The FTX implosion – and fears of contagion to come – have prompted the media to ask if we are facing the end of crypto, the end of decentralization, or perhaps even the end of the metaverse. This last question was prompted by the uncertain futures of the vast nexus of startups funded by the FTX empire, many of which were metaverse projects.
Concerns about the metaverse are not new. They’ve been on the rise for weeks, since word leaked out about troubles at Mark Zuckerberg’s Meta. The Facebook billionaire is now in the process of laying off thousands of staff linked to his metaverse initiative.
What we should be asking, however, is not whether these two crises are harbingers of the end but whether they are in fact heralds of a new beginning: The start of an era focused on building great technology, not on amassing speculative profits.
From Greed to Good
Gordon Gekko was wrong: Greed is not good. Greed does not work.
Greed can also backfire – exposing the greedy for what they are. The fall of FTX has hurt those who were looking to enrich themselves, not to create projects with real utility for others.
To put it bluntly, the worst-affected projects were not building. They were just trading.
And while trading has its place, it has landed the blockchain industry in a pretty bad one. The boom-and-bust drama in crypto markets this year has stolen its valuable oxygen and diverted the world’s attention from questions that matter.
There have been distractions aplenty in 2022. From the glory days of SBF being lauded as crypto’s poster child in Fortune and the Forbes 400, to today’s angst over Senator Warren’s accusations that crypto is crashing the economy, we keep losing sight of the bigger picture – which is that you cannot build the digital future of humanity on get-rich-quick and pump-and-dump schemes.
A hard truth? The metaverse will struggle to win universal acceptance as long as it puts more effort into churning out profit than into building great experiences for its users.
The Interest Is Out There. Let’s Build It
Increasing demand for Mixed Reality (MR), Augmented Reality (AR), and Virtual Reality (VR) experiences is certainly out there and driving growth in metaverse projects. With McKinsey predicting that the market could generate up to $5 trillion in impact by 2030, and a multitude of potential applications for the tech, it can be no surprise that integrating the digital and physical worlds is a priority for developers.
But when projects wave the metaverse flag solely to attract investment, there’s a problem.
Builders need to begin by asking “how can I serve the user?” rather than “how can this make me a quick profit?” And while this is just good business sense at any time, it carries more weight during periods of market turbulence such as these.
Instead, many projects took investment capital that should have gone towards growth and development and used it to speculate on crypto exchanges. What we are hearing right now is a lot of chickens coming home to roost.
It’s An Ill Wind…
The adage that bear markets are for building is a cliché for a reason. Those with the nerve to double down on carefully researched, realistically financed projects during a downturn are probably not the ones who trusted the bubble anyway – even before it burst.
Unfortunately, FTX’s troubles have revealed how few actual builders there currently are in the metaverse space. As with Zuckerberg’s iteration, the concept has produced more hot air than real heat. The investment bandwagon has seen to that.
Yet the recent troubles of FTX, Meta, Twitter, and other big tech players will benefit builders in the longer run, by freeing engineering talent for projects building for the future. Their loss can become a real gain for AR, MR, and VR projects preparing to solve real-world problems through rich metaverse experiences.
The Future of Funding Remains in Question
There are risks, of course. Funding is likely to become harder to come by. While the appetite for many sectors, such as those once white-hot NFTs, had already begun to cool before FTX.
Venture capitalists, meanwhile, show signs of pulling in their horns. No surprise given that they have poured $41 billion into crypto projects in the past year and a half. Those that gave years of runway to projects that were taking money to make money rather than to build tech with real utility are, at best, guilty of flawed due diligence. At worst, they can be seen as complicit.
With much less money available, start-ups that used funds raised in boom times to speculate rather than create are in danger of running out of operating capital within months or even weeks. This is not unexpected. We appear to be entering what the Gartner Group’s Hype Cycle, a gauge that tracks innovations from their genesis through to the point when they fulfill critical use cases, terms the Trough of Disillusionment.
In other words, we are at the point where technologies that have failed to meet the market’s inflated expectations tend to fail. Those that emerge intact from this difficult patch are the ones with the best chance of survival.
There are still funds willing to invest, but with a caveat. There is a strong sense out there that this time, it is the builders who will get the greatest backing, not the speculators.
We are all living in a post-FTX world now. Time to build a better one.
Johannes Davidsson is the Head Of Business Development at Auki Labs.