The "Web3 narrative" is the biggest misunderstanding in the Crypto Assets industry, and it's time to return to the essence of currency "financial sovereignty."

Written by: Zeus

Compiled by: Glendon, Techub News

Editor’s Note: This article explores how the cryptocurrency industry has deviated from its original intent, overly focusing on infrastructure innovation while neglecting the foundation of currency, as well as misunderstandings at the application layer, such as the industry’s attempt to impose financialization on areas that do not need it and where it is difficult to create real value. This deviation will also lead to a disconnection between technological achievements and sustainable value creation. The article argues that the industry should not continue to pursue the notion that "everything needs to be on-chain," but should return to the essence of currency.

In a recent article, I explored how the cryptocurrency industry has gradually deviated from its original vision: focusing excessively on infrastructure innovation while neglecting the monetary foundation needed to fulfill the commitment of "achieving financial sovereignty". This deviation will also lead to a disconnection between technological achievements and sustainable value creation.

But what I have not explored in depth is that the industry has fundamentally misjudged which truly meaningful applications should be built. This misjudgment is at the core of the current dilemma of cryptocurrencies and also indicates the direction in which true value may ultimately emerge.

The "Mirage" of the application layer

The narrative of cryptocurrency has gone through multiple stages of evolution, but has always been underpinned by one theme: the commitment to create revolutionary applications beyond the financial realm. Smart contract platforms position themselves as the infrastructure of the "new digital economy," envisioning value flowing back from the application layer to the infrastructure. This narrative accelerated with the introduction of the "Fat Protocol" theory, which posits that unlike the internet model where the TCP/IP protocol captures almost no value, application companies like Facebook and Google seize billions of dollars in value, while the blockchain protocols themselves will also accumulate most of the value.

This shapes a specific thinking model: just as Apple's App Store or Microsoft's Windows creates value through third-party software, L1 blockchains will gain value by supporting a diverse application ecosystem.

But the fundamental misdiagnosis here is that the cryptocurrency industry attempts to impose financialization on a field that does not need it and where it is difficult to create real value.

Unlike the internet, which successfully digitized the real activities that people inherently desire to engage in (business, communication, entertainment), the cryptocurrency industry is attempting to inject financial mechanisms into scenarios that fundamentally do not need them. The underlying assumption is that all fields, from social media to gaming to identity management, can benefit from financialization and "on-chain".

However, the reality is not like this:

Tokenized social applications have mostly failed to gain mainstream adoption, with user engagement primarily driven by token incentives rather than underlying practicality.

Game applications are facing ongoing resistance from traditional gaming communities, who believe that financialization will weaken rather than enhance the gaming experience.

When it comes to token economics, identity and reputation systems have always struggled to demonstrate more attractive advantages than traditional methods.

This is not just a statement of "we are still in the early stages." It reveals a deeper truth: the essence of finance is as a resource allocation tool, rather than an ultimate goal. Financializing activities such as socializing or entertainment is a fundamental misunderstanding of the social function of finance.

A special case in the gaming market

It is worth special analysis, for example, the existence of seemingly counterexamples such as the CS:GO skin market or popular game microtransaction systems. These successful markets seem to contradict the argument for game financialization, but they highlight a key distinction: these markets are essentially closed ecosystems built around the gaming experience, providing optional cosmetic or collectible trading, rather than attempting to financialize the core gameplay. They are more similar to merchandise markets rather than a change to the essence of the game.

When cryptocurrency games attempt to financialize the actual gameplay mechanics—making playing a game directly equivalent to making money—it fundamentally changes the player experience and often undermines the original appeal of the game. The key insight is not that games cannot exist in a market, but that transforming the game itself into a financial activity will alter its fundamental nature.

Blockchain technology and its trustless characteristics

In cryptocurrency discussions, a frequently confused key distinction is between blockchain technology itself and the characteristic of trustlessness; they are not synonymous:

Blockchain technology is a set of technical capabilities used to create distributed, append-only ledgers with consensus mechanisms;

Decentralization is a specific attribute that refers to executing transactions without relying on a trusted third party.

Achieving decentralization requires real costs - reduced efficiency, increased complexity, and higher resource demands. These costs need clear value support, and this value exists only in specific use cases.

For example, when entities like Dubai use blockchain technology to manage property records, they primarily utilize the technology to achieve efficiency improvements and enhanced transparency – rather than pursuing decentralization. The land department remains a trusted authority, and blockchain is used merely as a more efficient database. This distinction is crucial as it reveals the true value within these systems.

Therefore, decentralization has real value only in a few areas. From property records to identity verification, to supply chain management, most activities essentially require trusted entities for real-world execution or verification. Migrating the ledger to the blockchain does not change this reality—it merely changes the technical means of managing the records.

Cost-Benefit Analysis

This brings a direct cost-benefit analysis that every platform must face:

Does the platform truly benefit from the removal of trusted intermediaries?

Does this yield exceed the efficiency cost of achieving decentralization?

For most non-financial applications, the answer to at least one question is negative. Either they cannot truly benefit from decentralization (because external enforcement is still necessary), or the benefits do not outweigh the costs.

This also explains why institutions adopting blockchain technology mainly focus on improving efficiency rather than eliminating trust. When traditional financial institutions tokenize assets on Ethereum (a practice that is becoming increasingly common), they are essentially leveraging the network to gain operational advantages or enter new markets, while still maintaining traditional trust models. Blockchain here serves as an improved infrastructure rather than a trust replacement mechanism.

From an investment perspective, this presents a challenge: the most valuable aspect of blockchain (the technology itself) can be adopted but may not necessarily create value for a specific chain or token. Meanwhile, traditional institutions can deploy private chains or use existing public chains as infrastructure, while still controlling the most valuable aspects - assets and monetary policy.

The Path of Adaptation

As this reality becomes increasingly clear, we see a natural adaptation process unfolding:

Technical adoption without a token economy: Traditional institutions adopt blockchain technology but bypass speculative token economies—using it as a conduit to improve existing financial activities;

Efficiency takes precedence over revolution: the focus shifts from replacing existing systems to gradually improving their efficiency;

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

Narrative Evolution: The industry is gradually readjusting its value creation narrative to adapt to technological realities.

This is actually a positive development: why should an activity promoter siphon off all the value from the value creators? This rent-seeking behavior is actually contrary to what most people believe is the capitalist ideal that supports the entire movement. If the value capture of the internet primarily flows to TCP/IP rather than upper-layer applications (as predicted by the "fat protocol theory" for the blockchain space), the face of the internet would be drastically different (almost certainly worse). The industry has not failed—it has finally confronted reality. The technology itself holds value and will continue to evolve, gradually integrating with existing systems. However, the distribution of value within the ecosystem may be vastly different from the early narrative.

Lost on the Wrong Path: The Forgotten Original Intention

To understand how we got to this point, we must trace the origins of cryptocurrency. Bitcoin did not emerge as a universal computing platform or a foundation for tokenizing everything. It was explicitly born as a currency— a response to the 2008 financial crisis and to what many perceived as the failure of centralized monetary policy.

The fundamental insight is not that "everything should be on the chain," but rather that "currency should not rely on trusted intermediaries."

With the development of the industry, this original intention has gradually faded and ultimately been abandoned by many projects. Projects like Ethereum have expanded the capabilities of blockchain technology, but at the same time, they have diluted its core focus.

This has led to strange disconnections in the ecosystem:

Bitcoin has maintained its central status as a currency, but lacks programmability beyond basic transfer functions;

Smart contract platforms offer programmability but abandon monetary innovation in favor of the "blockchain universal theory."

This divergence may be the most serious misdirection in the industry. Instead of developing more complex functions based on the monetary innovations of Bitcoin, the industry has turned towards a comprehensive financialization in other areas—this reversal of priorities not only misjudges the problem but also mismatches the solutions.

The Path Ahead: Returning to the Essence of Currency

The author believes that the future lies in reconnecting the significantly enhanced technological capabilities of blockchain with its original monetary goals. This is not a one-size-fits-all solution, but rather an attempt focused on creating a higher quality currency.

Currency is particularly suitable for blockchain for the following reasons:

Decentralization is crucial: unlike most scenarios that still require external enforcement, currency can operate entirely within the digital realm of code and rules;

Digital Native Attributes: Currency does not need to map digital records to physical reality; it can exist natively in the digital environment.

Clear value proposition: Removing intermediaries from the monetary system can create real efficiency and sovereignty benefits;

Naturally connected to existing financial applications: The most successful cryptocurrency applications (trading, lending, etc.) are naturally related to currency innovation.

Perhaps most importantly, currency is essentially an infrastructure layer that supports everything without the need for deep involvement, which is the natural relationship disrupted by cryptocurrency. However, the industry has not created a currency that seamlessly integrates with existing economic activities, but rather attempts to rebuild all economic activities around blockchain.

The power of traditional currency lies precisely in this utility layer path: businesses accept dollars without needing to understand the Federal Reserve; exporters manage exchange rate risks without having to restructure their business around monetary policy; individuals store value without needing to become monetary theorists. Because currency facilitates economic activity, rather than dominating it.

On-chain currencies should serve the same purpose — providing off-chain businesses with simple interfaces, just like using digital dollars without needing to understand the banking infrastructure. Businesses, entities, and individuals can remain completely off-chain while leveraging blockchain-based currencies to gain specific advantages — just as they use traditional banking infrastructure today without needing to be a part of it.

Rather than attempting to construct "Web3" (a vague concept aimed at financializing everything), the industry should focus on building higher quality currencies to find more sustainable value. It is not just a speculative asset or an inflation hedge, but a complete monetary system whose mechanisms enable it to operate reliably under different market conditions.

When we examine the broader global monetary landscape, this focus becomes more compelling. In the evolution of the global monetary system, the world faces unprecedented coordination challenges. The inherent instability of the current monetary system, coupled with escalating geopolitical tensions, makes it clear that we truly need a neutral alternative.

The tragedy of the current situation lies not only in the improper allocation of resources but also in the missed opportunities. While the gradual improvement of financial infrastructure certainly has its value, it seems trivial compared to the transformative potential of addressing the fundamental challenges of currency.

The next stage of evolution for cryptocurrency may not lie in expanding its applications, but in returning to and realizing its original goals. Not as a universal solution to all problems, but as a focused currency infrastructure—a reliable foundation that supports everything without requiring a deep understanding of its mechanics.

This is precisely the profound innovation that cryptocurrency initially promised: not to financialize everything, but to create a currency capable of serving as an invisible infrastructure for the global economy. This currency can operate seamlessly across borders and institutions while maintaining the autonomy and stability required in an increasingly complex world. It is a cornerstone of empowerment rather than domination, service rather than restriction, and its development will not disrupt the human activities that ultimately give it meaning.