Asymmetry: Uncovering how New Actors in Crypto / Web3 Overcame Incumbents
In any industry, incumbents exist in a paradigm where they have managed to capture significant competitive advantages that they are (usually) able to maintain. Strength is drawn typically by adhering to certain best practices that were built in the context of such a paradigm. In our industry in particular, this is arguably more prevalent than anywhere else, since most protocols and projects derive the vast majority of their value from network flywheels. As such, this makes the topic of disruption in our space considerably more intriguing, and we will explore the different ways Davids have overcame Goliath.
Table of contents
Get in line or die
“The nail that sticks out gets hammered down”
The presence of network flywheels in this industry makes it considerably more important for stakeholders to constantly engage in what is determined to be in line with industry (or meta, from metagaming). Be it from EVM compatibility to social networks, protocols or stakeholders are always pressured to be engaged in a way that everyone else engages. Take the example of social networks for instance. Before Telegram, Discord and Twitter, the most significant way you would find a crypto community or for a project to build a community is via Bitcointalk. If you failed organise proper bounty and engagement campaigns with your community on Bitcointalk, it is likely that you would fail to gain that much traction. This avenue of advertising was still very much industry standard up till 2017. It was a niche forum that suited the needs of a much smaller crowd, which were originally made up of many cryptography enthusiasts, libertarians, converted gold bugs and even poker players, who were fans of the counterculture-esque wild west back then.
However, as we progressed through the last two cycles, the number of people in the space has increased considerably too. With it came what many natives in the space would label as “normies”, often viewed as the uninitiated fools who are only hoping to make a quick buck, but these large influxes of people have quickly shifted how the space consumed media content. The demand for platforms that are easy to build reach in skyrockets every bull run, leading to a huge shift towards first Telegram in 2017 and then Discord and Twitter in 2021. If your marketing person, advisor or consulting firm failed to help build a strong presence on these platforms during the times where they were incredibly popular, it is likely that your project or protocol would have failed. Get in line or die. Given how challenging it is to build high community stickiness and moats, that is the kind of pressure most companies and foundations in our space face. Falling behind your competitor can pretty much be a death blow that secures the future failure of the project or protocol once the runway ends.
How David beats Goliath
"Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!"
Given this unrelenting environment where meta is king, it is thus incredibly interesting when new actors in the space rapidly take over ruling incumbents. From my observations, to go beyond overcoming the pressure to conform and breaking the status quo, teams usually have to follow a few key values.
There are three main principles to keep in mind:
Understanding the Web3 business environment
Picking your niche
Leveraging on your weaknesses
1. Understanding the Web3 business environment
Shockingly, most firms end up failing this very basic tenant. You would be surprised as to how few employees and founders in this space still keep in touch with the markets and actively interact with protocols and networks. Be it becoming out of touch because of the work load, or hiring mercenaries from traditional backgrounds to fill the gaps, most firms fail to make this basic cut. This fatal error allows for the birth of new Davids in the space.
The Web3 business environment is a broad concept, but it primarily begins with eating your own dog food. Leadership and operational folks need to be actively using their own products and be engaged directly with the space. You would think that this is commonsensical, but this is unfortunately the exception to the norm, especially as companies grow. Successful founders are often more involved in business operations or are so financially well off that they are distracted from the space. Given how nascent the space is however, change can occur very rapidly and often builds on itself. An “OG” (someone who's been early to the space) might be revered, but if they have not committed to keeping up with the space, they would quickly fail to be relevant. Regardless of your background, be it OG-esque or from flashy traditional names in consulting, big tech or banking, if you do not have the commitment and passion towards the space, you will fail to be in touch with the maelstrom that is this industry. Simply put, a business that fails to understand their users’ needs will itself fail to be successful. What your users want or need will change, and change rapidly.
Given how quickly market demand can shift, how can a founder be well situated for success? Aside from hiring active cryptonatives and personal engagement with the space, there are a few principles that still remain relatively constant in this industry, and they revolve primarily around value:
Network value
I would elaborate on this point in much greater depth in later pieces, but on a whole, this is the primary differentiating factor of Web3 as a business model compared to traditional Web2 industries. While I think the vast majority of people are able to speak briefly about Metcalf’s Law, I think there are more practical discussions that should be had for any founder to want to understand network value.
You will need to understand what are the stakeholders you intend to build your ecosystem with and what type of value different interactions would bring to different stakeholders. For the most part, without having the experience or speaking actively with people who do have the experience of interacting heavily with the market would result in firms building products that are either repetitive or just not in demand.
Typically, there would already be an existing examples or a prevailing paradigm of how stakeholders interact and derive / provide value in the space. Being able to understand how incentive models and stakeholder value could be reorganised is typically where most value is derived in this space. People go to where they are able to efficiently interact and potentially derive value from the network.
Building flywheels
Being a market that exists digitally, the Web3 space and its network is easily scalable if done right. Flywheels are critical in any founders' journey towards bringing their product to market, as it enables small teams to be able to very rapidly command adoption and market share. It should be a design that has been well thought through and based on your understanding of the stakeholders in the space.
This is a simple framework that you could utilise in your evaluation of your network’s stakeholders, density, topology and how you might incorporate them into your flywheels:
What kind of value does the stakeholder bring to the network? (Note: value can also be negative)
How is the value derived?
Where / to whom does the value accrue to?
What would it take to capture such a stakeholder? (Incentives? Liquidity? Utility? Note: This is not about the features the network has but about the value proposition to each stakeholder type.)
This will also bleed into the topic of moats which I will cover at some point in time in detail. Good incentive models have to increase user stickiness and lengthen stakeholder LTVs.
More specifically about building flywheels, the fundamental basis of all flywheels is pairing the core products and services that your protocol or firm offers with how stakeholders derive value.
Case study: Blur
While it may seem that our industry is still too nascent for tales of how great strategies allow underdogs to triumph over industry giants, the rapidly innovating and volatile market environment actually lends itself to extreme shifts in market dominance. Blur is a NFT marketplace which took the lead in the space over from the incumbent, OpenSea via innovative stakeholder incentivisation in 2022. To begin with, an analysis of the type of asset Blur operated with is essential to this discussion. NFTs as a digital asset draws its utility in part from its non-fungibility, but its strength also hides a fundamental weakness. With every token technically being different and distinguishable from another, this can foster an environment of heavily fragmented liquidity. In all markets, liquidity is a precursor for stakeholders to interact, and this is an exceptionally big pain point when it comes to the NFT space. Non-fungible markets have the tendency to fragment liquidity, as traders and investors looking to transact are largely forced to evaluate the value each NFT rather than transacting purely based on values derived from supply and demand factors. Fragmented liquidity introduces more friction into the market - longer settlements period, slippage, inefficient pricing and so on. Having trouble transacting can also create a negatively reinforcing flywheel, as stakeholders leave as they are unable to interact within the network. Blur crafted its incentivisation model precisely towards shaping a stakeholder network that would help create value around facilitating liquidity. While other protocols have tried and failed to take over OpenSea’s incumbent position with better UX and more features, Blur focused in on creating new, defined types of stakeholders via a cogent incentive model. In the past, market makers would exist in the form of slightly more sophisticated stakeholders looking to take advantage of inefficient pricing by offering liquidity in exchange for high slippage, operating offer request bots which periodically place low ball offers on assets.
Blur actively incentivised liquidity by rewarding those who provided it on a central limit order book (CLOB) for not only the assets themselves, but also for loans that were given out to stakeholders looking to purchase on leverage or free up liquidity. Transacting and setting offers in general were also incentivised, even if not via CLOBs. Stakeholders were actively driven to provide liquidity because they were paid for it, which drew more stakeholders looking to transact, which provided more liquidity into the market. This created a environment with deep liquidity unique to the context of NFT markets and Blur, forming a strong, defensible moat. This simple, but well thought through incentive model looked closely at the various stakeholders in the space, the type of value they brought to the table, how they generated said value and evaluated the kind of actions and stakeholders required to dominate the market. The incentive model was then crafted around driving a self-sustaining flywheel in the space, allowing Blur to rapidly command and retain market share, while also generating revenue that goes towards burning Blur token supply (thus helping to maintain the value of its incentives).
Liquidity capture
Liquidity is the life blood of any economic market. For any market to exist and thrive it requires liquidity. Liquidity in of itself is a flywheel of sorts - it allows stakeholders in the market to accurately understand the value of their assets, transact and interact with the market and be able to build and use products and services on top of said liquidity.
In the Web2 space, the market is rarely the direct responsibility of the managing team. They owe a fiduciary responsibility to shareholders, but aside from that, most of the stakeholders that they interact with do not require them to have any interaction with the broader financial markets. Firms tend to focus primarily on the product or service they deliver, how they might get people and firms to become customers and how they can profit from the difference between the prices they charge and the cost required to deliver those products and services. While a focus on what users need and how a firm might profit from that is still critical, those who come from a traditional background or have lost touch with the space can easily fail to realise that that is unfortunately not sufficient in this industry.
In the Web3 space, a great product can still fail if the market is unable to transact with its economy. Should a user go onto an exchange or liquidity pair (a trading pair on a decentralised exchange), and there is barely any liquidity; you are essentially charging a user huge fees (in terms of slippage) to just be able to utilise in your protocol and interact with its economy. This is also true for products developed for existing people in the market to transact with (e.g. exchanges, staking, etc.).
Aside from the barrier to entry of users being drastically higher without liquidity, most products, services and protocols in this space derive their revenue from liquidity. Liquidity is life, and as long as you are able to continuously capture liquidity from the space, you are able to remain dominant. People would endlessly complain about an inferior product but continue to still utilise it because it is where they derive the main value in the space - the ability to freely and quickly transact, with the lowest slippage. Ignoring how you would attract and retain liquidity is how firms and products fail in this space. Attract liquidity and figure out how to get it to stay.
Case study: Binance
Binance was a relative newcomer in 2017. Before Binance’s entry into the market, there were already a number of incumbents. In 2013 and early 2017, the usual (annoying) questions communities would constantly ask teams are “wen Trex", “wen Polo", “wen Stamp” (when will the coin / token list on Bittrex / Poloniex / Bitstamp). Exchange listing for tokens or coins were a big source of legitimacy and more importantly liquidity and market access. DEXes did exist then, but in far more primitive forms, often without much liquidity (only order books, every order made required on chain transactions, no liquidity pool). In a low trust wild west, the ability to exchange value freely on a trusted platform is incredibly valuable to those who hold said assets.
Like myself, Binance saw the explosion of ICOs (Initial Coin Offerings) in 2017 as a great opportunity to capitalise on. Being familiar with marketing to communities on Bitcointalk and Telegram, I ended up starting an ICO advisory business with friends and later left to join a large regional exchange (Quoinex, later Liquid and then FTX Japan) to help them raise one of the largest ICOs in Japan before the SFA clamped down on the entire space there. Binance on the other hand saw this as a new avenue of value they could provide users. By aggressively listing some of the popular and in demand ICO tokens (for the most part ICOs were tokens rather than coins), they were able to be one of, if not the first markets for assets with lots of trading interest.
Binance's break into the market in this context seems obvious in hindsight, but having worked at Binance in the past, it should be attributed to how Binance consumes data about the market. A significant part of my role there was to look into market data on how products were performing in each region, and figure out which industries and use cases leveraged on said products. Firms like Binance win by monitoring the market landscape and push for strategic directions that target user value. In particular, the original leadership team has proven its ability in understanding how critical liquidity is as a source of user value and revenue, in an ecosystem where just about every action is financialised in some form. Today, Binance is the biggest altcoin trading platform, eclipsing former rivals like Bittrex.
Firms in this space need to understand that capturing, retaining and profiting from liquidity will be what determines if they thrive and dominate in this industry.
2. Picking your niche
Any VC in the space would have received decks from protocols and firms seeking to justify their valuation with a massive TAM, and this is definitely far from ben occurrence unique to our industry. Working in HashKey, arguably the largest Asian Web3 VC with a broad mandate, it is definitely no different. In some sense, teams under pressure to raise will try to induce VC interest, but realistically most experienced funds in the space can easily look past such gimmicks. Like in any nascent space, there is the tendency to assume that you might be able to extrapolate your product or service to the broader market segment, but reality is often different.
The Web3 space tends to be driven heavily by hype cycles, where the low moat and often readily available open source code allows copycats to be birthed overnight once one or two protocols or platforms take off. Recalling the previous tenent, simply launching a similar product is insufficient to drive traction, as people value the liquidity and unique value competitors afford. The vast majority of all Web3 firms will fail this test and often fade into the background over time.
Niche picking allows you to more adequately focus in on particular user segments that are either significantly underserved or just not really served at all. Fortunately, our industry is one where there is sufficient volatility that gaps will always emerge. Rather than rushing towards the meta might seem inviting, a team is more likely to succeed in the long run by being focused on delivering the best product that would best serve users who fall through the cracks and create new markets.
These are some key categories of niches that exist presently, but more might emerge in the future.
Regulatory
While the Web3 space in general tends to be incredibly challenging to regulate, it does create disjointed markets and pools of liquidities. That creates market opportunities that can be exploited, and can also form strong and long lasting moats for the firms who pick this niche.
I would like to clarify that the heart of Web3 and Cryptocurrencies is its ability to reliably transfer value and provide services in spite of adversarial, low trust environments. Many jurisdictions have banned cryptocurrency related operations within their country over the years, and some, like China, have banned cryptocurrencies more than once! My love of the space lies deeply in these core tenants - that this would be one of the most resilient asset classes in the world, and would allow people to transact without fear of or control by any entity that purports to represent their interests.
However, like with many things, governments will try to regulate this space regardless (often for the right reasons / with the right intentions). Given that the space is designed heavily around being resistant to external control, it is naturally also somewhat challenging for regulators to grapple with. At the time of this article’s writing, most jurisdictions are still in the process of figuring out how to regulate this space. Those who have more concrete regulatory positions in place, like Singapore, often apply them from a traditional technology / finance perspective.
Looking at the past, this is the modus operandi of regulators. With the advent of the internet (Web1, non-participative, websites to users only), regulators were concerned about the kind of information and monetary transactions that occur without their purview and control. Given that much of the content and interactions were generated by a very broad, international and decentralised community, regulators struggled initially to monitor and clamp down on the internet. However, they soon realised that they would target hard points - centralised points that exist in order to facilitate the telecommunications industry. Regulations in the form of the Communications Assistance for Law Enforcement Act passed in 1994 provided US law enforcement agencies the ability to require Internet Service Providers and other stakeholders with physical infrastructure in the US to provide built in capabilities for surveillance. Effectively, governments ensured that they regulated the people, organisations and infrastructure under their legislative purview. This is similar with what we have seen in the past couple of years with the Web2 space (social media and decentralised content generation), as regulators go after centralised social media platforms.
I see the exact same pattern in legislative pressures growing in the Web3 space globally as well, as regulators seek to choke out retail investors’ access to the market in favour of primarily allowing institutional investors to do as they wish. With uneven enforcement of legislature, the flow of liquidity in this global market is definitely also impacted. As such, there would be the existence of jurisdictional liquidity based arbitrages, where jurisdictions with licenses that are of higher barrier to entry to access would naturally allow for greater spreads to occur as the few firms in the space are essentially granted an oligopolistic status.
Building this niche is incredibly challenging and often requires considerable capital to fulfill regulator demands. Regulators are also often slow moving and risk intolerant, often making it challenging to dance to their tune when the space is constantly innovating. Many regulators are aware of such challenges and do tend to present regulatory sandboxes, but building relationships and ability to work with regulators will remain a significant moat upon which only a few organisations can defend and profit from.
Case Study: Coinbase
Coinbase is one of the leading exchanges in the Web3 space and differs in that it has chosen to be one of the forerunners of the regulated exchange scene. While Coinbase has multiple lines of businesses globally, much of its business lies within the role of facilitating the on and off ramping of liquidity between the traditional banking space and crypto.
Coinbase started in 2012-2013, and is today one of the most successful “OG” fiat-crypto platforms in the space. When it begun, Coinbase was also a new comer in a pretty crowded space. For most of 2012-2013, Mt Gox came to dominate the space, representing some 70% of all BTC transactions globally, before being hacked and going bankrupt. Coinbase on the other hand, always provided a very modern UX, invested heavily in its operations (meeting regulatory compliance, great technical team with strong operational controls), allowing to to then capture significant market share globally. In Singapore, Coinbase has been around for a long time and has never really had to cease operations for sustained periods of time, working closely with local regulators to find working solutions that fit both client and regulator needs.
This is one massive differentiating factor for firms in the space. Being proactive in working with and finding common ground between operational realities and what regulators want to have oversight over is extremely important for any firm which operates within regulatory reach. In my experience working in HashKey thus far, this is definitely a significant moat. As I worked on helping provide a playbook of resources and best practices for the Web 3 space for our portfolio companies, a big part of what I focused on was to help firms be able to create legal presence and understand what legal relationships they would have to forge in order to do well in key Asian regions.
By being big on regulations, it has essentially allowed Coinbase to become a giant in the space, and especially so in the US, placing them as the front runner to be the largest custodian to all US based BTC spot ETFs and likely future US based spot cryptocurrency ETFs. Moreover, Coinbase has a much easier time with origination, being able to raise funds from traditional public markets at a considerably lower cost than in private ones.
As Coinbase expands its regulated operations globally, it would be interesting to continue following their chosen regulatory niche and best practices.
Blue Ocean
For those who have had some form of strategy training would have inevitably come across the the Blue Ocean strategy. This strategy was designed by professors at INSEAD and also easily applies to this space. While some of the goals of Blue Ocean strategy would be considerably more challenging to implement, they are relevant for the most part.
In a Volatile, Uncertain, Complex and Ambiguous environment, the space always provides opportunities intelligent teams are able to exploit. As new markets expand, change and form, gaps in the value landscape open. After teams are aligned with the market (achieved through Principle 1: Understanding the Web3 business environment), a valid business strategy would be to go after such gaps. These gaps tend to exist in two main forms.
Providing 10x service
The first is in the emergence of new markets, and people become underserved. Through following up on these gaps, firms are able to move into the space and quickly capture market share. Due to the existence of the market, firms are able to quickly leverage on this network to their advantage, assuming that they do provide a truly superior product. In this space, liquidity is king and users for the most part will be incredibly sticky to products and services that affords them sufficient liquidity. Better service is not enough to overcome this barrier, service that is orders of magnitude better is necessary (hence the title). Alternatively, being able to provide liquidity to users can also be considered as a form of better service, but the difference in liquidity must be substantial. For the most part, I do believe that this strategy is considerably more challenging now than in the past. Most of the tools that exist in the space have a significant foothold, and achieving far superior user experiences is incredibly challenging in this level of market maturity.
Case Study: MetaMask
The cryptocurrency market is an incredibly fast paced and competitive one. A word has gotten very popular in Chinese media to describe such a market: 卷. It’s literal definition is involution, but it is essentially used to denote an environment where each actor is constantly one up another in an attempt to get ahead, but ultimately getting nowhere. In such an adverse playing field where the switching costs of stakeholders are typically close to zero, many teams in the space face constant pressure to keep up and follow the meta and fall into the trap of involution. Ultimately, blindly chasing this hamster wheel typically does not bring project teams success.
Take for instance wallet protocols - a proliferation of network activity and L1s (Layer 1 blockchain protocols, where the protocol exists completely on its own base network) often helps to encourage the birth of a plethora of different new wallets. Typically, after a big improvement in wallet UX, the remaining wallet protocols see little differentiation beyond a collection different new features.
However, in 2017, while there was a shift away from MEW (My Ether Wallet) towards MetaMask, and again in 2021 where there was a shift away from Sollet to Phantom, because of the significant improvements to user experience and accessibility of these wallets. MetaMask and Phantom both allowed significant improvements to the user’s ease of transacting. As a wallet, that is the primary purpose of why any user would be interested in interacting with the service. Instead of using a private key file or text string that has to be saved and whipped out every time a user wishes to transact, MetaMask and Phantom are both extremely user friendly browser extensions that allow users to create and use wallets.
However, these large improvements tend to be rare, and utility of these wallets are tied very closely to the success of a network rather than the number of additional features that these protocols seek to add.
Serving the right crowd
While it is nice to be able to disrupt an entire market, I think what is more realistic and achievable for more firms in the space is to pick their battles. Firms trying to win the entire market usually loses because they find themselves up against far stronger and more determined opponents who are equally motivated and better resourced to dominate. By serving a specific type of client, firms are able to focus their resources, product and branding around them, which not only can result in the formation of new markets, but definitely helps to create new paradigms around how those clients are served.
Here is an ideal state of how a firm can go from this niche to dominating the entire market (from how disruptive innovation would function):
Serve underserved market segment better than incumbents
Capture that market segment and use the revenue to fund / justify expansion of the paradigm to the broader market
Become the new market meta.
This is of course easier said than done, but for the most part, firms which are able to do 1. would already be winners. 2. and 3. are stretch goals which would allow a firm to move towards actually “toppling Goliaths”.
3. Leveraging on your weaknesses
Realistically, most incumbents will be more well equipped for success than any other newcomers to the space. They have all the liquidity and volume, they know how the space operates, have strong competencies in maintaining business operations, have a much stronger brand image and mind share, and have all the connections they would need to thrive.
A much smaller firm on the other hand operates with a much smaller team, with far fewer resources. If a firm like that is to win, it cannot afford to simply do what its incumbents do. Unfortunately in this space, there is room for such behaviour to exist because of the market conditions. With every new blockchain protocol (new chains), there can be “new” products and protocols that can be launched on top of it that for the most part is just rehashed / repackaged code from existing products and protocols on other chains. These tend to slowly become irrelevant as incumbents adopt those new chains over time.
However, through Principles 1 and 2, firms should be able to form a cogent course of action that they can then execute, keeping in mind the restrictions of the market and their teams. Teams that are only well resourced towards a specific direction should consider leaning into that weakness and focus in on what they know how to do, offering a product or service that they can uniquely provide (to a market that is in need of it). It should also be noted that the biggest weakness are often also conversely where firms can draw great strength.
For instance, new markets are a terrible weakness. You have no awareness even for the broader market, there is little liquidity, volume and interest in the market, and you might end up spending a lot of resources trying to build the broader market up that you have little to spend on your actual product. However, new markets also signify opportunity. Being able to capture and grow new markets can form the new bedrock for alternative and even superior meta.
Without leveraging on their greatest weaknesses, it would be incredibly challenging for firms to be able to find themselves in a unique position for success. Simply choosing to compete head on and within the same operating paradigm is essentially an admission of defeat from the very beginning. Firms must actively choose to create and deliver their form of meta, or die over time to bigger and better incumbents.
Case study: Deribit
Deribit is another classic case of targeting and exploiting a niche, and leaning into the weaknesses of its niche. Like Binance, Deribit as a centralised exchange (CEX) was also a late comer in the space. It also rose to prominence in 2017, continuing to dominate in its niche till this day. For context, Deribit is an exchange primarily targeted at a more sophisticated audience. This market segmentation might seem odd to someone coming from a more traditional background, but in the Web3 space, many of the financial tooling available to traditional investors (even retail investors) either did not exist or are in nascent forms. Just like how demand for options rose with nascent asset class in the past, like with options contracts for olive presses in classical antiquity, tulip contracts in Holland during the Tulip Mania and rice contracts in Japan (traded for ~300 years), this was a space that was ripe for growth in 2017.
Deribit’s leadership team intelligently noticed this opportunity and aggressively focused all their efforts towards this niche. Unlike Binance which took up the mantle in directly competing with the broader altcoin exchange landscape, Deribit chose a particularly unique battleground in the options space. While options did exist in some forms in the past, no real options platform existed where there is a low barrier to entry for participants to trade options.
We can also see this focus in how Deribit chooses to present itself externally, as a secure platform that is tailored more towards more sophisticated actors. There are several draw backs to choosing this niche however.
To begin and grow in a nascent and complex market is extremely challenging. Existing derivatives markets (perpetuals) already provide considerable leverage in this space, unlike in traditional asset classes, and are considerably simpler for the average user to understand. For the most part, the majority of cryptocurrency traders and investors are retail (non-institutional or accredited investors), and would not have any interest in spending the time and effort to learn about options. This high barrier to entry of adoption essentially limits the actual capturable TAM of Deribit in the Web3 space towards the more sophisticated crowd. When we look at options protocols seeking to offer a DEX (decentralised exchange) alternative to Deribit’s CEX (centralised exchange) model, we also see that they are struggling to get as much volume as other spot, loan and perpetual DEXes because of these issues.
Deribit leverages on this by leaning heavily into how they engage with its users, crafting content that they are interested in and providing the type of tools that its users would want to utilise (metrics dashboard, position simulator, strategy calculators, etc.). This helped Deribit forge an extremely strong position within the options space and are likely to continue to be the market leader for a long time to come. Not only has Deribit managed to corner the liquidity in the options space, they also have built a brand that invokes trust in a market where investors are more likely to demand it. While DEXes do already exist and are exploring how options can be traded on chain (transactions made on a blockchain) in new and innovative ways, they have thus far failed to capture any substantial volume from the options space from Deribit, with Deribit continuing to dominate in spite of increasing competition (~80-90% of the options volume belong to Deribit).
Conversely, most exchanges seek to provide a more seamless and simplistic interface to help onboard users from a broad spectrum of competencies. While this meta is still very reliable in reducing onboarding frictions, what Deribit did was a perfect excution of the blue ocean strategy in the Web3 space, forming new paradigms through leaning into the weakness of the market it niches in.
Conclusion
Phew, that was a pretty long read. I hope that the stories, both personal and lived, have been helpful in helping you form an idea of how business strategy could be approached in the Web3 and cryptocurrency space. While being wildly different and challenging, I do think that the 3 Principles discussed will continue to be what successful teams would use to navigate and dominate the space.
A quick recap of what an ideal state for firms to go from 0 to dominant would look like:
Understand where a firm would fit in in the Web3 market landscape and how it might operate with all the relevant stakeholders
Understand how you would deliver value
Build value flywheels that allow you to do more with the same resources
Capture and retain liquidity and market interest of your stakeholders
Figuring out where the firm might fit in
To find market alpha in regulated or non-regulated environments?
Seeking out niches by just being so much better, or to serve the right stakeholders with the right meta
By understanding where the firm stands and what they are capable of delivering, lean into what makes the firm unique and create new paradigms
Writers note: I would love to hear from you about what you feel about the topics and content discussed, so that I would be able to tailor content towards your interests :)