Bear Markets are for Builders

It’s October 2022, and the global economy has taken a beating — so much so that some enterprising genius has started a live layoff tracker (the damage, at the time of this writing: 654 startups have laid off nearly 83K people in 2022). 

That drip-drip-drip of impending doom has been felt across the tech ecosystem, which for more than a decade has enjoyed an air of invincibility in terms of growth, both in terms of stock values and employee salaries. 

It’s affected well known entities, such as DocuSign (671 people, or 9% of their workforce, laid off in September), and upstarts from across the startup spectrum. Web3 and blockchain-based businesses, which saw $6B in investment from the world’s biggest companies from September 2021 to June 2022, weren’t sheltered from the larger tech reckoning either. 

So should investors and founders of web3 companies — including us here at Sprinter — start scurrying for cover, like cockroaches after a sudden storm?

It depends, like most things, on values. 

We here at Sprinter believe that the bear market, while causing enormous frustration, stress, and pain for many, will ultimately be a good thing for web3 businesses as a whole. Why? Because it will separate those companies that use their blockchain model to truly create value from those who don’t.

The pandemic led to a massive rise in people’s awareness of crypto, the blockchain and the web3 model as a whole — in fact, the term “web3” didn’t even really emerge as a broader term for this industry until the fall of 2021. 

That meteoric rise was driven initially by increasing values of legitimately valuable cryptocurrencies like Bitcoin, as well as likely-less-valuable “shit-coins” like Dogecoin and Shiba Inu, both of which massively enriched some early adopters and convinced ordinary people to get off the sidelines and invest themselves.

Unfortunately for many of the people who jumped on over the last 12 months, that bandwagon quickly started barreling downhill. Metaverse land prices and sales volume, for instance, have dropped by more than 80% since November 2021. 

Early on, scams cost new and old investors alike, to the tune of $1B as of this summer, further harming crypto’s reputation among consumers. Feelings were decidedly mixed in March, when 19% of people viewed it in a positive light, while 25% felt negatively about crypto. 

A dip in crypto’s price has forced greater scrutiny on web3 and blockchain-based companies — and that is the sign of a maturing industry. The fact that anyone cares enough about crypto to apply scrutiny to it shows the ways it has become a major player in the lives of not just ordinary people, but also governments and major corporations. 

What survives a crypto winter

With great power comes great responsibility…hence the greater accountability. The end result is a positive for all blockchain tech though. Investors, both at the venture fund level and at the more casual individual perspective, are becoming savvier. 

Web3 projects that don’t create real value for their users will wither on the vine — but that means more of those resources will be directed toward projects that DO produce valuable products and services.

Proving that those projects exist will be key to the industry as a whole, but it also isn’t a difficult challenge. There are a number of projects that have proven their worth: Filecoin, for instance, which is showing the world how to decentralize storage and protect humanity’s most important information from autocratic governments and even the turmoil of war.

Sprinter uses its member NFTs to reward the users who work hard to build the network with reduced fees, access to top work opportunities and clients, and voting power on the network they do business on.

That’s a significant advantage over traditional web2 models that are built on capturing user value but end up directing their profits toward a select centralized few. 

When it’s cold outside, only those who are serious come out to build. Those web3 projects that survive the current dip will do so because they’ve created real value for their users, who will continue to show them loyalty as a result.

Meanwhile, projects built on shaky foundations are likely to stumble. 

Less noise, more action. 

There’s no denying that this bear market comes at a critical time in crypto’s history.

Having reached some level of public adoption — that previously mentioned survey said that 1 in 5 respondents had “dabbled” in crypto” — blockchain-based technologies will continue to attract more eyeballs interested in seeing their real-world value.

The smart people in web3 invite a bear market, as David Z. Morris, CoinDesk’s Chief Insights columnist, wrote in September with a piece titled: “The Most Important Bear Market in Crypto History.

“Every bear cycle in crypto is greeted with a degree of relief by founders, engineers and other insiders, because they’re freed from the hamster wheel of chasing deposits, users and mainstream attention, and instead able to focus on building for the long term, both technologically and strategically.”

As Morris notes while reporting from Messari’s Mainnet Conference, there are some key industries that builders are now increasingly focused on. In DeFi, more financial and engineering work to enable capital efficiency — “that is, finding ways to safely get more leverage or liquidity out of less collateral.”

More user-friendly entryways were another major talking point, as was empowering a fuller suite of security options to make sure users are protected. It’s telling that the talk about new exchanges and NFT art projects — which certainly have some strengths but also really heavily on speculative valuations — have dropped to a whisper (consider that volume on OpenSea, the largest NFT trading exchange, has dropped 99% since its heyday in May).

Blockchain-based projects have reached the critical mass they need in terms of user awareness, and they are on their way to also building the level of adoption that’s required for a truly healthy ecosystem, too. 

But building trust will be key to taking that next step. And if truly valuable projects can demonstrate their worth in the down times, as Sprinter aims to do, we believe there will be plenty of wealth to go around — not just to project founders, mind you, but, most importantly, to the users who are doing their part to build that value.