In recent articles, I’ve explored how crypto has drifted from its original vision, prioritizing infrastructural innovation while neglecting the monetary foundations needed to fulfill its promise of financial sovereignty. I’ve traced how this has created a disconnection between technical achievements and sustainable value creation.

What I haven’t fully explored is how the industry fundamentally misdiagnosed what applications actually make sense to build. This misdiagnosis lies at the heart of crypto’s current predicament and points toward where genuine value might eventually emerge.

The Application Layer Mirage

Crypto’s narrative has evolved through several phases, but one consistent theme has been the promise of revolutionary applications beyond finance. Smart contract platforms positioned themselves as the foundation for a new digital economy, with value flowing from the application layer back to the infrastructure. This narrative accelerated with the “fat protocol thesis” - the idea that, unlike the internet where TCP/IP captured minimal value while Facebook and Google captured billions, blockchain protocols would accumulate most of the value.

This created a specific mental model: L1s would gain value by enabling a diverse ecosystem of applications, just as Apple’s App Store or Microsoft Windows created value through third-party software.

But here’s the fundamental misdiagnosis: crypto has sought to impose financialization where it doesn’t naturally belong and where it adds little genuine value.

Unlike the internet, which digitized existing human activities people already wanted to do (commerce, communication, entertainment), crypto has attempted to inject financial mechanics into activities where they weren’t needed or wanted. The presumption was that everything from social media to gaming to identity management would benefit from being financialized and brought “on-chain.”

The reality has proven different:

Social applications with tokens have largely failed to gain mainstream adoption, with engagement driven primarily by token incentives rather than underlying utility

• Gaming applications have faced persistent resistance from traditional gaming communities who perceive financialization as detracting from rather than enhancing gameplay
• Identity and reputation systems have struggled to demonstrate compelling advantages over traditional approaches when token economics are involved

This isn’t merely a case of “we’re still early.” It reflects a deeper truth: finance exists to serve as a resource allocation tool, not as an end in itself. Financializing activities like social interaction or entertainment misunderstands the core purpose of finance in society.

The Gaming Marketplace Distinction

It’s worth addressing apparent counterexamples like CS:GO skin markets or microtransaction systems in popular games. These successful marketplaces seem to contradict the thesis about financialization in gaming, but they highlight an important distinction:

These markets represent contained ecosystems for optional cosmetics or collectibles that exist alongside gameplay, not attempts to financialize the core gameplay itself. They’re more akin to merchandise or memorabilia markets than fundamental changes to how the game functions.

When crypto gaming attempts to financialize the actual gameplay mechanics - making playing the game explicitly about earning money - it fundamentally changes the player experience and often undermines what makes games engaging in the first place. The key insight isn’t that games can’t have markets; it’s that turning gameplay itself into a financial activity changes its fundamental nature.

Blockchain Technology vs. Trustlessness

A crucial distinction often lost in crypto discussions is the difference between blockchain technology itself and the property of trustlessness. These are not synonymous:

• Blockchain technology is a set of technical capabilities for creating distributed, append-only ledgers with consensus mechanisms
• Trustlessness is a specific property where transactions can be executed without relying on trusted third parties

Trustlessness comes at a tangible cost - in efficiency, complexity, and resource requirements. This cost needs clear justification, which exists only in specific use cases.

When entities like Dubai use distributed ledger technologies for property records, they’re primarily leveraging the technology for efficiency and transparency - not for trustlessness. The Land Department remains the trusted authority, using blockchain as a more efficient database. This distinction is critical because it highlights where value actually resides in these systems.

The crucial insight is that trustlessness is realistically valuable in only a few domains. Most activities, from property records to identity verification to supply chain management, fundamentally require trusted entities for real-world enforcement or verification. Moving the ledger to a blockchain doesn’t change this reality - it simply changes the technology used to manage the records.

The Cost-Benefit Analysis

This creates a straightforward cost-benefit analysis that every platform must face:

• Does this platform genuinely benefit from removing trusted intermediaries?
• Does that benefit outweigh the efficiency costs of achieving trustlessness?

For most non-financial applications, the answer to at least one of these questions is “no.” Either they don’t truly benefit from trustlessness (because external enforcement remains necessary) or the benefits don’t outweigh the costs.

This explains why institutional adoption of blockchain technology has focused primarily on efficiency gains rather than trustlessness. When a traditional financial institution tokenizes assets on Ethereum (as they increasingly are), they’re leveraging the network for operational advantages or access to a new market while maintaining traditional trust models. The blockchain serves as improved infrastructure rather than a trust-replacing mechanism.

From an investment perspective, this creates a challenging dynamic: the most valuable aspect of blockchain (the technology itself) can be adopted without necessarily driving value to specific chains or tokens. Traditional institutions can implement private chains or use existing public chains as infrastructure while maintaining control over the most valuable layers - the assets and monetary policy.

The Adaptation Path

As this reality becomes clearer, we’re seeing a natural adaptation process unfold:

Technology Adoption Without Tokenomics: Traditional institutions adopting blockchain technology while bypassing the speculative token economics - using it as better plumbing for existing financial activities

• Efficiency Over Revolution: Focus shifting from replacing existing systems to making them incrementally more efficient
• Value Migration: Value flowing primarily to specific applications with clear utility rather than to underlying infrastructure tokens
• Narrative Evolution: The industry gradually recalibrating how it articulates value creation to match technical realities

This is actually good: why would you want an activity enabler to siphon all the value from the generator of that value? This type of rent-seeking is actually quite detached from the capitalistic ideals most see as underpinning the whole movement. The internet would look tremendously different (almost definitely worse!) had the primary value capture been to TCP/IP rather than the apps built on top, as the Fat Protocol Thesis suggested would instead occur here. The industry isn’t failing - it’s finally facing reality. The technology itself is valuable and will likely continue to evolve and integrate with existing systems. But the distribution of value within the ecosystem may look quite different from what early narratives suggested.

Where It All Went Wrong: The Abandoned Original Purpose

To understand how we arrived here, we must return to crypto’s origins. Bitcoin didn’t emerge as a general-purpose computing platform or a foundation for tokenizing everything. It emerged specifically as money - a response to the 2008 financial crisis and the perceived failures of centralized monetary policy.

The fundamental insight wasn’t “everything should be on a blockchain” but rather “money shouldn’t require trusted intermediaries.”

As the industry evolved, this original purpose became increasingly diluted and eventually abandoned by many projects. Projects like Ethereum expanded the technical capabilities of blockchain but simultaneously diluted its focus.

This created a strange disconnection in the ecosystem:

• Bitcoin maintained its monetary focus but lacked the programmability to evolve beyond basic transfer functionality
• Smart contract platforms provided programmability but abandoned monetary innovation in favor of the “blockchain for everything” approach

This divergence represents perhaps the industry’s most consequential wrong turn. Rather than building on Bitcoin’s monetary innovation with more sophisticated capabilities, the industry pivoted toward financializing everything else - a backward approach that misidentified both the problem and solution.

The Way Forward: Back to Money

In my opinion, the path forward involves reconnecting blockchain’s massively improved technical capabilities with its original monetary purpose. Not as a universal solution to all problems, but as a focused attempt to create better money.

Money is uniquely suited to blockchain for several reasons:

• Trustlessness matters - Unlike most other applications where external enforcement remains necessary, money can function entirely within the digital realm where code alone can enforce rules
• Digital native operation - Money doesn’t require mapping digital records to physical reality; it can exist natively in the digital environment
• Clear value proposition - Removing intermediaries from monetary systems creates genuine efficiency and sovereignty benefits
• Natural connection to existing financial applications - The most successful crypto applications (trading, lending, etc.) naturally connect to monetary innovation

Perhaps most importantly, money is fundamentally an infrastructure layer that everything else builds upon without having to deeply engage with it. This is the natural relationship that crypto has inverted. Instead of creating money that integrates seamlessly with existing economic activities, the industry has tried to rebuild all economic activities around blockchain.

The power of traditional money lies precisely in this utility-layer approach. Businesses accept dollars without understanding the Federal Reserve. Exporters manage currency risk without rebuilding their entire operations around monetary policy. Individuals store value without becoming monetary theorists. Money facilitates economic activity without dominating it.

On-chain money should function the same way - usable by off-chain businesses through simple interfaces, just as digital dollars are usable without understanding banking infrastructure. Businesses, entities and individuals can remain entirely off-chain while utilizing blockchain-based money for its specific advantages - just as they use traditional banking infrastructure today without becoming part of that infrastructure.

Instead of trying to build “Web3” - a vague concept that attempts to financialize everything - the industry will find more sustainable value by focusing intensely on building better money. Not just as a speculative asset or inflation hedge, but as a complete monetary system with mechanisms that allow it to function reliably across different market conditions.

This focus becomes even more compelling when we consider the broader global monetary landscape. The world faces unprecedented coordination challenges in the evolution of the global monetary system. Inherent instabilities in the current arrangement, alongside growing geopolitical tensions, create genuine need for neutral alternatives.

The tragedy of the current landscape isn’t just about misallocated resources - it’s about missed opportunity. While incremental improvements to financial infrastructure certainly have value, they pale in comparison to the transformative potential of solving the fundamental challenges of money itself.

The next phase of crypto’s evolution may not come from further expanding its scope, but from returning to and fulfilling its original purpose. Not as a universal solution to all problems, but as focused monetary infrastructure that serves as a reliable foundation upon which everything else can build - without having to think too deeply about how it works.

This is the profound innovation that crypto originally promised - not financializing everything, but creating money worthy of serving as the invisible infrastructure of a global economy. Money that functions seamlessly across borders and institutions while maintaining the sovereignty and stability that our increasingly complex world demands. A foundation that enables rather than dominates, that serves rather than constrains, and that evolves without disrupting the human activities that ultimately give it purpose.

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