Trust and the Crypto Economy

There are all sorts of studies talking about how people don’t trust anything anymore. We don’t trust the government, the media, Wall Street, the President, the military, or each other. And of course, one could point a finger to bipartisanship and polarization, city design and car culture, rage bait and algorithmic incentives as reasons for the decline in trust.

But trust is very big. It happens on a large scale, a somewhat liquid expression of the confidence that people have in institutions, systems, other people. Trust is everything - it’s the foundation for public health, voter turnout, policy preferences, etc. But because we’ve evolved into this strange low-trust high-stakes no-action society, we’ve lost an element of agency, or the individual expression of trust.

Agency is sort of an ephemeral term, one that could fit perhaps uncomfortably well in a conversation at Burning Man. It wades a little bit into the free will debate, and determinism, and the idea that maybe everything is random anyway and we just fit our internal models to the world around us. But for these purposes, agency, or how people feel about their ability to make decisions, is an expression of trust in the world around them.

And to be fair, we seem to have an element of agency. There are studies showing that people feel fine about their personal financial situation but completely terrible about the national financial situation, and showing that people love their congressman but hate Congress (Fenno’s paradox). A perfect petri dish of individual expectations and national outcomes.

And we’ve seen an interesting amount of what seems to be the expression of agency with the rise of things like ‘quiet quitting’ or ‘the Great Resignation’ (which to be fair, could be more an expression of economic strength than individual freedom).

Crypto is a seemingly brilliant solution to this. Agency within a trustless world, right? Transactions are executed regardless of underlying sentiment for institutions. It gives people control over the their world, their finances, removes middlemen and rent seekers.

So why don’t we trust crypto?

Well, crypto has had a narrative problem for a long time. It’s the endless divisiveness of different projects, the vitriol at brands for launching crypto integrations, the interpretation of the cryptobro persona, and of course, the general vibe underneath any NFT tweet.

Our systems are breaking or broken, straining under neglect and sabotage, and our leaders seem at best complacent, willing to coast out the collapse. We need something better. But the idea of a system that turns everyone into petty digital landlords, that distills all interaction into transaction, that determines the value of something by how sellable it is and whether or not it can be gambled on as a fractional tokens sold via micro-auction hasn’t really resonated with people.

Tim O’Reilly wrote a really good piece about web3 mentioning Sal Delle Palme’s argument:

“[If] Web3 heralds the birth of a new economic system, let’s make it one that increases true wealth—not just paper wealth for those lucky enough to get in early but actual life-changing goods and services that make life better for everyone."

Crypto isn’t interpreted as “true wealth” right now - it is seen as a function of ponzis, scam, exploits, etc. It’s gaining institutional adoption with ETF approval in the U.S. but people are still quite skeptical.

This is in spite of the roots of crypto - crypto represents a frustration with the system, the same of which we see in the various surveys talking about lack of trust, lack of community, lack of anything whole and happy and good. The opportunities shrinking, about isolation, about the future seeming to disappear before our very eyes - underscoring that crypto is not the answer here. But this is also what crypto talks about - making a better System.

And the system is indeed the problem. Our trust issues stem not only from polarization but also from a bifurcated economy. The economy is split in half, evidenced by:

• A generational wealth transfer, with some Millennials inheriting large sums from Boomer parents and many others not.
• Homeowners with golden 2-3% mortgage rates versus those struggling to buy homes now.
• A labor market that's great for employed individuals but challenging for job seekers.
• The rise of trade schools and rebellion against college costs.
• Stability in hospitality and healthcare versus 'white collar recessions' in tech and finance.
• The 400 richest Americans holding wealth equivalent to 17% of GDP, up from 2% in 1982.

This bifurcation is deepened by an aging society voting in its self-interest. Our two presidential candidates are ancient, yet 25% of Americans have no retirement savings despite Baby Boomers being the richest retiring generation. Childcare costs are up 32% since 2019, fertility rates are low, and the old are getting older.

This situation mirrors Portugal's struggle with an aging population and brain drain, making structural reforms nearly impossible. The decline of trust is happening across a fragmented reality, with fault lines in demographics, wealth, housing, the labor market, and AI's impact on jobs.

Despite existing in different dimensions of the universe, Americans universally distrust institutions, an ironic form of unity.

Everyone wants a God, and because of that, everyone needs a devil. The devil has come in the form of skepticism, the form of distrust, the immediate outrage at anything not immediately familiar. And God is nowhere to be found.

This creates a Portugal-like situation, which as Palladium wrote, is nearly impossible to escape. “As the country struggles with an aging population, brain drain, and youth drain, it also suffers from the impossibility of voting structural reforms into existence.”

So. And that’s the interesting thing about the near universal decline of trust is that it’s happening across a fragmented reality. It’s happening across all of these various fault lines - many of which are exhibiting signs of cracking - demographics, wealth, housing, labor market, whatever the heck AI is going to do to various jobs. There are people in the U.S. who might as well be in entirely different dimensions of the universe, but everyone agrees on not trusting anything anymore, which is beautiful in a way that only terribly ironic things can be.

So circling back to crypto. How does it gain adoption in a low trust world?

Well, it’s that narrative issue again. People outside the crypto ecosystem see it and are like “wow, this kind of sucks? why would this be the future? when they see (1) ponzis, (2) the pump-and-dumps, (3) the (honestly) absurd allocation of capital into different shitcoins and say - “how would the world *ever* be better off by embracing this?”

People inside the crypto ecosystem know a lot that exists beyond the Shitcoins of the World - but the problem is, shit stinks. It can be difficult to see beyond the shitty shit - to see how crypto can and has changed lives, the potential power of ownership and meaning, and what the underlying technology can unlock in terms of efficiency and execution for archaic industries.

You can’t have a perfect solution in an imperfect world.

It seems that there are two distinct groups (simplifications of course) -

1. People who want freedom from the system (r/antiwork, FIRE, elements of socialism, etc)
2. People who want money (crypto, finance people, vcs etc)).

Both money and freedom are inherently functions of one another. It’s difficult to have freedom without having money (it’s just how it is, for better or worse) and the drive of money is often times to have freedom. Both money and the desire for freedom are about being able to make choices that you want to make, spending time how you want to spend it, and engaging in things that you care about while knowing that you and your family are secure.

• Freedom = f(time allocation, choice, money)
• Money = f(stability, freedom, choice)

This makes sense. Most everyone is frustrated with the System, as the lack of trust, lack of community investment, etc etc etc highlight. There is a desire for release from the 40-hours-a-week-9-to-5-jobforhealthcare-retirementplan-commute-30-minutes lifestyle. And crypto is inherently an answer to that - it’s people at least trying to disrupt a system and make it (on paper) more fair, more accessible, and to shift the power distribution.

Those outside the ecosystem see 5 key things when they look at crypto (once again broad generalizations, these are some of the more extreme takes):

1) Hyperfinancialization and Commodification (of your soul)

• Pay for everything and make everything a something to invest/speculate on: Do we really need to make every single thing a microtransaction? Is it entirely necessary to break access into dollars, and to have every aspect of our lives become another speculative market?
• A lot of people want a return to simplicity - and crypto *complicates* that

2) Scams/ponzis

• Scams, pump and dumps, rug pulls are definitely one of the most well-known parts of the crypto ecosystem. Scams are the common denominator. Ponzinomicsare a whole different ball game, “what is the intrinsic value besides thing go up” - and when the answer is “nothing”, well - what?

3) Speculation

• We have a very big gambling problem in modern society. Lottery tickets are such a paradox (they help to fund education) but also gambling is an incredibly harmful and very very very painful addiction.

  • Crypto seems to encourage massive speculation, which is very hard to separate from gambling (something something positive expected value).
  • The vibe is very much, “bet on this coin because Elon Musk might tweet about it ;) and if he tweets, to the moon.” This narrative is a thread in the GME/AMC saga too - if we all do it together, it will go up in price.

    • Both GME/AMC and crypto have an element of an anti-establishment baked into the concept, but like ??? also what - how is betting on mooncoin go up doing anything for society? (what even is society?)
• Also a lot of the NFT art is just… not good? This just seems like fancy gambling? You’re going to pay hundreds of thousands of dollars for a picture of an xyz, in this economy? Ok - and still, you can make money off of it?

4) Ingroup vs outgroup

• “You’re ngmi” they say. It’s very common for communities to adopt their own language (primarily to signal who is cool versus who is not) and if you’re out, well - good luck getting in because the brain is literally working against you.

5) Environmentally Destructive

• The Earth is on fire? you want us to simply accelerate the Earth’s demise so you can make $100 bucks on a coin named after a dog?

  • Also the pressure that crypto mining puts on already weak grids is just ?

Crypto Bad Narrative, Summarized

Crypto is a microcosm of the world it emerged from - it’s very hard not to have the impact of legacy systems bleed into new systems. And the current world looks like unfair, unequal, destructive to a lot of people:

And crypto only makes that worse, to many. It is the (1) badness of banks during the GFC amplified, (2) the destructiveness of Facebook multiplied and (3) environmental destruction of oil producers dumping their product into the ocean intensified. It’s the widening wealth gap - but saying the silent part out loud - “I can afford to spend HUNDREDS OF THOUSANDS of dollars on a monkey picture, sucks to be you living pay to paycheck hfsp” In a world where millions simply scrape by, it can feel brutal to see that. Not saying that it’s good, bad, whatever (who knows) but that’s how many *feel*

We have a lottery society, but it’s not hidden behind gas station tickets in crypto - but rather for all the world to see, and to brag about. It’s getting rich from something that doesn’t seem to make the world at all better - which can feel… bad… because the world is already kinda… bad, to many.

The one sentence summary of “Crypto Bad” thesis is ultimately: Our systems suck - making our lives speculative commodities isn’t the answer.

And of course, crypto is not entirely like that (of course it isn’t, nothing is ever usually as extreme as we think it to be). Before we get into this part, it’s very important to highlight that there are different segments of crypto (obviously but still). (1) Some people are literally just in there for money and (2) other people for real world use cases of the technology.

Crypto sees the 5 points of the narrative more like:

1) Creating ownership

• Through engaging with This Thing, you get This Token, which will enable you to Benefit and Own the Things you engage with. Tokenize to get the value from it. Simply Benefit from being a person - which is kinda cool - and don’t pay rent seeking intermediaries (decentralization). Get paid for the things you do. And build a better world because of it.
• Rug pulls are part of the game: If you invest in enough projects, you’ll encounter some sort of rug pull. People will tilt the table slightly in their favor, and all of the sudden - you are liquidated. This isn’t a good thing - but alas.

  • Enough scams, people will learn over time (hopefully) and become more discerning, reducing scam effectiveness (once again, hopefully - 2021 numbers looking a bit rough)

2) Ponzis games vs Ponzi schemes:

• These are a bit different- we are in the depths of MLM in web2, so of course there will be some ponzinomics in web3. The core thesis boiling down to “If you HODL, we all HODL, and become massively rich”. That works until it doesn’t.
• Most people know that tokenomics that rely on “more money come in, thing go up” doesn’t *really* work

2.5) Policy

• Crypto policy is interesting because it’s the system trying to calibrate around something entirely new - and politicians have no idea what they are regulating.
• Regulation is synonymous with an element of acceptance - and usage, which is why this is so important. Crypto wants to be regulated - but in the right way

3) Financial Upside

• You can really just make gobs of money in the space, if you’re positioned correctly (you can also lose gobs too, markets are two-sided interactions).

  • So people say, “hey why not participate in this pretty cool opportunity to make some money beyond what I make as a Worker?” Literally, why not?
• HOWEVER, *markets are two sided interactions*. It’s a zero-sum game - all markets are. Some end up as exit liquidity (very similar to the antelope that runs the slowest being eaten by the lion). This isn’t the main goal (usually?) but rather a function of the environment of lots of fast and furious projects.
• ALSO HAVE FUN with financial upside - Dune Analytics just raised $69,420,000 (because they can and because yes life is a meme)

  • Everything is simply ironic and self-deprecating. Don’t take yourself too seriously because at that point - you *really* don’t understand what this is all about.

4) Community

• The value in crypto lies within the people within crypto. People build together - L2 scaling features to make Ethereum more accessible, they build alternatives to Ethereum, they becoming hyperfocused on Doge, they buy a Bored Ape - the common denominator in all of that is the concept of community.

5) Community life-changing (amplified by FOMO)

• This is from Zeneca, around the concept of regret and missing out on certain trades. It does a really good job at encapsulting the FOMO that exists - “ah dang, I didn’t get in, and thus all wealth will be lost to me” - while also underscoring how much wealth is out there.
• And *seemingly* everyone is FOMO’ing in or at least embracing the community. The lines between web2 and web3 are beginning to blur, and innovation and investment are everywhere.

Crypto Good Narrative, Summarized

It’s about access and opportunity, about creating paths for those that previously had none, about connecting the world to this common goal of truly *owning* things. It’s about taking the power away from social platforms selling the soul of your data to Big Ad. It’s about David winning against Goliath (unironically, “showing the power of his God” aka crypto to an extent).

It’s about creating community (even though it can be confusing but that’s okay!!) and changing the world. For the better. Protect, own, benefit.

Take the widening wealth gap and shrink it. Provide alternatives. Don’t allow the power dynamic to get so skewed that it’s almost impossible to balance the scale again.

The one sentence summary of “Crypto Good” is:

Our systems suck - and we can have a choice in how we choose to protect, own, and benefit from the world around us

The Interpretation of the Narrative

So this narrative of what web3 could be - which would probably be net-beneficial for most people - gets skewed because the narrative of what web3 is gets skewed. It could be perceived as an equitable, cooperative, and accessible world, but it isn’t. From an outsider’s perspective, the narrative is not being translated in the right way. Most people still see crypto as an get-rich-schema-for-already-really-rich-people, and that is not… appealing. It’s really two main threads

• Economic change: Crypto is going to change how the economy functions, digitize everything, make us own everything, and change how we work, play, etc
• Ponzinomics: This is really just a promenade of wealth, and its a bunch of rich people getting richer and leaving everyone else behind.

It is *always* about perception. It’s about narrative. Everything at the end of the day is a byproduct of how people interpret it, including our societal trust issues. If you zoom in on either argument, there are flaws to both. Crypto is not perfect quite yet (?nothing is?), and requires a massive tech stack in order to really get deep into the ecosystem. And democratization of wealth is kind of fuzzy. As Matt Levine wrote:

There are endless profiles of people who have become billionaires by starting crypto exchanges, trading platforms, market makers, derivatives businesses, etc. (Meanwhile I have never read a profile of someone who became a billionaire by using crypto to solve any problem other than trading more crypto but never mind!)

Well, the point is that crypto is aware of what needs to improve - and there is more overlap between the crypto bad and the crypto good than I think people realize. So i think it looks more like this:

1. Yes, there's financialization of more things, but it’s backdropped by elements of ownership and decentralization
2. Market calibration - scams are an unfortunate constant bc of human nature.
3. There's opportunity beyond speculation to actually have true investments.
4. Community - people do make crypto valuable, but there's also assholes everywhere. Avoid the assholes.
5. Environment - the world is on fire. We have to have sustainable energy. This goes beyond crypto. This goes directly to policy makers.

   • We have to think about life-changing opportunities, but we also have to think about life beyond the present moment.

Of course, this is a rather subjective and very qualitative analysis of the ecosystem.

Markets are both qualitative and quantitative. Markets are somewhat reflections of the world that we want to see - we invest in companies that we hope will Do Good For The World (most of the time...)

But sometimes, the world seems not good.

Both inside and outside crypto, there is clear unhappiness with how the world is moving forward. The fact that we are reverting back to coal production, the fact that we *still* have issues with worker’s rights, that we simply can’t wrap our minds here in the U.S. around how to have healthcare - it’s kinda like

“Is the world just a massive shitcoin?”

So.

What do you do? Where do you find hope and meaning?

We have two groups that actually have relatively similar goals (crypto bad and crypto good), but different interpretations of the narratives (and tech, process, etc) that it takes to get there.

There is a lot that crypto can do to improve its perception - Casey Newton highlighted some - including making transactions more reliable and implementing scaling solutions (faster) (which people are working on). He highlighted Molly White’s piece on the importance of cleaning up privacy concerns on the blockchain.

There is the hype part of the narrative (This can be the Future) and the reality (This is the Future).

• Both crypto skeptics and crypto enthusiasts have valid points - maybe hyperfinancialization to the point where we are paying to unlock our coffee machine and our toothbrush (as Cobie points out) is not good.

But having an idea for how we can build a better future that allows for access, opportunity, and benefiting from previously very gatekept systems - is pretty good. It’s just about how it’s perceived - and ultimately, how it’s implemented.

Humans are gonna human at the end of the day - and a lot of the narrative is around that. We are always not going to get along to a certain extent. But I think these two seemingly polarized groups - those that live outside the crypto ecosystem in a world of deep distrust and those that are deep within the crypto ecosystem, have more in common than they might think - and I think there is room for some reconciliation - which would be very valuable to beginning to build the better future (and restoring elements of trust) that both seem to want.

About the series: Checking in on Squad Wealth is a 4-part editorial series investigating the path toward a blockchain-dominant future, where financial tools are intertwined with cultural narratives.

With essays by a storied cast of eminent culture and finance experts including Anna Gát, Gaby Goldberg, and Jose Fernandez da Ponte, and Kyla Scanlon.