I wrote this in April 2022 and don't stand by 90% of it as of July 2025.
Will crypto currencies and tokens be a good store of value? Will they be productive or non-productive assets? How can crypto become a productive asset? How about medium of exchange and unit of account, will crypto be good at these functions? Currently USD is the main UoA and MoE, could crypto compete with it? Is this just another FUD piece? (No) Are there still potential long term value generating prospects in crypto? (Yes, you should HODL) Lastly, what do DAOs have to do with long term value generation?
The first cryptocurrency and blockchain was BTC, with its use case of money. BTC fundamentally is not a medium of exchange or unit of account currency, as it was optimised for security and scarcity, in essence the store of value function. This is what makes it comparable to digital gold. This is also how people use and think about crypto, they want to store and potentially increase their wealth.
However, in the long term fixed supply currencies such as BTC will probably not be a good SoV, as it is not a productive asset (as Dankrad has previously noted here and here). Productive assets are where your money is put to work: real estate, stocks, etc. Essentially, through an intermediary your money is used as a loan, allowing people who can generate a return on it to use it. These traditional forms of productive assets are however hard to put on-chain for legal reasons: the exchange of stocks and other assets is strictly regulated.
Can crypto become a productive asset? Yes, with Ethereum staking Ether will be productive: (annual rate of return is 5% for Ethereum ahead of its transition to PoS). Also Dapp and DAO-s can become productive and create value. But this requires that DAO-s compete with regular companies in producing long term growth. For this we see little precedent. What we see today with the huge rise in the value of crypto currencies is the market integrating the potential future value of crypto. This will likely plateau though after which it’s growth will be proportional to the growth of the crypto ecosystem.
So this use case remains ambiguous, if anything, traditional finance has an advantage in access to productive assets as it’s legally linked to the core engines of value creation which are companies.
Another use case of cryptocurrencies are DeFi applications. If there are DeFi applications that have Ether as their native currency, this will naturally increase the usage and price of Ether. We can see this case with some very successful AMMs (Uniswap, Sushiswap) or Liquidity pool apps (Maker, Yearn). However, exchanging, collateralized loaning or any other trustless DeFi application of funds only makes sense if the underlying tokens exchanged or loaned have some sort of way of generating value. Therefore these pure DeFi Dapps will only generate higher rates than the traditional markets if the underlying tokens generate higher rates than companies.
Looking at the example of lending. Currently there are only over-collateralized loans available on Aave and Yearn. This is due to the trustless nature of these services. So these are exchange platforms more than loaning platforms. Another option is to allow lenders to specify to whom they want to lend (Atlendis, Goldfinch, DebtDAO). However this does not guarantee repayment of the loan, so for lenders this is not trustless. There are ways to introduce more trust into the system with account history and Proof of Personhood accounts. These make it possible to verify that an account is trustworthy and has repaid loans in the past. But traditional banks are already doing this with credit histories and have a big advantage: prosecution. This is hard to compete with.
So SoV and pure DeFi apps will only be valid in the long term if there is an underlying asset that has value. These might be other Dapp or DAO-s, but they could also come from another use of money: Medium of Exchange.
What is needed for crypto to compete with the USD in the US as a MoE? Competing with USD as a MoE means its use in real world transactions has to be an economically viable choice.
The largest advantage of crypto stablecoin is the promised low transaction costs for making payments. This is likely to happen soon even on Ethereum with the use of L2s (Optimism, Starkware, ZkSync). Hence there is a growing advantage in replacing Visa or Mastercard’s 1%+ transaction fees.
A MoE fulfils its function if a person can plan over time with the currency. This means that the price has to be stable compared to the products it will buy. For most people this means food, fuel, basic electronics, housing. This is also how inflation is measured and why the Fed aims for a fixed inflation rate.
In some countries where the currency is unstable the fact that stablecoins promise a form of predictability is valuable. Not so in the US, since the USD is pretty stable via the Fed’s monetary policy and control on inflation. Hence stablecoins will probably not replace the USD as a unit of account in the US.
Taxes have to be paid in USD as this is the legal tender. If the transactions are paid for via a currency different from USD, extra transactions and accounting will be needed to convert it to USD. This further increases the cost of replacing the USD as the unit of account.
Crypto that is tied to USD, like Dai or USDC seems like the best of all worlds, they are stable, with low transaction fees and simple accounting. Further, since USDC is ibacked by government bonds and fiat it is also integrated into the existing financial system meaning the Fed is able to measure the increased demand. If there are more people using USDC, Centre the company that set up USDC will buy more bonds and release more USDC. Of course, with this setup the system depends on the integrity of Centre (hence the importance of Coinbase being one of the founders of Centre).
Another way for crypto to succeed is by becoming a legal tender in the US. This would mean that all lenders would need to accept crypto as a repayment (and this would be enforced by courts). This includes the US Gov, so you would be able to pay taxes with crypto.
However it is unlikely that the US will have a crypto legal tender that is outside the control of the Government, as this would reduce the power of the Government. Further as long as the US economy remains stable there will be no market demand for this. So far we have only seen this happen in El Salvador with Bitcoin, where it was more of a populistic than an economic choice.
To make matters worse, the US Government might actually be hostile to a USD denominated stablecoin (such as Dai and USDC), as it would make financial crime and tax avoidance easier. So as a reaction to the change in the monetary landscape and to preserve the national interest over money the Fed might release a CBDC (full transcript of Powell’s thoughts). China has done this with the e-yuan, likely as a way to steal the thunder from the already banned crypto market and as a way to introduce more control. There is considerable resistance to CBDC however, as Tyler Cowen highlights it will likely result in more overall regulations. In the long run from the point of view of the Fed and Gov a way to digitally pay taxes will be needed. If the Fed introduces CBDC it will likely be centralised, meaning cheap and fast transactions. In that future world, much of the advantage of crypto is lost to government controlled CBDCs.
So in the long run crypto does not have competitive advantage neither as a productive asset, nor as a MoE. So where can crypto generate revenue in the long run?
DeFi apps that interact with and generate value in the world can be such a space. Even though today only a small number of DeFi apps create underlying value (eg Moloch and Vita DAOs and Krause House which will buy an NBA team) this might change in the future, creating economically viable ways to integrate real world use cases to the crypto ecosystem.
Another option is moving into the metaverse, so games, virtual worlds, art. There is large value in different tokens being used within games (Gods Unchained, Axie Infinity) to facilitate the market of freely tradable items. This application seems the most likely today, however, by itself this would obviously be a retreat compared to the more traditional visions of crypto as world currency and world computer.
There is also a world, where companies, charter cities, small governments (or DAOs in Wyoming) or other maybe new forms of organisations are able to use their own DAO-s, creating value. This could even mean decentralised, user owned social media sites, the potential options are endless. It is hard to clearly delineate DAO-s from the metaverse.
But there is no middle ground, in finance crypto is legally bound into a box. It has to innovate to stay alive. Fortunately this is something the ecosystem is great at. Buckle up and hodl!
I don't stand by 90% of this as of July 2025, but decided to keep it up for historical reasons.