Web3 Just Died… Crypto Returned to Its Roots (Money) - The Chopping Block

I think this is the end of web 3. I think web 3 as per A16Z's definition is dead.

This idea of like ownership, economy, NFTs, own your social posts, whatever. That type of stuff. I think this is definitely the end of that. Not a dividend. It's a tale of two fun. Now your losses are on someone else's balance sheet. Generally speaking, airdrops are kind of pointless. Anyways, trading firms who are very involved. Policy is the ultimate DeFi protocols are the antidote to this problem.

Hello everybody. Welcome to the Chopping Block. Every couple weeks the four of us get together and give the industry insider perspective on the crypto topics of the day. So quick intros first. You got Tom the DeFi maven and master of memes. Hello everyone.

Next we've got Robert the crypto connoisseur and zar of Superstate. Robert, good morning.

Then we got Tarun the gig brain and grand puba at Gauntlet.

Yo.

And finally, I'm Hive, the head hype man at Dragonfly. We are early stage investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Please see choppingblock.xyz for more disclosures. So, gentlemen, it looks like there's a little bit of breath of life in the crypto markets. Looks like we are not going down forever. I attribute most of that to the hat that Robert and I were wearing last week, which got a lot of hate. I got a lot of hate on the TL in the comments. I was just getting roasted for the hat. I don't know. Robert, you seem to be spared. I mean, sometimes you have to hate my hat.

Yeah. No one knew the big reveal. Big reveal this week. He's bald. Turns out, what do you know? You know, it's kind of like I take the Scooby-Doo thing off and it's like, 'Oh my god, he was bald.' Right. The only criticism I got, and it might be because I'm a hat rookie, is that it was falling off throughout. It was moving around a lot.

But I would say I think the hats saved crypto. It looks like now things are back on the upswing, but it's been a busy week actually. There's been a lot of news this week that is more kind of micro news rather than this macro news. So we want to talk about one of the big stories of yesteryear that we talked a lot about previously on the show which is Farcaster. So Farcaster is a decentralized social media platform. They raised a ton of money over the years over 150 million led by Paradigm and A16Z and they've been building for about four and a half years founded by Dan Romero who's early at Coinbase and they announced this week that they were basically not pivoting but kind of pivoting away from focusing on purely the social media. So, in their words, look, they shipped the social media product, but the social media product is not growing. They've been kind of stuck at around 25 to 30,000 daily actives, and they haven't been able to really get a growth flywheel beyond this kind of crypto insider contingency that seem to be the primary users of Farcaster. So, they decided, hey, we're going to focus more on the wallet product because the wallet product seems to have product market fit. It seems to be growing. And they described it as a come for the tool, save for the network kind of strategy. Now many people took this to say hey this means web3 social is dead this means that it's almost impossible to make anything work in crypto that's not financial in nature. And of course Farcaster although they had these early green shoots with things like DGEN and some of the memecoin drops that were happening and remember frames there was a lot of excitement around frames which was mostly then used for buying and selling crypto tokens. But many people use this as a kind of broader sign of the times that maybe the social stuff is not really working. So Dune, you can see the daily active users have kind of been stuck around 25 to 30,000. I took a look also at Blue Sky, which not quite fully on chain in the way that Farcaster is, but Blue Sky also has a kind of decentralizedish, they use Activity Pub, they use some crypto-like primitives, although it doesn't have a token and doesn't want to have a token as far as I know. Blue Sky has also been edging down. They were at about two million daily active users at the beginning of the year. They're now down to about a million. So, it does seem like it's really difficult for these crypto products to break through in non-financial use cases. So, guys, what do you think? Is this the death knell for crypto social or is this just, hey, maybe these guys couldn't quite crack it, but they're going to try another angle? How do you guys see what happened with Farcaster?

Well, I don't think this is the death knell. I think we don't have a winner yet, right? I don't think there's a death knell until somebody actually builds something so compelling that nobody can compete with it. I think we just haven't seen yet the thing that's...

You don't think that's like the existing social networks? Is that not the thing no one can compete with?

I mean existing social networks are huge, right? But there have always been new approaches and things that have disrupted that have come around. Yes, they've gotten bought and merged in, but like the stories of the Instagrams, the Snapchats, everyone said back in the day, oh social's fit, Facebook solved it. But that's never really been the case. And so I don't think that social plus crypto is over by any stretch of the imagination. I just think that nobody has really figured it out yet. I think there's still going to be at bats. And I think there will be someone who inevitably cracks it. It's just hard, right? This is not an easy problem. But the combination of token incentives to bootstrap growth, plus the fact that everybody in crypto is so hyper online 24/7 anyway, this will get solved by somebody we haven't seen yet.

Tarun, I feel like you were probably the biggest Farcaster user as well as maybe the biggest Farcaster bull. What's your read on this strategic capitulation from Dan?

I think as someone who went from trying to use it to try to really understand the product and over time just starting to find it annoying because it was even more of an echo chamber than people consider other social networks in my opinion. I think this is the end of web 3. I think web 3 as per A16Z's definition is dead. Define web three. What do you mean it's the end of web three? What is web? Like this idea of ownership, economy, NFTs, own your social post, whatever that type of stuff. I think this is definitely the end of that because I think we already have the crypto social network that is actually a social network that people are ignoring which is Polymarket and depending on your definition of crypto social in the sense that these platforms have insane usage right in terms of monthly active viewers not traders that's the key their numbers are going up right like Polymarket's like third after Coinbase in some recent ranking of fintech apps fintech web pages and I sort of view the interesting thing about Polymarket and Kalshi is you don't need that much trading volume as an incentive for people to participate in the game but then it becomes a sort of social/news network that people read and consume content as if it's like a media outlet and that's to me that's an evolution of social networks to this new form of media that's constructed by people trading not constructed by people making posts or videos or whatever. And I think fundamentally the prediction markets are the thing that is the new modality of social network in my opinion where people read it use it to read like I open Polymarket every day to understand something about the world the way I would read Twitter and I'm not trading but I'm still getting this social network style value out of it. And so I just think all the people who tried to copy pasta existing social networks just had no chance in reality, right? The network effects are too strong to vampire attack or drag or whatever. And in Farcaster's case, I even felt like the UX was extremely like Twitter clone. Like Farcaster and Blue Sky made basically zero attempts at novel UX relative to Twitter. Like yeah, I find there's some tiny things like programmability whatever open graph but no one monetized the open graph. No one gave a about the open graph except airdrop people to be honest, right? They were the only ones who found a realistic monetizable use case. And no one gave a about owning their own posts, right? That's fundamentally been true in all of these things is there's a little cabal that's like, 'Oh yes, obviously we want to own our own posts.' But then even those people just leave, right?

So you give no credit to things like frames or what was the salon thing? Blinks, right? Or for Blue Sky they had the ability to modify your own algorithm to basically say oh I want more of this less of this. You don't think those innovations...

I think I just watched those things either get bastardized and the only thing they're used for is figuring out who to airdrop to or add a swapping function so it's like okay if it's really just DeFi with more steps why do the more steps like it seems kind of dumb. I think it's interesting that it took them this long to figure it out, but I also do think it's kind of weird to pivot to just wallet only because there's five million competitors. They're all like you're getting new competitors who are like every fintech app in the world.

My understanding was that they're not dropping the existing product. They're just focusing on the wallet, but the wallet integrates with the social network.

But I think that will be the end of it. Social networks, I feel like if you're not constantly evolving them a little bit, your users get bored and leave. There's a bunch of social wallets out there. I mean, FOMO just raised and Moonshot and Bags and some of those are also quite social. Social trading has been a thing forever. I think maybe it's a tougher pivot coming from Farcaster, but you raise 120 million. You raised 10 times or more, whatever 200, you raised much more than 10 times the capital of everyone combined.

Yeah. And I don't think that was raised solely on the product and product traction. I think that was in large part also raised on Dan and his ability to ship product. And look, although people are clowning on them on Twitter, I think they executed this pretty well. I think of all the other past examples in crypto people trying to do this, they always took the wrong turn. It's like we just build the protocol and everyone else builds a client and then of course that doesn't work because you get shitty clients and it's just a bad incentive alignment. And so okay, great. They built their own client and then people were like, 'Oh, they should have launched a token.' And it's like, 'No, no, no. You don't launch a token pre-PMF. That's how you distort everything. The whole thing doesn't work.' And so they had really good product discipline and iterated quickly. And I think it's also a tough decision to wind down something that's kind of working but not really working. And I think not enough founders, especially in crypto, are willing to make that call. A lot of people want to keep nursing something that's not really working because it's not a zero. So I don't know. I mean, props to them for making a tough decision. I do also wonder if this is going to impact the Base app strategy because I know there was some beef around Base app using Farcaster but not being a Farcaster client or it was some sort of weird non-canon issue and so now it's like and obviously the Base app is also being oriented around social and owning posts and trading posts and now it's funny to see the thing that you're kind of drafting behind choose to take a totally different turn and you're like oh do I keep going straight or do I also turn and so we'll see.

Well, I mean, they're definitely competing with Base App effectively now, right? To some extent. But I think it's funny that Base was very much leaning into the social angle and Farcaster is like actually, 'Fuck that. We're just going to be a wallet.' I mean, good for them. Good for them. I actually support this 100% as a founder and investor. And to your point about people clowning on them, all the people clowning on them are like anons and people who have not built something before. For the most part, I haven't seen any genuine well-thought-out critique of this besides like, oh no, product go away, you must suck. I think this is great. I think this is what a team should do. If they inevitably are not seeing the metrics and the success that they have in their current strategy, they should iterate, right? And so I'm excited to see it. The more experimentation we have to try to reach popular, widely adopted things, the better. Robert, are you an investor in Farcaster?

Okay.

Fantasy Top doesn't count. I mean that's a game that's very different.

Wait, what do you mean? You've heard A16Z ask for it.

Yeah. I think it's the reality and this is something I say a lot about a lot of things within crypto is that people, you can't just listen to people in what they tell you they want. You have to have them show you what they want because people will tell you all sorts of horseshit that they don't actually mean. Right? So, one of the pieces of horseshit that people will tell you is that I hate social media, it's so terrible for me. I'd love to use something else. I want to get off of TikTok. I want to get off of Instagram. Blah, blah, blah. And you, oh, great. Well, here's a thing you can do. You can turn this thing off. You can block yourself from your phone. You can do all sorts of stuff to get away. And people don't, they're like, oh, that's great, but I don't want to miss, I have my friends on here. What am I going to do? And all the stuff that people say about privacy I think is also of the same vein. It's like oh you know I don't trust all these social media companies. I don't trust you know blah blah blah. And then you can see from their behavior that actually they value this extremely small amount even a slight amount of inconvenience and they're like you know what f yeah whatever I you know whatever they're going to read my stuff. What am I going to do? So I think in order to break through this barrier you need a much better product. A much better product. And it's very hard to have a much better product than Twitter. It's very hard to have a much better product than Instagram. It's just not just like, okay, great. It's decentralized, therefore it's much better. And that's a lesson that I think we as an industry, we keep relearning. We learn it for different stated versus revealed preferences are a bitch. That's a fact. Exactly. So now look, I won't say never because, you know, I don't know what I don't know. But again I do think that the core superpower of crypto has always been around money and finance and if you're doing a social network or some other thing and you don't have some monetary on top of it it's probably not going to be sufficiently different than a Twitter or an Instagram then you're going to have a shot in hell of being able to supersede them. So if that's not the lesson then I don't know what is. I mean, Instagram and Twitter and all these things have like two decades each of effort that have gone into them with thousands of engineers and product designers and two decades building up a network effect, right? And a user base and these are gargantuan products at this point that yes, to your point, they will be extremely hard to dislodge unless somebody thinks about this from a completely different angle and just nails it. And that different angle is money. And I think prediction markets are weirdly a totally different angle to make a social network. That's my hot take.

I love this take. It is a bit of a stretch to call prediction markets a social network but I just feel like people talk about prediction markets the way they talk about posts. It's like I mean I agree they're social. I agree they're social and but the social network sort of extends most of the people who are at this point consuming Polymarket are actually on Twitter right like the Polymarket Twitter account is crazy it's got crazy reach every single day so it's a broader phenomenon than just okay it lives inside of the Polymarket comment section.

Yeah, I think the future and just to go back to last week's Chopping Block conversation about prediction markets and the long tail and the social networks, I think the future is you go to the high school basketball game and the prediction market app. It's like all the people in the stands with you are chatting and betting on the game and it just happens automatically. 100%. 100%. I think stuff like that is going to be more of a social network than any of these kind of crypto social things that try to be a social network. So if you're building that Tom... So Tom, you used to be a PM at Instagram before you came into crypto. So you came from the inside of the beast. Do you think there will ever be a successful social app within crypto? Not like social trading, like social social.

I mean, I think I more or less agree that the interesting thing in crypto is the financial component. And I think it's also just extremely difficult to displace any incumbent like beating them with the exact same product with small tweaks which I think is what every other approach has had. And it's even true even in traditional social media. I don't know. I think there's probably something like ultimately the whatever form factor is just going to look totally different than anything we can imagine today and it's going to get ridiculed at the start but I can see something financialized like a prediction market taking off. Not quite crypto but we had a portfolio company launch this week Two Cents which is a very different flavor. It's kind of like the opposite of a good idea is also a good idea. And so they do an anonymous social network, but your sort of handle is your verified net worth. So they can take in your crypto wallet or you can link up your brokerage and so it'll say like this person's worth $100,000 and that's it. And then you can just comment and post and poll. And so you get really interesting fun content that feels very transgressive. Like you're not supposed to talk about your net worth and you're not supposed to have like how much your rank in the feed ranked by net worth or your poll ranked by net worth but it produces really interesting content that you're just not really getting anywhere else.

This sponsored by a wrench company.

Yeah. Right. It's anonymous local privacy preserving. Yeah. Don't publish your research or your address rather but yeah anyway just different than what you normally expect. To your point, I feel like there's some very weird niche social networks that I still use despite the fact that I don't think their user counts have grown in years like Arena and stuff like that where it's like all these crypto ones seem like that. They're not like venture businesses. They're more like cottage industry social networks for some niche group, right? The only one that seems to transcend society is prediction markets where everyone loves to talk about them regardless of where you are in society now. I feel like that to me that's what you need to have a social network that amount of buzz around you.

Yeah. It's interesting because I do think there was a moment where basically if you created not even a social network but almost like a forum like an old school bulletin board type forum but you just had super rich crypto people on it you could get venture funded just because there was a sense that anything that was close enough to the heart of crypto wealth was somehow worth enormous amounts of money. And I think the industry and I think investors have also grown up a little bit and realized that, hey, it's actually really hard to create sustainable businesses.

Yeah, I haven't heard the word web 3 from anyone except people who work in AI who are like, how's that web 3 stuff going?

Well, I mean, I guess it's time to retire the term. Can we put it to rest?

Okay, we didn't make the term. I think that was an A16Z original.

That was actually technically Polkadot Foundation. That's right. It was Gavin Wood and then A16Z co-opted it to make it into a broader phenomenon. And look, to be clear, we owe a big credit to the web 3 meme because I think the set of people to whom the web 3 concept appeals is so much larger than the set of people to whom crypto appeals. And the whole read, write, own philosophy is beautiful. It's a payin to the idea that the small guy, little tech, it's easy for everybody to get on board with that story. It's a lot harder to get on board with the story of, hey, let's go fund some perp dexes and trade a bunch of crazy shit. But, you know, here we are 2025. Okay, so switching gears, let's talk about me. So, there was a big debate that I did last week with Santiago. Santiago is a founder of a protocol called Inversion. He's a long big investor in the space, one of the most actual angel investors in crypto. And we talked last time about an article I put out called In Defense of Exponentials where I basically defended layer 1's as a category. And Santi was very like hey yeah look this is really nice to say it's very highfalutin language but come on let's look at these P/E ratios. Ethereum is trading at a P/E ratio of 380. It's absolutely absurd that people think that these valuations are justified. Solana is trading at like almost 50. Why is anyone paying this? That's the reason why prices are going down is that people are waking up to the fact that all these chains are overvalued. And so I argued with him and I said, 'No, this is bullshit. This is not the right way to look at this.' And we ended up doing a debate on Thread Guy show. That debate ended up getting a huge amount of play and really kicked off a larger firestorm about how should layer 1's be valued. You had people on one side on Santi's side basically saying that we're past the stage of just looking at these things like early stage startups and closing our eyes and just swallowing these horrendous metrics and the lack of year-over-year growth. And then you have my side which is hey these technologies take a long time to develop and if you compare this to the internet you compare it to e-commerce these are trends that took a long time to develop and markets are forward-looking they're not present looking and if you look at the profits of these companies whether it's Amazon or Uber or Google or whatever none of these companies had profits even 10 years in and Ethereum is 10 years old. So that was my side of the argument. I'm curious. I don't know if you guys saw any of this hubbub coming around, but it seems to have triggered a broader set of conversations. What's your guys' take on the L1 valuation debate? Do you guys think L1's are overvalued, undervalued, and where do you fall on the side? Or where are you sympathetic?

Well, I'll preface by saying I did not watch your debate. I don't even watch our content.

Well, you don't watch our content.

No, I see the clips that the Chopping Block social media intern posts and they're incredible and I see the new content that gets made and I see the hat memes and all of that, but I've actually never watched or listened to an episode of the Chopping Block.