One thing that shouldn't take a long for people to realize is that there is an overwhelming number of projects in the crypto/blockchain industry that start without a business model. Initially, this might not seem so bad because projects have a source of funding and money to burn. But that initial funding nest egg is finite and on short-supply, especially with the current economy. By not starting with a business model, you need to create one before the funding nest egg runs out.
Typically for crypto projects, this presents as a token, an "incentivization layer" as so many projects like to say. Unfortunately, these incentivization layers and tokens, ultimately depend on some tangible value to be able to sustain a business. But without a proper business model, what actual value is there? If a group is making a protocol without a business model, where do they make their money? Sure, usage of the protocol might increase, but often the projects using the protocol also have no business model. Unfortunately, the effect of builders not having business models will affect the creators of the protocol. If the users of a protocol have no business model, nothing to generate financial value, how can the protocol also create commercial value? Not having a business model will nullify even the most thoroughly thought out tokenomics.
The lack of business models has increased through the crypto space. It's not just a small number of projects, but dozens, hundreds even. I'd wager that 90%-95% of the projects out there don't have a business model. The lack of a business model creates a ticking time bomb; are these projects able to develop a product and then arrive at a business model before their funds run out? More often than not, the answer to this is no. From day one, your project needs to have a way to monetize. Whether this is requiring installation fees, taking a portion of all transaction fees on your blockchain, whatever it is, there needs to be a way to monetize.
Another aspect that accelerates the failure of many of these businesses is that they are open-source. Not just portions of them, everything is open-source. In theory, it means people can contribute to the codebase, or even donate funds to support the maintainers, but this is far from what happens. Open-source projects have an immense difficulty trying to sustain themselves financially, and this is a point that seems to be missed by the majority of people out there. The sad reality is that if people can have things for free, more often than not, they will never pay or go out of their ways to donate money. Unfortunately, this isn't a new problem; it's an old problem, as old as open-source really.
Unfortunately, however, it seems like many of the projects out there have failed to create a business model that can sustain themselves. In some aspects, it hard to see this simply because so many of the projects still around started with immense amounts of fundings. In theory, this means they have more extended amounts of time to arrive at a business model that can sustain themselves, but this rarely happens. Their creations might get used, but they are being used by projects without business models. Similar to the cryptocurrency feedback loop I mentioned in a previous post, this creates a feedback loop, where creations get used, the projects using them also get increasingly used. Still, it's a usage that doesn't create financial value for the project creators.
I predict that within the next six to eight months, we will start witnessing the closure of many projects out there. By the end of next year, I think it's safe to say that 50%-60% of the industry will be gone. In some ways, however, it will be a bit poetic. Many of these projects create transactions on the blockchain, which will forever be a sign of their success and their failures.