VeChain co-founder: The reinstated intermediaries are destroying the foundations of the crypto industry

Think about the recent liquidation event on October 11—we still don’t know the full impact of what happened, except that retail investors are still paying the price, while those in power are negotiating their own “recovery.”

Written by: Sunny

The real crisis in the crypto industry: we have ultimately reinvented the “middleman”—a role the crypto industry initially set out to eliminate.

For those of us who want to use cryptocurrency to make the world a better place, we need to start calling out the true nature of this behavior: short-sighted, selfish, and unpopular greed, says VeChain co-founder Sunny Lu.

The crypto industry is approaching a critical and dangerous turning point.

In my twelve years in this field, even during the deepest bear markets, I have never seen a situation like the one we face today.

Individually, these signals are disturbing. Taken together, they are signs of a major potential crisis. Where have the calls for “utility” or “bringing in the next billion users” gone?

The first major concern is that fewer and fewer builders are seeking smart contract audits, something audit firms have repeatedly mentioned to me (the recent smart contract vulnerability in Yearn also proves this point). This used to be a standard procedure before any decentralized application (dApp) went live. It’s not because they’re happy to launch without audits: it’s because new dApps simply don’t exist. Builders—developers, founders who want to launch applications people actually want to use—are either waiting for the environment to improve or are leaving the crypto industry altogether. They are not interested in building applications that, frankly, are easy to make, or simply copying what already exists—such as financial applications, fund tokenization, and so on.

Second, there is almost no encouragement, support, or funding from investors for functional applications that are harder to build and (usually) take more time. Unless an application has the potential for a 1000x return in the short term through some DeFi mechanism, it won’t get funding or “support,” which puts builders in a desperate situation. In other words: if you’re a blockchain-savvy founder with a good idea, you might be in an impossible position from the very start.

Instead, current industry investment is focused purely on short-term profit, such as meme coins, insider manipulation, multi-layered but opaque DeFi protocols, and excessive leveraged trading. Where the money goes, so does the attention, which is why we hear less and less about blockchain products or use cases. Instead, we see a flood of headlines and podcasts about ETF inflows/outflows, DAT (digital asset tokens) performance, trading tips, and so on. This only further deceives and confuses retail investors, who buy into these fantasies—never meant for amateurs—without understanding the malicious behavior behind them.

Worse still, this tendency to prioritize profit over real blockchain use cases is being driven by many of our industry’s “leaders.” They could have pushed for the entire global monetary system to migrate on-chain for greater efficiency and transparency, or promoted the use of blockchain and cryptocurrency to truly improve our society—such as incentivizing sustainable behavior or healthier lifestyles. Instead, they have chosen to embrace (and give a platform to) a new, more dangerous kind of middleman.

It is these middlemen and their financial products that have introduced harmful and deliberate complexity and confusion into our once-transparent markets. In doing so, they have unleashed an incredible new level of greed and theft.

Think about the recent liquidation event on October 11—we still don’t know the full impact of what happened, except that retail investors are still paying the price, while those in power are negotiating their own “recovery.”

Cryptocurrency and blockchain were originally created to eliminate the monopoly of financial oligarchs and democratize access in the new era of the internet. Yet we have allowed manipulative middlemen to be reinvented and welcomed back as the supposed “saviors” of Web3, albeit in a slightly altered form.

Web3 gets its name because blockchain truly represents the next generation of the internet. From a technological perspective, blockchain is the crown jewel of human technological evolution. When used correctly, AI makes us more efficient, while blockchain improves frictionless collaboration between different participants. Combined, they could reshape the world as much as, if not more than, the internet itself.

But now, we are stuck watching DATs, ETFs, leveraged trading, and DeFi liquidations, while a small minority reap disproportionate profits from the pain and losses of millions of others. Cryptocurrency has yet to fulfill its promise of matching the radical transformation of the World Wide Web, with decentralization at its core.

In recent months, I have been constantly reminded of a scene from the movie “The Big Short.” Investor Mark Baum, increasingly frustrated by the irrational and greedy behavior of the market (and its players), says: “What bothers me isn’t that fraud isn’t nice, or that fraud is mean. In fifteen thousand years, fraud and short-sightedness have never, ever worked. Not once.”

He’s right. Every penny of profit squeezed from the crypto ecosystem only drives away builders and hinders the progress of this great technology. For the sake of short-term profit, these crypto middlemen are destroying the value of the underlying assets they speculate on. But ultimately, the entire industry will pay the price—including those who love this technology and believe in its potential.

For those of us who want to use cryptocurrency to make the world a better place, we need to start calling out the true nature of this behavior: short-sighted, selfish, and unpopular greed. We need to take action to save the industry we love, refocus on building true utility, invest in innovative applications for the next billion users, and support the projects and protocols that deliver on the undeniable potential of Web3.

Let’s all join the “battle for utility” while we still have the strength to do so.