The death of free money won’t stop crypto

Crypto is stuck. 

The SEC is cracking down just as some of the timeline finished getting rich off of HarryPotterObamaSonic10Inu. NFT volume has significantly dwindled, startups are selling at deep discounts relative to their valuations, and popular tokens continue to retreat from their all-time highs. In a perfect sign of the times, the Staples Center may even come back.

Still, excitement persists around very familiar events in Web3. LVMH just announced they are going deeper down the rabbit hole by selling NFTs at 39,000 euros each, profiles with NFT PFPs are promoting new tickers daily, and some guy called ben.eth has all of crypto Twitter riled up with his memecoin presales. 

However, all of this isn’t progress — it’s nostalgia for a time not so long ago when money was cheap and abundant. 

Free money is no longer the reality, and the space needs to move past it to develop Web3 products that meet the needs of this new world.

Was money ever free?

Juggling multiple tech jobs, the fantasy of retiring on the back of meme stocks, or creating a stock exchange out of physical collectibles (a project I contributed to) — these are all examples of the former “free money” phenomenon created by ZIRP.

ZIRP, or zero interest rate policy, refers to a monetary policy where the central bank sets its target short-term interest rate at or close to 0%. This strategy was a staple of the Fed’s approach from 2020 until very recently. 

ZIRP made capital cheap and spurred the so-called “zero interest rate phenomenon” — capital being deployed in imaginative ways that were unique to this era of affordable money. 

Pomp, in his Substack, refers to this time as “easy mode.” Understandably, much of what happened in crypto and Web3 in recent years falls under this “easy” money umbrella as well.

And with all the recent coverage of what’s happening in Web3, it’s easy to brand all of it a “zero interest rate phenomenon” on its last legs. Indeed, the over-financialization ensuing from Web3 advancements has drawn in more than a few unfavorable actors, particularly in an era of readily available capital and rampant speculation. 

ZIRP and crypto intersect

The far-reaching influence of global finance across industries, cultures and societies is not a novel concept. 

Theorist Mark Fisher often discussed the rise of neoliberalism post the collapse of the Bretton Woods system in his works, Capitalist Realism and his blog, k-punk. In his multipart series, All Watched Over By Machines Of Loving Grace, BBC documentarian Adam Curtis dives into Alan Greenspan’s efforts to keep interest rates low during the Clinton era and the subsequent negative global impacts. 

Basically, interest rates have been in steady decline since the 1980s, coinciding with the rise of tech as the new major player in the economy.

And all that is to say, some people got very lucky during this time period, and you can thank the Fed to some degree. 

ZIRP’s impact has been visible across numerous sectors, leading to peculiar scenarios. 

For instance, in real estate, startups invested heavily in properties, often at a loss, while fractional ownership models were marketed to the masses under the guise of affordability. Within Web3, NFT projects like Moonbirds, Doodles and BAYC took in copious amounts of venture funding, and we see today that their communities continue to lose out as the price of these assets keep heading south. 

Labeling everything as ZIRPy is trendy, reductionist and ultimately kind of fun, but the real question is, what could the post-ZIRP world look like?

The vibe shift

We’re on the brink of a substantial reset — a period to unlearn many old habits and question our surroundings. Certain products and ideas that once held relevance aren’t suitable in this new economic landscape, where money is no longer “free.” 

However, this current period also brings with it opportunity — new winners and losers will emerge. The last cycle was built off the backs of creative and gig economies. As technologists, can we correct this wrong and demonstrate that a better, more promising future is possible?

Web3 is a nascent industry. Many of us believe in the core use cases of the technology and want to see it succeed. To ensure its survival, we must hold ourselves accountable, stay honest and pay close attention to what people truly need to navigate this uncertain new world. 

In a post-ZIRP world, these needs will be vastly different. Increasing adoption is intrinsically tied to consumer demand. The goal is real-world utility and value, not speculative hype or vibes. 

Consumer priorities are likely to shift toward products and services that offer security, stability and practical utility, and away from volatile, high-risk investments and luxury indulgences with limited functional value.

This shift in the economic landscape necessitates a reevaluation of priorities within Web3. 

A new narrative should highlight new forms of engagement and interaction online that weren’t previously possible before Web3, and position the technology as a new programming primitive for the internet. We already see Web3 being applied in novel ways in spaces like conceptual art, media distribution, gaming and AI. We need to perpetually reinforce these use cases, instead of hyping up “spray and pray” projects designed solely for virality and monetary gain.

As interest rates rise, the Web3 space will naturally contract, eliminating unfavorable actors and speculative projects that relied on easy funding. Unfortunately, some legitimate projects will fall victim too. This transition presents an opportunity for the industry to demonstrate resilience, build sustainable solutions, and establish a foundation based on genuine value and user needs. 

Vitalik’s latest blog post is a good starting point for where we need to go, but it musn’t end there — we also need to deliver novel experiences that weren’t previously possible or even considered in the free money era.

We need to do all that we can to brute force mass adoption — show the world that a better, more promising future is not just possible, but it’s already here.

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.