Have We Lost Our Way? The Broken Incentive Mechanism Sabotaging Web3 Adoption

Our industry is quick to criticize Web2 for its business model, which incentivizes companies to gather and exploit users' personal data for advertising revenue. This approach has resulted in several well-known consequences. Chief among them, from a decentralized Web3 perspective, is the concentration of data, power, and wealth.

We don’t need to call out the primary culprits—they’ve been named enough. But for this model to work, these companies at least had to create platforms with great user experiences and real-world, everyday utility, valued by billions of people globally (actual billions who use these products multiple times a day).

Trading Data for Value and Utility

It’s true that we hand over our data so big tech can profit, which is far from ideal—arguably disgraceful—but at least it’s easy and intuitive for users. In exchange, we gain access to valuable services that many can’t imagine living without. Without long-term investments in user experience and mass-market, problem-solving utility, these companies wouldn’t have been in a position to exploit our data at all.

In contrast, Web3 has, true to its word, avoided exploiting data. But it’s also failed to deliver the kind of user experience and utility that might inspire mainstream adoption. And without mainstream adoption, how decentralized are we really? And how close are we to delivering a fairer internet?

For crypto natives, the existing Web3 utility is indispensable. But as it stands, the vast majority of people—the other 7.5 billion—could go the rest of their lives without crypto exchanges, Web3 wallets, or DeFi platforms and not lose sleep.

Does Mainstream Adoption Matter?

Increasingly, the answer depends on who you ask. Many of us believe it matters a great deal. Simply put, the value of a decentralized internet diminishes if it remains restricted to the relatively niche community it serves today (and yes, even with an estimated 500 million crypto users, we’re still talking about just 6% of the global population). And the extent of decentralized utility so far is extremely limited.

Without mainstream adoption, the "attract and extract" business model that Web3 aims to address will persist.

Yet plenty of builders, founders, and investors—VC, institutional, private, or otherwise—have found spectacular financial success without mainstream consumers. It’s hard to picture these folks lying awake at night, cursing Web3’s failure to go mainstream, when their returns have been so significant.

To date, no blockchain, crypto, or Web3 projects have achieved anything close to mass adoption. Crypto’s 6% global reach isn’t mainstream, and even if it were, speculative ownership hardly qualifies as adoption. And that’s okay—it’s still early. We’re aiming to change the world, and that takes time.

But in the absence of mass adoption, crypto investments still bring in billions.

Return on Investment without UX, Utility, or Product-Market Fit

In Web2, vast sums were invested in companies like Amazon, Google, and Facebook long before they became profitable, but the real returns only materialized once they established product-market fit, built massive user bases, and secured substantial revenues with sustainable business models and everyday utility.

In Web3, however, you don’t need these factors to deliver a good return on investment. All you need is a token. Yes, that’s a bit extreme—but so is the market cap of Dog Wif Hat (and a long list of other meme coins from Doge to Pepe).

Whatever your opinion on meme coins, they repeatedly capture billions in investment across multiple cycles. It may not be sustainable, but it’s now a proven "business model."

That a meme can achieve a billion-dollar valuation is, at minimum, a testament to the disruptive potential of crypto and the power of Web3 culture. But in a world where a dog in a hat can achieve a multi-billion-dollar market cap without any utility, the incentive to solve real-world problems for the masses with good UX is eroded—if it exists at all.

The Speculative Cycle: Reinforcing Short-Termism

Beyond meme coins, short-term thinking pervades the industry. Tokens, which are the native currency of Web3, provide its economic foundation and incentivize investment and innovation. But they also invite speculation, which can distort incentives. Speculation is everywhere, but the Web3 brand is particularly cyclical and volatile. Many of us enjoy the excitement and financial opportunities, but there’s a cost.

Speculation can offer 10x, 100x, or even 1,000x returns, especially for early investors. But this doesn’t require product-market fit, a sustainable business model, or even mainstream adoption.

In Web3, investors and builders can achieve incredible returns quickly without considering long-term mass-market needs. This is part of Web3’s appeal, yet it does little to fulfill the vision of a decentralized internet.

You Get What You Pay For

In short, there’s little incentive to fix the centralization issues of Web2. The mainstream internet—used by 5 billion people—will stay centralized because Web3 is incentivized to ignore it.

Meanwhile, some VCs openly reject efforts to simplify Web3 for mainstream adoption, reinforcing the industry’s insular nature. As Web2’s centralization of data, power, and wealth continues unchecked, Web3 will remain a limited alternative unless it delivers something truly competitive.

Whatever criticisms we hold against monopolistic big tech behemoths, it’s unfair to think that their founders intended to exploit users so extensively from the start. Do we really believe that people like Mark Zuckerberg, Larry Page, Sergey Brin, and Jeff Bezos were plotting this all along? Unlikely. But, ultimately, incentives shaped the outcome—just as they’re shaping Web3 today.

Have We Lost Our Way?

The internet we have now was meant to be decentralized, but incentives derailed that vision. Today, we have the technology and ambition to fulfill it—but we lack the financial incentive.

In Web3, our passionate communities might seem well-placed to hold the industry accountable. Outside of Web3, users typically won’t tolerate poor UX or adopt something without utility. But in Web3, most community members are not users; they’re speculative investors. We’ve invested billions in tokens like Dog Wif Hat, and as long as there’s financial gain, we will keep doing so.

This irony cuts deeper: most retail investors lose money in crypto, while wealthier, often institutional players benefit. Instead of redistributing wealth, we’re creating the opposite effect.

While markets tend to correct over time, with Bitcoin’s price potentially stabilizing and speculative opportunities diminishing, we may eventually see a shift toward sustainable products with mass appeal. But until then, speculation-driven incentives will continue to hinder mainstream adoption, keeping Web3 from delivering on its promise of a decentralized internet for all. ◼️

About the Author
Alistair Rennie is Global Head of Innovation & Thought Leadership at Protocol Theory. A former Research Lead at Google, he brings 25+ years of experience linking consumer behavior, macro trends, and strategy. He authored Google’s highly influential Messy Middle report and consumer decision-making framework.