From Degen to Regen: How Web3 Started Playing Positive-Sum Games

Back during the DeFi Summer of 2020 – ages ago in Web3 time – the meme “degens” came about as a way to describe Web3 enthusiasts who were yield farming on systems with high annual percentage yield (APY) and high likelihood of failure. It’s a playful term that’s also revealing of the industry’s mercenary and self-interested side.

In the first two years of the decade, driven by headlines, rising prices and FOMO, thousands of traders entered Web3 with the intention of making a quick buck. And despite a steep sell-off this year, crypto continued to go mainstream. There were Super Bowl ads. News of banks using decentralized finance (DeFi). And, yes, negative press about all the bankruptcies.

Survival of the fittest is a simple yet powerful mechanism observable in the Web3 ecosystem – the fit best meet the preferences of markets. It might explain why degens, seemingly interested in short-term advancements rather than long-term success, hit a dead end. It turns out purely self-interested behaviors are maladaptive in Web3 (as they are many places in nature).

Indeed, the industry that’s now known as Web3 has always had a side of it that is about more than greed and profit. Crypto is a tool for building collaborative organizations and sharing resources – the long-term trends that have always motivated participants.

Another term for this is “regenerative economics,” the idea that money can be used to incentivise communities to solve systemic issues. Even when open-source projects fail, the exercise can benefit the rest – if everyone is moving along the same axis towards social betterment. Innovate, iterate, evolve, repeat.

With programmable money, we can program our values into our money. Crypto has it within itself to create systems equally as extractive and fragile as the existing financial system. When a degen trades, he’s playing a zero-sum game – the tokens leave his wallet and enter the counterparty’s wallet and visa-versa. But Web3 can also build more positive sum protocols that expand resource capacity over time.

There is a common thread linking many people in the regen ecosystem. They used to be degens! Lured by the promise of better economic circumstances for themselves and their family, they entered the ecosystem to make a profit.

Over time, however, they grew enamored by the promises of collective action – often through the direct experience of contributing to or using a project. Their attitude and incentives shifted. That’s by design, built into the structure of crypto-economic systems. For instance, decentralized autonomous organizations (DAO) allow people with a shared mission to come together and pool resources – everyone involved is at least partially aligned in their values and commitments.

When you join such a community, you start learning to manage risk and ride the volatility. You think differently about capital allocation. But sometimes it takes more than that to get the bigger picture.

Many regens are former degens who took this journey during the last cycle, in 2017. And that’s partially why I’m so optimistic about the future of regenerative systems. There are thousands and thousands of people who are newer to crypto, who came into Web3 in the last year or so, and they are likely on step two of the journey (i.e., down bad) now. They’ve made mistakes and learned from them, a base of knowledge that can serve for a more pragmatic approach to the next market cycle.

The window of opportunity is here for newcomers to Web3 to move to step three – find community and discover crypto’s regenerative use cases. From there they will build the next cycle of projects, many that will be positive and impactful for the world.

In this down cycle we have an 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, just and less extractive financial system. We can bring more democratic, more organic financial tools to the masses.

To regain legitimacy, the Web3 ecosystem must find ways to rotate capital, attention and talent away from the projects that have the best Ponzi-nomics and towards the projects that are going to have the most durable positive impact. We want this not because we want crypto to look good for the world, but because we want crypto to be good for the world.

Many of today’s most mainstream crypto projects have positive externalities. For example, OpenSea, the largest non-fungible token (NFT) exchange, has allowed thousands of artists to monetize their work and generate new forms of income that are less extractive than their Web2 counterparts.

Lens Protocol, a Web3 social media platform that’s generating increasing buzz in crypto amid changes at Twitter, are enabling people to own their own data and to take their social media presence from site to site. Web3 social media has the potential to disrupt tech giants. (Disclosure: I am a Lens Protocol angel investor.)

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 outcomes. Moreover, hypercerts can be used beyond climate concerns in impact areas such as education, health care, AI safety and open-source software.