Opinion: Crypto Does Not Need Externalities

Author: Guhe.hl

First, expectations are beautiful, but reality is harsh. Once you've tried, you'll know—you can't bring in new users. Even if several presidents launch tokens, they still can't attract many new users. What makes you think anyone would actually use your poorly built junk?

The so-called "safe" protocol caused the largest hacking incident in industry history—possibly one of the biggest in human cyber history, even without mentioning the "industry."

Most project teams build products worse than Safe—complete crap. Even experienced users within the industry, who generally learn quickly, struggle to adapt. How could Web2 users possibly use it? Dream on.

I'm not trying to downplay the industry—first serve existing users well before fantasizing about external ones. Prices haven't dropped that much, yet the greed index is already at 10 (extreme fear). Insiders are about to leave, yet everyone's still obsessing over outsiders' money.

Let's be real—Bybit is probably the largest asset management client you'll find in this space, and you managed to lose their funds completely, forcing them to cover the losses themselves. What qualifies such a project to talk about externality?

Secondly, if an industry truly has no externality, will it collapse?

Clearly not. Think of monopolies—users don't grow, yet they thrive. Even with declining user bases, they remain strong. They simply don't care about externality.

Because no matter how monopolistic an industry becomes, it's never a closed system. Users within the industry always engage in economic exchanges with the outside world.

So does crypto really need fresh blood?

Of course not. Without externality, all you need is cyclical adjustment.

During bear markets, degens go deliver food, save up gambling capital, then after some time, markets pump again, the next bull run starts, everyone happily shouts "bull is back," and jumps back in.

In other words, participants themselves are a continuous source of "externality."

Hence the saying: degen users are the exchange's best asset.

The industries that truly require externality are those where everyone is a participant. Financial markets clearly aren't like that—most users only occasionally gamble spare cash while living normal lives.

The only cryptocurrency truly requiring mass adoption right now is BTC. With its trillion-dollar market cap, it can't move significantly without external capital.

Finally, is introducing externality necessarily good? Not necessarily.

Setting aside legal risks from domestic group events, another crucial point is: crypto's greatest edge lies in its users' average spending power, far exceeding that of any other industry.

Why does @kaitoai achieve such absurd valuation with so few users? Because platforms like WeChat or Xiaohongshu have far weaker spending power compared to crypto Twitter. Why does @hyperliquidx achieve 1/10 Binance's volume with just 1/7500 the users?

Borrowing a term from the previous Pi price analysis: user quality density. The value contribution per user (ARPU) determines the overall value of the user base.

People aren't equal. This isn't an election with one person one vote—it's a financial market where more money means more votes.

This explains why users from hook, Telegram mini-app coins, or Pi's auntie-uncle demographic—whether fake data or real people—are essentially useless.

Even if you spend huge costs acquiring so-called externality, what's the result?

These people would rather spend half a month grinding for a bag of fruit, take a month to claim a glass cup, spend a year accumulating $20 to withdraw, or dedicate seven years daily checking in on something uncertain—yet wouldn't spend a penny voluntarily.

Because real externality requires *risk exposure*. Money afraid of going to zero isn't real money in crypto.

If they did confidently deposit funds, they'd merely drive low-risk protocols' yields down to 0.5% annualized returns—and that's it. Nothing more.

Not that I look down on anyone—people simply have different investment philosophies. Most are trained to be cogs in society, not desperate like Koreans pushed to extremes. They're naturally risk-averse and instinctively resist gambling.

Such users are liabilities to the industry—mere bloodsuckers. If institutions are scythes, then reward farmers are locusts. This isn't food delivery, ride-hailing, or e-commerce where adding inactive users creates no value. Hard work and diligence won't save your project—only waste marketing budgets.

In investment markets, only a tiny fraction of people globally have spare funds to invest/gamble. Among them, those willing to take crypto-level risk exposure are an even smaller minority—just hundreds of thousands buying Trump tokens on-chain.

Most projects attempting to "enlighten" Web2 users, making Web3 easier to use, sadly miss the point entirely. Their failure isn't due to inconvenience—it's because these people were never your customers to begin with.

Complex products and high learning curves are themselves the best user filters. Why do telecom scams use crude tricks like "I'm Qin Shi Huang, send money"? Why do NFT projects deliberately make ugly, bizarre designs? To rapidly filter target customers—the most effective way to concentrate consensus.

When you lure people through perceived value or aesthetics, the scam eventually collapses. But when participants know it's just a game, just a dream, the sweetness can last far longer.