present dangers associated with investing, particularly when dealing with innovative companies at the forefront of Web3 technology. This sector is already fraught with scams, and a more complex investment landscape might breed even more intricate schemes. Nevertheless, the prospective rewards in this market could be immense.

As the blockchain sector evolves, it’s important to transition from purely speculative ventures towards investments that mimic traditional stock market models. For quite some time, the industry has produced and destroyed value without solid business foundations. Yet, as we move into an era where blockchain is recognized by regulators globally and adopted by major corporations, it becomes essential to prove that we’re progressing towards making blockchains and their applications into genuine, sustainable businesses. This way, developers, users, and investors can enjoy returns in a manner that nurtures a thriving and enduring blockchain ecosystem.

Please be aware that the opinions shared within this article belong solely to the writer and may not align with those held by CoinDesk Inc., its proprietors, or associated entities.