Author: Kevin Owocki, Founder of Gitcoin
Compiled by: TechFlow
Back in the DeFi summer of 2020 — long before the Web3 era — the term “Degens” emerged. This meme is generally used to describe Web3 enthusiasts who speculate on projects with high yields (APY) and high risks. It is a playful term that also reveals the mercenary and self-interested side of this industry.
In the first two years of this decade, driven by headlines, price increases, and FOMO, thousands of traders entered Web3 with the intention of making a quick buck. Despite the sharp sell-off this year, cryptocurrencies have not been able to stop going mainstream. Crypto ads appeared in the Super Bowl, and there were news about banks using decentralized finance (DeFi). And yes, there was also negative news about crypto companies going bankrupt.
Sadly, with the collapse of custodial systems like BlockFi and FTX, a lot of people lost money. This was really bad for those who were hurt, and it was devastating for the space.
Ever since Satoshi Nakamoto solved the Byzantine Generals Problem in the Bitcoin whitepaper, cryptocurrencies have seen boom and bust cycles that are similar to natural systems from an evolutionary perspective. In times of abundance, thousands of new projects blossom. In times of scarcity, projects fail. The survivors will become the dominant species in the next boom.
Survival of the fittest is a simple yet powerful mechanism that can be observed in the Web3 ecosystem - the fittest are those that best satisfy the market's preferences. This may explain why Degens were only interested in short-term advancement rather than long-term successful projects, a behavior that led to their demise. It turns out that purely self-interested behaviors are maladaptive in Web3 (as they are in many places in nature).
In fact, the industry now known as Web3 has always had a side to it that is not just about greed and profit. Cryptocurrency is a tool for building collaborative organizations and sharing resources — long-term trends that have always motivated participants.
Recently, there has been a growing awareness and interest in blockchains. Public goods are things we all rely on (like open source software or privacy research) but are difficult to maintain and fund.
Another term for this is "regenerative economics," the idea that communities can be incentivized with money to solve systemic problems. Even if an open source project fails, that work can benefit other projects if everyone is moving along the same axis toward social improvement. Innovate, iterate, evolve, repeat.
That’s why, even in the midst of crypto winter, 2023 is ripe for regeneration.
Degen to Regen
Degens come to Web3 seeking economic upside. Regens are those working or building in the regenerative crypto economy. They have a long-term view of how Web3 can benefit the world, but not just in a financial sense.
Regens believe that the financial system can be designed as a conduit for greater human prosperity, serving the needs of all humanity. My friend Gregory Landua, co-founder of the Regen Network, believes that people have eight basic needs that can take the form of capital. In addition to financial capital, there are our social, material, life, intellectual, experiential, spiritual, and cultural needs.
With programmable money, we can program our values into our currency. Cryptocurrencies themselves have the power to create systems that are just as exploitative and fragile as the existing financial system.
When a Degen makes a transaction, he is playing a zero-sum game - tokens leave his wallet and enter the wallet of his opponent, and vice versa. But Web3 can also build more positive-sum protocols that expand resource capacity over time.
The journey towards a regenerative crypto economy
There is a common thread that ties many people together in the regenerative ecosystem. They were once Degens! Lured by the promise of a better economic environment for themselves and their families, they entered the ecosystem to make a profit.
Over time, however, they are gradually seduced by the promise of collective action — often through direct experience contributing to a project or using it. Their attitudes and motivations change. This is by design, built into the structure of cryptoeconomic systems. For example, decentralized autonomous organizations (DAOs) allow people with a common mission to come together and pool resources — everyone involved is at least partially aligned on values and commitments.
When you join a community like this, you start learning to manage risk and ride volatility. You think differently about capital allocation.
Many Regens are former Degens who took this path in the last cycle, in 2017. And this is part of the reason why I am so optimistic about the future of regenerative systems. There are thousands of people who are relatively new to crypto who have entered Web3 in the past year or so, and who are now probably on the second step of their journey (the downside). They have made mistakes and learned from them, which is a knowledge base that can provide a more pragmatic approach to the next market cycle.
For newcomers to Web3, the window of opportunity is here to move to step three — finding communities and discovering regenerative use cases for cryptocurrencies. From there, they will build the next cycle of projects, many of which will have a positive impact on the world.
The impact is already there
People sometimes say to me: “Hey Kevin, this discussion about regenerative cryptoeconomics is great, but are there any examples of the theory in practice?”
Regen isn’t just talk. It’s happening! In fact, Alejandra Borda and I wrote an entire book detailing 100 different examples of projects where people are using crypto to rebuild the world.
To name a few: Proof of Humanity, Celo, Kolectivo, and Gitcoin are all doing meaningful things.
2023: The Year of Rebirth
In this down cycle, we have the opportunity to filter the noise from the signal and rediscover our purpose. Through decentralization and peer-to-peer technology, we can build a more fair and just financial system. We can bring more democratic and organic financial tools to the masses.
As individuals, we can find communities, join DAOs, and build projects that can serve as the foundation for the next Web3 era.
To regain legitimacy, the Web3 ecosystem must find ways to shift capital, attention, and talent away from projects with the best Ponzi economics and toward those that will have the most lasting positive impact. We don’t want “cryptocurrency for the world” to be good, we want cryptocurrencies that are good for the world.
Many of today’s most mainstream cryptocurrency projects have active positive externalities. For example, OpenSea, the largest non-fungible token (NFT) exchange, enables thousands of artists to monetize their work, a form of income that is less extractive than their Web2 counterparts.
Lens Protocol is a Web3 social media platform that has been gaining more and more attention in the crypto space as Twitter has changed. Lens allows people to truly own their data and save it for them, moving it from one website to another. Web3 social media has the potential to disrupt tech giants.
Proof of Humanity, a registry of 18, 000 Sybil-resistant identities, is using UBI tokens to pay people stipends. Gitcoin, a crowdfunding platform that has provided $72 million worth of funding for public goods, recently released a set of protocols that allow others to crowdfund for their communities. Kolektivo is a set of protocols that allow local communities to start, fund, and manage their own regenerative economies.
Web3 carbon credit systems such as KlimaDAO and Toucan Protocol allow for better, faster, and cheaper carbon credit trading. While carbon credits are not perfect, Web3-enabled systems such as Hypercerts allow users to reward projects with observable results. Additionally, Hypercerts can be used in impact areas beyond climate issues such as education, healthcare, AI security, and open source software.
2023 will be the year of regeneration. We will rebuild and regenerate not only the Web3 space, but also our communities and ourselves.