The cryptocurrency industry with increasing error rates: structural background making long-term value building difficult

There is a phenomenon that many founders in the cryptocurrency industry are facing. It is the constant pivoting. In 2021, entrepreneurs focused on developing NFT platforms, only to shift their focus to DeFi yield protocols the following year. Between 2023 and 2024, they shifted to AI agent development, and in this quarter, they are again chasing another hot trend (probably prediction markets). Their pivots are not necessarily wrong decisions. In fact, in many cases, they are strategically correct in the short term. However, this repetitive pattern itself leads to an increase in the industry-wide error rate, making it fundamentally difficult to develop products with long-term value.

The Impossibility of Completing Something in 18 Months

The product cycle in the crypto industry used to last 3 to 4 years during the ICO era. Since then, it has shortened to about 2 years, and now, even with good luck, it lasts no more than 18 months. The cycle continues: a new concept emerges → capital floods in → everyone pivots → 6-9 months of development → the concept disappears → and the cycle begins again.

By the second quarter of 2025, crypto venture capital will have decreased by nearly 60%, making it increasingly difficult for founders to mature their businesses with sufficient time and funding before the next trend arrives.

In reality, building a meaningful structure within 18 months is almost impossible. True infrastructure development requires at least 3 to 5 years of continuous investment and development, and achieving market fit involves not a one-time modification but years of iteration and user feedback accumulation.

Founders who keep using last year’s story are essentially wasting their funds. Such founders lose investor support and see their users disperse. Some investment firms even implicitly pressure founders to follow current trends. Investors begin to evaluate projects based on the hottest story of that quarter.

The Rising Error Rate of Sunk Cost Fallacy: Why Do Founders Always Pivot?

In general business logic, the advice is to “avoid falling into the sunk cost fallacy.” That is, don’t cling to the money already invested; if the project isn’t going well, it’s better to cut your losses and pursue a different path.

However, in the crypto industry, this “sunk cost fallacy” occurs with extremely high probability, paradoxically functioning as a survival strategy. No founder works on the same project for a long time. Instead, as soon as signs of resistance appear—such as stagnating user growth or difficulty in fundraising—they rapidly change strategy.

All crypto founders face the following dilemma:

Option 1: Continue developing the existing product
Success might come in 2-3 years. If lucky, they might reach the next funding round.

Option 2: Shift to a trending concept
Immediately secure funding and showcase paper profits. They can also withdraw before anyone realizes it’s not actually working.

In almost all cases, the second option wins. This phenomenon itself symbolizes the increasing industry-wide error rate.

Capital Flows: “Story” Takes Priority Over Completed Products

Projects that fully achieve their roadmaps are extremely rare in the industry. Most are always in a “nearly finished” state, maintaining the position that “just one or two features are needed” to achieve product-market fit.

When market sentiment shifts, these features become irrelevant. The completion of DeFi protocols can suddenly become meaningless, and everyone starts talking about AI—such scenes are commonplace in this industry. True completion is never reached.

Markets evaluate completed projects harshly because, while finished products have well-known limitations, projects that are “close to completion” hold infinite storytelling potential.

The capital allocation mechanism in cryptocurrencies seeks attention rather than product completeness. If there’s a new story, you can raise $50 million even without a product. Conversely, if a story is established and a usable product exists, raising even $5 million may be difficult. Moreover, even if the story is old and the product has actual users and features, fundraising becomes nearly impossible.

Venture capital invests not in products but in attention. The attention-grabbing story is not an old narrative but a new one. Many recent teams focus entirely on “maximizing the story,” optimizing only to secure funding with a particular story, while what they are actually developing becomes secondary. Completing a project constrains them, but abandoning it opens up infinite possibilities.

User and Talent Drain: Attention-Driven Talent Loss

Crypto founders are likely familiar with this scenario: when a new story emerges, talented developers are poached by new projects offering double the salary. Chief marketing officers move to projects that just completed $100 million in funding.

Few people want to join boring, stable projects. What the market demands are chaotic projects with strong funding potential that may fail but could yield tenfold returns.

The same phenomenon occurs with users. Crypto users start using a product simply because it’s new, trending, or because there’s airdrop potential. But once the hype shifts, they disperse, and no matter how much the product is improved or features are added later, no one cares anymore.

In effect, it’s impossible to develop sustainable products for an unsustainable user base. Some crypto founders have shifted focus so many times that they completely forget their original vision: from decentralized social networks → NFT marketplaces → DeFi aggregators → gaming infrastructure → AI agents → prediction markets. Pivoting is no longer a strategic choice but has become a fundamental component of the business model itself.

The Infrastructure Paradox: Why Do Old Projects Survive?

There is an intriguing paradox in the crypto industry: projects established before hype spreads tend to survive longer in the long run.

Bitcoin was born before the era of venture capital and ICO fever. At that time, there were almost no capitalists interested in crypto assets. Ethereum also emerged before the ICO boom, before the smart contract revolution was foreseen.

Most projects born during the hype cycle disappear as the cycle ends. Conversely, projects that existed before the cycle’s arrival have a much higher chance of success.

However, in reality, when there is insufficient funding, limited attention, and opaque exit strategies through liquidity, few people can build a compelling story before the hype cycle arrives. This paradox is one of the fundamental reasons hindering industry growth.

The Structural Issue of Fallacies: Why This Situation Will Not Change

Why can’t we escape this problematic situation? The answer lies in the very incentive structure of crypto assets.

Token-based incentive mechanisms generate exit opportunities through liquidity. Founders and investors will exit before the product matures if they can. Information and emotions spread far faster and wider than material constructions. By the time a project is truly complete, almost everyone already knows the outcome. The entire crypto industry’s value proposition is continuously evolving at a rapid pace.

In other words, even if one founder spends three years developing a product, another entrepreneur can copy the same idea and, with poor code quality but excellent marketing, release it in three months, becoming the market winner. The structural characteristics of crypto are fundamentally at odds with long-term thinking. Therefore, building sustainable products is structurally difficult.

It is also possible to be a highly committed founder who refuses to pivot, dedicating months or years to development based on a strong belief in the original vision. But statistically, the likelihood that such entrepreneurs will go bankrupt, be forgotten, and ultimately be overtaken by entrepreneurs who have pivoted multiple times is higher.

The market recognizes value not in completeness but in “continuous creation.” Perhaps the true innovation in the crypto industry is not the technology itself but the methodology of gaining maximum recognition and capital with minimal resource input. Given the high rate of fallacies entrenched in this industry, this logic is unlikely to change in the near future.