This is the first essay in the "Cycles" series exploring where Web3 stands from the perspective of tech and capital cycles and how different proven theories can help builders and founders understand what's happening and what is possibly coming. My goal is to add a bit of optimism to depressed markets and timelines and add broad strokes for what's coming in the next 12 - 18 months.

Today, I am be exploring Web3 place in cycles from the perspective of Carlota Perez. In the future I will look at where Web2 tech stands, and how we can see the world through the lens of other theories like Long Waves or Creative Destruction. Buckle up and let's dive right in.

Understanding How Market Cycles Help Web3 Builders

I studied economics and always loved it. Economic theories are so neat and clean. Economic theories will not help you to sell your products or find the right way to distribute and price them, but they're useful for understanding the broader market situation: where we are now, where we came from, and where are we most likely going.

What I'm looking for is understanding the market sentiment in the context of historical, technological, and financial cycles. Today I'm looking to answers these questions:

How long will the pain last?
Is it the right time to build and to build what?

I strongly believe Web3 isn’t just a new tech trend - it’s the canary in the coal mine of a much larger economic shift. But it was hard to see it as part of the broader picture because we are so consumed with price and speed here. None of which are particularly impressive now.

So I turned back to my teenage hobby and I will use Carlota Perez’s framework of techno-economic paradigms, to help us understand where we are.

Who's Carlota Perez: She's British-Venezuelan researcher, Honorary Professor at the UCL Institute for Innovation and Public Purpose (IIPP), and lecturer and international consultant. She's famous, among other things, for her book "Technological revolutions and financial capital - The Dynamics of Bubbles and Golden Ages." The book introduced interesting theory that put (for the first time) together financial markets and technology changes. That makes it, in my eyes, one of the most useful frameworks in the times of rapid technological change. That's why we start with this framework.

Perez breaks down each major technological revolution into five phases: Irruption, Frenzy, Turning Point, Deployment (Golden Age - we want that, right!), and Maturity. Each phase is as psychological as it is economical. I believe that Web3 is currently somewhere between late Frenzy and early Turning Point.

We are at the most uncomfortable - but also most foundational - moment in the cycle. This is when the real builders quietly create the tech stack for the next golden age.

According to Perez’s model the Irruption phase for Web3 arguably began with the launch of Bitcoin and Ethereum. That's what started all we do now.

Irruption: Bitcoin, Ethereum, smart contracts
Frenzy: ICOs, NFTs, DeFi Summer, massive speculation, FTX collapse
Turning Point: speculation getting proportionally smaller, policy clarity, new mature infra focus and "useful apps" coming around = happening now
Deployment: Not here yet
Maturity: Decades away

Let's see in more detail where we stand and why.

Why Web3 Is in the late Frenzy / Early Turning Point Phase

As I mentioned, it all started with Bitcoin and Ethereum. Some thought that Frenzy phase peaked with the DeFi Summer of 2020 and the NFT craze of 2021 with builders and scammers raising billions, token prices soaring, but I believe it's only now with serious risk capital retreat and wider regulation that we are ending Frenzy.

Turning point has started, Frenzy is ending, and it's a good thing! Reasons I see for this collected from different C.Perez's talks and my observations:

1. Massive Capital Inflows Without Matching Fundamentals

Billions flowed into DeFi protocols, NFT projects, and DAOs in 2020–2024.

Many tokens had sky-high valuations without product-market fit or recurring usage (even now!).
Just like the Dotcom era, capital was ahead of actual technological maturity. It's inevitable that we all get excited about the future.

2. Financial Innovation Outpacing Institutional Readiness

Innovations like flash loans, synthetic assets, and rebasing tokens emerged rapidly and they're great. Except, nobody understands them and institutions are not here.
Legal frameworks, user protection, and real-world integration still lags far behind.

3. Rapid Emergence of “Too Much, Too Soon” Behavior

Celebrities endorsing JPEGs. Token launches with billion-dollar valuations and no revenue.
A Cambrian explosion of experiments where we all saw that they weren’t sustainable. Yet, we stayed for the ride anyway.

4. Crash + Cleanup (Beginning of Turning Point)

2022 saw major collapses (Terra, FTX, Celsius) and loss of public trust.
Liquidity dried up. Builders who remain are solving real problems (infra, compliance, and too little UX).
Governments started catching up: EU’s MiCA, Hong Kong’s Web3 framework, and institutional players like BlackRock showing long-term interest.

5. Shift From “Casino” to Infrastructure with Apps

We’re seeing smaller hype cycles and more boring-but-necessary projects gain traction:
- Restaking protocols (EigenLayer)
- Smart accounts (ERC-4337)
- Decentralized identity
- Tokenized real-world assets
- Stablecoins, ETFs approved
- 2025 will hopefully not see any major crypto collapse. We will just see all things without utility go to zero, which also acts as cleanup.
- I also love that we start proving utility by building apps that people use.

I know that Web3 has a very strong muscle memory of speculation and casino behaviour. That's fine when it's not majority of what's happening. Financial cycles caught up with us and general global uncertainty led to risk capital retreat.

This is classic Turning Point behavior. Just like the Dotcom bubble, we saw euphoria crash into skepticism couple of times actually.

Let's build value by providing value. That's what we always said in business. Let's use it in Web3 too.

The critical question: who survives and builds in the shadows of the downturn? I'm sure it will be you! All of you reading this newsletter but who else? We will have to see about that. 🤔

What Perez Tells Us About the Next 12–18 Months

If we put current geopolitical and economical situation into perspective of Perez's framework, then we can say that the next 12–18 months are a test of both endurance and clarity. The market is waiting for regulatory clarity, technology maturation that sets new baseline for speed and security, composability and UX. That's Turning point phase job. We escape from the Turning Point mess. When Web3 projects will become infrastructural necessities.

This fits so nicely because many things built on blockchains are composable blocks where apps can become building blocks for another apps. Something David Phelps (Jokerace) nicely calls "protocol apps." Hence, don't think just about what we call infra projects in Web3, when Perez talks about infrastructure.

This period isn’t sexy. There will be less capital, less shiny vaporware. Tokens will remain volatile. Many will crash to zero. But this is exactly the moment that defines the winners of the next cycle. I believe, same as Perez, that everyone providing real value will eventually win and become part of foundations for the Golden Age.

The Turning Point is also when the state and institutional capital begin setting the foundation for the next paradigm. We’re starting to see that already: new crypto frameworks from the EU and Hong Kong, BlackRock entering tokenized assets, a shift in U.S. political rhetoric and moves in crypto regulation like Stables Act. These signals, let alone real actions, matter.

Expectations for the next 12–18 months:

Token prices will remain volatile and range-bound, with high beta projects pumping briefly during narrative bursts (AI, restaking, etc.), but retreating just as quickly.
Capital will increasingly chase real utility over hype. Utility means you will have to be profitable too.
The infrastructure layer will get stronger - again restaking, account abstraction (ERC 7702), L2s, EVM chains like MegaETH and Monad. New identity and trust primitives.
On-chain consumer apps will struggle to gain traction without a new UI/UX context. There is no app today that is usable for the mainstream consumer without handholding from someone. Everything still feels slow, complicated and empty. Plus the risk of loosing funds. Web3 apps are still low value outside of "experimental value" for early adopters.

If you’re building, you are not here to play casino. You’re here to build the next Chrome, the next Stripe, next Facebook, the next Rails for this new web and you have my respect! Let's build better together!

Advice for Builders Nobody Asked For

When I was coaching founders, I often told them to write the future like it already happened. Especially early on I would sit down with them and we would write down how they imagine things look 5-10 years ahead. Write it down and get inspired to build.

Simple exercise for you:

Let's imagine how the world looks in 2030 - What are the most used consumer apps onchain? Which tokens actually power large economic networks? Which infra projects became the Twilios of smart contract execution? Etc... anything from the area of your interest.

Now come back to today. You can actually start building those things! But you need to be shockingly clear on one thing: most of what we saw till now was noise, not signal. Try to build for utility.

Builders should - and I know you know this but repetition is mother of all good things:

Ignore Token Prices (Mostly)
Treat tokens like server costs in Web2 or like marketing spend. Yes, they matter. But they aren't the product. If you optimize around price, you're not building, you're trading. If you can, try not to launch token without strong traction. You can do it, but it will hurt.
Build Infrastructure for the Deployment Phase
That means smart account standards, identity primitives, reputation layers, fiat on-ramps that don’t suck. The boring problems. Solving these usually makes you rich. We have a lot of UX to fix. Onramp/Offramp still mostly sucks.
Find Real Users
Not whales. Not airdrop hunters. Not your Discord friends. Real users. The future lies in helping 10K real people solve a real problem onchain. Not promising "community" to 100K Discord lurkers.
Use the Quiet to Your Advantage
This is the best time in years to build. No distractions. No (or less) conference dopamine. Just product, shipping, and clarity.
Solve for Post-Frenzy Stability
What tools will DAOs, creators, and consumers still be using five years from now, once the market matures? Build those. Don't worry if they're small and grow slow. Power of compounding works!

If it got you interested - I recommend you check some of the Perez's talks or writing - she has many interesting ideas on sustainable less-financialised future hidden in her talks. Maybe some lessons there 😉

Carlota Perez:

Papers: https://carlotaperez.org/working-papers/
Some of the talks: https://carlotaperez.org/videos-of-lectures-and-panels/

Final Thought: The Web3 Golden Age Isn’t Here Yet

Well, we can see no Golden Age yet, looking at bleeding charts. But if you're in Web3 now, I believe you are serious. I also believe that the next 12–18 months are where conviction meets opportunity. Not in the charts, but in your roadmap. Not in the price action, but in the product that works.

We are not in the golden age yet. But this is where the golden age gets its scaffolding.

The window is open. Fewer people are watching. Which means more signal, more upside, and more space to build the future. Heck, I am here and that must mean something 😀

I'd love to hear what you think about this. Do you have any questions? Is this useful? Did it give you perspective needed to build better? Shoot me an email or just DM.

Till next time, let's BUILD BETTER!

BFG

Coming Up Next:

In the upcoming letters I'll explore how other theories see our current situation - think Ray Dalio, Shumpeter's Creative Destruction, Kondratiev's Long Waves.

I will also have a look at what are potential underdog themes and edge ideas that present opportunities for small, fast-moving teams while everyone else is still looking the other way, or where Web2 stands in the same cycles and what that means for the tech incumbents and late-stage unicorns trying to reinvent themselves before the next wave renders them obsolete.

Stay tuned!
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