Lawyer Mankiw: The entire Web3 is paying for two men, and the explosion of blockchain applications may just be an illusion

Where are the boundaries of blockchain technology?

Author: Liu Honglin, Attorney at Mankiw Blockchain Legal Services

The WeWeb3 industry stages an "application explosion" narrative every once in a while: NFT changes the art market, blockchain games subvert game distribution models, DAO rewrites corporate governance logic, and AI+Crypto will bring a new era of "on-chain artificial intelligence agents"... But after one craze after another, we still have to face an increasingly clear problem: the boundaries of the industry do not seem to have really expanded.

Such a feeling is reflected in a tweet sent by Wu Blockchain today: "What is frustrating about the crypto is that it seems that its boundaries have not changed much after so many years. Bitcoin is still the largest and only consensus. Attempts to expand the scope of NFT games, tokenized AI+crypto, etc. have temporarily failed. ICO cannot replace IPO. No company uses coin issuance instead of listing. Casinos are still the core profit source. Entrepreneurs don't want to come. The difference between the popular meme now and the ICO in 2017 is just that."

Indeed, from the perspective of market structure, we have not seen a new "mainstream asset" challenge the status of BTC, nor has a new business model emerged that can allow Web3 to step out of the scope of "financial technology". NFT, blockchain games, SocialFi, and AI narratives, although they were once very popular, few projects have truly completed the transformation from "concept" to "sustainable application".

We seem to be experiencing a collective hallucination - a technological field that is pushed forward by narrative, and each time we try to go further, we find that we can't get around the original path.

The boundaries of blockchain adaptation: Is it really suitable for “all walks of life”?

The "omnipotent fantasy" of Web3 has been repeatedly mentioned in the past few years: we want to do "on-chain social networking", "on-chain e-commerce", "on-chain education", "on-chain entertainment", as if as long as an industry has not yet been connected to the blockchain, there is room for "transformation". But calmly looking at it, the technical characteristics of the blockchain itself - the contract logic that cannot be tampered with, can be confirmed, and does not require intermediary execution, is indeed very suitable for financial scenarios, but may not be suitable for information flow-oriented or social-driven industries.

The underlying logic of the Internet is "zero cost for copying", while the logic of blockchain is precisely "limited copying + payment for each write". Under this technical structure, trying to use blockchain to redo something like TikTok, Taobao or Twitter is a mismatch from the beginning. The cost is high, the experience is poor, and the performance is unstable, while users do not have a particularly urgent need for "decentralized social networking" or "traceable live broadcast platform".

More importantly, even though some industries seem to have the need for "property confirmation", "traceability" and "profit sharing", such as music copyright, art transactions or e-commerce supply chains, the addition of blockchain has not really reduced costs or improved efficiency, but has increased the threshold for understanding and operational complexity. In the end, "chain reform" has become a selling point for project financing, rather than a tool to improve business efficiency.

The entire Web3 is paying for two men

To some extent, the entire Web3 industry is currently paying for two men.

One comes from Satoshi Nakamoto , the founder of Bitcoin, who proposed the proposition that "currency issuance can be independent of the state apparatus". From Bitcoin to stablecoins, from CBDC to anonymous coins, global monetary experiments can be seen as a response to this proposition left by Satoshi Nakamoto. The rise of stablecoins is essentially an exploration of private credit replacing national sovereign credit; and the regulatory suppression of various governments is the self-defense of the state apparatus.

Another one comes from Vitalik Buterin , the co-founder of Ethereum. His proposition is: "Can we build a global Internet system that never goes down?" From smart contracts, decentralized identity systems to trustless governance (DAO), the entire Ethereum ecosystem is actually trying to build a new system that does not rely on traditional trust mechanisms. But the reality is that the on-chain system still faces old problems such as governance failure, high gas fees, and performance bottlenecks. There is still a structural contradiction between "never going down" and "sustainable operation".

From this perspective, the development of Web3 is not meaningless, but its expansion path always revolves around the above two issues - the reconstruction of the monetary system and Internet infrastructure, rather than the fantasy of "fully penetrating all industries."

Market validation: Why is the most successful project still "financial technology"?

We can see the real situation from the most "robust" business forms in the industry: exchanges, stablecoin issuance, on-chain asset management, cross-border payments, custody services, RWA (Real World Asset) asset on-chain, etc. These directions all have financial attributes and solve specific market demand and regulatory adaptation issues.

Circle's USDC is gradually realizing a "quasi-bank" model in many countries, directly connecting with local payment systems; Hong Kong's licensed virtual asset exchanges are attracting traditional financial institutions to explore a new path of "tokenized financial products + exchange listing"; Singapore is rapidly advancing the RWA pilot with the help of the financial regulatory sandbox, circulating traditional assets such as real estate and funds in the form of tokens. These are all attempts to "step forward" under the existing regulatory system. Although they are far from subversive, they have practical landing value.

On the contrary, we rarely see "on-chain social" platforms surviving more than one bull-bear cycle, and almost no chain games can escape the life cycle of "short-term coin issuance + short-lived ecology". As for on-chain content platforms, DAO city governance and other directions, most of them are still in the experimental stage, and there is no talk of "explosion".

The recurrence of “pseudo-applications”: Are we wasting resources?

There is a common risk in the industry: a large amount of money, manpower and resources are invested in some unsustainable application narratives. These projects often have a strong "funding logic" but lack reusable product logic or technical paths, and are prone to the embarrassing situation of "termination after the demonstration is completed".

For example, some "AI+Crypto" projects are essentially just calling the OpenAI interface on the chain, embedding a token incentive mechanism, and their essential functions are no different from Web2 AI tools, or even worse. For another example, some NFT social projects rely entirely on "secondary market expectations" for user retention. Once the price falls, the social value will also collapse.

The common characteristics of such projects are: narrative first, fictional scenes, lagging products, and lack of stable user demand support. Driven by the cycle, investment institutions and entrepreneurial teams repeatedly tilt resources towards such directions, which not only increases the industry bubble, but also dilutes the original continuous investment in infrastructure, payment, compliance and other directions.

Is it an illusion, or are we unwilling to accept the "boundaries of reality"?

So the question returns to the starting point: Is the explosion of blockchain just an illusion?

Perhaps. But a more accurate expression would be: it is not an illusion, but a misjudgment.

We misjudged the scope of blockchain’s applicability, treating it as a new generation of Internet infrastructure, hoping that it could “cover the world”; we misjudged the universality of user needs, believing that everyone needs “decentralization”; we also misjudged compliance thresholds and technical costs, ignoring the inertia of real-world systems and efficiency considerations.

But we must also see that within the boundaries of financial technology, Web3 still has very solid opportunities. The reconstruction of the global payment network, the improvement of the transparency of asset digitization, the gradual maturity of the issuance of compliant tokens and the secondary market trading system are forming the most stable foundation of Web3. It does not need excessive narrative or subversion of everything. As long as it continues to provide real value in this field, it is enough to support a sustainable industry.

Conclusion: Only by returning to the problem itself can we move forward

The blockchain industry is not without progress, but its progress is mostly "vertical deepening" rather than "horizontal expansion". The industry is not without value, but this value does not mean that all industries must access Web3; it is not without a future, but this future may be more focused and narrower than we imagined, but also more real.

When we look back at the slogan of "Chain Changes Everything" put forward in those years, we may realize that what is really worth persisting in is not the grand dream, but the technological adaptation and institutional innovation that can cross the cycle. And these do not require too much imagination, but require stronger execution and more rational industry cognition.

Where will Web3 eventually go? We may not be able to predict all the answers, but at least one thing is clear: only by letting go of fantasy can we see reality. And reality itself does not need to be modified.

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