Examining crypto's product-market fit

In this post, we shall examine crypto's product-market fit, established over the last 15 years. Why they have met demand, how durable said demand is, and how this can inform future development in the space. I’ll attempt to keep this post as streamlined and simplified as possible. I’ll also offer the perspective of the normie. There’ll always be a niche of “crypto natives” that’ll reject a lot of what I say, and that’s fine - I’m attempting to take a more objective view.

Reality and evidence based analysis of applications in crypto is extremely rare, almost all thought leading about usecases and product-market fit tend to be hopium, delusion, with a big dose of handwaving and entitlement. I’ll use Vitalik’s post about applications as a baseline, as that’s one of the few - if not the only - posts with a rational look at the application ecosystem.

A primer, first. Public blockchains are centralised, unfair, and inefficient. For almost everything, they are useless, if not outrightly dangerous. Humans and our societies are extremely complex and nuanced, and expressing subjectivity is simply not possible with blockchains. However, for a couple of things, they are invaluable, and the only way to achieve them. Broadly, these are usecases that require strict global consensus, something objective money and objective identity require. With that said, let’s get right into the usecases.

#1: Alternative store-of-value

Alternative store-of-value remains far and away crypto's #1 usecase. Recent data suggests it accounts for at least 90% of the value in this industry. Today, hundreds of millions of people own crypto, mostly for this usecase. As evidenced by activity on the Bitcoin blockchain, this usecase does not require scaling, and like Gold and related assets before it, will be regulated differently in different jurisdictions, and mostly custodied by regulated custodians. Self-custody as an option is great, but it’ll continue to be a small niche.

There's plenty of choice for stores-of-value, but Bitcoin and later Ether introduces a new niche to the market. Non-sovereign commodities have been used for millennia. Over time, the demand for this class of asset has fallen, as modern monetary policy has proven tremendously effective, and is one reason for why the global economy has catapulted to unprecedented prosperity. This has also led to the rise of equities as the dominant store-of-value, combined with bonds. However, while a smaller niche now, the demand for non-sovereign store-of-value has persisted. Bitcoin and ether offer a more convenient and efficient spin on the concept, is already a trillion dollar market, and has the potential to grow to a multi-trillion dollar market.

While there’s 15 years of history, we are currently lacking data for what happens in a secular bear market. Thus far, crypto has been in a secular bull market, but no secular bull market lasts forever. The asset most similar to BTC or ETH as a store-of-value, Gold, has been in a secular bear market for over a decade, and has been down-only versus productive assets like equities for nearly half a century. So, the mettle of BTC, ETH, XRP and others need to be proven in a secular bear market. More on this later.

Alternative store-of-value absolutely requires strict global consensus and can be achieved objectively. It’s not entirely objective, of course - both BTC and ETH may need minor subjective adjustments for long-term sustainability. Eventually, I expect both BTC and ETH to have ossified and objective monetary policies, at which point this will be the ideal usecase for public blockchains.

This usecase, alternative store-of-value, then, is durable and there's no disruptive tech on the horizon. It's very likely this will continue to be the #1 usecase for crypto for the foreseeable future, accounting for >90% of the sustained value in the crypto economy.

Lastly, a much more niche subset of alternative store-of-value are collectible NFTs. If BTC is the Gold, NFTs are artworks. Each NFT may be worth a lot, but overall it’ll be a small market, with very few owners - just like art.

#2: Stablecoins

If alternative store-of-value is crypto’s foremost passive usecase, stablecoins are crypto’s dominant active usecase. Over $30B in stablecoins are transferred every day on Ethereum/L2s and Tron.

Over time, currencies and economies worldwide have become ever more stable. Yet, there are still some countries that can't get their act together and have unstable currencies. The more pragmatic of these - like Zimbabwe, El Salvador or Cambodia - have made the US Dollar defacto official currencies, with easy access. Stablecoins don’t have much of a market here.

However, there are countries which actively discourage the use of USD. This is where stablecoins shine - in places like Argentina, Venezuela and Turkey.

USD stablecoins don’t actually require strict global consensus by themselves. Where they have required it is to fill a regulatory gap. If this gap is filled - with a CBDC, or Tether/Circle launching their own network - we don’t need public blockchains. The consumers of this usecase merely need easy access to USD - that’s it.

Now, of course, there are niche usecases within stablecoins that may require strict global consensus - like evading taxes, using a decentralize stablecoin etc. - but these are tiny niches. On a related note, RWAs can have similar usecases, but I’d once again expect this to be a niche, for similar reasons - though there’s a possibility they do drive serious volume across big players.

But there’s another usecase of stablecoins that does require strict global consensus - evading capital controls, or fulfilling cross-border payments in places with poor financial infrastructure.

It should be noted neither of these are eternal problems, and both can be solved with more progressive legislation and improved infrastructure. Still, these are valid usecases in the here and now.

The third big usecase for stablecoins is moving fund between CEXs and/or DeFi - this usecase is much more durable.

Looking at Tron and Ethereum, stablecoin exchange is a multi-billion dollar business in itself. However, even at a future peak, it’ll still be less than a tenth of the value accrued by #1: alternative store-of-value.

Overall, I expect stablecoins to be the top active usecase for crypto for the foreseeable future; however, I expect it to peak in the next few years, before finding a baseline market fit.

#3: Speculation and gambling

Coming back to the thing about alternative stores-of-value and secular bear market. The line between alternate store-of-value for the purposes of storing value and for the purpose of speculation is pretty blurry, with a spectrum. There’s certainly a hardcore audience that will never sell their crypto, but there’s also many that are happy to hold with the entitlement that new highs must happen every 3-5 years. How they will behave when the new highs don’t come after 3-5 years remains to be seen. It’s possible, then, that this audience was a long-term speculator, rather than a store-of-value user - once again noting the blurred lines.

Even so, speculation and gambling are a massive usecase for crypto. It does require strict global consensus, as most jurisdictions have strict regulations for what has been a harmful and dangerous activity. That said, we’re definitely getting better at regulating this, but it’s probably going to take a decade before we reach a reasonable balance.

As such, speculation and gambling are another durable usecase for crypto. However, it’s definitely seasonal. In most times, it’s a pretty niche usecase, but for a few months every few years, it can be one of the top usecases. So, durable, but occasional. A reminder, once again, that in a secular bear market, the “most times” can go on for several years.

#3b: Cults

This is another one where the lines are blurry between #1 and #3. XRP is a great example of an enduring crypto cult, that has stood near the top for over a decade now. Clearly, this is a multi-billion dollar opportunity, though also the rare exceptions - most proto-cults will simply bleed over time.

#4: DeFi

DeFi is definitely a novel feature of public blockchains, giving additional utility to the #1 usecase, alternate store-of-value. However, DeFi is also very limited and inefficient, because it can only process objective outputs. Yes, you can build subjective layers on top of DeFi, but then it’s just traditional finance without the efficiencies. Still, as the #1 usecase grows, I expect DeFi too as well. It may be a niche, but potentially a substantial hundred-billion dollar niche.

#5: DAOs

DAOs only really make sense where you have a crypto protocol. Even then, because of the lack of subjective inputs, a lot of DAO’s duties are performed through traditional methods. As for real-world organisations - we have a vast variety, from public companies, to cooperatives, to non-profits, that are run in a very orderly fashion. Maybe they can use a permissioned blockchain, or even a public one for one or two elements, for some things, for better transparency or communication, but that’s about it.

The one exception could be potentially a public company or cooperative being restricted in a certain jurisdiction - but this one’s another of those temporary regulatory gap usecase.

#6: Hybrid applications

This is where things get interesting. As I have demonstrated for a couple of years now, public blockchains only make sense for usecases where strict global consensus is required, and outputs are limited to being objective. Today, blockchains are extremely inefficient; however, with the advent of validity proofs, we can get the overhead down to a point where some developers will do blockchain apps purely for the novelty of it.

More sustainably, though, are applications that are mostly traditional, but use public blockchains for one or two elements. These can be something simple like offering USD stablecoins as a payment option, to something complex like a multiplayer game that’s mostly traditional or peer-to-peer, but settles some specific valuable actions on a validium-like solution. These usecases may require high scalability - more than any single chain can offer - leveraging fractal scaling. Of course, this is the most speculative usecase because unlike the others, we simply don’t have the history. Sadly, it seems there’s very little investment in these novel, hybrid applications either; the industry still being entirely obsessed with infrastructure and speculation.

A great recent example is Farcaster - which uses public blockchains only for fees and identity, while everything else is done offchain.

I’ll also note that cryptography and stuff like zero-knowledge proofs have many usecases that go well beyond public blockchains. Likewise, most things can be decentralized peer-to-peer or simiar methods - you only need public blockchains where strict global consensus is necessary.

#7: Identity and other usecases

Now, at this point, there’s going to be a whole lot of “whatabout”. To be blunt, the usecases you’re shouting about now are either blatant ponzis or very niche. In the case of the former, it comes under #3. The latter is certainly valuable - there’ll be many niche usecases, but in gaining an overview perspective, they’re not really important to consider. Of course, things can always change, but there’s 15 years of history in crypto, and millennia of history in similar products to draw from; at least enough so we don’t just need to indulge in hopium and delusion that is crippling crypto. And no, AI is not a usecase by itself, but that’s for another time.

As for identity, I was more optimistic about this usecase a couple of years ago, but I’m not sure anymore if public blockchains are specifically the best solution. It seems possible FIDO Alliance is gradually arriving at a unified solution in a decentralized manner, but even this seems far away from broad consumer adoption. I’m sure public blockchains will play a niche role though. As for reputation and things like that - unfortunately, those are highly subjective matters that cannot reasonably be boiled down to 0s and 1s - the objectivity limitation once again. Attempts to do so come with negative consequences. Turns out, the only entities capable of judging a human being are other human beings. Until AGI, at least.


Crypto has achieved one massive usecase - alternative store-of-value, that has single-handedly propelled the industry to a trillion dollar one, and is now entering a maturity phase. There are other significant usecases too. Sadly, most of these are either being taken for granted, or neglected, as the loudest noise continues to be about gambling and speculating on infrastructure plays. This complacence and entitlement, or hopium and delusion, sets a dangerous precedent. But, hey, I’ve done this whine a hundred times before, and nothing has changed. I’ve given up, but I’ll continue writing on and off anyway.

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