Arboreal ecosystems operate on a brutal but necessary paradox: For a forest to grow, it occasionally needs to burn. Without these seemingly apocalyptic conflagrations, the forest floor becomes choked with underbrush, preventing the new growth needed for regeneration and long-term viability.
Dion Lim points out that this is how technology cycles work, too. The first web cycle burned through dot-com exuberance and left behind Google, Amazon, eBay, and PayPal as the hardy survivors of Web 1.0. The next cycle, driven by social and mobile, burned again in the 2008-2009 financial crisis, clearing the underbrush for Facebook, Airbnb, Uber, and the offspring of Y Combinator.
The speculative frenzy of investment bubbles burns off non-productive capital much like a wildfire consumes dense fuel, and the inevitable market crash clears the way for resources to be reallocated. Without these market conflagrations, a permanent underbrush of failed startups drains the technology sector of the resources it needs to grow.
This dynamic may explain why crypto feels so left behind this year. A tangled undergrowth of legacy projects that never seem to die has been hoarding the capital and talent the ecosystem needs to evolve. In the real economy, labor is constantly being reallocated from failed companies to successful or promising ones. Many of Google’s best early employees, Lim notes, were founders or early employees of failed Web 1.0 startups.
This recycling of human capital happens far less frequently in crypto. To cite just one stark example, the Polkadot blockchain, which collected a mere $72 in fees on a recent day, is supported by 482 full-time developers and 1,404 contributors, according to recent developer reports. If a project like that, now in its sixth year of operations, were funded by traditional equity and corporate stock rather than token allocations, those scarce engineering resources likely would have been released back into the broader tech ecosystem long ago.
This creates a structural bottleneck for the industry. According to Packard’s Law, which states that growth in revenues cannot exceed growth in people who can execute and sustain that growth, if the scarce resource of crypto developers is not being redistributed to successful projects, the sector will struggle to scale.
Unproductive crypto projects hoard investment resources just as aggressively as they hoard talent. Crypto founders are notoriously prone to over-raising capital from eager investors during bull markets and living off the proceeds, insulated by token treasuries with no market-imposed urgency to find product-market fit.
For instance, one of the original major crypto projects, Golem, stockpiled 820,000 ETH during its initial coin offering in 2016 and still held 231,400 of it as recently as last year. Traditional startup investors expect their capital to be deployed productively and far more quickly than that, with strict milestones tied to performance.
In other cases, projects with inexplicably large market valuations fund themselves seemingly forever by selling their native tokens directly out of their treasuries into the open market. Cardano, for example, holds roughly $700 million worth of its ADA token in its treasury, a reserve large enough to fund the project indefinitely regardless of its near-term revenue generation or user adoption.
Collectively, crypto protocols are sitting on billions of dollars in capital and maintain little to no incentive to deploy it efficiently. They answer to no activist shareholders to placate, face no corporate raiders to fear, and are subjected to no rigorous quarterly earnings estimates. In short, much of the crypto industry may simply be too funded to fail.
Tech analyst Ben Thompson has recently articulated a similar fear about traditional Big Tech, worrying that giants like TSMC, Nvidia, and Alphabet have become so dominant that the entire broader ecosystem risks stagnation. Thompson welcomes the presence of market bubbles for this very reason, arguing that the "too-big-to-fail" phenomenon was starting to afflict traditional technology as well.
Thompson notes that the fundamental benefit of private enterprise is that "stupid stuff" eventually goes out of business when it fails to deliver value. But when companies become entrenched monopolies or are otherwise insulated from economic gravity, the stupid stuff doesn’t die. Instead, it simply becomes over-engineered and inefficient.
He argues that modern markets need investment bubbles precisely because they reintroduce risk back into the economic equation, emphasizing that investors do not get upside risk without downside risk.
This core economic reality helps explain why crypto has felt so stagnant during this current cycle. The industry has accumulated no shortage of the "stupid stuff"—protocols boasting few active users and minimal revenue—yet it lacks the organic market mechanisms required to force them out of business.
As Lim warns, growth becomes exceptionally difficult when everyone’s roots are tangled. Until a natural market wildfire is allowed to burn through the tangled roots of over-funded zombie protocols, vital nutrients like capital and developer talent will remain trapped, and the next true era of growth will remain out of reach.
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