Pudgy Penguins’ Luca Netz on the Mistake Crypto Keeps Making

Obviously, there has been a lot of talk about consumer crypto and how it will percolate into web two and people will move to crypto because it's just better experience and you control your data and all of those things. We have seen a lot of people theorize about it, a lot of people write things about it including us, but we haven't seen a grand example of it working at a decent scale. Where do you think we are stuck? How do you think you will change it?

Yeah, I think we're stuck in a place that I can't change. We're also stuck in another place that I can change. The place that we're stuck that I can change is the consumer journey in crypto is broken. And so I've derived it as to why and I think it's because of the decentralization scope. And I don't think it's a scope and a bad thing. I think let me give you a research oriented lens as to how we got here. Crypto is a game of follow the leader and unfortunately for most venture investors and consumer speculators are looking for the beta to the alpha to hopefully that beta flipping the alpha. And so the great alpha in the blockchain space is Ethereum.

Yet Ethereum I think performs a different function than what I think most blockchains should be performing. And it is really important to delineate I think the two different types of blockchains in my mind. The first type of blockchain which would be Ethereum is performing a function of a decentralized network state, which is incredibly important for humanity and incredibly important for censorship resistance and incredibly important for the future of our financial system. Its priorities while being a decentralized network state above all else is decentralization, immutability.

And then I think on the other side of the spectrum, there's blockchains who are performant who function as performant payment rails, borderless liquidity and borderless composability on top of Stripeesque payment rails. Blockchains are built to beat Stripe. They're built to beat PayPal. But the centralized network state and performant payment rails I don't think are synonymous. So while everyone was going and chasing after and maybe they might and maybe Ethereum does pull that off and it easily could right but I think today right like the throughput of Ethereum needs to be sub this is like this is Solana's case right Solana is the op is so they're two different functions could Ethereum be that as well totally right if they build it that way as currently constructed it's not built that way right so you have Solana on one side which is like super performant payment rails built to just disrupt Stripe and PayPal and the NASDAQ and you know just really and the TAM there is even bigger than Stripe and PayPal it's because of the global composability aspect it's also like a tech stack a software stack and on the other side you have Ethereum.

The issue is you before Solana, Solana is like a net new thing of the last you know two three four years right so now everyone's kind of following and chasing Solana a little bit but Ethereum is still the big dog Ethereum's five times more valuable in Solana on a token perspective. So, everyone's chasing Ethereum and when you chase Ethereum and you want to be the next Ethereum or the Ethereum killer, you embody and you tell a similar story. You embody its ethos, because you want to be the beta to the alpha and eventually the beta flips the alpha and hopes as speculators will speculate. But the issue in Ethereum's model that everyone is now chasing and following is this idea of decentralization and not the performant payment rail side.

And so the issue that I'm getting at is ultimately decentralization and consumer adoption are not synonymous. They're antonyms. They're actually paradoxical. They mean opposite things. And so let's apply this thought process to something that is decentralized in the real world. Let's use social medias for example. The only really big decentralized social media in the world is a company called 4chan. 4chan has a couple million users. You know kind of helpful if you go down the right lens, you know, the right rabbit holes. Kind of harmful if you go down the right rabbit holes.

And then you look at a centralized social network. You have Facebook, you have Instagram, you have X, you have all of these things. What is the difference between 4chan and Instagram? What makes the centralization better? It's the consumer journey. It's the interface. It's the platform feels better. It's curated, right? It's easy. One step. I know exactly where to go and how to go. All of my questions are answered. So easy a monkey can navigate through it. versus 4chan. You kind of have to be an I high IQ individual to navigate 4chan frankly, right? And at least not end up in places that are harmful and traumatized.

And blockchains have gone through the same thing. So blockchains are actually the custodians, I think, of consumer adoption. They have that responsibility. They're payment rails, but what they haven't built is they haven't built consumer facing platforms. Why? Because consumer facing platforms are centralized. So if you're copying the incumbent, which is Ethereum, the great decentralized network state, the build is going to be in that spirit. It's going to be general purpose. You're going to be telling a story of, you know, replacing the internet's economy, right? But you're not going to be telling a story of consumer adoption, right? And the Ethereum playbook has broken it in terms of its consumer journey.

The complete consumer journey is fragmented. Go to MetaMask for this. Go to Uniswap for this. Go to a for this. go to all these different websites, connect your wallet to all these different places and then maneuver the web. That is a really amazing well spirited vision. But to understand consumers is to also to understand consumer behavior and to live in the reality of their current IQ and EQ and their technological advanced prowess and how they navigate which is not that high.