Cryptocurrency: The Dilemma of Innovation vs. Risk Aversion

On the surface, cryptocurrencies appear to be booming: After years of exclusion, spot ETFs finally came online, and Bitcoin (BTC) and Ethereum (ETH)

As cryptocurrencies continue to gain mainstream attention, with soaring prices and new milestones being reached, a closer examination reveals a deeper narrative unfolding within the industry. While the external macro factors contribute significantly to the price outlook, impacting the overall trajectory of cryptocurrencies, a more nuanced analysis unveils a tale of waning ambition and an innovation engine that is gradually slowing down.

Once upon a time, cryptocurrencies were driven by radical and world-changing ideas. Today, however, the industry appears to be content in its pursuit of regulatory approval and institutional adoption. This shift in ambition is palpable, and it begs the question: what happened to the grand visions and transformative aspirations?

As Vitalik Buterin himself noted in his 2023 blog post, Reclaiming the Cypherpunk Spirit of Ethereum, the goal extends far beyond merely creating isolated tools or games. The broader aim is to build a more free and open society and economy, where different aspects of technology, society, and the economy can be synergistically integrated.

Consider this: what truly defines the innovation of the current crypto cycle? One aspect that readily comes to mind is the convergence of AI and crypto. However, upon closer examination, this integration can be largely attributed to external factors. Without the advancements in AI, this cycle might have unfolded differently, perhaps continuing to focus on the mania surrounding meme coins.

The sole aspiration of memecoins, such as Shiba Inu (SHIB) and Dogecoin (DOGE), is to facilitate rapid wealth accumulation, not to spearhead any grander world-changing endeavors. Once enriched, the plight of the external world no longer seems to faze these participants. It is noteworthy that proclamations such as “[project name] is the most egalitarian thing we have ever seen. It is ambitious and, if successful, can truly reshape the fabric of society” are no longer frequently encountered.

In contrast, the previous crypto cycle witnessed the emergence of several radical innovations, including decentralized finance (DeFi), non-fungible tokens (NFTs), DeFi yield farms, P2E games (e.g., Axie Infinity), and the metaverse.

The 2020-2021 cycle also marked the peak of innovation in token economics, with the introduction of novel concepts such as Ampleforth's rebasing tokens, veTokenomics, the (3,3) model, liquidity mining, SNX as sUSD collateral, and a diverse range of algorithmic stablecoins.

However, current crypto projects and the venture capital firms that back them now tend to adopt simple and proven economic models to minimize risk, especially considering that most projects typically only get one chance at a token generation event (TGE). EIGEN's Intersubjective Token is a rare and innovative exception to this trend.

In comparison, the ICO boom of 2017 is widely regarded as the zenith of the crypto industry's ambitions, with numerous projects attempting to decentralize everything. However, being overly radical, most of these endeavors ultimately failed, with only a select few managing to survive and tone down their grandiose visions.

These outlandish ideas now struggle to secure funding in today's more risk-averse crypto industry. Yet, back in the day, these radical concepts attracted a group of people who dared to dream of changing the world.

In their book Boom: Bubbles and the End of Stagnation, B. Hobart and T. Huber posit that transformative progress often originates from small groups united by a common vision, usually with substantial funding but minimal strict accountability. They assert that while financial bubbles are generally perceived negatively, history reveals that many important breakthroughs were, in fact, driven by bubbles.

Although the days of low accountability may not be entirely over, with regulation comes greater risk aversion. This cycle might be the last chance for a big bubble that can still propel substantial innovation. The AI x Crypto bubble could still yield at least one or two killer applications.

Despite the above observations, there are still many ambitious cryptocurrency projects in the works today, including:

Ethena: A platform that integrates DeFi, CeFi, and traditional finance (TradFi)

Chainlink: A bridge between blockchain and real-world data for immutable smart contracts

Pudgy Penguins: A leading Web3 IP brand that is expanding into Web2

WorldCoin: An initiative to bring everyone on-chain, potentially enabling UBI funded by AI

Liquity/RAI: The final decentralized stablecoin

Arweave/Filecoin: Permanent storage and censorship resistance

Farcaster/Lens: A reimagined approach to social media

Polymarket: A source of truth in a world of fake news

Bio protocol (DeSci): Revolutionizing science by changing incentives

Bitcoin: Revolutionary currency, digital goldAmong these projects, endeavors like WorldCoin's eye-scanning Orb and Liquity v2 and $BOLD stablecoins, while radical, embody the precise risks that ambitious protocols are willing to take. These projects champion the most egalitarian ideas and, if successful, have the potential to