Why is "Web3 narrative" the biggest astray for cryptocurrencies

Original text: Zeus

Translator: Azuma

Editor: Hao Fangzhou

In my previous post, I discussed how the cryptocurrency industry gradually deviated from its original vision—to overemphasize infrastructure innovation, but ignore the underlying currency attributes required to achieve financial sovereignty. This deviation leads to a disconnect between the ultimately delivered technological achievements and sustainable value creation.

However, what I haven't analyzed in depth is that this industry fundamentally misjudged which applications are truly worth building. This misjudgment is at the core of the current dilemma in the crypto field and also implies the direction in which true value may emerge.

Application layer illusion

The narrative of the cryptocurrency industry has gone through multiple stages, but it always runs through a vision - to create revolutionary applications beyond finance. The smart contract platform claims to be the infrastructure of the new digital economy, and imagines that value will feed back from the application layer to the underlying protocol. This narrative is spreading with the "fat protocol theory" - the theory believes that unlike the Internet era where the TCP/IP protocol is of meager value and Facebook and Google can seize hundreds of billions of value, the blockchain protocol will accumulate most of its value.

This forms a specific mindset: Layre 1 public chain will add value by cultivating a diverse application ecosystem, just like Apple App Store or Microsoft Windows creates value through third-party software. However, the fundamental misunderstanding is that the cryptocurrency industry is trying to impose financialization on scenarios that are not applicable and are difficult to create real value.

Unlike the Internet that can digitize human existing needs (business, social, entertainment), cryptocurrencies attempt to inject financial mechanisms into scenarios where there is no need or exclude financialization. The preset premise of this development direction is that all fields can benefit from chaining and financialization, from social media to games to identity management.

But reality is completely different:

• Tokenized social applications generally fail to gain mainstream adoption, and user participation mainly relies on token incentives rather than product value;

• Game applications continue to face resistance from traditional game communities, and players believe that financialization mechanisms will harm rather than enhance the gaming experience;

• The identity and reputation system involving token economics has never shown significant advantages over traditional solutions.

These issues cannot be explained by "we are still in the early days". It reveals a deeper logic - the essence of finance is a resource allocation tool, not an ultimate goal. Financializing social interaction or entertainment activities actually misunderstands the core function of finance in society.

The essential difference from the game prop market

It should be explained in particular that in-prop purchase systems such as "CS:GO" skin market or popular games seem to refute the previous point, but they actually have essential differences.

These markets are essentially just optional decorations or collectible trading ecosystems around the game, rather than financial transformation of core gameplay. They are closer to the peripheral merchandise or souvenir market and have not changed the basic operating logic of the game.

When crypto games try to financialize the core gameplay mechanism - making playing games directly equivalent to making money - it completely changes the player experience and often destroys the most fundamental fun of the game. The most critical question is not whether the market can be built around games, but that converting game behavior itself into financial activities will distort its essence.

The essential difference between blockchain technology and

"trustlessness"

A core concept that is often confused in cryptocurrency discussions is the difference between blockchain technology and trustless attributes, which are by no means synonyms.

• Blockchain technology: a set of technical tools used to create distributed, irreversible consensus ledgers;

• Trustless attribute: specifically refers to the characteristic of executing transactions without relying on third-party intermediaries.

Detrustworthiness comes at a clear price—including loss of efficiency, system complexity, and resource consumption. This cost must be reasonably compensated, and this situation exists only in a specific area.

Take Dubai’s use of distributed ledger technology to manage real estate registration as an example: they mainly take advantage of the efficiency and transparency of the technology rather than detrust. The Land Administration Bureau is still an authoritative center, and blockchain is just a more efficient database. This distinction is crucial because it reveals the true value of such systems.

The core conclusion is that detrustworthiness has practical value in only a few areas. From property registration to identity verification to supply chain management, most scenarios still essentially rely on the authoritative institutions in the real world to make final decisions or verifications. Migrating ledgers to blockchain hasn't changed that nature - it just replaces the technical tools that manage records.

Cost-benefit analysis

This makes it necessary for each platform to perform a simple cost-benefit analysis.

1. Will the platform really benefit from detrustworthiness?

2. Will this benefit exceed the cost loss of trustlessness?

For most non-financial applications, there is at least one answer to the question no—either they don’t really need to be trusted (because they still require external authoritative guarantees), or benefits cannot cover costs.

This explains why institutions' adoption of blockchain technology focuses on efficiency improvement rather than trustworthiness. When traditional financial institutions tokenize assets on Ethereum (this trend is growing), they take advantage of the operational advantages of blockchain networks and new market portals while maintaining traditional trust models. Blockchain is here as an improved infrastructure, not a trust alternative mechanism.

From an investment perspective, this creates a contradiction. The most valuable part of blockchain (the technology itself) can be widely adopted, but it may not necessarily create value for a specific public chain or token. Traditional institutions can build private chains or use public chains as infrastructure, while firmly controlling the core value layer - asset issuance rights and monetary policy.

Industry adaptive evolution

As this reality becomes clearer, we are witnessing a natural adaptation process unfolding:

• Technology adopts skip token economy: traditional institutions only use blockchain technology to circumvent speculative token systems and use it as an upgraded "pipeline" for existing financial activities;

• Efficiency takes precedence over revolution: the focus shifts from subverting existing systems to incremental efficiency improvement;

• Value migration: Value mainly flows to specific applications with clear utility, rather than underlying infrastructure tokens;

• Narrative evolution: The industry re-adjusts the narrative of value creation to match technological progress.

This is actually a good thing. Why let the activity promoters absorb all value from the value creators? If, according to the predictions of the Fat Protocol theory, the main value is captured by TCP/IP rather than the applications on it, the face of the Internet will be very different (almost certainly worse). The industry has not failed—it has only finally faced reality. Technology itself is valuable and may continue to evolve and integrate with existing systems, but the allocation of value within the ecosystem may be very different from what the earlier narrative suggests.

The root of error: the forgotten original intention

To understand how we are today, we must return to the origins of cryptocurrencies. Bitcoin did not initially emerge as a general computing platform or the basis for tokenization of everything. Its mission was born was very clear - as the response of the monetary system to the 2008 financial crisis and the failure of centralized monetary policy.

The core concept of Bitcoin has never been "everything can be chained", but "money should not rely on trusted intermediaries."

With the development of the industry, this original mission has gradually been downplayed and was eventually completely abandoned by most projects. Although projects such as Ethereum have expanded the technical capabilities of blockchain, they have also blurred their core positioning. This has led to a weird split in the ecosystem.

• Bitcoin still focuses on currency positioning, but lacks programmability and cannot realize other functions other than basic transfers;

• The smart contract platform provides programmability, but abandons monetary innovation and turns to the "all things are on the chain" route;

This differentiation is perhaps the worst route error in the cryptocurrency industry. Instead of building more complex functions based on Bitcoin’s monetary innovation , the industry has turned to financializing everything -this approach of putting the cart before the horse has both misjudged the problem and mischoosing the solution.

The road to the future: Return to the essence of currency

In my opinion, the direction of the industry is to reorganize the significantly improved technical capabilities of blockchain with its initial monetary mission. Not as a universal solution to all problems, but focusing on creating better currencies.

Reasons why currency is especially suitable for blockchain include:

• Trust-destructive is crucial— Unlike most applications that require external coercion, currency can operate entirely in the digital realm, and rules can be executed by code alone;

• Native digital attributes – Currencies do not need to map digital records to physical reality and can exist natively in digital environments;

• Clear value propositions—Removing monetary intermediaries can truly improve efficiency and autonomy;

• Natural connection with existing financial applications - the most successful crypto applications (transactions, lending, etc.) are naturally connected to currency innovation;

The most important thing is that money is essentially an infrastructure layer that does not require deep interaction. This is exactly where cryptocurrencies put the cart before the horse - instead of creating currencies that can integrate seamlessly with existing economic activities, the industry is trying to rebuild all economic activities around blockchain.

The power of traditional currencies lies precisely in this "tool-layer" characteristic. Companies do not need to understand the Fed to accept the US dollar, exporters do not need to reconstruct the entire business when managing exchange rate risks, and individuals do not need to become monetary theorists in storage value. Money promotes economic activities without dominating economic activities.

On-chain currency should be the same - using enterprises under the supply chain through simple interfaces, just like using digital dollars without understanding the banking system. Enterprises, institutions and individuals can stay completely off-chain and use blockchain currency only for specific advantages, just as users now use traditional banking systems without having to become part of it.

Instead of building a vague concept "Web3" that tries to financialize everything, the industry should focus on building a better monetary system -not only speculative assets or inflation hedging, but a complete monetary mechanism that adapts to different market conditions.

Changes in the global currency pattern highlight the urgency of this direction. The inherent vulnerability and geopolitical tensions of the current system have created a real need for neutral alternatives.

The tragedy of the current ecosystem is not only a mismatch of resources, but also a missed opportunity. The gradual improvement of financial infrastructure is of course valuable, but it is insignificant compared to the potential for change to solve the nature of money.

The next phase of cryptocurrency evolution may not be about continuing to expand boundaries, but about returning to and realizing its initial mission -not a universal solution, but as a reliable base currency facility, so that other constructions do not need to delve into their operating principles.

This is the profound innovation that cryptocurrencies initially promised—not to financialize everything, but to create currencies worthy of being the intangible infrastructure of the global economy. A currency that can operate seamlessly across borders and institutions while maintaining sovereignty and stability. A basic setting that empowers rather than dominance, serves rather than restricts, does not interfere with human activities that give it meaning in evolution.