Philip Tetlock's study of 284 political and economic experts produced 82,361 predictions over two decades. Expert performance was worse than random chance—professionals with postgraduate degrees consistently underperformed equal probability assignments across all outcomes.
Warren Buffett's 2008 bet against hedge funds demonstrated this pattern in financial markets. His passive S&P 500 index fund returned 125.8% over ten years while five hedge funds of funds (representing over 200 individual funds) returned 36%, despite them possessing advanced techniques, experienced traders, and significant research resources. On the outside, market movements appear random, or as reactions to new developments (both internal and external), but the only people who are able to accurately predict movements are insiders. But doing so would constitute securities fraud.
Web3 markets heighten volatility and evade meaningful enforcement, allowing insiders to routinely exploit information asymmetries. And while traditional equity markets at least reference underlying business fundamentals, most cryptocurrency trading hinges on narrative momentum rather than utility or adoption. Projects with billion-dollar valuations operate with daily active user counts that wouldn't qualify for traditional seed funding. Basic product hygiene such as functional interfaces, and meaningful user support is routinely absent, even in protocols handling billions in value.
Informed decision-making is impossible when core operational metrics are either unavailable or fabricated. Valuations are driven by marketing and promises, not actual competency. Small market caps enable coordinated manipulation: cabals launch memecoins, generate artificial momentum, then exit before retail participants recognise the scheme. The scale and speed of these operations make regulatory response impossible. Even well-intentioned teams become unwitting enablers: Zora's recent token mechanics unintentionally enable these dynamics, even if originally designed with the best interests of the user in mind. Pump.fun, by contrast, exists to openly exploits the dynamic—providing memecoin creation tools while profiting from each pump-and-dump cycle.
This dynamic isn't limited fringe projects. Data from major exchanges shows most token listings trade below initial prices within months. Market makers like Wintermute provide on preferential terms, collecting spreads on both sides of transactions while retail participants chase diminishing returns. Wintermute has openly stated that the objective is to maximise profile. While some web3 proponents state that blockchains have driven the largest wealth transfer in history, it is increasingly clear that the flow now runs in reverse, to concentrated actors.
The same coordination dynamics that enable memecoin manipulation extend to social platforms designed around financialised relationships. Friend.tech generated millions in volume by creating markets for social access, effectively transforming social relationships into financial instruments. Instead of fostering community, the design incentivises adversarial behavior: participants race to exit positions before others recognise declining value. Social proof & friendship becomes subordinated to financial optimisation and adversarial economics.
A common justification is that "users should understand the risks, and that all actions actually executed on a decentralised world computer", but this misses the point. The transformation of attention into a trading game mirrors TikTok's recommendation engine, which processes hundreds of content decisions per user per hour, optimizing for engagement time rather than quality. Users develop tolerance to dopamine stimulation, demanding ever more extreme content to sustain interest. Similarly, web3 users escalate their exposure to "win" a game that cannot be predicted. Even leading wallets integrate social features, leaderboards, and achievement systems that feed directly into this dynamic, compounding potential harm.
Just as it would be absurd to ask users to fact-check hundreds of posts per hour, equally unreasonable to expect due diligence on every memecoin launched via pump.fun, or promoted via wallet notifications. To generate signal, crypto content is produced with engagement prioritised over accuracy. This directly drives token value, more than any direct usage. Services explicitly offer "engagement boosting" to increase token prices through social media platform gaming—the same Entire services now offer engagement boosting with the goal to inflate token values.
In traditional gambling markets, many jurisdictions require self-exclusion programmes and prohibit targeted promotions to self-excluded individuals, with serious penalties for violations. Web3 platforms face no such constraints while employing the same psychological manipulation techniques.
Lessons from Tobacco, Gambling, and Food
The 1998 Master Settlement Agreement emerged from systematic evidence that tobacco companies deliberately engineered addiction while publicly denying health risks for decades. Internal documents revealed Philip Morris research from 1969 acknowledging that "any action on our part, such as research on the psychopharmacology of nicotine, which implicitly or explicitly treats nicotine as a drug, could well be viewed as a tacit acknowledgment that nicotine is a drug." Meanwhile, seven tobacco CEOs testified under oath to Congress in 1994 that they did not believe nicotine was addictive, despite Brown & Williamson documents from 1963 stating "Nicotine is addictive. We are, then, in the business of selling nicotine, an addictive drug."
The settlement forced disclosure of 14 million tobacco industry documents revealing decades of deception about addiction mechanisms, targeting youth demographics, and suppressing research. Society's response wasn't individual responsibility advocacy—it was systematic business model regulation through advertising restrictions, warning labels, taxation, and social stigmatization that reduced smoking rates from 42% of adults in 1965 to 14% in 2019.
Traditional gambling regulation follows similar principles. Nevada requires mathematical disclosure of odds, addiction resources, and operational transparency. The American Gaming Association reports 34 jurisdictions mandate self-exclusion programs with penalties for non-compliance. Online gambling platforms must implement deposit limits, cooling-off periods, and loss tracking. Sweden's Gambling Authority imposes extensive fines for violating self-exclusion laws, while Australian regulators recently penalised multiple operators for breaching protection protocols.
Nutrition labeling requirements emerged from identical patterns: food companies optimised products for hyper-palatability rather than nutritional value. Ultra-processed foods engineered for maximum consumption contributed to obesity epidemics despite providing inadequate nutrition. As a result, food companies are now required to include ingredients, nutritional fact panels, and must restrict health claims. The pattern remains consistent: industries that exploit psychological vulnerabilities face systematic oversight requiring transparency, disclosure, and harm reduction measures.
Web3 platforms operate without equivalent oversight. "Decentralisation" provides regulatory arbitrage while maintaining extractive mechanics. Unlike tobacco companies that faced $206 billion in Master Settlement payments and ongoing restrictions, some web3 projects operate with impunity, systematically targeting vulnerable users through gamified trading interfaces, social pressure mechanisms, and algorithmic content optimisation designed to maximise engagement and transaction volume.
Web3 communication is rewarded for virality over accuracy. Technical analysis and project evaluation content is produced primarily to drive token purchases rather than inform decision-making. The signal-to-noise ratio deteriorates as financial incentives reward sensationalism over education. Research shows fact-checking only occurs when information contradicts existing beliefs. Users encountering information confirming their desire to make money, skip verification. And who can really blame them? With hundreds of information inputs per hour across digital platforms, comprehensive fact-checking becomes impossible.
Gambling advertising faces restrictions precisely because targeted promotion to vulnerable individuals proves especially harmful. Web3 platforms exploit this same targeting capability without regulatory constraints, using behavioural data to identify and manipulate users showing addictive patterns or financial desperation.
The Structural Deficit
Legitimate financial infrastructure requires specific environmental conditions: regulatory predictability, dispute resolution mechanisms, consumer protection, and market integrity enforcement. Traditional banking operates under comprehensive frameworks—the FDIC insures deposits up to $250,000 per account, implements consumer protection laws covering electronic transfers and lending practices, and provides dispute resolution through examination and supervision of nearly 3,500 institutions. Since FDIC establishment in 1933, no depositor has lost insured funds during bank failures. Similarly, the UK's Financial Services Compensation Scheme protects deposits up to £85,000 per person per institution, with automatic compensation within seven working days of bank failure. Since FSCS establishment in 2001, it has paid over £26 billion in compensation, primarily during the 2008 financial crisis, ensuring no depositor losses.
Payment systems provide additional consumer protection layers. UK credit card purchases between £100-£30,000 receive protection under Section 75 of the Consumer Credit Act, making card issuers jointly liable for merchant failures or misrepresentation. Visa and Mastercard chargeback systems allow dispute resolution within 120 days for unauthorised transactions or merchant problems. Disputed charges can be escalated to the Financial Ombudsman Service, which provides free independent resolution. Visa's Zero Liability Policy protects against fraudulent transactions, while similar protections exist across payment networks.
Web3's current implementation provides none of these protections systematically. DeFi protocols have lost over $7.5 billion since 2016, with $1.48 billion stolen in 2024 alone. Individual exploits routinely exceed $100 million—the Mixin Network hack cost $200 million, Euler Finance lost $197 million, and DMM Bitcoin suffered a $305 million breach. Users have no recourse when protocols fail or developers abandon projects. Unlike traditional banking where regulatory agencies investigate complaints and facilitate dispute resolution, DeFi users who lose funds to exploits or exit scams face no institutional support.
The technology's fundamental promise of decentralisation and transparency of smart contracts—remains valid. Properly implemented blockchain infrastructure can reduce reliance on traditional intermediaries while providing verifiable execution guarantees. However, the casino-like speculation has corrupted the vision. The most successful web3 companies that have avoided creating their own speculation games increasingly abandon decentralisation for traditional models: Privy's acquisition by Stripe, Circle's IPO path with USDC, and other ventures that achieve product-market fit by offering centralised services with crypto payment rails. Meanwhile, genuinely decentralised alternatives like DAI fade into relative obscurity as users gravitate toward convenience, gambling schemes designed to generate transaction volume, and commoditised social relationships.
The contrast is stark: traditional banks operate under strict capital requirements, regular examinations, and mandatory consumer disclosures. The Truth in Lending Act requires transparent terms for credit products. The Electronic Fund Transfer Act protects users from unauthorised transactions. Banks must implement anti-money laundering controls and know-your-customer procedures. Consumer complaints receive formal investigation through regulatory channels. Similarly, gambling operators must disclose odds, provide self-exclusion mechanisms, and face penalties for targeting vulnerable users. Tobacco companies cannot advertise without health warnings and face restrictions on youth-targeted marketing. Food companies must provide nutritional labeling and cannot make unsubstantiated health claims. All these industries face systematic oversight designed to protect consumers from exploitation.
Web3 projects face no equivalent requirements. The environment rewards short-term extraction over long-term value creation. Projects optimise for token price appreciation and transaction volume rather than sustainable utility. The lack of consumer protection creates systematic incentive misalignment where platform operators profit from user losses.
The dynamic cannibalises Ethereum's foundational ethos of building programmable money and decentralised applications for self-sovereign individuals. Instead of enabling financial inclusion and reducing intermediary power as envisioned by cypherpunk culture, the ecosystem has become dominated by speculative trading that actively harms Ethereum's credibility and long-term viability. The same degradation affects other Layer 1 blockchains that harbour projects which use similarly extractive models.
Layer 2 solutions compound this problem by existing primarily to capture activity from the base layer and maximise fee extraction. Many operate as centralised entities while claiming decentralisation benefits. These networks optimise for extracting maximum value with minimal liability, using the underlying blockchain's security guarantees while maintaining centralised control over critical infrastructure and governance decisions. Their incentive is to facilitate as much activity as possible, regardless of activity type, making them indifferent to whether transactions represent genuine utility or exploitative speculation.
Design Principles for Sustainable Systems
Sustainable systems require different design principles: user-centric design where value derives from actual usage rather than speculation; transparent governance where decision-making processes are visible and accountable; community ownership where users have genuine control rather than decentralisation theatre; honest communication about risks, limitations, and realistic timelines; and in lieu of attempting to comply with every regulation globally, providing users with recourse when systems fail.
The technology has genuine potential for reducing intermediary extraction and improving user sovereignty. However, current "PMF" and fundraising narratives simply recreate traditional extraction mechanisms with additional smoke & mirrors, and zero consumer protection. Fundraising built around TGE side-letters should not exist in place of genuine business models. Until web3 platforms accept responsibility for user protection, they remain sophisticated wealth transfer mechanisms rather than legitimate infrastructure.
Projects that survive beyond initial speculation cycles typically focus on solving specific technical problems rather than financial engineering. Infrastructure for identity, storage, computation, and communication has genuine utility independent of token prices, as do user-facing solutions like connecting with friends privately, coordinating transparently and fairly, or sharing resources as a group. The distinction is measurable: projects with real utility maintain user activity during price declines, while purely speculative projects see usage collapse alongside token values. Ethereum's continued development activity during multiple bear markets and in spite of multiple gigantic project failures and scams demonstrates this principle.
Adopting good product hygiene—solving actual problems for users—may reduce short-term speculative incentives, but creates viable businesses that can exist far into the future rather than operating as elaborate games of hot potato. Success will come from builders who prioritise user outcomes over unsustainable financial metrics. The future belongs to infrastructure pieces and products so useful that people will adopt them regardless of investment potential.