This question, steeped in a uniquely Chinese context, reflects not only the tension between regulation and freedom, or innovation and stability, but also exposes a deeper identity confusion in this era of transition: should we remain obedient subjects, or step forward as proactive citizens who embrace the new and pursue the dividends of our time?

In January 2021, I published an article on Zhihu titled “Is Bitcoin Truly ‘Legal’ in China?” Unexpectedly, the article garnered over 35,000 views, 100 likes, more than 100 shares, and nearly 200 saves. Behind these numbers lies the long-standing confusion and urgent need for clarity surrounding this so-called “legality issue.”

Now, three years later, I feel compelled to revisit the question — not because legality alone is in dispute, but because a broader, globally significant civic dividend is quietly emerging.

1. The Problem

Legally speaking, Bitcoin has always been legal in China.

As I made clear in my 2021 article, China’s legal system follows the principle of legality of punishment, meaning that only laws passed by the National People’s Congress or its Standing Committee can restrict a citizen’s personal freedom.

To date, no Chinese law has declared owning or trading Bitcoin a criminal offense, nor does any criminal penalty exist for doing so.

This legal clarity has ensured that individuals in China have always been allowed to own and trade Bitcoin.

Yet many Chinese people still hesitate in the face of emerging technologies. Their first question is not “Is this prohibited?” but “Is this allowed?” This mental reflex is not an individual’s rational choice, but the collective unconscious left by two thousand years of imperial rule.

We are more accustomed to being compliant subjects, doing only what is explicitly permitted by law, rather than modern citizens under the rule of law — where anything not expressly forbidden is allowed.

This deep-seated cultural inertia is the true reason why the question “Is Bitcoin legal?” continues to be asked again and again.

Of course, many still have doubts, primarily due to the real-world challenges brought on by regulatory enforcement.

Although holding and trading Bitcoin is legal, the actual difficulties of doing so in China arise from strict regulatory controls.

This was covered in detail in my 2021 article, especially the “September 4th Incident” in 2017, when the People’s Bank of China and six other agencies jointly issued the “Announcement on Preventing Token Issuance Financing Risks,” which directly led to the shutdown of all domestic Bitcoin exchanges in China.

This regulatory crackdown did not target Bitcoin per se but was implemented to maintain financial stability and prevent systemic risk.

Looking back, we can better understand the rationale: amid the national ICO frenzy, financial risks were soaring. To avert broader economic instability, regulators opted for an “across-the-board” ban.

The cost was high, but from a regulatory perspective, it did succeed in stabilizing the financial system.

2. The World

After the closure of domestic platforms, Chinese traders turned to overseas markets, and the global Bitcoin trading landscape changed accordingly.

As I noted in 2021, among the world’s ten largest economies, only China prohibited banks and payment institutions from participating in Bitcoin trading. This pattern has remained largely unchanged. In major economies such as the United States, Japan, Germany, the United Kingdom, and South Korea, Bitcoin remains legal and freely tradable.

Since 2022, global economic turbulence and frequent interest rate hikes by the U.S. Federal Reserve have drawn capital away from emerging markets back to the U.S., placing additional pressure on China’s economy.

Particularly after Donald Trump returned to power, U.S. policy on digital assets underwent a crucial shift — from resistance to strategic absorption.

In 2024, Trump signed the Bitcoin Reserve Act, officially recognizing Bitcoin as a strategic reserve asset eligible for inclusion on the government balance sheet. The recently passed GENIUS Act (Governing Electronic Networks for Issued US-stablecoins) provided clear compliance pathways for stablecoins such as USDC and USDT. These are not just technical policy shifts but front-line maneuvers in a contest over monetary sovereignty.

Compared to the U.S., which is leveraging Bitcoin to counter inflation and reinforce its monetary dominance, China is more focused on maintaining industrial output, exports, and employment. With a still-dominant manufacturing base, China’s financial policy is not aimed at dominating global asset pricing, but rather at buffering the uncertainties of domestic economic restructuring.

In response to Trump’s Trade War 2.0 — revived tariffs, supply chain disruptions, and tightened chip sanctions — China needs a stable financial environment to absorb external shocks. “Stability” here means distancing itself from all high-volatility assets, no matter how innovative.

Bitcoin, by nature volatile and speculative, could — if tied to domestic financial markets — trigger a contagion of speculative behavior and secondary financial risks.

Thus, tightening regulation does not outright deny Bitcoin’s value, but acts as a buffer zone, delaying potential shocks to China’s financial system. With this context in mind, the challenges you face in moving funds in and out of crypto become easier to understand.

3. The “Enemy”

Bitcoin was created to build a decentralized, borderless financial system — free from the dominance of the U.S. dollar. Ironically, this aligns closely with China’s long-standing strategic objective of challenging dollar hegemony.

As early as 2009, Zhou Xiaochuan, former Governor of the People’s Bank of China, proposed the establishment of a supranational reserve currency (like the SDR). This vision closely mirrors Bitcoin’s ideals and has remained one of the PBoC’s strategic goals.

That’s why, in 2014, Zhou famously described Bitcoin as “a digital stamp” — a metaphorical move to classify it as a commodity, sidestepping direct conflict with currency regulation.

When I cited this metaphor in 2021, it deeply resonated with readers because it highlighted the delicate dance between regulation and legality.

Interestingly, decentralized stablecoins may prove to be China’s “grey weapon” in the fight against dollar hegemony. I’ve discussed this in detail in my article “Tariffs Are Blades, Money Is a Shield: A Chance to Break Dollar Dominance through Stablecoins.”

The key lies in what backs these stablecoins — not U.S. dollars, but decentralized assets such as BTC and ETH. As a result, they cannot be frozen, nor can they be arbitrarily targeted by the U.S. legal system.

This creates a strategic breathing room for China: without directly confronting U.S. dominance or tearing up geopolitical agreements, China can gradually decouple from the dollar’s clearing system.

In this light, maintaining a controlled capital environment and a stable RMB exchange rate — while quietly allowing blockchain-based “exit routes” — becomes a smart balancing act.

Decentralized stablecoins are like underground tunnels. In the high-pressure terrain of global finance, they offer China an alternative path. As the global monetary order transitions from centralized clearing to protocol-based settlement, Bitcoin — as a collateral asset behind these stablecoins — may evolve from a civilian hedge to a covert piece in state-level strategy.

4. The Dividend

In recent years, despite tight regulations, Bitcoin has continued to hit new all-time highs. Global acceptance is rising.

As the world’s second-largest economy, China’s stance on Bitcoin inevitably influences global markets. When regulatory winds shift in China, global crypto markets respond immediately.

This is the essence of the regulatory dividend.

Its logic is simple: when a market has been long suppressed, even a slight loosening of rules can unleash a wave of capital and skyrocket demand. This isn’t unprecedented — we’ve seen it before in China’s stock market, property sector, and online finance. Bitcoin is no exception.

Recall that before the 2017 crackdown, China accounted for nearly 90% of global Bitcoin trading volume. That number dropped to below 1% after the ban. With such vast demand long held back, any regulatory easing will likely trigger a massive resurgence in buying power.

A striking example is the UK Financial Conduct Authority’s March 2024 approval for institutional trading of Bitcoin-backed securities. This marked a policy breakthrough that drove Bitcoin’s price to a new high of $72,000. The global impact of this single move underscores how pivotal regulation is to crypto asset markets.

More importantly, the regulatory dividend coincides with structural changes in the crypto market. Once cautious Chinese institutions are now watching global crypto trends closely and investing via overseas funds.

For example, in December 2024, China Universal Asset Management Co., Ltd. publicly promoted its “China Universal Overseas Tech C (QDII-FOF-LOF)” fund via Alipay. The fund disclosed indirect exposure to Coinbase and the ARK 21Shares Bitcoin ETF. With a daily cap of 1,000 RMB and a minimum investment of just 10 RMB, it demonstrates how Chinese investors, though cautious, are finding compliant ways to tap into global crypto opportunities.

In the long run, the regulatory dividend isn’t just about price increases — it signals a reshaping of global capital flows. As China re-engages with the global Bitcoin ecosystem, capital will inevitably flood back into this long-underestimated market.

Bitcoin’s decentralized and globally liquid nature makes it one of the most efficient cross-border allocation tools in the world.

Thus, the true power of the regulatory dividend is this: it does not simply indicate future price hikes — it hints at China’s potential return to global financial relevance, with a more proactive, flexible, and competitive stance.

For investors today, that opportunity is only just beginning to reveal itself.

Conclusion

True legality is never just a matter of statutes — it’s a reflection of the consensus of the times. When we keep asking “Is Bitcoin legal?”, we’re really asking: who are we in this new world? Will we remain compliant subjects, or become citizens who seize the dividends of the age?

The debate over Bitcoin’s legality won’t be settled by a single clause. But the tide of decentralization cannot be reversed.

Dollar dominance will eventually fade. The decentralized order — both in money and in finance — is only just emerging.

Bitcoin, then, is not merely a volatile asset in a speculative market. It may be a gateway — to civic consciousness, and to the dividends of the future.

We are standing at a historic juncture: moving from the mindset of obedient subjects to the awakening of citizens. Bitcoin’s true value lies not just in its price, but in the vision it represents.

Let us remember this truth from our era:

In the age of a rising new order, the real risk is not volatility — but missing out.

If you don’t want to miss out on your civic dividend, you might want to read:

• Bitcoin: The Ultimate Hedge for Long-Term Thinkers
• Asymmetry: Bitcoin Through the Lens of Value Investing

Because action begins not with waiting, but with claiming your role as a citizen.

The “Compliant Citizen” Dilemma and the “Civic Dividend” of Bitcoin was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

I’ve said before that the U.S. dollar is a lot like China’s college entrance exam system: not the best option, but arguably the least bad one. In a world where trust in global currencies is steadily eroding, the passage of the GENIUS Act can only be described in four words: a mixed blessing.

On the bright side, this marks the official opening of the floodgates for on-chain U.S. dollar liquidity. Bitcoin climbing above $107,000 and Ethereum touching $2,600 seem to confirm as much. And more importantly, this is just the beginning.

On the downside, the core principles of decentralization are once again under systemic pressure. The GENIUS Act effectively locks the issuance of stablecoins behind a wall of licensing. Whether it’s algorithmic stablecoins or overcollateralized crypto-backed assets, they will now have to face direct regulatory scrutiny.

Still, you have to admire the strategic prowess of the United States.Yes, the dollar is in decline. But it has indeed found a new way to prolong its reign. After the era of the petrodollar, the crypto dollar is shaping up to be the final adrenaline shot for U.S. monetary hegemony.

Amid a global wave of de-dollarization, the dollar has found its way back onto the world stage — this time, in the form of on-chain stablecoins. Liquidity is once again under dollar control — except now, it flows through wallet addresses.

Thankfully, it’s the dollar — and not the ruble.

But the question remains:What happens when a centralized dollar-backed stablecoin steps into a crypto world that was meant to be decentralized?Is it a blessing or a curse?

It could bring compliant capital flows — or it could push out truly decentralized experiments.It could help facilitate global financial freedom — or it could return control of value to those with the licenses.

And that’s the very question we need to address today.

Today marks the third and final installment of the “Decentralization Trilogy.” Before we dive in, let’s briefly recap the main points of the first two articles.

Part I: The Shattering of an Illusion

In the early morning of April 15, 2025, a single AWS fiber-optic cable was accidentally severed in Tokyo. Within just one hour, global crypto trading volume plummeted by over 15%.

Eight days later, small and mid-sized crypto platforms in Europe suffered another major blow. In response to the EU’s new MiCA advertising regulations, Google rolled out a strict new ad review system. Just three days after the update, ad exposure for smaller projects dropped by more than 67%.

Google didn’t have to cut your internet. It didn’t need to shut down your site. With just a few clicks behind the scenes, your website technically still existed — but no one could see it.

These two very real events tore the mask off “fake decentralization”: Even when assets are on-chain and governance is said to be decentralized, the system still depends heavily on centralized servers and Web2 platforms.

Part II: Redefining Real Decentralization

True decentralization doesn’t mean everything has to be coded onto a blockchain. Rather, it must fulfill three key criteria:

• A distributed ledger (e.g., Bitcoin, Ethereum), ensuring data integrity and immutability;
• An embedded incentive mechanism (PoW mining or PoS staking), compelling each node to honestly maintain the network;
• On-chain governance systems (DAOs, smart contracts), where rules are transparent and executed automatically.

We even used the Herfindahl-Hirschman Index (HHI) — a tool from economics — to measure the decentralization level of three major blockchains. Surprisingly, Ethereum ranked highest, with an HHI score of only 889 (well below the 1500 threshold for antitrust concerns), followed by Bitcoin. Solana, on the other hand, showed significantly higher centralization.

And today, we lower the lens. We zoom in on daily life.

We ask just one thing:

All this talk of “decentralization” — what does it actually have to do with you?

The answer is: everything.

It touches your wallet, your income, and even your entrepreneurial future. It’s not some idealistic slogan, but a real, evolving economic shift.

In this article, we’ll explore three core mechanisms through which decentralization is reshaping the new economy:

1. Tokenization of everything — turning the Internet from an information network into a value network;
2. The airdrop economy — shifting from user fees to platforms sharing profits with users;
3. The open-source innovation flywheel — empowering anyone to build global-scale apps from modular components.

These aren’t three separate movements. Together, they form a closed-loop system — a new paradigm of exponential innovation.

1. Tokenizing Everything: Upgrading the Internet from an Information Network to a Value Network

Think back to when email first emerged. People were astonished that text, images, and audio could be sent instantly to the other side of the world. But for decades, one question remained unanswered: Could assets — like real estate, currency, gold, or future income — flow as freely and efficiently as information?

Now, we finally have a clear answer: tokenization.

1.1 What Is Tokenization?

In simple terms, tokenization means transforming real-world assets — like houses, cars, gold, or dollars — into digital certificates (tokens) on the blockchain. These tokens can be transferred globally, instantly — just like sending an email.

For example: say you have $1 million. In the past, a cross-border transfer would have taken several days, if not weeks, due to layers of banking procedures. But now, by converting your funds into 1 million USDC — issued by the company Circle — you can send that value to any blockchain address worldwide, almost instantly.

If the recipient wants to convert it back into fiat currency, they simply go through a compliant financial channel. Just like that, on-chain and off-chain assets become seamlessly connected, and value begins to flow as freely as information.

1.2 How Does Tokenization Work?

The entire process can be broken down into three steps:

Step 1: Custody and Verification of Ownership Take gold, for instance. The physical gold must be held by a compliant, regulated custodian. If the asset is crypto-native (like ETH), it can be locked in a smart contract.

Step 2: Issuance of Token Certificates Once custody is secured, the system generates tokens based on preset rules (e.g., 1:1 pegging). PAXG, issued by Paxos, is a classic example of a gold-backed token.

Step 3: On-Chain Circulation and Redemption Once issued, the tokens can be transferred globally, used for trading, or integrated into DeFi applications. Token holders can redeem the underlying assets according to the protocol.

This process drastically simplifies traditional asset transfer mechanisms — making it as efficient as sending an email.

1.3 Why Is Tokenization the Core of the Web3 Era?

To understand why tokenization is so crucial, we need to take a quick look at how the Internet has evolved:

• Web1 (Read-Only Era): In the 1990s, the Internet was mainly a static repository of content. Users consumed information but didn’t create it.
• Web2 (Read-Write Era): After 2000, social platforms flourished. Users began creating and sharing content — but the platforms owned the data and reaped the profits.
• Web3 (Ownership Era): Decentralized networks allow users to truly own their data and digital assets. And tokenization is the key technology that makes that ownership real.

In the Web3 era, tokenization is revolutionary in three key ways:

1.3.1 Value Can Flow Freely, 24/7

Take USDC for example. As of May 15, 2025, Circle reported that the stablecoin’s circulating supply was holding steady at around $60.49 billion, with cumulative on-chain transaction volume in the trillions of dollars.

Unlike bank transfers, token transfers aren’t restricted by business hours, holidays, or borders. Settlement becomes instantaneous, and the efficiency of capital flows reaches a level never seen before.

1.3.2 Assets Can Be Fractionalized, Lowering Investment Barriers

The rise of Real World Asset (RWA) tokenization allows ordinary people to access financial products once exclusive to the ultra-wealthy.

For example, Ondo Finance and BlackRock’s BUIDL fund are tokenizing U.S. Treasury securities and money market funds, letting users participate with as little as a few dollars.

A 2023 report by Boston Consulting Group predicted that by 2030, the global market for tokenized illiquid assets could reach $16 trillion.

As of early 2025, the tokenized portion of U.S. Treasuries alone has surpassed $700 million — and the number continues to grow.

1.3.3 Assets Become Composable and Programmable, Enabling Innovation

Tokenization brings more than liquidity — it enables composability and programmability, much like Lego blocks for finance.

Take Ether.fi, a restaking protocol on Ethereum: Users stake ETH to receive eETH, which can then be used as collateral for loans or to access yield strategies.

Or Pendle Finance, which separates and tokenizes future yield streams to create markets for fixed income and interest rate swaps.

As of May 2025, data from DeFiLlama shows that Pendle and similar yield-token protocols now manage over $4 billion in assets, showcasing the explosive potential of tokenized financial innovation.

1.4 Challenges That Tokenization Still Faces

Despite its promise, tokenization is not without its challenges:

• Custody and Compliance: How do we ensure off-chain assets are secure, verifiable, and auditable? Common solutions include third-party audits, on-chain reserve reports, and regulated custody frameworks — all still evolving.
• Oracles and Pricing Feeds: A single bad price feed could trigger mass liquidations across DeFi platforms. The industry currently relies on decentralized oracles (like Chainlink) and mechanisms like time-weighted average prices (TWAP), but these are still works in progress.

From all of this, it’s clear that tokenization has turned the Internet from a carrier of information into a network of transferable value.

It dramatically lowers the barrier to global investment, allowing ordinary people to access previously unreachable markets. It also redefines the logic and speed of financial services.

And once value can flow freely, platforms must change how they attract users — not by charging fees, but by sharing value.

That, precisely, is where the airdrop economy comes in.

2. The Airdrop Economy: A Leap from “User” to “Shareholder”

If tokenization allows value to flow as freely as information, then the rise of the airdrop economy is fundamentally rewriting the economic relationship between platforms and users.

We are witnessing a business model revolution unlike anything before —

From: users pay to use To: users use for free To now: platforms pay users to use

In this new model, users are no longer sidelined consumers — they are, for the first time, brought into the center of value distribution. They are no longer just users, but co-builders and beneficiaries.

2.1 The Essence of the Airdrop Economy: Value Trickle-Down + User-as-Shareholder

In the past, users paid for services. Later, platforms became free to use and profited through advertising. Now, decentralized platforms go a step further: they directly give users money.

It might sound like a fairytale, but it’s already happening. The airdrop economy refers to the practice of distributing tokens to early users, contributors, developers, and evangelists — effectively redirecting value that used to be monopolized by platforms back to users.

These tokens represent not only future profit-sharing, but also governance rights. In other words, they establish a new kind of user-shareholder platform model.

To understand the power of the airdrop economy, let’s look at how the flywheel model works in practice:

1. Growth begins with airdrops: The platform allocates a portion of its tokens and distributes them freely to early users or contributors.
2. Users gain rewards and a sense of belonging: After receiving the tokens, users not only benefit from price appreciation but also gain an identity: “I’m a part of this platform.”
3. Increased platform engagement and liquidity: As users do more on the platform, TVL (Total Value Locked), trading volume, and community reputation all rise together.
4. Platform value rises, token prices go up: Greater user participation lifts overall valuation and token price.
5. New users rush in: The cycle restarts — token incentives become a perpetual motion engine for growth.

This logic isn’t theoretical. It has already played out many times in the real world.

2.2 The Airdrop Economy: Becoming a New Paradigm for Web3 Value Discovery and Community Formation

In traditional business logic, any form of financial outlay — whether it’s user acquisition bonuses or referral rebates — must be calculated meticulously with metrics like ROI (return on investment) and CAC (customer acquisition cost).

But in the Web3 world, the rise of the airdrop economy is disrupting this logic from the ground up.

It no longer follows the traditional model of “rewarding only after contribution.” Instead, it embraces a philosophy of “value first, trust-driven” — allocating ownership stakes upfront to potential users and contributors as a lever to activate their future participation and ecosystem co-building.

2.2.1 Uniswap: The Ownership Revolution Ignited by an Airdrop

Uniswap’s 2020 airdrop was a landmark event in this new paradigm. It wasn’t just a token giveaway — it was hailed as the crypto world’s “people’s IPO.”

Every early user woke up to find 400 UNI tokens sitting in their wallet — worth around $1,200 at the time, and over $10,000 at the height of the bull market.

What made Uniswap revolutionary was this:

• It was the first large-scale proof that “airdrop = advertising”: Giving tokens directly to users proved far more effective than traditional ad campaigns at attracting liquidity (TVL surged) and building brand momentum.
• It redefined governance: Users were no longer just liquidity providers or service consumers. By holding UNI, they became platform shareholders — able to participate in decision-making and influence future development. It marked a new kind of open-source project — where community members became core stakeholders.

2.2.2 EigenLayer: A Systemic Market Kickstart Driven by Expectation

Uniswap’s success opened the door to the airdrop economy. But later players refined it into something more strategic and sophisticated.

A prime example is EigenLayer, a restaking protocol. Unlike Uniswap, EigenLayer didn’t immediately launch a token. Instead, it built an intricate “airdrop expectation” mechanism, successfully attracting massive ETH restaking from users who otherwise would have left their assets idle on Ethereum’s mainnet.

EigenLayer’s strategy reveals the next stage of airdrop evolution:

• The magnetic force of future value: Before the EIGEN token was even launched, clear expectations and protocol design alone helped push its TVL beyond $10 billion.
• A systemic go-to-market experiment: In April 2024, its first token distribution didn’t just cause a stir in the crypto community — it sparked interest across entire sectors like modular security and Actively Validated Services (AVS). It went far beyond a simple user reward; it became a full-blown market experiment: using future ownership to bootstrap present-day participation and ecosystem expansion.

These broad-based, inclusive airdrops are not closed-door games for elite insiders. They are designed to be “consensus ignition events” — reaching across the ecosystem: from regular users, to developers, to node operators.

They breathe unprecedented energy and participation into the entire network.

2.2.3 The Airdrop Economy Has Become the Core Engine of the Web3 Narrative

From Uniswap’s groundbreaking experiment to EigenLayer’s expectation-driven innovation, we’re witnessing a clear trend: Airdrops are evolving from isolated marketing stunts into a systematic, foundational paradigm for Web3.

They are reshaping three core business questions at their root:

• Where do users come from? → From “paid acquisition” through ads to “co-creation partnerships” built on value alignment.
• How are communities formed? → From loose interest-based groups to “distributed corporations” grounded in shared ownership and incentives.
• Why does the platform grow? → From unilateral service output to growth driven by token economies and multi-stakeholder participation.

The essence of the airdrop economy goes far beyond the surface-level act of “giving away tokens.” It’s a redefinition of how to organize and incentivize people, treating the community as the core asset, the users as the growth engine, and the token as the connective tissue.

This is Web3’s founding vision in practice:

No longer using ads to attract users, but using value itself to attract value.

2.3 The Far-Reaching Impact of the Airdrop Economy

The emergence of the airdrop economy has fundamentally restructured the relationship between platforms and users — and opened a new door to mutual benefit for creators and developers alike.

2.3.1 A New Logic of User Acquisition

In Web2, platforms typically followed the same playbook for acquiring users: burn money on ads, treat users as “targets for conversion,” and treat attention as a “resource to be monetized.” It was all about optimizing ad spend and bidding for eyeballs between Google and Facebook. From the outset, the user’s value was defined as something to be extracted.

In the Web3 world, this model has been flipped on its head.

Airdrops replace ad budgets. Instead of paying intermediaries to attract users, platforms convert that spend into tokens and distribute them directly to real users — those who actively use the product, share it with others, and help build the ecosystem.

It’s a trust-based, reverse-incentive mechanism: The platform is no longer trying to “reach users through advertising,” but instead is inviting users to become shareholders.

2.3.2 Users Become Shareholders

This shift doesn’t just alter acquisition strategies — it redefines the user’s identity.

In the past, you were a tenant of the platform — use it, leave it, be replaced at any time.

Now, you participate as a co-governing shareholder. You’re not just a user, but a contributor, a promoter, even a policymaker. Holding platform tokens is like holding equity in a company. And that ownership unlocks a deeper motivation to engage, a stronger sense of belonging.

2.3.3 The “Invisible Labor” Becomes the Foundation

A deeper transformation is happening among creators and developers.

In the Web2 era, platforms controlled the distribution channels and attention funnels. Creators relied on them to survive — but were often exploited in return: They helped grow the platform, only to watch it IPO and cash out, leaving them behind.

In Web3, more and more protocols are setting aside token allocations early on for the “base layer workers” of the ecosystem: content creators, independent developers, node operators. They’re no longer outsourced labor. They’re true co-builders — earning equity based on contribution, receiving dividends based on protocol rules.

The platform is no longer a wall to be stared at from below — It’s becoming a bridge that can be built together and whose success can be shared.

This structural shift isn’t just an upgrade to a business model. It’s a fundamental redesign of how value is distributed.

Its deeper message is this:

The platform is no longer the center — the community is. The user is no longer the target — but the partner. And from now on, every meaningful growth cycle will have real owners.

2.4 The Hidden Risks of the Airdrop Economy: Beware of Bubbles and Abuse

Of course, this model isn’t without its vulnerabilities:

• Sybil attacks: Some exploit the system by creating multiple fake accounts to harvest airdrop rewards, undermining fairness.
• Airdrop bubbles: The unchecked issuance of tokens, especially without underlying business substance, can lead to short-term speculation and long-term trust erosion.
• Regulatory gray zones: In some jurisdictions, airdrops are already being classified as securities offerings, putting projects under increasing legal pressure.

All of these risks serve as a reminder: Airdrops are not a miracle cure. They must be carefully designed as part of a long-term, sustainable incentive structure.

That said, replacing “charging users” with “rewarding users” represents a profound step forward in building mutually beneficial relationships between platforms and communities.

And what happens after users receive tokens? They don’t simply sell them or stash them away, hoping for appreciation.

Many begin creating.

Some start building their own projects.

And more and more people are beginning to realize: In a decentralized world, innovation and entrepreneurship are no longer out of reach.

3. Open-Source Innovation: From Idea to Product, Just a Few Lines of Configuration Away

If tokenization laid the foundation for value to flow, and if the airdrop economy redefined how that value is distributed between platforms and users, then what truly enables innovation to explode at an exponential rate in this new era is the most powerful engine of all: open-source innovation.

This is a paradigm shift unlike anything before:

You don’t need venture capital. You don’t need connections. You don’t even need an office or server infrastructure.

All you need are a few open-source modules, a clear incentive mechanism, and a laptop connected to the Internet — and you could ignite the future of an entire ecosystem.

But none of this would be possible without one thing at the core:

Decentralization.

3.0 Open Source: A Prerequisite for Decentralization

In a system without centralized oversight or trusted intermediaries, code that isn’t open-source is simply not trustworthy.

If no one can audit it, no one will use it.

Decentralization forces code to be open. And once it is open, it becomes a kind of global launchpad for innovation.

This isn’t just about lowering the barrier to entry. It’s about redefining the very productivity of innovation.

Decentralization makes open source a necessity. Open source makes innovation a flywheel.

And this path has never been clearer, nor has it ever been so close to every ordinary individual.

3.1 How Does This System Actually Work?

What did starting a business look like in the past?

You’d come up with a good idea — then spend months assembling a team, finding investors, building a backend, setting up servers, integrating payment systems, registering a company, filing trademarks, and launching marketing campaigns.

By the time you were ready to ship, half your energy was already gone — burned on the so-called “preparation.”

Now enter the Web3 world.

In this new age of “Onchain-as-a-Service”, all of that backend infrastructure has already been broken down into reusable open-source Lego blocks:

wallet logins, on-chain payments, NFT issuance, community governance, voting mechanisms, content distribution…

All you need to do is pull the code from GitHub, tweak a few lines of configuration, and you’re ready to launch.

And thanks to the rise of modular blockchains (like Celestia) and Layer 2 solutions (like Arbitrum Orbit and OP Stack), developers can now customize and deploy their own appchains with unprecedented ease.

In many cases, spinning up a new product is now as fast and frictionless as changing your phone case.

This isn’t just a change in technical architecture.

It’s a complete revolution in the paradigm of innovation.

Farcaster is a decentralized social protocol.But it’s not a single app — it’s a “social base layer”, an open foundation on which anyone can build freely.

By early 2025, the Farcaster ecosystem had experienced explosive growth on Base, the Layer 2 network incubated by Coinbase.Its groundbreaking feature, Frames, allows developers to embed interactive applications directly within social feeds — like running a mini-app inside a tweet.

Farcaster’s daily active users once surged past 50,000, while the number of applications built within the ecosystem (whether mini-programs embedded in casts or standalone clients) climbed into the thousands.

Some of the most popular Frames apps attracted tens of thousands of user interactions within just a few days, showcasing the speed of innovation that becomes possible when open protocols are paired with high-performance modular chains.

3.2 The Cliff-Like Collapse of the Innovation Barrier

For individual developers, the open-source innovation flywheel means:

• Dramatically reduced costs: Infrastructure modules are all open-source, deployment happens on-chain, and starting a business no longer requires expensive servers, DevOps, or centralized payment integrations.
• Significantly faster speed: Taking an idea from concept to launch no longer takes months — it now takes just a few hours.
• Clearer, more direct returns: Developers don’t need to wait for a corporate acquisition or IPO. They can earn directly through protocol-level token distributions, community incentives, or even on-chain dividends. It’s build to earn.

According to a widely cited report by crypto investment firm Variant Fund — which has been consistently validated through data across 2024 and 2025 — the average startup cost for a Web3 developer has dropped by over 90%, while code reuse rates have climbed to nearly 80%.

This means one thing: Ideas have become the core asset — while capital and connections are being marginalized.

3.3 Potential Risks: Fast ≠ Risk-Free

Of course, the more powerful the open-source flywheel becomes, the greater the potential risks:

• Long dependency chains: The module you use may depend on another module, which in turn may rely on yet another. If any link in the chain is compromised — through attack, shutdown, or bugs — the entire product stack can collapse.
• Legal gray areas: Not all open-source code is free to use however you like. Different licenses (MIT, GPL, Apache, etc.) come with different rules for commercial use. Misusing code could lead to infringement risks.
• Security vulnerabilities: Code reuse also means bug reuse. Unvetted smart contracts can quickly become honeypots for hackers. In 2024 alone, we saw multiple high-profile exploits caused by reentrancy attacks and oracle manipulation, resulting in massive fund losses. These incidents were yet another wake-up call.

So even in the “flywheel era,” auditing, testing, and legal compliance remain essential.

At this point, the difference becomes clear:

In Web2, you had to build an organization to innovate. In Web3, all you need is an idea — and a community to help you build it.

Decentralization has turned “ideas” into currency. And it has made what once seemed wild and out of reach, radically executable.

And this loops us right back to the previous two flywheels:

• The new applications you build generate new assets, new users, and new forms of value.
• That value gets tokenized, initiating new airdrops.
• The airdrops bring in more contributors…
• And so on.

Eventually, you yourself become part of the flywheel.

4. Is There a Closed-Loop Logic Behind the Decentralized Business Model?

You may have already sensed it — Tokenization, the airdrop economy, and the open-source innovation flywheel are not isolated trends. In fact, they form an intensely interconnected loop.

This isn’t some coincidence. It’s a new mode of economic organization.

4.1 How Positive Feedback Takes Shape

The Internet was originally built for the free flow of information. Web3, at its core, is about the free flow of value.

Step 1: Tokenization — Making Everything Priced and Transferable

Tokenization gives value a standardized, on-chain “format” and “address.” Any asset — physical or abstract, local or global — can now be digitized, split, transferred, and recombined.

You can:

• Use USDC for cross-border payments;
• Use stETH as collateral in lending markets;
• Invest in tokenized U.S. Treasuries like BlackRock’s BUIDL;
• Even tokenize and monetize niche assets like attention, storage space, bandwidth, or security services (e.g., AVS on EigenLayer).

It all begins with pricing it on-chain.

Step 2: The Airdrop Economy — Distributing Value to Ordinary People

Once a token exists, the question becomes: who owns it?

In Web2, users created value, but platforms captured it. You might spend hours watching videos, commenting, inviting friends to sign up — but the ones getting rich were the platforms and their investors.

Web3 flips that logic. Instead of buying traffic through advertising, platforms “give money directly to users” to earn their loyalty.

Projects like EigenLayer, Starknet, and Wormhole prove a simple truth:

If you want adoption, the most effective strategy isn’t storytelling — it’s profit-sharing.

And from there, a new startup logic emerges:

1. Use open-source modules to quickly and cheaply build an on-chain application;
2. Launch a token and airdrop it to attract early users and contributors;
3. As user activity increases, TVL rises, token prices go up, and attention pours in.

Airdrops aren’t just rewards. They’re the spark that ignites the flywheel.

Step 3: The Open-Source Innovation Flywheel — Constantly Spawning New Products

Once you have:

• Tokens (fuel),
• Users and capital (engine),

you’re ready to fire up wave after wave of innovation.

And it’s the open-source innovation flywheel that solves the biggest pain point for Web2 builders: high barriers and slow timelines.

You no longer need to build wallet systems, set up backend servers, or manage payment integrations. Everything is now modular — ready for you to plug and play.

Lowered innovation thresholds + open token incentives have led to a global wave of “code-native entrepreneurship.” Now, even a single person with a simple idea can launch a viable product.

So now we’re seeing a historic surge in on-chain innovation.

For example:

• Farcaster’s Frames: one idea can attract tens of thousands of users in days.
• Appchains on modular blockchains like Celestia or OP Stack are launching almost weekly.
• Restaking ecosystems (e.g., AVS on EigenLayer) are spawning dozens of projects around a single core protocol — each distributing points and airdrop expectations to grow their networks.

These projects eventually generate new assets and accumulate new value, which in turn gets tokenized, triggering the next airdrop, drawing in the next generation of builders.

4.2 The Ecosystem Flywheel Is Spinning Faster Than Ever

When you connect these three parts — tokenization, airdrops, and open-source innovation — you begin to see an astonishing pattern:

• Tokenization gives everything a digital expression, allowing value to move freely.
• The airdrop economy distributes value to users, creators, and developers.
• Open-source innovation continuously spawns new use cases, assets, and applications.

These new apps then generate more tokenizable value, triggering new airdrops, attracting new contributors — fueling the next wave of growth and innovation.

This structure doesn’t scale linearly.

It explodes exponentially.

We’re not just seeing “one great product emerge.” We’re seeing entire ecosystems replicate themselves — again and again.

It’s a never-ending acceleration spiral:

• One protocol spawns a token;
• One token inspires a new ecosystem;
• One ecosystem gives birth to a new set of economic rules.

So what is the real value of decentralization?

It’s not just “putting data on-chain” or “removing the middleman.”

For the first time in history, we are:

• Creating, distributing, and transmitting value with unmatched efficiency;
• Allowing thousands of individuals — without relying on institutions or hierarchies — to collaborate through pure incentive and shared consensus;
• Enabling innovation to self-replicate and evolve at scale, unleashing a new civilizational level of productive energy.

This isn’t just a technological revolution.

It’s a revolution in economic structure and institutional design.

Conclusion: The Future Has Arrived

As we look back over the three-part “Decentralization Trilogy,” a clear narrative arc begins to emerge.

Part I peeled away the mask of “fake decentralization.” We saw that no matter how long the blockchain is or how flashy the code looks, if the underlying infrastructure still relies on centralized cloud services and legacy platforms, then “freedom” is nothing but a facade — just a shiny wrapper for an old illusion.

Part II dissected the real foundations of decentralization: distributed ledgers, incentive mechanisms, and on-chain governance. Together, these form a new order — more stable, more trustworthy, more censorship-resistant.

And today, we finally answered the most fundamental question:

“What does this have to do with you?”

The answer is: a lot.

Decentralization is not some distant technical ideal. It’s a power shift unfolding in real time, and it’s already shaping:

• Whether you can grow your wealth with smaller capital through access to global value flows;
• Whether you can bypass gatekeepers and become a platform shareholder instead of just a “user”;
• Whether you can take a simple idea, stitch together a few modules, and launch it globally — without funding, gatekeepers, or red tape.

In the Web2 era, we were “users” — our data collected, our attention extracted, our consent buried in endless terms of service.

In the Web3 era, we can finally become co-builders, partners, governors — true stakeholders in every sense.

For the first time in history, ordinary people have the power to participate in institutional design at near-zero cost.

Not through a ballot box. Not through petitions. But through a wallet and a signature — by holding a token, joining a DAO, or simply being an early user of a protocol — you can become a co-architect of the next wave of systems and rules.

Because at the end of the day, the decentralization revolution is not just about a new technical stack.

It’s about who gets to create value, who gets to distribute it, and who gets to decide.

Yes, the U.S. stablecoin bill has introduced new variables into this story. It opens new doors for dollar-based liquidity — but also tightens the noose around the principles of open, permissionless innovation.

And yet, the true meaning of decentralization lies in this:

The power, profit, and future that once belonged only to big companies and big capital, for the first time, now belong to you.

This is a restructuring of production relationships. This is a redistribution of power from the top to the bottom. This is a paradigm shift in the very relationship between platforms and users.

And we — we are sitting in the front row of this great transformation.

You don’t have to be a developer. You don’t have to mine Bitcoin.

You only need to recognize one thing:

This era has changed.

The next wave of opportunity won’t belong to the platforms that got there first.

It will belong to those who are willing to learn, act, and trade sweat for equity.

The future won’t belong to giants. It won’t belong to those who simply “knew early.” It will belong to those who dare to act after they know.

The “Decentralization Trilogy” ends here. But your own journey into decentralization may have just begun.

So where should you start?

If you’re new to this space, begin with the Zero-to-One Tutorial Bundle I’ve put together. You’ll quickly learn the basics while participating in a few zero-cost airdrop opportunities, helping you build your first layer of assets and understanding with minimal risk.

If you’re already a Web3 native, join us in building AlphaDaii — a community of frontier explorers where we search for real decentralization dividends and uncover the next high-potential Alpha projects.

This time, don’t just watch from the sidelines.

Are you ready?

What Does Decentralization Have to Do with You, Really? was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

• A blue-check “CoinDesk Deputy Editor” invited me to record a podcast → I almost installed a phishing app → a 5-second hesitation saved my wallet.
• The real 0-day lies in human nature: authority worship + time pressure = an endlessly reusable exploit. More than 40 % of global crypto losses rely on scripted phishing.
• The thinnest defensive line = the “5–4–3–2–1” countdown: stop for 5 seconds, raise 1 doubt, verify 1 source — no matter how strong the tech, it still depends on that split-second of clarity.

I was supposed to talk about Part III of “The Decentralization Trilogy” today, but I have to postpone it. In the past few days something happened that nearly changed my life —

I was almost scammed, and I hardly noticed it happening.

Early last Friday, as usual, I turned on my computer. X (formerly Twitter) showed a DM notification. I opened it and was immediately hooked:

An official-looking avatar, blue check, the ID read Dionysios Markou, claiming to be Deputy Managing Editor at CoinDesk.

During our chat he said:

I work at @CoinDesk. We’re producing a series of interviews with different members of the Web3 community in Asia. We’d like to invite you as a guest. We plan to record a podcast and publish it on our website, Spotify and other platforms. This episode will dive into topics such as the future markets of Bitcoin/Ethereum/Solana, the MEME market, DeFi, and Asian Web3 projects. Could you let us know if you’re available?

The content was concise and professional, exactly the outreach format common in crypto media. I thought: CoinDesk? A venerable outlet — I know them well.

I accepted almost without hesitation. Being interviewed about Bitcoin, Ethereum, Web3 and MEME projects is the perfect scenario for my work.

We set the call for 10 p.m. Monday, 12 May.

Note the sentence in the screenshot: “How is your spoken English?” This would become a key premise for the scam.

At 9:42 p.m. Monday he pinged me on X, ready to start the video call.

I suggested Teams; he said Teams lacks AI translation and proposed LapeAI, which offers seamless Chinese-English conversation, even sending a screenshot showing he was ready along with the room number and an invitation link (see image).

Although I’d never used LapeAI, his reasoning sounded plausible. To be safe, I didn’t click his link; instead I Googled “LapeAI” and found the site below.

Opening it shocked me — Chrome immediately flagged it as phishing.

But look closely: he’d sent LapeAI.io, while Google showed Lapeai.app — different TLDs, two separate sites. I typed Lapeai.io in the address bar — no warning this time.

Everything seemed fine, so I registered and entered his invite code. Note: LapeAI.app and LapeAI.io are actually the same site. The .app was flagged, so they registered a new .io — you’ll see why.

After clicking Synchronize, I didn’t get a chat window but the page below.

In the red box: although he didn’t ask me to click “download,” the text states you must press Sync on both web and App.

Why download an app if a web version exists?

I hesitated, yet still downloaded it. But when I reached the install screen below, I paused.

The pause came because this app didn’t install directly; it required running through Terminal — something I’d never encountered. I stopped and asked ChatGPT o3 to check. The results were shocking (see image).

Only then did I realize how close I’d been to disaster:

• lapeAI.io was registered 9 May 2025 — just three days earlier.
• The domain owner’s info is masked.
• The page title even misspelled “conference” as “conferece.” (Exactly the same as the already-flagged phishing site LapeAI.app.)

Any one of those should’ve stopped me.

1. I Realized I’d Met a Scammer

This wasn’t a CoinDesk invite; it was a carefully packaged social-engineering attack.

Looking back at that X account: blue check, yes, but early tweets were in Indonesian (see image); only recently did it rebrand as a Swedish crypto-media editor. And it had just 774 followers — far fewer than genuine CoinDesk editors with tens of thousands.

He wasn’t a journalist; he was a con artist. Re-examining the chat is chilling:

• Private DM → schedule confirmation → account registration → almost running the installer — just one step from being hacked.
• He knew I use Chinese, so he highlighted AI translation.
• He knew I cover Web3, so he stressed BTC, MEME, Asia topics.
• He knew CoinDesk’s weight in the space — perfect bait.

I had been tailor-made for.

This was no random scam; it was a precision social-engineering attack.

No hacking code, no virus link. The target was my trust, my professional identity, my desire as a content creator to be interviewed.

At that moment one term hit me — zero-day vulnerability.

2. The Human 0-Day: An Eternal Exploit, Always Online

You may have heard “0-day” in cybersecurity: the highest-level threat.

Originally a purely technical term on ’80-’90s underground BBS: “zero-day software” meant newly released, unpatched programs. Devs don’t know the bug, so hackers exploit it on “day 0.” Thus we get:

• 0-day vulnerability: vendor unaware, no patch.
• 0-day exploit: code abusing the hole.
• 0-day attack: the intrusion itself.

But humanity also has 0-day bugs.

They’re not in server code; they’re hard-wired into instincts honed over millennia. While browsing, working, gathering info, you’re exposed to countless default-on psychological vulnerabilities:

• Do you assume a blue-check means “official”?
• Does “limited slots” or “offer ends soon” make you anxious?
• When you read “suspicious login” or “assets frozen,” do you click immediately?

That’s not stupidity; it’s evolved survival wiring — weaponized as the human 0-day.

2.1 What Is the Human 0-Day?

Human 0-day = psychological vulnerabilities that social-engineering attacks can exploit repeatedly yet no technical patch can fix.

Tech 0-days can be patched once. Human 0-days? Almost incurable — rooted in our craving for safety, trust in authority, and fear of missing out.

They require no code, only a phrase, a familiar icon, a “looks legit” email. They bypass your device by bypassing your brain — your thinking time.

And there’s no update mechanism; every wired human is in scope.

2.2 Three Traits That Make Human 0-Days Terrifying

1. Cross-era. These instincts are encoded in genes. In stone-age times fear (fire, snakes) and obedience to leaders ensured survival. Thousands of years later they still reside in our decision loops.
2. Cross-culture. Nationality, education, tech background — irrelevant. North Korea’s Lazarus Group phishes Bybit staff in English, deceives defectors in Korean, fools crypto KOLs in Chinese. Language can be translated; human nature doesn’t need translating.
3. Mass-reuse. You might think you’re “being watched.” Attackers no longer need to. One script pasted to tens of thousands. In the scam parks of Cambodia and northern Myanmar, workers do 8-hour “script training,” then “go live,” each producing millions monthly — near-zero cost, huge success rates.

This isn’t a bug; it’s an industry.

2.3 Your Brain Runs a Default “Social API”

See the human brain as an OS; many responses are always-running APIs:

• A blue-check DM triggers your trust_authority().
• “Account anomaly” fires your fear_asset_loss().
• “300,000 people joined” calls fear_of_missing_out().
• “Only 20 minutes left” compresses rational bandwidth.

Attackers don’t hold you down; they just run the right script so you click, register, download — every step voluntary, as I did.

You think you operate software; you are the one being called.

This is phishing-as-a-service: script factories, call centers, laundering pipelines. No fixable holes, only perpetual human exploits.

3. Not Just Your Crisis — A Global Cognitive War

Understanding the human 0-day showed me I’m no exception. I’m a pawn in a worldwide psychological attack — like millions of ordinary people governed by the same scripts.

3.1 Crypto’s Black Hole: 43 % of Losses Are Scams, Not Hacks

Chainalysis Crypto Crime Report 2025: in 2024, direct losses from stolen crypto hit $2.2 billion. 43.8 % (~$960 million) came from private-key leaks — usually triggered by phishing and social engineering.

Almost $2 of every $5 lost weren’t due to technical exploits but to precision manipulation of human nature.

3.2 The Script Factory: Lazarus Group’s $1.34 Billion Cognitive Loot

North Korea’s Lazarus Group — state-backed, globally active.

• 2024: 20+ major social-engineering incidents.
• Targets: Bybit, Stake.com, Atomic Wallet…
• Methods: fake hiring, vendor impersonation, partnership emails, podcast invites.
• Loot: $1.34 billion, ~61 % of global crypto attack losses.

Almost none used system bugs — just scripts + packaging + psychological hooks.

3.3 Hackers Don’t Hack Wallets — they Hijack Your Trust System

They break not wallet passwords but those few seconds of your hesitation.

You might think, “I’m not an exchange employee or KOL; who would target me?” In reality:

• They don’t design for you; they deploy if you fit a template.
• Posted an address? They “recommend a tool.”
• Sent a résumé? They send a “meeting link.”
• Wrote an article? They “invite collaboration.”
• Said wallet error in a chat? They “assist fix.”

You aren’t naïve — you just haven’t realized human nature is the battlefield.

Next I’ll dissect the core weapon — the attack script — step by step.

4. Scripted Attacks: Step-by-Step Invocation of Your “Human API”

99% of social engineering attacks don’t happen because you accidentally clicked the wrong thing — but because you were guided step by step to click “correctly.”

It sounds like science fiction, but the fact is —

While you think you’re “just replying to a message” or “just registering on a platform,” you’ve already fallen into a carefully scripted psychological scenario. None of these steps are coercive — they’re cleverly designed to make you willingly walk toward the trap.

4.1 The Attack Process is a Cognitive Manipulation Chain

Stop thinking scams happen because you clicked a link or downloaded an app. Real social engineering is never about a single action — it’s about a psychological process.

Every click, every input, every confirmation is actually the attacker calling a pre-written “behavior shortcut” inside your brain.

Let’s reconstruct the five most common steps in a hacker’s playbook:

Step 1: Context Priming

Hackers first design a scenario you’re willing to believe.

Are you a journalist? They’ll claim to be a CoinDesk editor inviting you for an interview.

Are you working at a company? They’ll tell you you’ve been selected for an “exclusive beta test.”

Are you a Web3 developer? They’ll pose as a project partner seeking collaboration.

Are you a regular user? They’ll scare you with “account anomaly” or “frozen transactions.”

These scenarios don’t feel forced — they’re highly aligned with your identity, role, and daily needs. They’re the hook, and the anchor.

▶ The journalist scam I previously analyzed is a textbook case. He was simply asking Ledger for help on Twitter, but that one “reasonable” comment became the perfect entry point for a hacker’s targeted attack.

Step 2: Authority Framing

With an entry point established, the next step is building trust.

Attackers use familiar visual signals — blue checkmarks, brand logos, official-sounding language.

They may even clone official domains (e.g., replacing coindesk.com with coindesk.press), and include realistic podcast topics, screenshots, or samples — making the whole story look “totally legit.”

▶ In my case, the attacker’s bio said he was from CoinDesk, and the topics covered Web3, MEMEs, and the Asian market — perfectly targeting my mindset as a content creator.

This trick is aimed precisely at activating the “trust_authority()” function in your head — you think you’re evaluating information, but in fact, you’re defaulting to trusting authority.

Step 3: Scarcity & Urgency

Before you have time to calm down, they’ll speed up the pace.

“The meeting is starting soon.” “The link is about to expire.” “If not processed within 24 hours, the account will be frozen.”

All of this language serves a single purpose: to make sure you don’t verify anything, and just follow along.

▶ In the classic Lazarus attack on Bybit, they deliberately targeted employees right before the end of the workday, sending “interview documents” via LinkedIn — creating a double pressure of urgency and temptation, hitting the target’s weakest moment.

Step 4: Action Step

This step is crucial. Hackers never ask for all permissions at once — they guide you to complete each critical action step-by-step:

Click a link → Register an account → Install a client → Grant permissions → Enter your seed phrase.

Each step appears “normal,” but the rhythm itself is designed.

▶ In my experience, the attacker didn’t send a ZIP file outright, but instead used “invite code registration + synchronized installation,” dispersing my vigilance across multiple steps, making each feel “probably safe.”

Step 5: Final Authorization (Extraction)

By the time you realize something is wrong, it’s usually too late.

At this stage, attackers either trick you into entering your seed/private key, or silently extract your session, cookies, or wallet cache through backdoors.

Once the operation is done, they immediately move your assets and complete mixing, withdrawal, and laundering in the shortest time.

▶ In the $1.5 billion Bybit theft case, the attacker obtained access, split funds, and completed mixing in a very short timeframe — leaving almost no room for recovery.

4.2 Why This Process Almost Never Fails

The key is this: it doesn’t defeat your tech systems — it gets you to voluntarily switch off your own defenses.

From Step 1 “Who are you?”, to Step 2 “Who do you trust?”, to Step 3 “You don’t have time to think,” to the final “You pressed the execute button” — this process isn’t violent, but it’s meticulously precise. Each step hits one of your brain’s “automatic responders.”

In psychology, this state is called Fast Thinking — when under stress, excitement, or urgency, your brain bypasses logic and goes straight to emotion and instinct. To understand this deeply, read Thinking, Fast and Slow.

What hackers do best is build an environment that puts you in Fast Thinking mode.

So remember this key line:

Social engineering attacks don’t break through your defenses — they invite you, step by step, to open the door.

They don’t crack blockchain encryption. They bypass the most important user-side firewall — you.

So, if the “Human 0-Day” can’t be patched technically, is there a habit or a golden rule that can help you pause before the script is triggered?

Yes. It’s called the 5-Second Rule.

5. The 5-Second Rule: The Smallest Action Plan to Defeat the Human 0-Day

Now it’s clear:

Social engineering isn’t after your wallet, or even your phone — its real target is your brain’s response system.

It’s not a brute-force attack that breaks through defenses, but a slow-boil psychological manipulation: a DM, a link, a seemingly professional conversation — guiding you to willingly walk into the trap.

So if the attacker is “programming you,” how do you interrupt this auto-run process?

The answer is simple — do one thing:

Whenever someone asks for your seed phrase, sends a link, prompts a software install, or claims authority — force yourself to stop and count 5 seconds.

This rule may seem trivial, but when executed, it becomes:

The lowest-cost, highest-reward “human patch.”

5.1 No Matter How Strong Your Tech, It Can’t Stop a Fast Finger

You might say: “I’m not a newbie. I use cold wallets, multisig, 2FA. Why do I need a silly ‘5-second rule’?”

Indeed, the modern Web3 stack has excellent security layers:

• Passkey login
• Ledger or Trezor for offline signing
• Chrome sandbox for suspicious links
• macOS Gatekeeper to verify installers
• SIEM systems for connection monitoring

These tools are strong — but the problem is: you often don’t have time to use them.

Did you check the signature when downloading that app?

Did you verify the domain spelling before entering your seed?

Did you check the account history before opening that “system anomaly” DM?

Most people don’t lack ability — they simply don’t activate their defenses in time.

That’s why we need the 5-second rule. It’s not anti-tech — it’s there to buy your tech time to kick in.

It doesn’t fight battles for you — but it can pull you back before you click too fast.

Think for a second: “Is this link legit?”

Take a glance: “Who sent this?”

Pause: “Why am I in such a rush to click?”

Those 5 seconds are when your cognition comes online — and when your tech stack actually has a chance to protect you.

5.2 The Behavioral Science Behind the 5-Second Rule

Why 5 seconds? Why not 3, or 10?

It comes from behavioral author Mel Robbins in her book The 5 Second Rule and TEDx talk, backed by experimental and neuroscience evidence.

Robbins found:

When you count down from 5–4–3–2–1 and take immediate action, the brain’s prefrontal cortex is forcibly activated, overriding the emotional brain’s default delay/escape loops — enabling rational control.

The countdown acts as a metacognition trigger:

• Interrupting inertia — a pause like pressing the “pause button” on auto-pilot behavior.
• Engaging rationality — forces focus on the present, activating the prefrontal cortex and Slow Thinking.
• Triggering micro-action — once the countdown ends and you move or speak, the brain treats the action as done, reducing further resistance.

Psychology experiments show this simple trick significantly boosts success in self-control, procrastination, and social anxiety. Robbins and millions of readers have validated this repeatedly.

The 5-second countdown doesn’t make you wait — it lets your rationality “cut the line.”

In a social-engineering scam, these 5 seconds are enough to switch from “auto-click” to “pause and verify,” breaking the attacker’s time-pressure script.

So the 5-second rule isn’t pseudoscience — it’s a neuroscience-backed cognitive emergency brake.

It costs nearly nothing, yet at the most critical entry point, it brings all your technical defenses (2FA, cold wallet, browser sandbox…) to the forefront.

5.3 High-Risk Scenarios: In These 3 Cases, Always Stop — No Exceptions

I’ve summarized the scenarios where over 80% of social engineering attacks occur. If you encounter any of the following in real life — execute the 5-second rule immediately:

Scenario 1: “There’s an issue with your wallet, let me help.”

You ask for help on a social platform, and within minutes a blue-check “official support” DMs you with a “repair link” or “sync tool.”

🚨 Stop: Don’t reply. Don’t click.

🧠 Think: What’s the account’s history? Did the avatar change?

🔍 Check: Go to the official site or Google the domain.

Many scams begin with this “timely help.” What seems like a lifesaver is a scripted trap.

Scenario 2: “Congratulations! You’re selected for beta/interview/podcast.”

You receive a formally formatted invitation. It looks like it’s from a big-name company, sounds professional, and includes a PDF or software download link.

🚨 Stop: Don’t open the file — check the sender’s domain first.

🧠 Think: Would Coinbase really use a ZIP file? Why would CoinDesk insist on using LapeAI?

🔍 Glance: When was this website registered? Any misspelled letters?

▶ My case is a classic of this script. It wasn’t sloppy fraud — it was a refined disguise. He wasn’t after a quick buck — he came to take over my wallet.

Scenario 3: “Your account has abnormal activity — please verify.”

This is the most common scam. A shocking “alert email” or SMS, with an urgent link, and threatening tone like “failure to act will result in freezing.”

🚨 Stop: Don’t click the link — open the official site manually to verify.

🧠 Think: Would a real alert be this urgent? Does the tone feel templated?

🔍 Check: Is the sender’s domain google.com or g00gle.co?

These attacks target your fear and sense of responsibility. One click — and you’re hit.

5.4 Why This Rule Works for Everyone

You don’t need to be a hacker hunter. You don’t need cold signing, or a cold wallet, or tons of plugins and interceptors. All you need is:

• Count down 5 seconds
• Ask yourself one question
• Check one source (Google / domain / tweet history)

That’s your “behavioral patch” for the Human 0-Day.

This rule has no barrier, no cost, and doesn’t rely on software updates. The only dependency is — whether you’re willing to pause and think at the critical moment.

That’s the simplest, most practical, and most universal human firewall against scripted attacks.

Final Note: 5 Seconds of Caution, a Lifetime of Freedom

At first, I just wanted to document a “near-miss scam.”

But when I saw the cloned phishing site, the same misspelled title, the phishing domain registered just three days ago — I realized:

This wasn’t a one-time mistake. It’s a scripted assembly line harvesting trust on a global scale.

They don’t rely on tech hacks — they rely on your one-second hesitation.

You think a cold wallet is invincible — yet you hand over your seed. You think a blue check is trustworthy — but it’s just an $8 disguise. You think you’re not important — but you just happened to trigger their pre-written script.

Social engineering doesn’t break systems — it hijacks cognition, step by step.

You don’t need cold signing skills. You don’t need to study contract approvals. All you need is one tiny habit:

At a critical moment — force yourself to pause 5 seconds.

Look at that account, that link, that reason — is it truly worth your trust?

That 5 seconds isn’t slowness — it’s clarity. It’s not paranoia — it’s dignity.

When cognition becomes the battleground — every click is a vote.

Five seconds of caution. A lifetime of freedom.

May you not be the next victim. And may you pass this message on — to the next person who might not have time to hesitate.

One Click from Zeroing My Wallet: My Life-or-Death 5 Seconds with a Fake “Editor-in-Chief” was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

✅ Real-world events reveal the divide between “true decentralization” and “pseudo-decentralization” overnight

✅ Bitcoin: Humanity’s first global asset consensus achieved without reliance on authority

✅ Ethereum vs. Solana: Different compromises, different futures

✅ Data-driven insights: First-ever use of the HHI metric to quantify on-chain concentration, challenging market perceptions

✅ The essence unveiled: Decentralization is not idealism, but a new order beyond sovereignty

Great engineering is never just about technology — it is an art.

In Part I of the Decentralization Trilogy, titled What Is True Decentralization, we witnessed a striking scene:

In the early hours of April 15, 2025, in Tokyo, Japan, a single fiber optic cable shattered our illusion of “decentralization.” (English edition available)

Within just 15 minutes, the API response time of Binance, the world’s largest cryptocurrency exchange, surged 12-fold. Over 180,000 withdrawal requests on MEXC were blocked. Order failure rates exceeded 47% on KuCoin and Gate.io. Data from DeBank wallets showed that on-chain active transactions in the Asia-Pacific region plummeted by 58%.

We once believed that this new world would no longer succumb to single points of failure. Yet reality taught us: As long as core logic, key account systems, and trade matching still depend on centralized servers, beneath the veneer of “decentralization” lurks deadly fragility.

However, during that catastrophic hour, some systems remained entirely unaffected:

• Bitcoin continued producing 1MB blocks every 10 minutes.
• The Ethereum Layer 1 mainnet kept packaging transactions as usual.
• Uniswap’s on-chain trades proceeded without pause or rollback.

Why?

Why did some systems remain unscathed in the face of disaster, while others collapsed instantly?

The answer lies in the three simple words: decentralization.

But it is not a cold, technical term. It is an engineering art, an institutional imagination, and above all, an ambition.

Today, we will explore the beauty of blockchain and confront a more challenging question:

How is true decentralization achieved in the real world?

What technical logic, game theory, and resilient design allow these systems to survive repeated crises and earn trust?

But to find the answer, we must return to the beginning of the story:

Bitcoin.

Yes, you read that correctly. Not “blockchain,” but Bitcoin.

The word “blockchain” didn’t even appear in Bitcoin’s 2008 white paper. It was because of Bitcoin that blockchain came into being — and with it, the very concept of decentralization.

Bitcoin is the starting point of the decentralization story.

On January 3, 2009, Satoshi Nakamoto embedded the headline of that day’s The Times in the Bitcoin genesis block:

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.

This headline referred to a report about the British Chancellor of the Exchequer, Alistair Darling, deciding to inject £37 billion into UK banks to maintain the country’s credit liquidity.

By embedding this headline into the Bitcoin genesis block, Satoshi delivered a harsh critique of the centrally controlled financial system — further implying that systems governed by centralized control are inherently untrustworthy.

Sixteen years later, this system, which at birth attracted little attention and was worth less than a penny, has grown into a global asset network with a market capitalization exceeding $1.8 trillion, spawning hundreds of thousands of derivative protocols and innovative projects.

Why did it survive?

Why has it become the “resilience benchmark” of global digital finance?

If you understand how Bitcoin has managed to survive to this day, you will also understand —

How true decentralization has been achieved.

But to explain this fully, we must trace further back, to revisit humanity’s early explorations of decentralized value systems before Bitcoin.

1. Bitcoin’s Prequel

Many believe that Bitcoin’s birth was a sudden flash of inspiration. But if we trace back carefully, humanity’s exploration of decentralized value systems had already gone through at least three failed attempts before Bitcoin emerged.

Each attempt nearly touched the ideal — yet failed at a critical juncture.

1.1 The First Attempt: DigiCash — The Disillusionment of Centralized Trust

Let’s rewind to 1989. Cryptographer David Chaum founded a company called DigiCash. His goal was simple: to digitize cash while preserving privacy.

He invented the blind signature technology, allowing users to convert money from their bank accounts into a form of digital cash called e-cash. During transactions, even the bank couldn’t trace the user’s spending records.

It sounded like the “anonymous digital currency” people would later dream of. Even Microsoft was intrigued. In 1995, Microsoft proposed integrating e-cash into the Windows 95 payment system. But Chaum rejected Bill Gates’s $100 million acquisition offer.

Everything seemed promising. But the good times didn’t last.

In 1998, DigiCash declared bankruptcy due to financial difficulties. Chaum later reflected:

The root cause of our failure was that the system still relied on the servers and legal entity of a single company. Once the company ran into trouble, users’ assets and privacy collapsed instantly.

In fact, at the time of bankruptcy, DigiCash had fewer than 50,000 users worldwide — far from achieving a critical network effect. No matter how advanced the technology, centralized trust remained its Achilles’ heel.

1.2 The Second Attempt: b-money — The Utopian Idealism

DigiCash’s failure did not extinguish the passion of the cypherpunks.

In 1998, Chinese-American cryptographer Wei Dai proposed a groundbreaking concept on the Cypherpunk mailing list: b-money.

It was the first time in human history that the concepts of a decentralized ledger and proof-of-work (PoW) were systematically proposed:

A completely anonymous digital currency system where users would expend computational resources to generate money, and the ledger would be maintained by distrustful, decentralized nodes.

It sounded like the blueprint for Bitcoin. But b-money lacked one crucial element: a consensus algorithm.

Wei Dai envisioned that everyone could broadcast the ledger, but when discrepancies arose, who would have the final say? He didn’t provide an answer. The Byzantine Generals Problem — how distributed systems reach agreement on a single state — remained unresolved.

Ultimately, b-money became a spiritual beacon for cryptographers and libertarians alike but never left the realm of theory.

Without consensus, ideals remain just ideals.

1.3 The Third Attempt: e-gold — The Shackles of the Real World

In 1996, former radiation oncologist Douglas Jackson founded e-gold. The logic was straightforward:

Users deposited gold into the company’s vaults. e-gold then issued corresponding digital tokens for global circulation. Gold provided the backing; the tokens served as the medium of exchange.

By 2006, e-gold had over 5 million registered accounts and an annual transaction volume of $2 billion, sparking a wave of “digital gold standard” enthusiasm.

But just as it was thriving, the political hammer fell.

In 2007, the U.S. government charged e-gold with “operating an unlicensed financial business” and “suspected money laundering,” freezing its servers and fund pools. Founder Jackson was sentenced to probation, and the company ceased operations.

At the time, e-gold held 3.8 metric tons of gold in reserve, valued at approximately $85 million. Yet even this largest global digital gold payment system couldn’t escape the force of law.

The tragedy of e-gold underscored a harsh truth: No matter the system’s scale, as long as its infrastructure is concentrated at a single physical point, legal and political powers can destroy it at any time.

But the story of e-gold was far more complex than it appeared.

It not only pioneered early online payments but was even hailed by libertarian financial circles as the “revival of the digital gold standard.”

However, its cross-border scale drew heightened scrutiny from the U.S. government.

On April 24, 2007, a grand jury in the District of Columbia formally indicted e-gold and its founder, Douglas Jackson, accusing them of operating an unlicensed remittance business and facilitating money laundering and criminal activities.

Indeed, e-gold’s open registration and anonymous transfer design had been exploited by some online fraudsters and underground economies, though the platform itself had not actively participated in any illegal activities.

Facing overwhelming legal pressure, Jackson eventually chose to settle. In July 2008, he pled guilty on behalf of the company, agreed to pay a $1.5 million fine, and accepted strict future financial regulation. In November 2008, the court sentenced Jackson to three years’ probation and six months of home confinement. Simultaneously, e-gold’s servers and fund pools were frozen, and its business terminated entirely.

This event caused a massive stir in the cypherpunk community. It proved one thing:

Even with legitimate ideals, transparent operations, and global user trust, any system relying on a single legal entity and physical server would ultimately be crushed by sovereign laws and political will.

It wasn’t just a judgment against e-gold — it was effectively a death sentence for all centralized digital value systems.

1.4 The Failures Behind the Failures

Yet, behind the failures of DigiCash, b-money, and e-gold, there were other technical attempts — though they never commercialized — that profoundly influenced the future.

In 1997, Adam Back invented Hashcash, originally designed to block spam emails by requiring senders to expend computational effort finding hash collisions that met a difficulty requirement. This mechanism later became the basis for Bitcoin’s proof-of-work (PoW) system to prevent spam and forgery.

In 1998, Nick Szabo proposed Bit Gold, where users would solve complex mathematical problems, and the results would be time-stamped and validated through cryptographic signatures. Bit Gold introduced the concept of decentralized accumulation and verification of digital assets — a design that was essentially the blueprint for Bitcoin’s UTXO model and PoW chain.

In 2004, Hal Finney developed Reusable Proof-of-Work (RPOW), the first system to attempt making PoW results transferable. It allowed users to validate their computational proofs on secure hardware servers and issue new ownership tokens. This concept of off-chain transfer was the precursor to Bitcoin’s UTXO mechanism.

Though these pioneers didn’t overcome the three critical death barriers — legal, economic, and engineering — their contributions in mathematics and mechanism design laid the indispensable foundation for Satoshi Nakamoto’s “final answer” in 2009.

1.5 All Failures Pointed to the Same Conclusion

From DigiCash to b-money to e-gold, despite their differing approaches, their fatal flaws were strikingly similar:

• Lack of censorship resistance — Systems relied on single legal entities or servers, leaving them vulnerable to political pressure.
• No state consensus — They failed to resolve the distributed ledger’s consensus conflicts, leaving their ideals stranded as sketches.
• Single point of control — Any centralized accounts, servers, or fund pools became Achilles’ heels.

These three obstacles halted every early attempt at digital currency.

Until Bitcoin emerged, making “decentralization” a reality for the first time — not just an idea.

2. Bitcoin: The First Real-World Implementation of Decentralization

On January 3, 2009, Satoshi Nakamoto pressed the start button of history. That day, the Bitcoin mainnet officially went live, and the first block — the Genesis Block (Block #0) — was mined.

• Block reward: 50 Bitcoins.
• Block hash: Beginning with a string of leading zeros, proving it met the difficulty target of the proof-of-work (PoW) algorithm.

A system entirely unlike any previous digital currency was born.

Bitcoin’s foundation was not legal protection or corporate endorsement, but code, algorithms, and economic incentives.

2.1 State Consensus: No One Can Rewrite History

In a distributed system, the most critical issue is not speed or functionality, but how to achieve consensus on history — and ensure that no one can arbitrarily rewrite the past.

Satoshi’s answer was two simple and elegant rules: proof-of-work (PoW) and longest chain priority.

All miners compete by computing vast numbers of hash collisions for the right to write the next block. Whoever first finds a hash that meets the difficulty requirement earns the right to include transactions in the chain — and receives the reward.

If the network forks, the chain with the greatest accumulated work (the longest chain) is accepted by all nodes as the true history, while other forks are automatically discarded.

This design has proven its resilience over 16 years.

As of May 6, 2025, there are approximately 21,406 full nodes actively running on the Bitcoin network (source: bitnodes.io). These nodes are spread across six continents, most densely in the United States, Germany, Canada, the Netherlands, and the United Kingdom. No single country or organization controls more than 30% of the nodes.

Even if a single entity controls vast computational power, as long as it does not exceed the 51% threshold, it cannot tamper with the historical ledger.

In 2014, the mining pool GHash.io once reached an alarming 42% of total hash power, approaching the critical 51% red line. The global community quickly became alarmed, sparking a decentralization self-rescue movement. Eventually, GHash.io voluntarily reduced its hash power under community pressure and encouraged miners to diversify into other pools. This incident became a milestone in Bitcoin’s governance history, demonstrating the self-correcting ability of the consensus mechanism and the community.

Since then, no mining pool has ever approached the 50% threshold again.

2.2 Trust by Verification: No Need to Trust Anyone

Bitcoin’s second pillar is its astonishing trust-by-verification mechanism.

Unlike traditional banking systems, Bitcoin does not require you to trust that banks will not tamper with your balance, nor that a platform will accurately record transactions.

It uses a model called UTXO (Unspent Transaction Output), where every Bitcoin’s ownership and transfer is broken into independent outputs instead of being represented simply by account balances.

Every transaction can be verified by anyone.

The key advantage of this design is: Even if you don’t know or trust any other users, you only need to run a full node to verify the entire blockchain’s history independently.

To prevent forgery and fraud, Bitcoin uses Elliptic Curve Digital Signature Algorithm (ECDSA). Every transaction must be signed with a private key, and any node can verify the signature’s authenticity using the corresponding public key. This ensures that only those with the private key can transfer the associated Bitcoins.

As of 2025, the complete Bitcoin blockchain data is about 650 GB. A standard laptop, with sufficient hard drive space, can run the Bitcoin Core client and independently verify the entire network’s history.

With a single command:

bitcoin-cli verifychain

A node can independently check the validity of the blockchain without relying on any third-party API or server.

In the past 16 years, Bitcoin’s on-chain data has never been subject to any widely accepted forgery. Even as centralized exchanges like Mt. Gox, Bitfinex, and FTX collapsed one after another, the records of Bitcoin assets on the blockchain have always remained accurate, transparent, and unbroken.

Trust no longer stems from “trusting someone” but from “verification” — facts that anyone can independently confirm.

2.3 Economic Incentives: Malicious Behavior Means Financial Loss

The biggest challenge in decentralized systems is not writing code or setting up servers. It’s this: If there’s no boss, who maintains the network? If there are no laws, who prevents bad actors?

In traditional systems, banks use payrolls to manage employees, and governments use laws to punish wrongdoers. But Bitcoin rejects all central authorities. It must answer this question itself.

Satoshi’s solution remains an unmatched design to this day:

Make “honesty” the lowest-cost option and “malicious behavior” an inevitably unprofitable business.

Miners compete through PoW for the right to write blocks. The winner receives a new block reward — starting at 50 BTC in 2009, halving every 210,000 blocks. By 2024, the block reward had decreased to 3.125 BTC. Miners also collect transaction fees paid by users.

To prevent excessive hash rate growth from destabilizing the network, Bitcoin automatically adjusts mining difficulty every 2,016 blocks (about every two weeks), maintaining an average block time of roughly 10 minutes.

This mechanism ensures:

• Honest work yields stable returns.
• Malicious behavior not only fails to generate profit but guarantees significant financial losses.

This theory has never been disproven in 16 years of real-world operation.

In 2024, a new case once again validated its power.

That year, Bitcoin’s global hash rate concentration reached historically high levels. According to CryptoSlate, two major mining pools — Foundry USA and AntPool — jointly controlled about 57% of the total hash rate (Foundry USA: 30%, AntPool: 27%).

In theory, they had the power to launch a 51% attack.

If they wished, they could prevent new blocks from being recorded, reverse transactions, or even execute double-spend attacks. But in reality, no attack occurred.

Much like the 2014 GHash.io incident — when GHash.io approached 50% hash rate but ultimately reduced its share voluntarily — Foundry USA and AntPool chose to “rule by inaction.”

Not because they lacked the ability, but because the cost of launching an attack was enormous and the potential profit negative.

• First, an attack would instantly destroy global trust in Bitcoin, causing the price to plummet. This would devalue the Bitcoin assets held and mined by the pools themselves.
• Second, the Bitcoin community could respond with a soft or hard fork, excluding the attackers from the new chain. The mining pools’ billions of dollars of hardware and electricity investment would become “electronic waste.”
• Most importantly, both pools’ business models depended on long-term stable mining income and customer trust. Launching an attack would not only lose community support but also invite comprehensive regulatory crackdowns.

The potential profit from wrongdoing was vastly outweighed by the cost.

Foundry and AntPool made no public pledge of “Do no evil.” But their choice — or rather their “strategic inaction” — was itself the best proof of Bitcoin’s effective economic incentive mechanism.

In 16 years, no one has ever successfully launched a 51% attack. Not because no one tried, but because no one could bear the consequences.

This is the second pillar of decentralization:

Trust doesn’t rely on morality — it relies on economic calculation. When honesty is the only rational choice, it prevails.

2.4 Three Pillars Forge an Indestructible Network

From 2009 to 2025, Bitcoin weathered three bull-bear cycles, dozens of global regulatory crackdowns, and even total bans by multiple countries — but it has never experienced even a minute of downtime. Because:

• State consensus: A global network of over 21,000 nodes ensures the immutability of history.
• Trust by verification: Any user can independently verify data without relying on third parties.
• Economic incentives: The cost of attack always exceeds any potential gain, eliminating malicious motives.

As you can see: Bitcoin is not a technology project. It is the first system in human history that can operate and earn trust even under conditions of distrust.

For the first time, decentralization became a reliable reality.

3. Inheritance and Compromise

Bitcoin has proven that decentralization is not only possible but also viable in the real world. But people quickly realized that decentralization alone was not enough.

If decentralization only means safe transfers of value, without supporting complex transaction logic, higher speeds, or integration with real-world data, it cannot meet the growing expectations for “network services” in the digital age.

Decentralization must become useful.

As the philosopher Isaiah Berlin reminds us:

All freedom ultimately comes at the price of compromise.

Thus, in the new generation of blockchain projects following Bitcoin, developers had to confront a difficult choice:

Should they stick to pure, extreme decentralization, or compromise between performance and user experience?

Ethereum and Solana represent two starkly different answers to this question.

3.1 Ethereum: The Idealists’ “Modular Compromise”

In 2015, a then 21-year-old Vitalik Buterin and his team launched the Ethereum mainnet. While Bitcoin could only record simple “who paid whom” transactions, Ethereum aimed to do more — to let the blockchain execute complex programs.

These programs are called smart contracts. They don’t run on traditional servers but are executed across thousands of decentralized nodes worldwide.

If Bitcoin is “digital gold,” Ethereum aspired to be the “decentralized world computer.”

But ideals quickly ran into the hard wall of reality.

3.1.1 The First Compromise: From PoW to PoS

Ethereum initially adopted the same Proof of Work (PoW) consensus mechanism as Bitcoin — massive computation to win the right to add blocks.

This approach was secure but painfully slow: Bitcoin could process about 7 transactions per second, and early Ethereum could only handle 15–20 transactions per second.

Speed became the bottleneck.

In September 2022, after years of development, Ethereum completed a major upgrade known as The Merge, transitioning from PoW to Proof of Stake (PoS).

Simply put: PoS no longer relied on miners competing via computational power. Instead, those who staked (locked) more ETH gained more opportunities to validate new blocks.

This change reduced Ethereum’s energy consumption by 99.95% (official data) and significantly increased its transaction processing capacity.

But new problems emerged.

Becoming a validator required a minimum stake of 32 ETH — by July 2025, this equated to $110,000, a prohibitive amount for ordinary users. Most people had to delegate their ETH to large staking pools operated by professional institutions in exchange for rewards.

The power of consensus began to concentrate in a few large organizations.

3.1.2 The Second Compromise: L2 and the Centralized Sequencer Risk

To further boost speed, the Ethereum community developed Layer 2 (L2) Rollup technology.

Rollups work by batching transactions off-chain and then recording the results back to the main chain.

Today, L2 networks like Base, Arbitrum, Optimism, and zkSync process over 1.2 million transactions daily, far exceeding Ethereum’s base layer capacity.

However, Rollups have an inconvenient secret: The sequencing of transactions is usually controlled by a single Sequencer.

That means whether your transaction is included and where it appears in the sequence doesn’t depend entirely on on-chain rules but is at the discretion of the Sequencer operator.

A typical case: On January 10, 2022, Arbitrum’s single Sequencer suffered an outage lasting more than two hours, halting all on-chain transactions. Although no user funds were lost, the incident revealed the centralization risks inherent in L2 networks.

While the Ethereum Foundation and other teams have started researching decentralized Sequencers (e.g., EigenLayer, Espresso Systems’ shared sequencing solution), fully decentralized Sequencer networks have yet to be implemented. As of today, most mainstream Rollups — including Arbitrum, Optimism, and Base — still rely on single Sequencer architectures.

This is a clear and painful trade-off between performance and decentralization.

3.1.3 A Compromise, but Also a Balance

Of course, Ethereum has not hidden these compromises. Vitalik candidly acknowledged in a blog post that decentralization is not a black-and-white issue. It is an engineering problem that requires finding a balance between user experience, scalability, and decentralization.

So far, this balance has proven successful: Ethereum continues to dominate the public blockchain space.

As of May 6, 2025, Ethereum’s main chain Total Value Locked (TVL) stands at approximately $80.3 billion, surpassing the combined total of all other Layer 1 and Layer 2 networks.

Ethereum no longer pursues absolute decentralization. Instead, it has chosen a modular, layered decentralization structure — sacrificing some purity for a significant leap in user experience.

3.2 Solana: A Bold Bet on Extreme Performance

If Ethereum carefully balances ideals and reality, Solana’s choice is crystal clear:

Performance first, even at the cost of centralization.

In 2020, Anatoly Yakovenko and his team launched the Solana mainnet, aiming to build a decentralized network as fast as NASDAQ.

3.2.1 A Performance Miracle

Solana achieved record-breaking performance in the blockchain industry:

• Peak Transactions Per Second (TPS): Over 65,000.
• Block confirmation time: Around 400 milliseconds — almost as fast as traditional internet payment systems.

This speed virtually eliminates latency for users, enabling DeFi, NFTs, and even Real-World Asset (RWA) transactions with a Web2-like experience.

3.2.2 The Cost of Speed

But such speed comes at a price.

Solana’s validator node requirements are extremely high.

• Official minimum specs:
• 12-core CPU
• 256GB RAM
• 1TB NVMe high-speed SSD

In reality, most validators use professional data center-hosted servers to maintain efficiency.

By 2025, Solana had around 3,000 validators worldwide. The top 10 validators controlled about 42% of total staking power.

Additionally, Solana introduced Firedancer, a high-performance client developed by Jump Trading’s team. While it further boosted network speed, it also created a technical dependence on a small number of development teams.

3.2.3 Centralization’s Tangible Results

Solana’s strategy yielded impressive real-world achievements:

• In 2025, Solana became the blockchain with the highest daily active NFT users globally.
• DePIN (Decentralized Physical Infrastructure) and RWA applications deployed on Solana at an industry-leading pace.
• Solana’s proprietary smartphone SAGA and payment solution Solana Pay surpassed 5 million users in Southeast Asia.

When faced with external criticisms about centralization, Anatoly candidly admitted in a 2024 CoinDesk interview: Solana’s goal is to prove that high performance and decentralization can coexist, even if some trade-offs are necessary.

Solana’s story is not just a technical narrative but a real-world experiment testing the boundaries of decentralization.

3.3 Summary: Real Choices Between Inheritance and Compromise

From Bitcoin’s purest form, to Ethereum’s modular balance, to Solana’s performance-first approach, different blockchains have presented different answers to the question of “decentralization vs. practicality.”

Decentralization is no longer an absolute “yes or no” proposition. It has become an engineering continuum — each chain makes its own choices between user experience, transaction speed, costs, and decentralization principles.

The decisions to inherit or compromise ultimately determine their futures.

4. Measurable Resilience: Engineering Metrics for Decentralization

Decentralization has never been just an ideology. It is an engineering attribute that can be measured. Just as the resilience of a bridge can be tested through stress analysis, the decentralization level of a blockchain also has objective, quantifiable standards.

Among many evaluation tools, the Herfindahl-Hirschman Index (HHI) has become the international standard for measuring system concentration.

Originally proposed in the 1950s by Dutch economist H. Herfindahl and American economist A. O. Hirschman, the HHI was initially used to analyze monopoly risk and competitive structures in industrial organizations.

In 1982, the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) officially adopted HHI as part of antitrust review standards, applying it widely to assess concentration in business mergers, financial markets, and internet platforms.

4.1 HHI: The “Thermometer” of Market Concentration

The calculation method for HHI is straightforward: square the market share percentages of all participants (such as computing power, staking, or market share) and sum them up. This approach sensitively reflects whether resources are overly concentrated.

For example, if 10 players equally split the market (10% each), the HHI is: 10 × 10 × 10 = 1,000, indicating a highly competitive and evenly distributed market.

But if one player holds 50% and the remaining 9 players each hold 5.55%, the HHI becomes: (50 × 50) + 9 × (5.55 × 5.55) = 2,777 — surpassing the 2,500 threshold, signaling a highly concentrated market with monopoly risks.

According to U.S. antitrust law, HHI is divided into three zones:

• Below 1,500 → Competitive market
• 1,500 to 2,500 → Moderately concentrated
• Above 2,500 → Highly concentrated

This “thermometer,” widely used in industry and finance, has now become a core tool for assessing decentralization in blockchains.

4.2 Bitcoin, Ethereum, and Solana: A “Concentration Checkup” for Decentralization

By applying the HHI standard to major blockchain networks, we can clearly see the differences in decentralization levels among the three.

4.2.0 Note: Assumptions and Limitations of HHI Calculation

This article adopts a simplified method commonly used in the industry when evaluating HHI for Bitcoin, Ethereum, and Solana: Using the top 5–10 entities’ control shares as the main sample, assuming the remaining participants have evenly distributed shares. This effectively reflects overall trends but has two potential underestimations:

1. Hidden control — Mining pool surface shares may underestimate the true concentration controlled by single entities or institutions.
2. Delegation overlaps — In PoS systems like Ethereum, multiple staking pools may be controlled by the same back-end entity or protocol delegation relationships.

Despite these factors, this method remains widely used for industry concentration analysis and reliably shows relative trends — though it provides a trend scale rather than precise absolute values.

4.2.1 Bitcoin (BTC): A Bit Too Concentrated

The chart above shows the hash rate distribution of the top 16 mining pools as of May 6, 2025. The calculated HHI is approximately 1,727, placing it in the moderately concentrated range.

While some mining pools have significant hash rate shares, the overall situation remains stable, with no pool approaching 51% — the largest has only 31% — demonstrating good resistance to censorship.

4.2.2 Ethereum (ETH): Surprisingly Low Concentration

As of May 6, 2025, the top nine staking entities control about 61% of total ETH staking. Yet, the calculated HHI is only 889, well below the 1,500 threshold set by U.S. antitrust standards.

This indicates low concentration in Ethereum’s validator power.

Even as Ethereum sacrificed some pure decentralization for performance and user experience, it still maintained better decentralization resilience than most financial and internet platforms.

4.2.3 Solana: Concentration Running High

As of May 6, 2025, the top ten liquid staking pools controlled about 82% of total SOL staking, showing significantly higher concentration than other major blockchains. The calculated HHI is around 1,830, falling within the moderately concentrated range.

This concentration is not accidental — it’s an engineering choice Solana made to achieve extreme performance and high transaction throughput.

This design greatly enhanced user experience, enabling Solana to support complex applications in DeFi, gaming, and DePIN at near-internet speeds. However, it also sacrificed some decentralization purity, making concentration a core variable requiring continuous monitoring in Solana’s resilience.

4.2.4 Additional Note

With the rise of EigenLayer, Karak, and other restaking networks, as well as the growth of Celestia, EigenDA, and other Data Availability (DA) layers, validator power and sequencing rights are now evolving across chains and layers.

A single entity might control Sequencers, validator nodes, or staking delegations across multiple L2s, DA layers, and restaking networks — creating “second-order concentration.”

The industry currently lacks mature metrics to measure this cross-layer concentration. However, some researchers have proposed “cross-domain HHI” or “Cross-Chain Governance Concentration Index (CGCI)” as potential future standards.

The HHI values used in this article mainly reflect single-chain, single-layer current states. New methods will be needed to assess future, more complex concentration patterns.

4.3 Bitcoin, Ethereum, and Solana: Three Engineering Choices

Through HHI metrics, we can directly compare the different decentralization approaches taken by three leading public chains:

• Bitcoin (BTC): HHI ≈ 1,727 (moderately concentrated). Its Proof of Work (PoW) mechanism and globally distributed hash power show good censorship resistance and distribution, aligning with its design goal as “digital gold.”
• Ethereum (ETH): HHI ≈ 889 (well below antitrust thresholds). It has achieved the highest decentralization level among mainstream blockchains. Ethereum’s balance of scalability, user experience, and decentralization — particularly in validator distribution — is a significant engineering success.
• Solana (SOL): HHI ≈ 1,830 (moderately concentrated but higher than ETH). This reflects Solana’s engineering trade-offs in pursuing high throughput and extreme performance, sacrificing some decentralization for speed — an approach suited to DeFi, gaming, and DePIN applications where latency is critical.

This comparison reveals that decentralization is not a singular goal. It’s an engineering balance among performance, scalability, and user needs. Each blockchain chooses a concentration level that aligns with its application scenarios and value propositions.

More importantly, this comparison exposes a fact often overlooked by the market:

Ethereum’s decentralization advantage far exceeds what its market capitalization and asset pricing suggest.

Even though ETH’s current market cap is much lower than BTC’s ($217 billion vs. $1.873 trillion as of May 6, 2025), it has achieved the optimal level of decentralization engineering.

This “decentralization value” remains undervalued — a factor that may lead to future market repricing.

5. Decentralization: A Remarkable Engineering Art

Throughout human history, every technological revolution is remembered not for its difficulty, but for the unprecedented achievements it enabled:

• The steam engine — freed human physical power from the laws of nature for the first time.
• The internet — broke the physical barriers of information transmission.
• And decentralization — for the first time, created an order that requires no trust in human society.

This is not just a technical breakthrough, but an engineering art. It integrates ideas, algorithms, economics, and social consensus across disciplines, solving contradictions that traditional systems could never overcome.

We can understand its extraordinary significance through three world-changing achievements.

5.1 Achievement 1: For the First Time in History, Global Asset Consensus Without Trust

In traditional society, asset consensus depends on authority:

• Banks record who owns how much money.
• Land registries record who owns which piece of land.

But this system inevitably faces three issues:

1. You must trust that institutions won’t falsify records.
2. You must accept national laws as backing.
3. Authority itself is a single point of failure, vulnerable to politics, war, or corruption.

Bitcoin broke this paradigm for the first time.

From January 3, 2009, to 2025, over 21,000 independent nodes have operated continuously for 16 years without a central server or any authoritative institution. They maintain the world’s largest “permissionless asset registry system.”

The Bitcoin ledger does not belong to any government or rely on any law. It belongs solely to the global participants running the consensus algorithm.

This marks the first time humanity has established a consensus asset system worth $1.88 trillion (as of May 6, 2025) without sovereign backing.

In the past, creating “money” always required the authorization of a king, parliament, or central bank. Bitcoin proved that’s no longer necessary.

5.2 Achievement 2: For the First Time, Honest Behavior Is Embedded in Economic Incentives to Form a Self-Operating Order

Historically, all orders have required external constraints:

• Laws enforced by courts and police.
• Business contracts enforced by arbitration.
• National security ensured by military power.

But these constraints carry costs, and their failure can lead to catastrophic consequences (such as the 2008 financial crisis or Venezuela’s currency collapse).

Blockchain achieved something unprecedented: Embedding the incentive for honest behavior directly into the system.

• Dishonest miners? Attacking the blockchain comes at a ruinous cost with virtually zero chance of success.
• Malicious validators? Ethereum’s slashing mechanism confiscates staked funds, leaving no profit for bad actors.

Even when entities like GHash.io briefly approached 51% hash power, the Bitcoin community quickly self-corrected, prompting the redistribution of mining power.

This incentive-punishment mechanism does not rely on law enforcement but uses economic game theory to make honesty the lowest-cost behavior choice.

In financial history, this has never been achieved before.

It is the first real-world deployment of an autonomous system.

5.3 Achievement 3: The First Creation of Highly Antifragile Social Infrastructure

In April 2025, an Amazon cloud fiber optic cable failure in Japan crippled centralized trading platforms and some Layer 2 networks in Asia.

But Bitcoin, the Ethereum mainnet, and Uniswap continued operating without a single second of downtime.

This was no coincidence.

Decentralization is, by nature, an antifragile system:

• Nodes are distributed globally, immune to natural disasters or political conflicts.
• If any node goes offline, the system self-heals.
• The consensus mechanism guarantees that historical records are irreversible.

This system does not depend on a single server, a particular government, or even the continued will of any single human organization.

In engineering history, only the TCP/IP protocol of the internet attempted a similar design (originally to survive nuclear war). But even TCP/IP cannot achieve global consensus on assets and state.

Only blockchains — in Bitcoin and its successors — have accomplished this.

This ability to transcend single points of failure, self-correct, and continuously evolve is something humanity has never possessed before.

5.4 Decentralization: Humanity’s New Consensus Art

Decentralization has never been just a “technical problem.” It represents humanity’s first new possibility — to build sustainable, trustworthy order without central authority.

It is not merely a playground for technologists. It is a civilizational engineering project forged by economists, engineers, cryptographers, legal scholars, and libertarians.

It has proven:

• Even without central authority, humans can still build trust.
• It has created a self-operating, self-protecting, self-evolving global asset and data order.

But its significance goes far beyond that.

Just as:

• The steam engine launched the Industrial Age.
• The internet launched the Information Age.
• Decentralization is launching an economic era beyond sovereignty.

Conclusion: Decentralization Is Both Art and the Future

Over the past 16 years, Bitcoin has irrefutably proven one thing:

Decentralization is not an ideal but a mechanism that can survive and continue to win in the real world.

In 2009, when Satoshi Nakamoto mined the Genesis Block, it was just an anonymous experiment. By 2025, Bitcoin has become the world’s 10th largest asset, with a market value exceeding $1.8 trillion.

And Bitcoin is not alone.

• Ethereum introduced smart contracts and modular design, transforming decentralization from just “storing money” into a programmable financial and logic engine.
• Solana chose a path of extreme performance, compromising somewhat on decentralization but pushing the speed limits of decentralized systems.

These are not the products of ideological debates. They are different answers born from engineering practice.

This is not a miracle — it is humanity’s first bottom-up consensus engineering feat.

Just like every great innovation in history:

• The steam engine liberated human muscle power from nature and launched the Industrial Age.
• The internet shattered information barriers and launched the Information Age.
• The blockchain uses trustless consensus to lead humanity into the first economic era beyond sovereign control.

This is the beauty of blockchain:

Not just the elegance of code, Not just the resilience of protocols, But a civilization-level engineering art:

• Enabling cooperation without requiring authority.
• Establishing tamper-proof consensus to give finance, data, and even social systems self-healing capabilities.
• Replacing punishment with incentives and trust with transparency, letting the world operate on its own.

Decentralization is not about rebelling against authority — it is about the instinct for survival. It is not about idealism, but about having a “second choice” even in the worst of times.

But the significance of decentralization goes beyond mere survival.

It has broken down the long-standing barrier between politics and economics, allowing humanity — for the first time ever — to build self-organizing financial and social orders without central sovereignty.

This change is already shattering the traditional paradigms of political economy.

In the next installment — the final chapter of the “Decentralization Trilogy” — we will explore:

Now that decentralization has solved its own “survival” problem, what kind of future can it create?

Decentralization: The Engineering Art of Survivors was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

I’ve been meaning to write a dedicated piece on the topic of “decentralization” for a long time. It’s not a new term — perhaps even a bit of a cliché — but I’ve always believed it is one of the most misunderstood and underrated concepts of our time.

Now, the opportunity has finally come.

Over the past two weeks, two Web2 giants — Amazon and Google — have taken the entire crypto industry to the ground with nothing more than a fiber optic cable and a backend script. This wasn’t a tech keynote or a philosophical debate, but harsh, unadulterated reality.

So, starting with this piece, I’m launching a three-part series titled: “The Decentralization Trilogy”

In it, I’ll try to answer three key questions:

1. How far are we from true decentralization? — the article you’re reading now.
2. What is the underlying logic that makes decentralization possible? — focusing on how protocol functionalization makes centralization fail from the micro level.
3. What can decentralization actually bring us? — a deep dive into how decentralization subverts Web2 business logic.

No slogans, just facts.No ideology, just reality.

So let’s begin with these two reality checks.

1. Reality Hits Hard

For the first time in history, we’ve seen clearly how a single, invisible “fiber cut” can simultaneously paralyze 15% of the global crypto spot trading market.

1.1 First Blow: One Fiber Cut Crashes the Entire Off-Chain Infrastructure

At 3:00 AM Tokyo time on April 15, 2025, AWS (Amazon Web Services) experienced a large-scale connectivity outage in its Tokyo region. In the first 15 minutes:

• Binance’s API response time surged by 12x,
• MEXC had over 180,000 queued withdrawal requests,
• KuCoin and Gate.io saw order failure rates spike to 47.3%.

Not only were trades delayed, even user logins experienced widespread timeouts. Notably, 42 minutes into the outage, DeBank showed a 58% drop in on-chain transaction volume from addresses in the Asia-Pacific region.

Assets were still on-chain. But trying to move them? Sorry — the off-chain account systems had already gone dark.

Binance posted a notably restrained emergency message:

We are aware of an issue impacting some services on the #Binance platform due to a temporary network interruption in the AWS data center. Some orders are still successful, but some are failing. If users failed, they may keep retrying.

MEXC was more direct in its warnings:

• Abnormal candlestick charts
• Failed order cancellations
• Delays in asset transfers for spot trading

During that hour, orders failed, trades froze, assets were locked — on-chain vaults sealed by electronic locks that no one could open. The blockchain networks were functioning just fine, but as long as key business logic remained hosted on centralized servers, your entire lifeline could be yanked by someone else’s power strip.

1.2 Second Blow: One Script Silences Countless Crypto Entrepreneurs

Eight days later, something even more devastating happened.

On April 23, 2025, Google began enforcing the EU’s Markets in Crypto-Assets Regulation (MiCA) on advertising:

• All crypto projects must upload valid regulatory license numbers from local financial authorities before running ads.
• Accounts that failed verification would be deactivated within 72 hours.

This wasn’t a takedown or a warning. Google’s ad team silently added one line of filtering logic in the backend. No system crash. No internet blackout. Ad links worked just fine — except they simply vanished from all search results without a sound.

Within three days, ad traffic in France, Germany, and Spain dramatically shifted:

• Ads related to keywords like “buy bitcoin” and “crypto wallet” plummeted by 67%.
• Mid-sized platforms like Coinstore, Bitget, and BitMart saw their ad impressions in some markets evaporate by up to 84%.

Meanwhile, giants like Crypto.com, Revolut, and Bitpanda — all MiCA-compliant — cashed in on the redirected traffic. Media outlets reported that these platforms gained more than 5x the new user registrations compared to the projects that were banned.

Google didn’t pull your internet cable. It just flipped a backend switch — and suddenly, you were “online,” but no one could see you.

1.3 Two Cracks Reveal One Brutal Truth

The methods were different — one was a physical outage, the other regulatory censorship. The symptoms were different — one technical, one related to ad visibility. But the outcomes were the same:

• Assets remained on-chain — but users couldn’t move them.
• Protocol logic unchanged — but the market couldn’t see you.
• Underneath the “decentralized” shell, all critical capabilities were still parasitic on centralized infrastructure.

This wasn’t just “bad luck for a few companies.” It was a collective vulnerability. A moment of naked exposure — where the fantasy of decentralization was quietly pierced by the needle of reality.

These two events force us to ask anew:

What is true decentralization?

Why is decentralization not merely a technical ideal — but a minimal condition for business survival?

And if we don’t decentralize now, what options will we have left the next time disaster strikes?

Let’s get to the bottom of these questions.

2. What Is Decentralization?

The word “decentralization” sounds like some kind of tech or ideological slogan. In many people’s minds, it means things like “no company,” “no CEO,” “lots of nodes,” or “no servers.” But all these definitions are vague impressions at best — and, at worst, complete misunderstandings.

To understand why we must decentralize, we first need to answer a deceptively simple question that very few people actually explain clearly:

What does “true decentralization” really mean?

2.1 Pseudo-Decentralization

Let’s start by looking at three common misconceptions:

Misconception 1: Multi-cloud ≠ Decentralization

Moving your servers from AWS to GCP, and setting up a hot backup on Alibaba Cloud, is not decentralization. That’s redundancy. It’s physical distribution, not permission distribution. Control still lies in the hands of a single company. With just one account freeze or platform ban, everything can still be taken down.

Misconception 2: A DAO = A Decentralized Organization?

If a DAO’s governance logic is handled through Discord and Google Forms rather than on-chain smart contracts, it doesn’t even meet the baseline of “immutable permissions.”Decentralization ≠ no leaders.It means every layer of control must be replaceable and verifiable.

Misconception 3: More Nodes = Decentralization?

If all nodes are run by a single foundation — even if they’re spread across regions and IP addresses — it’s still just a centralized cluster in disguise.That’s “fake distribution, real centralization.”

2.2 Real Decentralization

Decentralization doesn’t mean “no center.” It means everyone can be a center.True decentralization consists of three essential dimensions: architecture, process, and governance.All three must be present.

2.2.1 Architecture Layer: Distributed Ledger

Public chains like Ethereum and Bitcoin are examples of distributed ledgers. Anyone can run a node and sync the blockchain data. All nodes collectively maintain a globally consistent ledger.

This means:

• If any node goes down, the network still operates normally.
• No one can “delete” or “modify” historical records.
• The state of the network can always be independently verified.

This is the first line of defense against “physical disconnection.”

2.2.2 Process Layer: Permissionless Execution

A truly decentralized system doesn’t require you to “register an account,” “submit documents,” or “wait for approval” before participating.

For example:

• Anyone can call a smart contract.
• Anyone can deploy their own contract or frontend.
• Every function call is transparent and verifiable.

Take Uniswap, for example. It’s a textbook case of a permissionless protocol. Whether you’re a Wall Street trader or a user from Southeast Asia, as long as you know how to use a wallet, you can call its contracts directly to swap tokens or provide liquidity — no approval needed.

2.2.3 Governance Layer: Rules Written in Code

In Web2, rules are set in the backend and can be changed by admins at will.

In a decentralized Web3 world, rules are encoded in smart contracts, publicly stored on-chain. Any change must be executed through on-chain voting. This is what we mean by “machines can’t lie.”

Take MakerDAO (now SKY) for example:

• Its stablecoin USDS (formerly DAI) is governed by holders of MKR tokens.
• Collateral ratios, interest rates, and supported assets are all decided through on-chain votes.
• All voting records are stored on-chain, auditable, and irreversible.

2.3 Visual Comparison: Decentralization vs. Centralization

In one sentence:

Decentralization doesn’t mean there’s no control — it means control is distributed like seeds to everyone, and anyone can verify and replace it.

2.4 The Minimum Standard for Decentralization: Where’s the Passing Line?

That brings us to the next question:How do we know if a system meets the minimum threshold of “true decentralization”?

Here’s a commonly accepted checklist across the industry — you can treat this as a basic audit standard:

If not — no matter how much a project brags about decentralization — it’s likely just a centralized business running on the blockchain.

3. The Real-World Value of Decentralization

In the previous section, we explained what true decentralization looks like — from the perspectives of system structure, process, and governance.

But definitions alone are not enough. Most people don’t reject decentralization — they simply:

“Know it’s good, but don’t know how good it really is.”

In other words, we need real-world use cases to show the concrete value of decentralization in critical situations.

And this question has already been brutally answered by Amazon and Google.

3.1 Resilience: Structural Redundancy Against Outages

Let’s revisit the AWS outage on April 15, 2025:

• Binance, MEXC, and KuCoin experienced simultaneous issues with order placements and withdrawal failures.
• DeBank’s frontend login failed — on-chain transfers still worked, but the UI was unresponsive.
• Within an hour, the number of interacting on-chain addresses in the APAC region dropped by 58%.

The root cause isn’t complicated:

Yes, the asset data was stored on-chain.But the trading engines, user account systems, and risk control mechanisms were all running on centralized servers.Once those servers went down, it was like locking your crypto in a vault in the basement — you know it’s there, but you can’t touch it.

So here’s the key question:Would a decentralized system have survived this disaster?

Let’s compare some data:

What this shows:

• Even if the frontend goes down, protocols with critical logic on-chain can still function through APIs, alternative frontends, or direct contract calls.
• But for protocols that rely on off-chain infrastructure and centralized control, there’s no choice but to sit and wait.

In short:

Decentralization doesn’t guarantee “no failure” — but it guarantees you won’t be completely paralyzed when things go wrong.

3.2 Censorship Resistance: Banned Frontend vs. Unstoppable Protocol

Let me illustrate this with a real example.

In August 2022, the U.S. Treasury’s Office of Foreign Assets Control (OFAC) officially sanctioned Tornado Cash, citing its use by North Korean hackers for money laundering.

What followed over the next 72 hours was a “targeted purge” across the internet:

• Tornado Cash’s GitHub repository was removed.
• Its official domain, tornado.cash, was blocked via DNS.
• Cloudflare revoked TLS support, rendering the frontend inaccessible.
• Core developer Roman Storm was arrested by U.S. authorities.
• USDC’s smart contract activated its blacklist feature, freezing addresses that interacted with Tornado Cash.

By all normal standards, the protocol should’ve been dead.

But to everyone’s surprise:

Not a single line of the Tornado Cash smart contract was shut down or stopped.

Even with the frontend down, the developers arrested, and cloud services cut off — the protocol kept running on Ethereum.Not because of people, but because of code — and the structural integrity of decentralization.

3.2.1 Data Doesn’t Lie: The Protocol Survives, and Is Still in Use

According to public data from Dune Analytics (user @hildobby):

• A total of 100,501 addresses have deposited assets into Tornado Cash.
• 168,487 addresses have withdrawn assets.
• At its peak between 2021–2022, over 2,000 new users joined each week.
• Even after the sanctions, hundreds of wallets still use it weekly.

In other words:

Even if the “official” team is gone, the “protocol” continues to replicate, persist, and function on its own.

The community quickly deployed over 20 mirror frontends (e.g., tornado.eth.limo), and users continued interacting through CLI, RPC tools, ENS domains, and more — completely bypassing centralized service providers.

3.2.2 Landmark Court Ruling: Code Is Not an Entity, Coding Is Not a Crime

More importantly, a major legal turning point came at the end of 2024. In a landmark ruling, a U.S. federal court declared:

OFAC has no authority to place open-source smart contract code itself on the sanctions list, as it does not constitute an “identifiable controlled entity.”

This ruling sent a triple-clear legal signal:

1. Smart contracts are not legal entities — they are not corporations or individuals and cannot be sanctioned as such.
2. Writing and publishing open-source contract code is protected under the First Amendment as free speech.
3. Broad censorship of decentralized protocols violates users’ constitutional rights to choose their tools.

On March 21, 2025, based on this ruling, the U.S. Treasury officially lifted the sanctions against Tornado Cash.

This legal victory effectively set a constitutional-level precedent for all crypto developers and decentralized protocols worldwide.

From that point on, the boundary between “writing code” and “conspiring” was officially drawn.

3.2.3 Decentralization Preserves the Right to Exist

Whether it’s Tornado Cash maintaining liveliness under extreme censorship, or the U.S. courts pushing back against OFAC’s overreach, one truth stands out:

• True censorship resistance doesn’t rely on morality — it relies on architecture.
• True freedom isn’t in buttons on a homepage — it’s in contracts that can’t be shut down, and permissions that can’t be revoked.

This is decentralization’s value in crisis — not ideology, but the technical guarantee of the right to exist.

3.3 Trust Without Trust: Believe the System, Not the People

The essence of trust is not that you believe someone won’t do evil, but that:

Even if they want to, they can’t.

That’s what decentralized systems achieve through code constraints and public data.

For example:

• When FTX collapsed in 2022, there was no transparency in asset custody.
• Alameda Research secretly siphoned off over $8 billion in customer funds — with users completely unaware.

On Uniswap, however, every liquidity injection, trade, and fee distribution is visible on-chain in real time.In MakerDAO, every interest rate change must pass a 48-hour timelock and be recorded via on-chain voting.

There’s no need to believe the devs are “good people.”If the code is secure and the data is auditable, that’s enough.

3.4 Summary: Decentralization Is a Survival Tool, Not a Slogan

To sum up, decentralization isn’t idealism — it’s realism.

You don’t need to “believe in” decentralization.You just need to feel it when systemic risks arrive — feel the resilience, feel the freedom.

4. The Philosophical Drive Behind Decentralization

“You blockchain people just don’t want to be regulated.”

— This is often the first impression people from traditional industries have about crypto.

But if we peel back the surface, we’ll find that the motivation for decentralization isn’t about escaping regulation — it’s about respecting power, defending freedom, and pursuing co-governance.

The true roots of decentralization didn’t begin with Satoshi Nakamoto in 2009 — they were planted as early as the late 1980s.

4.1 Personal Freedom: The Spark of the Cypherpunks

Before the wave of decentralization swept across the world, a plain black-and-white document written in 1988 had already quietly prophesied its arrival.

That was “The Crypto Anarchist Manifesto” by Timothy C. May — a founding text of the Cypherpunk movement.

“A specter is haunting the modern world, the specter of crypto anarchy.”

A direct echo of The Communist Manifesto. May wasn’t advocating chaos — he was warning us:If technology doesn’t serve freedom, it will serve surveillance.

In the manifesto, he wrote:

“Computer technology is on the verge of providing the ability for individuals and groups to communicate and interact with each other in a totally anonymous manner. These developments will alter completely the nature of government regulation, the ability to tax and control economic interactions, the ability to keep information secret, and will even alter the nature of trust and reputation.”

Cypherpunks like Timothy May weren’t dreamers. They were realists. They understood the boundaries, motivations, and inevitable corruption of power.

They knew that the question wasn’t whether power would be abused — but when.

So their answer was simple:

Don’t rely on morality — let technology itself enforce freedom.

In a centralized system, we are always asked to “trust” the platform:

• Trust that it won’t delete your account.
• Trust that it won’t freeze your wallet.
• Trust that it won’t sell your data.

But in a truly decentralized system, such trust becomes unnecessary, because:

• You hold your own private key — not the platform.
• Your assets live on-chain — immutable and transparent.
• Transactions are executed by smart contracts — not human intermediaries.

As the famous crypto saying goes:

“Not your keys, not your coins.”

When you first use a wallet like MetaMask…When, without any registration or login, a single seed phrase gives you full control…When you realize you can switch frontends, change RPCs, leave any platform at will — and still retain your assets and permissions…

You’ll understand:

“Freedom” isn’t a slogan.It’s a structural right, designed into the system.

4.2 Power Checks: Montesquieu-Style Incentive Structures

The French Enlightenment thinker Montesquieu once said:

• All men invested with power are apt to abuse it — this is an eternal experience.
• And to prevent power abuse, power must be used to check power.

In modern society, laws, constitutions, and the separation of powers serve that purpose.In decentralized systems, that function is performed by staking mechanisms + consensus algorithms + incentive models.

Take Ethereum’s Proof-of-Stake (PoS) system:

• You need to stake 32 ETH to become a validator.
• If you misbehave (e.g., double-sign, censor transactions), you’re automatically slashed.
• Punishment is triggered by the consensus layer itself — irrevocable and non-negotiable.

It’s like a machine-version of separation of powers:

• Incentives = legislature (public rules)
• On-chain execution = executive branch (transaction validation)
• Node consensus = judiciary (automatic enforcement)

Without this structure, power naturally centralizes — and corrupts.

For example, in 2017, some early DPoS chains (like EOS) saw “supernodes” form alliances and share rewards behind closed doors. The validation process became a black box, unaccountable to users.

But in more decentralized, transparently recorded chains, such behaviors are quickly detected by the community, analytics tools, and peer validators.

This is the power of programmatic checks and balances that decentralization enables.

4.3 Coordinated Autonomy: DAO as Machine-Human Co-Governance

History shows that humanity’s greatest strength lies in cooperation — but cooperation is never easy.It requires shared values, trust, governance, and incentives.

The DAO (Decentralized Autonomous Organization) is crypto’s response to this challenge.

A typical DAO:

• Has no board of directors, no CEO.
• Every token holder can vote on proposals.
• Governance rules are encoded on-chain — all actions are traceable, verifiable, and irreversible.

Take MakerDAO (now called SKY):

• Its core asset is the decentralized stablecoin USDS (DAI still exists).
• Holders of MKR tokens decide the interest rate (Stability Fee), acceptable collateral, and risk parameters.
• Voting happens on-chain via Snapshot, and results are executed through smart contracts.

No one person can unilaterally raise interest rates or add shady collateral.

In 2024, SKY’s DAO-managed treasury surpassed $6 billion USD.A “virtual organization” with no office and no CEO now manages more assets than many mid-sized commercial banks.

And this governance model — machine consensus replacing human trust — greatly reduces opportunities for corruption and internal friction.

More importantly, it lowers the barrier for participation.Anyone with governance tokens can propose, vote, and shape policy.You’re no longer a spectator — you’re part of the rule-making process.

A DAO is the technical embodiment of institutional design.It tells us: human organizations don’t have to be companies, governments, or foundations.They can also be “code + community.”

4.4 Philosophical Core: Using Technology to Protect the Most Basic Civil Values

Ultimately, the philosophical value of decentralization boils down to three words:

Freedom, Balance, Co-Governance

We can’t eliminate centralized systems — but we should ensure we have the option not to rely on them.

Because often, that’s not just a right — it’s a matter of dignity.

Conclusion: After the Crisis — The Right Questions to Ask

At this point, we’ve completed a deep reality check.

From a single fiber optic failure at AWS in Tokyo, to a line of ad filtering logic rolled out by Google across the EU — we can no longer naively assume that the so-called “decentralized industry” is truly free and resilient just because it has fast DEXs, lots of nodes, or impressive on-chain metrics.

The truth is:Even if you use DEXs, DAOs, and DeFi every day, if —

• Your matching engine runs on centralized servers,
• Your login system relies on platform accounts,
• Your user acquisition depends on Web2 ad networks,
• Your governance happens on Notion or Discord…

Then you’re still trapped inside a centrally controlled, fragile system — one that may be even more brittle than you think.

Decentralization isn’t a badge of belief — it’s a matter of survival.

It’s not about showing off technical sophistication.It’s about having an extra escape route when systemic risks erupt.It’s not about being anti-government.It’s about not giving any single person, switch, or backend panel the power to pull the plug.It’s not just for geeks.It’s for everyone who wants to retain the freedom to choose and take responsibility for their own assets.

But we also have to face one uncomfortable fact:

Even if the philosophy is sound — Can the dream of decentralization truly be engineered into reality?

• Can every service be “protocol-ized”?
• Can every layer of centralized infrastructure be replaced by functions?
• Can every business process be reconstructed on-chain?

To put it bluntly:

How do we get from “decentralization is impossible” to “decentralization works”?From philosophical ideals to practical engineering and products?

These are exactly the questions we’ll explore in the next article.

Reality Hits “Web3” in the Face — How Far Are We from True Decentralization? was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

This brings us to the crux of our discussion: In an asset like Bitcoin, renowned for its extreme volatility, does a “value investing” perspective truly exist? Can a strategy seemingly at odds with its “high-risk, high-volatility” nature capture an “asymmetric” opportunity in this tumultuous game?

In the investment world, asymmetry refers to scenarios where the potential gains far outweigh the potential losses, or vice versa. At first glance, this doesn’t seem characteristic of Bitcoin. After all, most people’s impression of Bitcoin is: either get rich overnight or lose everything.

Yet, behind this polarized perception lies an overlooked possibility: during Bitcoin’s cyclical deep downturns, the methodology of value investing might create a highly attractive risk-reward structure.

Looking back at Bitcoin’s history, it has plummeted over 80%, even 90%, from its peaks multiple times. In such moments, the market is shrouded in panic and despair, with capitulatory selling making prices appear to revert to their origins. But for investors with a deep understanding of Bitcoin’s long-term logic, this represents a classic “asymmetry” — risking a limited loss for a potentially immense return.

Such opportunities are not readily available. They test an investor’s cognitive level, emotional control, and long-term holding conviction. This leads to a more fundamental question: Do we have reasons to believe that Bitcoin truly possesses “intrinsic value”? If it does, how should we quantify and understand it, and accordingly formulate our investment strategy?

In the following content, we will embark on this exploratory journey: revealing the deep logic behind Bitcoin’s price fluctuations, clarifying how asymmetry shines during times of “bloodshed,” and contemplating how the principles of value investing can be revitalized in this decentralized era.

However, one thing you should first understand is that in Bitcoin investment, asymmetric opportunities have never been scarce; in fact, there are many.

1. Why Are There So Many Asymmetric Opportunities in Bitcoin?

If you browse Twitter today, you’ll see an overwhelming celebration of the Bitcoin bull market. Prices have once again surged past the $90,000 mark, with many on social media proclaiming, as if the market always belongs to prophets and the fortunate.

But if you look back, you’ll find that the invitation to this feast was actually sent out during the market’s most desperate moments; it’s just that many lacked the courage to open it.

1.1 Historical Asymmetric Opportunities

Bitcoin has never followed a straight upward trajectory; its growth history is a script interwoven with extreme panic and irrational exuberance. Behind each deep downturn lies a highly attractive “asymmetric opportunity” — the maximum loss you bear is limited, while the gains you achieve could be exponential.

Let’s take a time-traveling journey and let the data speak.

2011: -94%, from $33 to $2

This was the first time Bitcoin was “widely seen,” with prices soaring from a few dollars to $33 within half a year. But soon, a crash ensued. Bitcoin’s price plummeted to $2, a drop of 94%.

Imagine the despair: major geek forums were desolate, developers fled, and even core Bitcoin contributors posted doubts about the project’s prospects.

But if you had “gambled once” back then, investing $1,000, when BTC prices surpassed $10,000 years later, you’d be holding $5 million worth of chips.

2013–2015: -86%, Mt.Gox Collapse

At the end of 2013, Bitcoin’s price broke through $1,000 for the first time, attracting global attention. But the good times didn’t last. In early 2014, the world’s largest Bitcoin exchange, Mt.Gox, declared bankruptcy, with 850,000 Bitcoins disappearing from the blockchain.

Overnight, media outlets had a unified stance: “Bitcoin is over.” CNBC, BBC, and The New York Times all reported the Mt.Gox scandal on their front pages. BTC prices fell from $1,160 to $150, a drop of over 86%.

But what happened later? By the end of 2017, the same Bitcoin was priced at $20,000.

2017–2018: -83%, ICO Bubble Burst

The chart above comes from a New York Times report on the crash. The red box highlights a quote from an investor stating that they had lost 70% of their portfolio’s value.

2017 was the “year of nationwide speculation” when Bitcoin entered the public eye. Numerous ICO projects emerged, white papers filled with words like “disruption,” “restructuring,” and “decentralized future,” plunging the entire market into frenzy.

But when the tide receded, Bitcoin fell from its historical high of nearly $20,000 to $3,200, a drop of over 83%. That year, Wall Street analysts sneered, “Blockchain is a joke”; the SEC filed numerous lawsuits; retail investors were liquidated and exited, and forums were silent.

2021–2022: -77%, Industry “Black Swan” Chain Explosions

In 2021, Bitcoin wrote a new myth: the price per coin broke through $69,000, with institutions, funds, countries, and retail investors flocking in.

But just a year later, BTC fell to $15,500. The collapse of Luna, the liquidation of Three Arrows Capital, the explosion of FTX… successive “black swans” toppled the confidence of the entire crypto market like dominoes. The fear and greed index once dropped to 6 (extreme fear zone), and on-chain activity nearly froze.

The chart above is taken from a New York Times article dated May 12, 2022, showing the simultaneous plunge of Bitcoin, Ethereum, and UST.Only now do we realize that behind UST’s collapse was also the “pump-and-dump” maneuver orchestrated by Galaxy Digital with Luna — contributing significantly to the meltdown.

Yet again, by the end of 2023, Bitcoin quietly rose back to $40,000; after ETF approval in 2024, it surged all the way to today’s $90,000.

1.2 Where Do Bitcoin’s Asymmetric Opportunities Come From?

We’ve seen that Bitcoin has repeatedly achieved astonishing rebounds during seemingly catastrophic moments in history. So the question arises — why is this? Why does this high-risk asset, often mocked as a “musical chairs” game, repeatedly rise after collapses? More importantly, why can it provide such strongly asymmetric investment opportunities for patient and knowledgeable investors?

The answer lies in three core mechanisms:

Mechanism One: Deep Cycles + Extreme Emotions Create Pricing Deviations

Bitcoin is the world’s only 24/7 open free market. There’s no circuit breaker mechanism, no market maker protection, and no Federal Reserve backstop. This means it’s more susceptible to amplifying human emotional fluctuations than any other asset.

In bull markets, FOMO (fear of missing out) dominates the market, with retail investors frantically chasing highs, narratives soaring, and valuations severely overdrawing;

In bear markets, FUD (fear, uncertainty, doubt) fills the internet, with cries of “cutting losses” echoing, and prices trampled into the dust.

This cycle of emotional amplification causes Bitcoin to frequently enter states of “prices severely deviating from real values.” And this is precisely the fertile ground where value investors seek asymmetric opportunities.

To sum it up in one sentence: In the short term, the market is a voting machine; in the long term, it is a weighing machine. Bitcoin’s asymmetric opportunities appear in those moments before the weighing machine has been switched on.

Mechanism Two: Extreme Price Volatility, but Extremely Low Probability of Death

If Bitcoin truly were the kind of asset that “could go to zero at any moment,” as often sensationalized in the media, then it would indeed have no investment value. But in reality, it has survived every crisis — and emerged stronger.

• In 2011, after crashing to $2, the Bitcoin network kept operating as usual.
• In 2014, after Mt.Gox collapsed, new exchanges quickly filled the gap, and the number of users kept rising.
• In 2022, after FTX went bankrupt, Bitcoin’s blockchain continued to produce a new block every 10 minutes without interruption.

The underlying infrastructure of Bitcoin has virtually no downtime history. Its system resilience far exceeds what most people understand.

In other words, even if the price halves, and halves again, as long as the technical foundation and network effect of Bitcoin remain, there is no true risk of it going to zero. What we have is a highly attractive structure: limited short-term downside, with open-ended long-term upside.

That is asymmetry.

Mechanism Three: Intrinsic Value Exists But Is Overlooked, Leading to “Oversold” Conditions

Many people believe Bitcoin has no intrinsic value, and therefore its price can fall without limit. This view ignores several key facts:

• Bitcoin has algorithmic scarcity (a hard cap of 21 million coins, enforced by the halving mechanism);
• It is secured by the world’s most powerful proof-of-work (PoW) network, with quantifiable production costs;
• It benefits from strong network effects: over 50 million addresses have non-zero balances, and both transaction volume and hashrate repeatedly break records;
• It has gained recognition from mainstream institutions and even sovereign nations as a “reserve asset” (ETFs, legal tender status, corporate balance sheets).

This leads us to the most controversial yet critical question: Does Bitcoin have intrinsic value — and if so, how can we define, model, and measure it?

1.3 Will Bitcoin Go to Zero?

It is possible — but the probability is extremely low. A certain website has documented 430 times that Bitcoin was declared “dead” by media outlets.

Yet directly beneath that declaration count, there is a small note: If you had bought $100 worth of Bitcoin every time someone declared it dead, your holdings today would be worth more than $96.8 million.

You need to understand this: Bitcoin’s underlying system has operated stably for over a decade with virtually no downtime. Whether it was the collapse of Mt.Gox, the failure of Luna, or the FTX scandal, its blockchain has consistently produced one block every 10 minutes. This kind of technical resilience provides a powerful survival baseline.

Now, you should be able to see that Bitcoin is not a “baseless speculation.” On the contrary, its asymmetric potential stands out precisely because its long-term value logic exists — yet is often severely underestimated by the market’s emotions.

This leads us to the next fundamental question: Can Bitcoin, which has no cash flow, no board of directors, no factories, and no dividend payouts, truly qualify as an object of value investing?

2. Can Bitcoin Be Value Invested?

Bitcoin is infamous for its wild price swings. People constantly sway between extreme greed and extreme fear. So how can an asset like this possibly be suitable for “value investing”?

On one side, we have the classic value investing principles of Benjamin Graham and Warren Buffett — “margin of safety” and “discounted cash flow.” On the other side stands Bitcoin — a digital commodity with no board of directors, no dividends, no earnings, and not even a corporate entity. Within the traditional value investing framework, Bitcoin seems to have no place.

But the real issue is this — how do you define value?

If we look beyond traditional financial statements and dividends, and return to the core essence of value investing — To buy at a price below intrinsic value, and hold until value re-emerges — Then Bitcoin may not only qualify for value investing — it may embody the concept of “value” in an even purer form than many stocks.

Benjamin Graham, the father of value investing, once said: “The essence of investment is not what you buy, but whether you buy it for less than it’s worth.” The image above is an AI-generated fictional portrayal of Graham staring perplexedly at a Bitcoin.

In other words, value investing is not limited to stocks, companies, or conventional assets. As long as something has intrinsic value, and its market price is temporarily lower than that value, it can become a valid target for value investment.

But this raises a more critical question: If we cannot use traditional metrics like P/E or P/B to estimate Bitcoin’s value, where exactly does its intrinsic value come from?

Although Bitcoin has no financial reports like companies do, it is far from valueless. It has a fully analyzable, modelable, and quantifiable system of value. While these “value signals” are not compiled into a quarterly report like a stock, they are just as real — and perhaps even more consistent.

We will now explore Bitcoin’s intrinsic value from two key dimensions: supply and demand.

2.1 Supply Side: Scarcity and the Programmed Deflation Model (Stock-to-Flow)

At the heart of Bitcoin’s value proposition lies its verifiable scarcity.

• Fixed total supply: 21 million coins, hard-coded and unchangeable.
• Halving every four years: Each halving reduces the annual issuance rate by 50%. The last Bitcoin is expected to be mined around the year 2140.
• After the 2024 halving, Bitcoin’s annual inflation rate will drop below 1%, making it scarcer than gold.

The Stock-to-Flow model (S2F), proposed by analyst PlanB, has gained widespread attention for its ability to predict Bitcoin’s price trends across halving cycles. The model is based on the ratio between an asset’s existing stockpile and its annual production rate.

• Stock: The total amount of the asset already in existence.
• Flow: The amount newly produced each year.
• S2F = Stock / Flow

A higher S2F ratio indicates that the asset is relatively scarce, and in theory, the higher the ratio, the greater the value. Gold, for example, has a very high S2F ratio (about 60), which underpins its role as a store of value. Bitcoin’s S2F ratio has steadily increased with each halving:

• 2012 Halving: Price surged from ~$12 to over $1,000 within a year.
• 2016 Halving: Price climbed from ~$600 to nearly $20,000 within 18 months.
• 2020 Halving: Price rose from ~$8,000 to $69,000 over the next 18 months.

You’ll notice the fourth halving, represented by a question mark in the chart — will it follow the same trend? My view is: yes, but the magnitude may taper.

A note about the chart: The left vertical axis uses a logarithmic scale, which helps visualize early-stage trends. A jump from 1 to 10 occupies the same space as a jump from 10 to 100, making exponential growth easier to interpret.

This model draws inspiration from how precious metals like gold and silver are valued. Its logic is:

The higher the S2F ratio, the less inflationary the asset is, and the more value it can theoretically hold.

In May 2020, after the third halving, Bitcoin’s S2F ratio rose to ~56, nearly on par with gold. After the 2024 halving, this ratio has exceeded 100, surpassing gold and making Bitcoin the most scarce monetary asset on Earth — at least by this metric.

The Bitcoin S2F chart is one of the most shared visuals in crypto. On a log-log graph (log of S2F on the x-axis vs. log of price on the y-axis), the data points align surprisingly well along a straight red regression line. This striking fit gave the model near-mythical status in prior cycles.

But of course, no model is perfect. And the S2F model has a key weakness: it only accounts for supply, ignoring the demand side entirely. This may have worked when Bitcoin’s adoption was limited, but since 2020 — when institutional capital, global narratives, and regulatory dynamics entered the scene — demand has become a dominant driver.

So, to form a complete valuation framework, we must now turn to the demand side.

2.2 Demand Side: Network Effects and Metcalfe’s Law

If S2F locks the “supply valve,” then network effects determine how high the “water level” can rise. The most intuitive metric here is on-chain activity and user base expansion.

• As of late 2024, Bitcoin has over 50 million addresses with non-zero balances.
• In February 2025, daily active addresses surged back to ~910,000, hitting a 3-month high.

Using Metcalfe’s Law — which states that the value of a network is roughly proportional to the square of the number of users (V ≈ k × N²) — we understand that:

Doubling the number of active users can quadruple the theoretical network value.

This explains Bitcoin’s tendency to “leapfrog” in value after major adoption events.

(Again, the image of Metcalfe gleefully admiring a Bitcoin is an AI-generated fictional portrayal.)

Three Core Demand Indicators:

1. Active addresses: Reflect short-term usage intensity.
2. Non-zero addresses: Signal long-term penetration. Despite bear markets, the compound annual growth rate over the past seven years has been about 12%.
3. Value-carrying layers: Lightning Network capacity and off-chain payment volume keep climbing, indicating real-world adoption beyond just “HODLing.”

This “N²-driven + sticky user base” model implies two forces:

• Positive feedback loop: More users → deeper transactions → richer ecosystem → more value. This explains why events like ETF launches, cross-border payments, or emerging market integrations often cause nonlinear price spikes.
• Negative feedback risk: If global regulation tightens, new technologies arise (e.g., CBDCs, Layer-2 alternatives), or liquidity dries up, user activity and adoption may shrink — causing value to contract alongside N².

Thus, only by combining S2F (supply) and network effects (demand) can we create a robust valuation framework:

When S2F signals long-term scarcity and active users/non-zero addresses remain in an uptrend, the mismatch between demand and supply amplifies asymmetry.Conversely, if user activity falls — even with fixed scarcity — price and value may fall in tandem.

In other words:Scarcity ensures Bitcoin doesn’t depreciate, but network effect is what allows it to appreciate.

It is especially worth noting that Bitcoin was once dismissed as a “toy for geeks” or a “symbol of speculative bubbles.” But today, its value narrative has quietly undergone a fundamental shift.

Since 2020, MicroStrategy has incorporated Bitcoin into its corporate balance sheet and now holds 538,000 BTC — as shown in the chart above.
I previously discussed this strategic transformation in detail in my article The Bitcoin Dividend.

Following that, global asset management giants like BlackRock and Fidelity launched spot Bitcoin ETFs, introducing billions of dollars in incremental capital. Morgan Stanley and Goldman Sachs began offering Bitcoin investment services to high-net-worth clients. And even countries like El Salvador adopted Bitcoin as legal tender. These changes are not just about capital inflows — they represent an endorsement of legitimacy and institutional consensus.

2.3 Summary

In Bitcoin’s valuation framework, supply and demand are never isolated variables — they intertwine to form the double helix of asymmetric opportunity.

• On one hand, the Stock-to-Flow model, grounded in algorithmic deflation, mathematically outlines how scarcity lifts long-term value.
• On the other, network effects, measured by on-chain data and user growth, reveal Bitcoin’s real-world demand foundation as a digital network.

In this structure, the disconnect between price and value becomes ever more visible — and that is precisely where value investors find their golden window. When the market is gripped by fear, and price falls below the levels implied by comprehensive valuation models, asymmetry quietly opens its door.

3. Is the Essence of Value Investing Simply the Search for Asymmetry?

At its core, value investing is not merely about “buying cheap.” It rests on a more fundamental logic: in the gap between price and value, find a structure where risk is limited but potential reward is significant.

This is where value investing diverges sharply from trend-following, momentum trading, or speculative gambling.

• Trend investing relies on market inertia;
• Momentum trading bets on short-term volatility;
• Value investing requires patience and rationality, stepping in when sentiment diverges drastically from fundamentals, evaluating long-term value, and buying when the price is far below it — then waiting for reality to catch up.

What makes this effective is that it builds a naturally asymmetric structure:The worst outcome is a controlled loss, while the best-case scenario can exceed expectations by multiples.

If we examine value investing more deeply, we’ll find that it is not a set of techniques, but a way of thinking — a structural logic built on probabilities and imbalances.

• Investors analyze “margin of safety” to assess the downside risk.
• They study “intrinsic value” to determine the likelihood and extent of mean reversion.
• They choose to “hold patiently” because asymmetric returns often require time to materialize.

None of this is about making perfect predictions. It’s about constructing a bet where, when you’re right, you win far more than you lose when you’re wrong. That is the very definition of asymmetric investing.

Many people misunderstand value investing as conservative, slow-moving, and low-volatility. In truth, the real essence of value investing is not about earning less and risking less — it’s about using controllable risk to pursue disproportionately large returns.

Whether it’s the early shareholders of Amazon, or the Bitcoin maximalists quietly accumulating during crypto winters, at their core, they are doing the same thing:

When most people underestimate the future of an asset, and its price has been driven into the dirt by emotion, regulation, or misinformation — they move in.

From this perspective:

Value investing is not some outdated strategy of “buy low, collect dividends.” It is the common language of all investors seeking asymmetric return structures.

It emphasizes not just cognitive skill, but also emotional discipline, risk awareness, and above all — faith in time.

It does not require you to be the smartest person in the room. It only requires you to stay calm when others panic, and to place your chips when others walk away.

And so, once you truly grasp the deep connection between value investing and asymmetry, you’ll understand why Bitcoin — despite its unfamiliar form — can be embraced by serious value investors.

Its volatility is not your enemy — it is your gift.Its panic is not your risk — it is market mispricing.Its asymmetry is not a gamble — it is a rare chance to re-price an underappreciated asset.

The real value investor is not shouting in the bull market.They are quietly laying groundwork in the calm beneath the storm.

4. How to Use Asymmetry to Invest in Bitcoin

Once you understand where Bitcoin’s intrinsic value comes from — and recognize that market volatility often creates windows where price falls below value — the next question is: As an ordinary investor, how can you practice value investing with Bitcoin?

Let us first clarify a critical point: Value investing is not about trying to catch the absolute bottom.That’s extremely difficult — if not impossible — to do consistently.The essence of value investing lies in this: Once the price enters a clearly undervalued zone according to your assessment, begin buying in stages, with discipline, and hold patiently until value is realized.

Given Bitcoin’s high volatility, here are a few simple yet effective strategies for value-based participation:

4.1 Dollar-Cost Averaging (DCA)

This is the most basic, and for most people, the most suitable strategy.

DCA means investing a fixed amount of money at regular intervals (e.g., weekly or monthly) to buy Bitcoin — regardless of price fluctuations.

Advantages:

• Smooths out cost basis: You buy fewer BTC when prices are high and more when prices are low. Over time, your average cost per BTC tends to be lower than the market average during an uptrend.
• Emotionally neutral: DCA is a rule-based approach. It protects you from emotionally-driven actions like panic selling or euphoric buying.
• Simple and practical: No complex analysis required. Ideal for investors who don’t have time to monitor the market daily.

I have written a detailed explanation on DCA in the past — if you’re still unsure, I recommend reading that closely.

4.2 Dynamically Adjust Based on Market Sentiment: The Fear & Greed Index

If you want to enhance DCA’s efficiency slightly, you can incorporate market sentiment indicators as a secondary filter.

The Crypto Fear & Greed Index is a widely used metric. It aggregates factors like volatility, trading volume, social media sentiment, Bitcoin dominance, and Google Trends to produce a score between 0 and 100:

• 0–25: Extreme Fear
• 25–45: Fear
• 45–55: Neutral
• 55–75: Greed
• 75–100: Extreme Greed

Value investing emphasizes contrarian thinking — as Warren Buffett famously said:

“Be fearful when others are greedy, and greedy when others are fearful.”

You can combine this with your DCA strategy:

• Base DCA: Stick to your regular weekly/monthly investment schedule.
• Add More When There’s Fear: If the index falls below 20 or 15 (extreme fear), it often signals severe undervaluation. You can add an extra lump sum in such periods.
• Be Cautious When There’s Greed (optional): When the index rises above 80 or 85, the market may be overheated. You may choose to pause new purchases — or even trim profits, if appropriate.

4.3 Important Reminder

Never invest more than you can afford to lose.Bitcoin is still a high-risk asset. Its price could, in theory, go to zero — even if the probability is shrinking over time. You must allocate capital according to your personal risk tolerance.

That said, Bitcoin is also the lowest-risk crypto asset in terms of fundamentals, so it should occupy the dominant position in any crypto portfolio. My own allocation looks like this:Bitcoin : Ethereum : Others = 5 : 3 : 2

Whether you adopt a simple DCA approach or a DCA enhanced with sentiment filters, the core principle remains the same:

Acknowledge that you cannot predict the market. Use market irrationality to your advantage. Accumulate a fundamentally sound asset in a disciplined way when its price appears undervalued.

Always remember: Investing is not supposed to consume your entire life.It should not cost you your sleep or peace of mind.

Conclusion

Bitcoin is not a gambling table for escaping reality — it is a footnote that helps you re-understand reality.

In this world of uncertainty, we often mistake safety for stability, for risk aversion, for avoiding volatility. But real safety has never been about hiding from risk — it is about understanding it, mastering it, and — seeing the buried foundation of value when everyone else is fleeing.

That is the true essence of value investing:To find the asymmetric structures built on insight and mispricing;To quietly accumulate the chips the market has forgotten, when it is buried at the bottom of the cycle.

And Bitcoin — an asset born of code-enforced scarcity, evolving value through networks, and repeatedly reborn through fear — is perhaps the purest expression of asymmetry in our time.

Its price may never be tranquil.But its logic remains unwavering:

• Scarcity is the floor
• Network is the ceiling
• Volatility is opportunity
• Time is leverage

You may never perfectly time the bottom. But you can ride through cycles — again and again — buying misunderstood value at reasonable prices.

Not because you are smarter than others — But because you have learned to think in a different dimension: You believe that the best bets are placed not on price charts — But on the side of time.

So remember this:

The ones who place their chips deep within irrationality Are often the most rational of all. And time — is the most loyal enforcer of asymmetry.

This game will always belong to those who can read the order behind the chaos, and the truth behind the collapse. Because the world does not reward emotion — The world rewards understanding.And understanding, in the end — Is always proven right by time.

Asymmetry: The Underlying Hue of Bitcoin from a Value Investing Perspective was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

That line is called trust.

The evangelist we’re talking about today is Mike Novogratz — former Goldman Sachs partner, former advisor to the New York Federal Reserve, and now the founder and CEO of Galaxy Digital. With unmatched passion and unwavering conviction, he has long promoted the vision of crypto through countless media appearances and public platforms. In doing so, he became one of the most influential voices in the industry.

Galaxy Digital, often hailed as “Wall Street’s most crypto-savvy firm,” manages billions in assets and enjoys a stellar reputation in the crypto ecosystem. Countless investors, placing their trust in Novogratz and Galaxy, poured in their capital, hoping to catch the next great wave of financial opportunity.

But sometimes, trust becomes the most dangerous trap.

The story we’re telling today was originally scheduled for last week — until the sudden eruption of the U.S.-China tariff war forced us to shift gears and cover the unraveling of dollar hegemony and the rise of decentralized stablecoins. That was a big-picture narrative. But today’s story might be even more vital for everyday investors.

If you lost everything investing in Luna, you don’t need to blame yourself.

It wasn’t because you lacked judgment, and it wasn’t because Luna was doomed from the start. It was because the person who kept shouting “Keep the faith!” had already quietly dumped all his bags on you at the very top.

And here’s what’s more important: this kind of pump-and-dump scheme has never gone out of style. Only the names and stage settings have changed. Behind almost every “faith-driven frenzy,” there’s a well-orchestrated exit strategy, designed for the benefit of a privileged few — funded by the losses of the many.

You might be angry. You might want justice. But here’s the harsh truth: unless you can prove malicious intent by a KOL (Key Opinion Leader) or institution, your losses are nearly impossible to recover.

Because under the law, the threshold for proving fraud is extraordinarily high. You’d need solid evidence showing that the person not only knew about significant risks or falsehoods but also had clear malicious intent — meaning they deliberately misled you into entering the market just so they could dump on you at a profit.

But reality is more slippery than theory. KOLs are shrewd. They carefully avoid legal red lines. They say things like “looks promising,” “high potential,” or “just my personal view — not financial advice.” As long as their words remain vague enough and their sales are discreet enough, convicting them is next to impossible.

This is the ultimate cover for KOL-style liquidation: motive is hard to prove; intent is hard to trace.

So how did Galaxy’s CEO, Mike Novogratz, end up being exposed?

Enter a crucial figure: the New York State Attorney General, and a powerful piece of legislation — The Martin Act. This law allows the Attorney General to launch investigations without proving criminal intent. Galaxy may be the first to be caught under its scrutiny, but it won’t be the last. We’ve previously written a deep dive on the Martin Act — a law so fierce it once fined the Trump Organization $450 million — and now, it’s aiming its sword at the crypto world.

After reading the full 44-page report from the New York Attorney General’s Office, one thing becomes clear: if not for the weight of this “toughest securities law in America,” and the tenacity of the NYAG, we might never have known that behind the $40 billion implosion of Luna was a masterfully calculated and systematically executed institutional exit plan.

My hope is that today’s article doesn’t just tell you a gripping financial drama — but serves as a wake-up call, a manual on how to maintain distance from the intoxicating influence of KOLs and institutions.

Let’s begin at the beginning — how did Galaxy and Luna become entangled in the first place?

1. How Did Galaxy and Luna “Fall in Together”?

Before we dive into the thrilling “exit strategy” story, we must first understand one of the key protagonists — what exactly is Galaxy?

1.1 Who Is Galaxy?

Galaxy Digital, formally known as Galaxy Digital Holdings Ltd., is registered in the Cayman Islands, with its business headquarters in New York. It was founded by a Wall Street veteran with decades of trading experience — Mike Novogratz.

Who is he? A former partner at Goldman Sachs, once a member of the investment advisory committee at the New York Federal Reserve, and one of the earliest “institutional-level believers” in crypto. As early as 2013, he began investing in Bitcoin, and by 2014, he participated in Ethereum’s early crowdfunding. If you’ve watched CNBC, Bloomberg, or read the Financial Times, chances are you’ve come across his commentary on “the future of Bitcoin.”

In 2018, he founded Galaxy. By then, the firm was managing over $5 billion in assets, operating across 123 global subsidiaries spanning market making, venture capital, trading, custody, and research — virtually a “Morgan Stanley of crypto.”

Put simply: if the crypto space needed a “Wall Street-type representative,” it would unquestionably be Galaxy. Luna couldn’t have asked for a better partner.

1.2 What Is Luna?

Now let’s meet the other lead character in our story: Luna.

Luna was launched in 2018 by Terraform Labs, a company founded by Korean entrepreneur Do Kwon and registered in Singapore. Its mission was to build a dual-token system based on algorithmic stablecoins and a native utility token.

The ecosystem consisted of several parts:

• Terra Blockchain — the underlying ledger for all transactions;
• Luna — the native token used for governance, staking, and stabilizing the supply of stablecoins;
• TerraUSD (UST) and TerraKRW — so-called “stablecoins” pegged to the U.S. dollar and Korean won, respectively;
• CHAI — a Korean payments app used to showcase “real-world utility.”

Sounds impressive, right? But the problem was: its “stability mechanism” relied entirely on market behavior. If UST ever de-pegged, Luna would be sucked into a “death spiral.” And to date, no algorithmic stablecoin has successfully held its peg.

In our previous article — “Tariffs Are Swords, Currency Is the Shield” — we explored different categories of stablecoins in more detail. You might want to give that a look.

One component worth emphasizing here is CHAI, the payments app. It’s somewhat akin to Alipay in China or PayPal in the U.S. Do Kwon co-founded CHAI. This real-world connection became a critical promotional tool for Galaxy to help hype Luna’s potential. We’ll examine later how CHAI was leveraged to inflate Luna’s appeal.

In short: Luna was a financial engineering experiment with a compelling story — but one that carried massive risk. And Do Kwon knew the narrative had legs — he just needed a Western “face” to help sell it.

1.3 The “Deal”: A Western Endorsement Script

By mid-2020, Do Kwon realized that Korean retail investors and a flashy whitepaper weren’t enough. If Luna was going to go big, he had to break into the Western market. That required a credible brand to vouch for him.

Enter: Galaxy.

In August 2020, Terraform approached Galaxy with an offer. They proposed that if Galaxy’s CEO was willing to publicly promote Luna, Terraform would give them favorable investment terms.

Galaxy took the bait. Internally, they had already flagged Terraform’s tech as interesting and saw the immense capital potential. On October 27, 2020, the deal was finalized:

• Galaxy invested $4 million;
• In return, they received 18.51 million Luna at a discounted price of $0.22 per token;
• Tokens were subject to monthly unlocks (1/12 each month), with no mandatory lock-up on selling.

Note: Luna’s market price at the time was $0.31. Galaxy secured a 30% discount and immediate liquidity. This was no ordinary “early investment” — this was compensation for endorsement, PR, and market exposure.

Behind the scenes, the implied rule was: “Say something nice, and we’ll unlock your tokens faster.” Galaxy accepted these terms. In an internal memo, they even wrote that Terraform had no visibility in the U.S. market and needed Galaxy’s push to make their business look credible — see highlighted excerpts from the actual documents.

Starting in November 2020, Galaxy began methodically dropping Luna mentions in podcasts, tweets, and interviews. The price started to rise. Volume surged. This “awareness campaign” would last nearly a full year.

1.4 Summary: From Principle to Profiteering

The relationship between Galaxy and Luna was not born from shared ideals or cutting-edge tech. It was, in essence, a pure exchange of value:

• Terraform offered discounted tokens and early exit privileges;
• Galaxy provided brand exposure, market credibility, and a megaphone.

Both sides understood the unspoken arrangement: one built the stage, the other delivered the pitch. No one said the quiet part out loud.

And the result?

• Luna soared from $0.31 to an all-time high of $119;
• Galaxy walked away with hundreds of millions in profit;
• Retail investors bought in at the top and watched their holdings spiral into oblivion.

This was a textbook example of a structured pump-and-dump. It may not have violated traditional securities laws, which is why some KOLs continue to defend Galaxy. But under the Martin Act, where actions speak louder than intent, this was clearly illegal — market manipulation, plain and simple.

That’s why Galaxy ultimately agreed to pay $200 million in a settlement to pause further legal proceedings initiated by the New York Attorney General. (See image.)

To fully unpack the intricacies of Galaxy’s strategy, I’ve carefully reviewed the entire 44-page legal filing. What follows is a meticulous dissection of how Galaxy orchestrated its pump-and-dump campaign.

2. Galaxy’s Dump Strategy Unpacked

Now, let’s peel back the curtain on how Galaxy masterfully orchestrated its “dumping artistry” — talking up “faith” in public while silently offloading its stash behind the scenes. But before diving into this haunting tale of betrayal, it’s only fair to set the record straight about Galaxy and Mike Novogratz.

I say this not to absolve them of blame, but because nuance matters. Otherwise, you might come away thinking Novogratz is just another shameless profiteer — which, in truth, would be an oversimplification.

You may not know this, but back in 2013 — when most of Wall Street was still mocking Bitcoin — Novogratz had already invested real money into the asset. He not only bought Bitcoin openly but appeared on mainstream financial media to publicly defend the merits of crypto, calling it a “financial revolution.” To be precise, he predicted a steep rise in Bitcoin’s price that year, and by 2014 he participated in Ethereum’s initial crowdsale. He even stated that 20% of his net worth was allocated to Bitcoin and Ethereum — a bold stance in a conservative Wall Street environment.

As of 2024, Galaxy had made 72 publicly known investments, spanning top-tier projects such as Polygon, Bitfarms, and Celestia, with total capital deployed in the billions. While there’s no public record showing Galaxy directly invested in Circle (issuer of USDC) or Bitwise (a crypto ETF issuer), Galaxy’s involvement through ecosystem support and advisory services has been substantial and well documented.

In other words: your ability today to buy crypto on Coinbase, transact with USDC, or potentially invest in an Ethereum ETF — none of that would have been possible without the early-stage infrastructure and capital contributions from players like Galaxy. They were not fly-by-night profiteers parachuting into the industry for a quick kill. They were the “old guard,” the early believers.

And that’s what makes this whole pump-and-dump saga so bittersweet. Galaxy could’ve taken the high road. With their credibility, capital, and influence, they didn’t need to play dirty. But they did.

They chose the path of temptation — opted for the shortcut over the high ground — and walked straight into a trap they set for others.

Now, let’s examine exactly how Galaxy executed this campaign, using market psychology, media manipulation, and surgical timing to offload its position with uncanny precision.

2.1 Testing the Waters: The First Pump-and-Dump Trial Run

The story begins in late 2020.

Per their agreement with Terraform Labs, Galaxy would receive 1/12 of their Luna tokens unlocked each month. As a seasoned Wall Street operator, Novogratz knew full well that the quickest route to profits was to talk up the asset and sell into strength.

On November 11, 2020, even before Galaxy received its first token unlock, Novogratz was already on a prominent podcast (Nugget’s News) singing Luna’s praises. He told the audience he had just bought a bunch of Luna, calling it “a Korean payments company, kind of like a credit card company,” where users could get discounts.

That wasn’t remotely true. Luna had no such real-world functionality.

A few days later, on November 14, someone on Twitter asked, “Hey man, any coin recommendations?” Novogratz replied with a single word: $luna.

By December, he was tweeting that the CHAI payments app — Luna’s supposed partner — had 80,000 daily active users, claiming: “$LUNA is looking great!” On that day, Luna’s daily trading volume surged from $27.5 million to $69 million. The fire had been lit.

That very same day, Galaxy received its first batch of unlocked Luna tokens: about 1.54 million. Being the “respectable” Wall Street veteran, Novogratz told his internal team: don’t sell within 3 days of posting a bullish tweet — his personal rule, allegedly.

Sounds ethical, doesn’t it?

Well, that rule didn’t last long.

On December 16 and 17, just two weeks later, Galaxy dumped all 1.54 million Luna tokens at a price of $0.50 to $0.52 per token.

First pump-and-dump: executed flawlessly.

2.2 Operation Breakeven: Bloomberg to the Rescue

By this point, Galaxy was hooked on the tactic. But to recover their entire $4 million investment and lock in serious profit, they needed a bigger stage. So they went straight to the top: Bloomberg.

In January 2021, Galaxy proactively approached Bloomberg with a press release filled with fabricated statistics. They claimed:

Terra now has the third highest number of transactions of all blockchains (after Bitcoin and Ethereum), generating $13M annually in fees. TerraKRW powers CHAI, one of Korea’s largest e-commerce wallets, with over 2 million users and $1.2B in annualized transaction volume.

But the reality?

CHAI wasn’t even using the Terra blockchain. All payments were still processed in Korean won, with zero reliance on Luna or TerraKRW.

So why fabricate this?

Because without CHAI, the Luna narrative had no real-world utility — and thus, no hook for retail investors.

On January 26, 2021, Bloomberg ran the story: “Novogratz Invests in Crypto Startup Serving Millions in Korea.” Luna’s price immediately jumped from $0.89 to $1.23.

CoinTelegraph followed up with: “LUNA Doubles After $25M Investment by Galaxy Digital,” sparking massive FOMO.

And then?

On January 30, Galaxy dumped another 1.54 million Luna — this time at $1.47 per token.

They had officially recouped their initial investment.

A clean operation. Clinical. Masterful.

2.3 Going All-In: Tattoos, Lies, and Liquidity

Having broken even, Galaxy no longer held back. They cranked up the volume — both literally and figuratively.

In March 2021, Mike Novogratz made a dramatic promise on Twitter:

I’ll get a $LUNA Tatoo at $100.

That kind of personal, emotional pledge struck a nerve. It electrified the crypto community.

At the same time, Novogratz ramped up efforts to intentionally blur the lines between CHAI and Terra, making it sound like Luna was already powering significant real-world payments.

Let’s break down the timeline of exaggerations:

• April 26, 2021: On a podcast, Novogratz said, “CHAI is now used for 6% of Korea’s payments.”
• May 21: He escalated the claim: “7%–8% of Korean payments are now done via blockchain using CHAI.”
• June 22: “8% of all Korean payments are processed through CHAI.”
• September 13: Onstage at the Barclays Global Financial Services Conference, he declared that “9% of Korea’s payments now use the Luna blockchain.”

None of that was true.

In reality, CHAI accounted for less than 1% of Korean payments, and it didn’t even use the Terra blockchain. There was zero direct connection between Luna and these transactions.

But the market bought it. And every time Novogratz spoke, LUNA’s price jumped. And each time it did, Galaxy quietly sold tokens:

• Early May 2021: Sold 1.3 million LUNA at up to $18.60 each.
• June 4: Sold 1.79 million LUNA at around $6.91.
• Early August: Sold another 1.61 million LUNA between $12.19 and $14.79.

The pièce de résistance came in December 2021.

Right before Christmas, LUNA finally hit $100. Novogratz kept his word and posted a photo of his new Luna tattoo — inked on his left arm. It was the perfect viral moment.

But behind the scenes?Galaxy was already dumping LUNA at $96.96 — on Christmas Day itself.

In early January 2022, they continued selling at around $90, offloading millions more in tokens.

Just picture it:While the crypto world marveled at the tattoo, somewhere in a quiet office, Galaxy’s traders were hammering their keyboards, selling into the frenzy they helped ignite.

That’s not marketing.That’s orchestration.

2.4 The Final Frenzy: “Keep the Faith,” Sell the Bag

As 2022 began, Galaxy and Novogratz staged their final act — a masterclass in psychological manipulation and strategic liquidation.

On January 5, with LUNA having slid from $100 to around $80, investor confidence began to shake. That’s when Novogratz stepped back into the spotlight.

He tweeted: …Keep the faith.

Three words — Keep the faith — worked like a shot of adrenaline. Thousands of LUNA holders clung tighter to their coins, bolstered by a billionaire’s “conviction.”

But while the crowd was holding on…

Galaxy was selling.

• January 5: Galaxy dumped over 160,000 LUNA at prices between $77.51 and $84.80, cashing out roughly $13.58 million in a single day.
• January 6–7: Over two days, they offloaded another 520,000+ LUNA, netting close to $40 million.
• January 10–13: In just four days, Galaxy sold nearly 680,000 LUNA, securing an additional $50 million in liquidations.

In just one week, while Novogratz was publicly preaching faith, Galaxy was silently unloading more than 1.3 million LUNA, extracting over $104 million from the market.

They never disclosed any of these sales. The public image of unwavering belief remained intact.

But the story doesn’t end there.

On January 15, as LUNA dipped to around $87, Novogratz posted a meme of a “Viejo Lobo” — Spanish for “Old Wolf.” It was a wink to his role in the Luna community, as if to say: “I’m still here. I’ve seen worse. Stay calm.”

Yet just 90 minutes after posting that tweet, Galaxy sold another 13,276 LUNA, perfectly timing a minor price rebound to net $1.15 million.

Over the following week, Galaxy went into overdrive, dumping more than 1.1 million LUNA as prices dropped from $69 to $48.

Meanwhile, Novogratz kept the faith alive — publicly reassuring followers, framing the dip as “just a normal correction.”

In reality, the exit was nearly complete.

2.5 After the Party: Ashes on the Floor

What Galaxy and Novogratz pulled off during the final months of LUNA’s rally was a textbook display of institutional exit strategy — or, more bluntly, a masterclass in cashing out on the faithful.

On the surface, they played the role of true crypto evangelists:They preached conviction, tweeted about “faith,” and even tattooed the LUNA logo on their bodies. They were icons of belief.

But behind the scenes, they meticulously engineered and executed a high-frequency, high-volume liquidation plan, dumping LUNA methodically and continuously — until their wallets were nearly empty.

And the inevitable ending came swiftly.

On May 9, 2022, UST — the algorithmic stablecoin that propped up the entire Terra ecosystem — collapsed. A death spiral was triggered, and LUNA went into freefall.

In just three days, LUNA’s price nosedived from $65 to less than $0.004.Roughly $40 billion in market cap was wiped out like a puff of smoke.

But Galaxy?They had long exited the stage.

By the time the curtain fell, they held just 2,060 LUNA tokens, worth less than $10.

At this point, the story shifts from what they did to what we, as investors and observers, must reflect on.

3. Can You Avoid This Scam?

After reading the dramatic story of Galaxy’s perfectly orchestrated LUNA exit, you might be wondering:

“If I had been a little smarter, a little more cautious, could I have avoided this trap?”

To answer this question seriously, we must take a rational, fact-based approach, and unpack the subtle clues behind such exit scams — while also examining the inherent strengths and weaknesses that retail investors face.

Let’s look at it from two perspectives: Why it’s possible and why it’s not.

3.1 Why You Could Have Avoided It

In reality, if you had maintained a healthy degree of skepticism, combined with diligence and patience, it was possible to spot the red flags and sidestep Galaxy’s “pump-and-dump” trap.

First: The Data Was Too Good to Be True

Any attentive investor could have noticed the exaggerated and even falsified metrics used in Galaxy and Novogratz’s public statements.

For example, Novogratz repeatedly claimed:

• In April 2021, that “6% of all payments in Korea were happening through Chai.”
• By May 21, that number had supposedly risen to “7%-8%.”
• And in September, he boldly claimed, “9% of Korea’s payments run through the LUNA blockchain.”

But what do the actual numbers say?

According to official Chai data (verifiable through tools like Chaiscan), Chai’s market share in Korean payments never even exceeded 1%, and more importantly, Chai never even ran on the Terra blockchain. All transactions were processed in Korean won, outside the Terra ecosystem.

With just a bit of research, it would have been clear that these claims were highly misleading.

Second: The Selling Pattern Was Repetitive

Another clear clue was Galaxy’s timing of their sales — which coincided like clockwork with their promotional push.

Take December 3, 2020, for instance:When Novogratz tweeted about Chai having 80,000 daily active users, LUNA’s daily trading volume more than doubled from $27.5 million to $69 million.

Just two weeks later, Galaxy dumped their entire first tranche of 1.54 million LUNA, pocketing quick profits at around $0.50 each.

Again, on January 30, 2021, just days after the now-famous Bloomberg article hyping Galaxy’s LUNA investment, they cashed out another 1.54 million LUNA — this time at $1.47 per token.

This pattern repeated over the following months.If you were monitoring on-chain activity or simply tracking wallet movements, you could have detected the telltale signs of strategic selling by a large holder.

Third: The Hype Was Just Too Personal

Another red flag was the over-the-top personal endorsements by Novogratz.

Saying “I’ll get a LUNA tattoo if it hits $100” might sound playful — but for a seasoned Wall Street veteran to make such a declaration on Twitter, it should have raised serious alarm bells.

Professional investors typically avoid making specific price predictions, let alone tattoo-based promises.So when such emotional theatrics surface in financial markets, it’s often a distraction tactic — and a warning to stay alert.

3.2 Why You Couldn’t Have Avoided It

But beyond all the rational analysis, we must also admit a painful truth:For the vast majority of retail investors, avoiding a well-crafted, institutional-level exit scam like Galaxy’s is nearly impossible.

First: The Authority Bias Is Too Powerful

Mike Novogratz, the CEO of Galaxy Digital, is not just any figure in crypto.He’s a former Goldman Sachs partner, a regular guest on CNBC and Bloomberg, and one of the earliest Wall Street voices to publicly embrace Bitcoin and Ethereum.

To the average investor, a man with this level of pedigree and media exposure feels infallible.So when someone like him personally endorses a project, it’s easy for investors to let their guard down, believing “he must know something we don’t.”

Galaxy expertly leveraged this halo effect, turning Novogratz’s reputation into a market-moving weapon.For most retail participants, identifying the true motives behind such trusted figures is an insurmountable challenge.

Second: Sophisticated PR and Media Manipulation

Galaxy’s use of media was not accidental — it was calculated and deliberate.

In January 2021, Bloomberg published a flattering article headlined:

“Novogratz Invests in Crypto Startup Serving Millions in Korea.”

What wasn’t disclosed?That much of the data used in the article — like CHAI’s alleged user base and Terra’s real-world traction — was provided directly by Galaxy and largely fabricated.

But to the average reader, especially when it’s Bloomberg or CoinTelegraph, the assumption is:

“If this is in the media, it must have been vetted.”

And that’s precisely what made the scam so insidious — because Galaxy wasn’t selling a token, they were selling a story, wrapped in the veneer of credibility.

Most investors simply aren’t equipped to tell the difference.

Third: The Emotional Grip of “Keep the Faith”

On a psychological level, Novogratz’s mantra — “Keep the faith” — was devastatingly effective.

When prices fall, most retail investors crave reassurance. They don’t want charts — they want hope.

And Novogratz delivered it, again and again, with charismatic flair.He tweeted about LUNA’s long-term vision. He compared Terra to early PayPal. He even got a tattoo.

This created a powerful emotional illusion:

“If he’s this confident, surely we must be on the right path.”

But behind the scenes, Galaxy was selling. Quietly. Precisely. Consistently.

Retail investors, intoxicated by community hype and the comforting voice of their crypto “pastor,” had no idea they were being led directly into the slaughterhouse.

In moments like this, even the smartest minds get swept up in the social momentum.And those who dared to question the narrative? Often dismissed as cynics or “non-believers.”

3.3 Summary: The Trade-Off Between “Can” and “Can’t”

So back to our original question:

“Could you have avoided this scam?”

The honest answer is — it depends. It depends on how much market knowledge, investing experience, and independent thinking you truly possess.

If you’re the kind of investor who:

• double-checks every claim,
• reads between the lines of press releases,
• tracks on-chain wallet movements,
• and treats media narratives as suspect until proven otherwise —

Then yes, you might have spotted the inconsistencies: the fake CHAI data, the suspiciously timed sell-offs, the overly theatrical endorsements.

But let’s be real.

If you’re like most people — an everyday retail investor trying to navigate a noisy, confusing market — then in the face of:

• institutional-level PR machinery,
• celebrity-level authority bias,
• emotionally resonant storytelling,
• and mass social validation…

You were up against an opponent that plays in a league far above yours.

And that’s the real tragedy. Because Galaxy’s story is not unique. It wasn’t the first, and it won’t be the last.

Final Reflection

Greed and deception are eternal currencies in every financial market.

And what this saga reminds us is:

The market doesn’t punish ignorance. It punishes trust without verification.

So, no — you shouldn’t feel shame if you fell for the LUNA dream. But you should feel a sense of duty to never be caught off guard again.

Because next time, the names will change, the logos will differ — but the playbook remains the same.

Conclusion

The line between preaching and profiting — between evangelist and executioner — is as thin as trust itself.

And once that trust is crossed, it turns into the very blade that cuts you down.

Behind every scam is a tug-of-war between human greed and fear.

In the story of Galaxy and Luna, we witnessed how:

• authority can become a harvesting tool,
• media an amplifier of deception,
• and emotion the fuel for collective delusion.

But at its core, this world has no free wealth, and no riches without risk.

“Faith” is one of the most inspiring words in investing — until it’s hijacked to manipulate markets,weaponized into a toxic belief,and turned against every investor who once trusted it.

Yet, let us be fair.

Galaxy was not merely a predator.

They were among the few who stood at the frontier when the crypto world was still a digital wilderness.They injected capital, confidence, and legitimacy when few dared.Novogratz’s foresight, and Galaxy’s push for regulation and infrastructure, did help crypto inch toward the mainstream.

They accompanied this industry through its formative years, weathered the storms, and witnessed its rise.

That’s what makes their fall so tragic.

Because with the credibility, resources, and influence they had — Galaxy could have profited cleanly.They could have stayed legends. But when temptation collided with integrity, they chose the shortcut, not the summit.

And so, what must we, as investors, take away?

That investment is not about trusting personalities. It’s not about echoing headlines.It’s about building your own lens,Sharpening your own mind, And most importantly — resisting the herd.

Because:

Every time you follow blindly, you pay the price for someone else’s strategy. Every time you question wisely, you earn back a piece of your freedom.

So from now on, remember this:

• Don’t worship authority. Trust data.
• Don’t chase hype. Think independently.
• Don’t get swept up in emotions. Respond with reason.

After all, the market has no mercy. Only those who remain clear-eyed through the fog of noise — deserve to walk the path to financial freedom.

And finally, let us thank the Martin Act, for proving that even in a space as wild as crypto, there are still laws sharp enough to pierce through marketing myths and call fraud by its name.

We can only hope that under the looming shadow of the Martin Act, those behind the next pump-and-dump will think twice — before turning trust into a trap.

About Airdrop Reference

Airdrop Reference is an innovative blockchain education and outreach platform dedicated to making blockchain technology more accessible to the general public. Its mission is to lower the barriers to entry, promote high-quality blockchain projects, and help more people benefit from the opportunities of the Web3.0 era.

Zero-cost airdrops + beginner-friendly tutorials + anti-censorship backup

👉 https://linktr.ee/AirdropReference

From Evangelist to Liquidator: The Art of Galaxy’s Pump-and-Dump was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

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This is your first lesson on how to embrace a long-term investment mindset.

👉 [See the full guide in English]

Conclusion: Real Wealth Lies Not in Price Swings, but in Whether You Hold the Power

Cryptocurrency is not a casino. Nor is it a temple fair. It is a migration of technology, systems, cognition, and trust.

This Beginner’s Guide Compilation does not aim to make you rich overnight — it aims to ensure that you do not lose your first bucket of gold in the next decade due to ignorance.

Perhaps you have just bought your first 0.001 BTC.Perhaps you have just stored it in a cold wallet.Perhaps you have just sold 300 USDT.Perhaps you have just avoided a scam…

But remember:

This is the first step you take — and the beginning of your journey toward financial sovereignty.

The future is long. Knowledge is your true private key.

📚 Your Key to the Crypto World: A Beginner’s Guide Compilation was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

If you abandon the gambler’s mindset and regard perpetual contracts as tools for hedging risks and arbitrage, they can become powerful instruments at your disposal.

I have previously written an article explaining their hedging functionality in detail. Thanks to the effective hedging provided by perpetual contracts, during the sharp crash in Bitcoin on August 5, 2024, my long Bitcoin positions remained secure. I did not perish just before dawn but instead witnessed the strong rebound following the United States’ interest rate cut. Moreover, I earned additional income through the funding rate in the process. (See: “Bitcoin Flash Crash: Did Leverage Kill My Stack?”)

In my opinion, no other innovation in the blockchain world has surpassed perpetual contracts. They are, without exaggeration, a disruptive innovation to traditional derivatives.

1. What Did Perpetual Contracts Disrupt?

The answer lies in the name itself — “perpetual.”

Perpetual contracts are a type of cryptocurrency derivative. First, let us briefly explain what a derivative is. Simply put, derivatives are financial instruments whose value is derived from other underlying assets such as stocks, bonds, commodities, or currencies.

A common type of derivative is the futures contract — most notably, commodity futures.

Commodity futures are contracts based on physical goods that allow traders to buy or sell these goods at a predetermined price on a future date. These commodities usually include agricultural products (such as wheat and corn), metals (such as gold and copper), and energy (such as crude oil and natural gas).

Imagine a farmer locking in the price during harvest season to protect against market volatility. This mechanism not only helps producers manage risks but also provides speculative opportunities for investors.

However, traditional futures contracts have one inherent issue: expiration. When they mature, delivery must occur. That is, the buyer must receive the asset and the seller must provide the funds. This creates several problems:

• Logistics and storage costs: Physical delivery involves complicated arrangements and extra storage costs, especially for agricultural or metal commodities.
• Price fluctuation risks: At expiration, the market price might differ significantly from the contract price, potentially causing losses for traders.
• Rolling costs: If traders wish to maintain their positions, they must close the maturing contract and open a new one, incurring additional costs.

Perpetual contracts were specifically designed to solve these issues. They do not have expiration dates. Traders can hold their positions indefinitely, avoiding the hassle of delivery and managing their investment strategies with greater flexibility.

Because they have no expiration, traders do not have to worry about settlement risks due to market volatility. Through a funding rate mechanism, perpetual contracts maintain close alignment with spot prices. This freedom allows traders to focus more on market dynamics instead of expiration dates, providing a truly flexible trading experience.

When I first discovered perpetual contracts, it was this feature that captivated me. As long as you resist greed and choose the right direction, holding positions long term can generate considerable returns. At the time, DYDX happened to be in its promotional testing phase, and I became one of their most loyal users. Eventually, I received a generous airdrop.

2. Do Not Speculate with Perpetual Contracts, or You May Lose Everything

Perpetual contracts come in two types: linear and inverse. Regardless of which type you use, always remember that your account must contain margin — otherwise, you cannot open a position.

Let us illustrate with an example:

Assume you have $1,000 in your account. You decide to use 25x leverage to open a perpetual contract worth $25,000 ($1,000 × 25). If the current price of Bitcoin is $63,000, this means you can purchase about 0.396 BTC via the contract.

Now suppose the market unexpectedly starts to decline. What kind of drop would wipe out your entire position?

• Account balance: $1,000
• Leverage: 25x
• Contract size: $25,000
• Amount of Bitcoin purchased: approximately 0.396 BTC ($25,000 ÷ $63,000)

If the loss on the contract reaches your margin of $1,000, the platform will forcibly close your position.

A $1,000 loss equals 4% of the contract value ($1,000 ÷ $25,000). Therefore, if Bitcoin’s price drops by 4%, to $60,500, your position will be forcibly liquidated, and your entire margin lost.

That is just a theoretical scenario — in reality, the platform would liquidate your position before it even hits that 4% loss to avoid taking a loss itself.

This is why you must understand: high leverage gives you the ability to open positions, but not the ability to make profits. More often than not, large players will shake out your position with violent price swings.

If you do not believe it, just look at the recent hourly candlestick chart over the past two months — the maximum drop, marked by a yellow arrow, is 29%. Violent fluctuations are the norm here. Remember, this is a much darker forest than the Chinese stock market.

That said, when used correctly, perpetual contracts can significantly reduce your risk and even help you earn steady income.

3. The Correct Use of Perpetual Contracts

Although perpetual contracts carry inherent risks, if used wisely, they can become powerful tools for investors. Below are several non-speculative use cases to help you better manage risks and returns in the complex world of cryptocurrency.

3.1 Hedging Risk

Let us say you already hold some Bitcoin and are worried about a potential short-term drop in price. You can open an inverse contract to hedge your spot position. If the price does fall, your loss on the spot side will be offset by profits from the perpetual contract.

This is exactly what I did in my leveraged accumulation strategy: I bought spot BTC and simultaneously shorted several other crypto perpetuals.

3.2 Earning Funding Rates

Another method is to hold spot BTC while selling perpetual contracts to collect the funding rate.

The screenshot above shows the Binance BTC perpetual contract. The funding rate is +0.0067%, and the countdown timer indicates that in 30 minutes, buyers of the BTC perpetual contract will pay sellers that rate. If the funding rate is negative, then sellers pay buyers.

This strategy works best with cryptocurrencies ranked in the top 10 by market capitalization. Do not try this with small-cap coins — they are not suitable for such a strategy.

Why? Because low-cap perpetual markets are like small streams — a single rock can block the flow. In such environments, market makers can easily manipulate prices, causing volatile swings in the funding rate that make it hard to profit.

This does not mean top 10 coins cannot be manipulated — it is just relatively harder to do so. Still, when stakes are high, manipulation is possible. Choosing large caps merely reduces the risk.

If you want to understand how exchanges manipulate prices, read this article: “Do Not Take Bitcoin’s Price at Face Value.” Although it was written years ago, the environment in today’s crypto markets has not fundamentally changed. Rogue exchanges are still prevalent — especially in centralized trading venues, where you must be even more cautious.

3.3 The Best Platform for Trading Perpetuals: Drift

Whether for hedging or funding rate arbitrage, I recommend using the decentralized perpetual platform Drift, which is currently the only DEX offering cross-collateral margin accounts across different tokens.

Click the link to visit the platform.

Agree to the terms and connect your wallet.

On first login, the platform will prompt you to deposit funds.

You can skip this by clicking “Deposit later.”

You will also see a reminder: since you used my referral code 3721, you will save 5% on all future trading fees — permanently.

For detailed operations, see my dedicated article: “How to Accumulate BTC Using Leverage — Do Not Miss the DeFi Dividend.”

3.4 The Best Way to Participate in Perpetual Contracts: Hold JLP and Align with the Market

JLP is the liquidity provider token of the Jupiter exchange, used to support its decentralized perpetual trading.

Jupiter is a decentralized exchange (DEX) built on Solana, offering not only spot trading but also perpetual contracts and other financial instruments. JLP’s underlying assets include SOL, ETH, WBTC, USDT, and USDC — providing both liquidity and yield for holders.

JLP holders are like casino owners — they stand on the opposite side of traders. When traders take leveraged positions, they borrow from the JLP pool. If traders win, JLP pool loses; if traders lose, JLP profits.

This makes JLP a relatively stable investment because, in the long run, the majority of traders lose money — thus delivering steady returns to liquidity providers.

In short, you cannot beat the market — but you can stand with it. Holding JLP means you become part of the house — and the house always wins.

The chart below shows JLP’s price performance since November 2023 — consistently rising, a strong signal of growing value.

JLP’s value comes from several sources:

• Asset composition: Think of JLP as an index fund composed of SOL, ETH, WBTC, USDC, and USDT.
• Traders’ P&L: As previously mentioned, traders’ gains or losses directly impact the JLP pool.
• Fee income: This is a highly stable revenue stream and a key driver of JLP’s price growth. 75% of opening/closing fees, price impact fees, borrowing fees, and trading fees are recycled into the pool hourly, increasing JLP’s value.

Furthermore, JLP can now be used across various DeFi protocols. You can use JLP as collateral to borrow on Kamino and MarginFi, and new projects like NX Finance are building leveraged yield platforms based on the JLP yield mechanism. (See: “Solana Ecosystem Yield Booster — NX Finance.”)

Buying JLP is easy. Connect your Solana wallet and click the arrow button on the interface.

Conclusion

Gambling is a part of human nature — as if everyone has a little casino in their heart. Perpetual contracts offer a stage for this instinct, attracting countless investors into high-risk games.

Yet most of these adventurers fall just before the dawn. The market, like a cunning opponent, can never be truly defeated.

Fortunately, we have JLP — allowing us to put aside the gambler’s mindset, shake hands with the market, and become liquidity providers rather than reckless speculators.

Beginner’s Guide: Perpetual Contracts was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

This is a war without gunpowder, yet alarms are already sounding in everyone’s wallet.

Last week, President Trump of the United States unleashed a storm of tariffs, sending shockwaves through the global economy. U.S. stock markets plummeted, wiping out $5 trillion in market value in just two days — Bitcoin was not spared either. But did you know? The real destructive power of this trade war lies not in the visible realm of goods, but in something we’re most familiar with — and yet most often overlook: currency.

The reason the United States dares to so brazenly wield the tariff baton is not merely because of the trade deficit card. The more crucial trump card is dollar hegemony. The U.S. dollar not only dominates global trade but also functions as a hidden economic weapon — whoever controls the dollar, controls the lifeblood of the global economy. What’s more worrying is that this war is bound to spill over from the realm of goods into the realm of currency. A global race to devalue national currencies is quietly unfolding.

So how should ordinary people face such an invisible war? Let us peel back the layers of this confrontation to see who the real winner might be. No suspense — here’s the answer right up front:

Surprisingly to many, the ultimate winner may not be a nation, but decentralized stablecoins.

1. The Tough and the Tactful

In response to President Trump’s April 2, 2025 announcement of an additional 34% tariff on Chinese goods, China responded swiftly and forcefully.

On April 4, the Customs Tariff Commission of the State Council of China announced that, starting April 10, it would impose an additional 34% tariff on all imported goods originating from the United States, based on existing applicable tariff rates. In addition, China imposed export controls on critical resources such as medium and heavy rare earths and filed a complaint with the World Trade Organization (WTO), accusing the United States of violating international trade rules. This series of measures underscores China’s firm stance in defending its interests amid the trade dispute.

Shortly afterward, the United States threatened to impose an additional 50% tariff if China did not retract its retaliatory tariffs. The conflict escalated sharply, tit for tat.

Compared to China’s hardline response, Vietnam opted for a more conciliatory approach.

As one of the most heavily affected countries, Vietnam faced tariffs as high as 46% from the United States. The Vietnamese government quickly took action, seeking to resolve the dispute through diplomatic channels. Nguyễn Phú Trọng, General Secretary of the Communist Party of Vietnam, held a phone call with President Trump, expressing Vietnam’s willingness to reduce tariffs on U.S. goods to zero in exchange for the U.S. removing its high tariffs on Vietnamese exports.

Furthermore, the Vietnamese government requested a 45-day delay in the implementation of the U.S. tariffs to allow time for negotiations. Deputy Prime Minister Hồ Đức Phớc was dispatched to the United States in hopes of finding a diplomatic resolution to the tariff issue.

At an emergency cabinet meeting, Prime Minister Phạm Minh Chính emphasized that despite the challenges, Vietnam would continue to pursue its GDP growth target of 8% or higher. He noted that the challenge could also serve as a catalyst for economic restructuring aimed at achieving rapid and sustainable development, expanding markets, and optimizing supply chains.

Responses from Other Countries:

• European Union: European Commission President Ursula von der Leyen expressed willingness to negotiate with the United States for reciprocal zero tariffs on industrial goods. However, she warned that if negotiations failed, the EU would retaliate.
• Japan: Japanese Minister of Trade Yoji Muto expressed regret over the U.S. tariff decision, stating that Japan would consider appropriate countermeasures.
• Australia: Prime Minister Anthony Albanese criticized the U.S. tariff measures as “baseless,” but stated that Australia would not impose retaliatory tariffs.

As it stands, apart from China’s strong response, most other countries reacted with relative restraint. Vietnam’s contrast with China is especially striking. Prime Minister Phạm Minh Chính even framed the challenge as an opportunity to restructure Vietnam’s economy — an attitude of turning pressure into momentum that is particularly worth pondering.

It is not that Vietnam lacks courage, but rather that the consequences of this tariff war would be unbearable. A full-blown trade war would be unsustainable not just for the United States or China, but especially for Vietnam. Its cautious response is more a matter of necessity than choice.

2. Tariff War: Two Blades Severing the Global Economy

If the tariff war truly escalates, it will act like two sharp blades — mercilessly slicing through the arteries of the global economy and tearing apart its delicate fabric.

2.1 First Blade: The Pain of Supply Chain Restructuring

The most immediate and visible impact of America’s tariff offensive is the shock it delivers to global supply chains. High tariffs function as artificial trade barriers that instantly raise the cost of imported goods. This not only directly increases consumer spending in the United States but also puts tremendous export pressure on Chinese manufacturing sectors that heavily rely on the U.S. market.

To avoid these burdensome tariffs, global industries are being forced into yet another sweeping wave of supply chain restructuring. The data from the past three years (2022–2024) serves as a prelude to what lies ahead:

• The Rise of Southeast Asia
• As shown in World Bank reports, ASEAN countries have become major beneficiaries of the supply chain shift. By 2024, foreign direct investment (FDI) in Southeast Asian manufacturing surged nearly 30% compared to 2020. This trend is not baseless: sectors such as electronics, textiles, and light industry have been accelerating their relocation to countries like Vietnam and Thailand. For example, Samsung shut down its last smartphone factory in China and ramped up its investments in Vietnam and India. Japanese clothing giant Uniqlo also increased its Southeast Asian production to reduce reliance on any single market. These corporate migrations directly boosted local employment and economic growth.
• Vietnam and Mexico Move Up the Ranks
• Vietnam and Mexico, owing to their geographical advantages and relatively low labor costs, have become key manufacturing alternatives for U.S. companies looking beyond China. In Vietnam’s case, its export volume to the U.S. has steadily increased over the past three years — particularly in textiles, footwear, and electronic components. Mexico, benefiting from its proximity to the U.S. and the legacy of NAFTA (which was replaced by the USMCA in 2020), has attracted a flood of investment in sectors like auto parts and home appliances. In the short term, these countries are indeed enjoying the dividends of industrial relocation.

However, with President Trump now announcing a blanket 10% tariff on all imports, and additional tariffs exceeding 50% on Chinese goods, this seemingly “win-win” supply chain shift is poised to suffer another major shock. It’s like a tectonic plate that had just begun shifting after a quake — only to be rocked again by new seismic forces.

For companies that already moved part of their production to countries like Vietnam and Mexico, the new tariff policies come as a rude awakening. While they may have avoided the extra 50% tariffs on Chinese goods, the 10% blanket tariff on all imports still raises operating costs and erodes price competitiveness.

Worse yet, if these companies still rely on Chinese components or raw materials for their production in Vietnam or Mexico, those intermediate goods will now come with significantly higher costs due to the 50%+ tariffs on Chinese exports. This means that overall production costs could rise instead of fall.

This new round of tariff shocks will further accelerate the decentralization and regionalization of global supply chains. Companies may increasingly prefer to set up production bases closer to end markets or distribute capacity across multiple countries to reduce dependency on any single region. This trend will further complicate global trade, reduce supply chain efficiency, and increase corporate management costs.

In short, the new tariff policy is a sharper and more damaging blade. It not only intensifies the already painful restructuring of supply chains but also causes broader, deeper disruptions across all aspects of the global economy. Enterprises and nations that had just begun adjusting to a new landscape will now be forced into another round of upheaval and challenge.

2.2 The Second Blade: The Threat of a “Stagflation Trap”

As renowned investor Ray Dalio has warned, tariffs are like injecting a toxic dose of “stagflation” into the global economy. Exporting countries face deflationary pressures due to falling demand, while importing countries suffer from rising prices and inflation. The coexistence of stagnant growth and inflation is what economists fear most — a classic stagflation trap.

Let’s look at the actual data from the United States and major export-oriented economies:

• The Climb of Inflation in the United States
• Since the escalation of U.S. tariff policies at the end of 2024, the Consumer Price Index (CPI) has continued to rise. According to data from the U.S. Bureau of Labor Statistics, by February 2025, the U.S. CPI had increased by 0.684% compared to the end of 2024. Goods heavily impacted by tariffs — such as electronics, clothing, and furniture — saw particularly sharp price hikes. This directly led to a continual rise in living costs and a decline in real purchasing power. The annualized inflation rate in the U.S. is currently around 2.8% to 3.0%, well above the 2% target.
• The Chill in Exporting Countries
• For export-driven economies like China, South Korea, and Germany, the U.S. tariffs landed like a heavy blow. In the short term, their exports to the U.S. shrank dramatically, leading to fewer orders and a slowdown in production. To deal with excess capacity, many firms were forced to cut prices, resulting in declining profits — or even losses. This reduces companies’ willingness to invest and could lead to waves of layoffs and rising unemployment risks.
• Take China as an example: According to analysis by the Economist Intelligence Unit (EIU), China’s GDP growth rate for 2025–2027 may fall by 0.6% to 2.5%, depending on the intensity of the tariffs.

What makes stagflation within a single country so dangerous is that traditional monetary policy often becomes ineffective — central banks face a dilemma. If they adopt loose monetary policies to stimulate growth, inflation may worsen. But if they tighten policies to fight inflation, they risk further economic slowdown. Governments are stuck between a rock and a hard place.

Now consider this: the stagflation caused by this tariff war is not just confined to one country — it is global. Importing countries face inflation, exporting countries face stagnation. Solving this kind of global stagflation is far more complex than addressing a domestic crisis.

For Importers like the United States Their main challenge is soaring prices. The traditional response is to raise interest rates to curb inflation. But with economic growth already hindered by tariffs and supply chain disruption, higher rates may further suppress activity — potentially triggering a recession.

For Exporters like China Their primary issue is a lack of demand leading to slowing growth. To stimulate the economy, they might cut interest rates and expand credit. However, in a tense global trade environment, such policies risk triggering capital flight and currency devaluation, escalating trade tensions with the U.S.

This global stagflation conundrum renders most national policy tools ineffective — or even counterproductive. Importers and exporters face opposite predicaments, making it nearly impossible for any one-sided policy to strike a balance or form a coordinated global response.

That is why economists like Ray Dalio are so concerned. It signals that the world economy may be entering a long-term phase of low growth and high inflation — an extremely difficult and painful combination.

2.3 Summary

In summary, this tariff war is like two invisible blades, silently slicing through the nerves of the global economy.

The first blade — the pain of supply chain restructuring — forces global enterprises to pay a heavy price to realign their production layouts. Efficiency declines, and ultimately, it is the consumers who bear the burden of higher prices.

The second blade — the threat of stagflation — traps governments in a dilemma. They must combat inflation while avoiding further economic slowdown, but traditional monetary tools are proving increasingly inadequate.

Faced with fractured supply chains and the looming risk of stagflation, some countries are beginning to turn toward their only remaining shield — currency. A beggar-thy-neighbor currency devaluation race may already be quietly underway.

3. Currency as the Shield: A Poisonous Cure

Deep in the mists of history, the economic time machine has replayed the same tale again and again. Humanity tends to draw lessons from the past, yet often forgets them just as easily. Currency wars — this seemingly technical and complex concept — have been staged repeatedly throughout the economic history of mankind.

Today, this “monetary shield” is once again wielded by nations. On the surface, it seems capable of easing economic pain in the short term. But history reminds us clearly: it is in truth a poisonous cure — akin to drinking poison to quench thirst.

3.1 Currency Devaluation During the Great Depression

During the Great Depression of the 1930s, countries around the world plunged into economic stagnation and deflation. To stimulate exports and save their economies, nations raced to devalue their currencies.

In 1931, the United Kingdom took the lead by abandoning the gold standard, allowing the pound sterling to float freely. The pound quickly depreciated by about 30% against the U.S. dollar. This gave British exports a temporary competitive edge, resulting in a short-lived recovery in trade.

Britain’s move sparked a global chain reaction. France, Germany, and Italy followed suit, treating currency devaluation as a tool for economic revival. This competitive devaluation triggered a domino effect: nations erected high tariff barriers to protect their domestic markets.

But reality proved cruel. Global trade volume plunged dramatically. According to the International Monetary Fund (IMF), between 1929 and 1933, total global trade shrank by more than 60%, exacerbating the economic downturn and sending unemployment soaring. In the United States, joblessness exceeded 25%.

3.2 Currency Devaluation During the Asian Financial Crisis

If the lessons of the Great Depression seem too distant, then the monetary warfare of the late 1990s — particularly the Asian Financial Crisis of 1997 — offers a more recent and vivid example.

At the time, many Asian economies had experienced rapid growth and accumulated massive external debts. An influx of speculative capital led to soaring asset prices. When foreign investors suddenly withdrew their funds, currencies such as the Thai baht, Indonesian rupiah, and Malaysian ringgit collapsed in quick succession.

Thailand was the first to break. In July 1997, it abandoned its fixed exchange rate policy pegged to the U.S. dollar, causing the baht to plunge more than 50% in a short span. To maintain export competitiveness, neighboring countries quickly followed suit with their own devaluations. But what followed was an even greater wave of capital flight.

South Korea, within just a few months, saw its foreign exchange reserves depleted and was forced to seek emergency assistance from the International Monetary Fund (IMF), receiving a bailout package of 58 billion U.S. dollars.

While devaluation provided temporary relief for exports, it also unleashed severe inflation and deep economic recessions. In Indonesia, the turmoil triggered massive social unrest, leading to the ousting of President Suharto. During the crisis, inflation in Indonesia soared above 70%, unemployment spiked, and society descended into chaos.

These historical echoes serve as a clear warning: while currency devaluation may appear to be a simple economic lever, it carries enormous, often unpredictable risks. Once countries begin a race to the bottom, the competitive advantage is fleeting and unsustainable — while the resulting turmoil in global capital markets, long-term economic recession, and systemic imbalances can be devastating.

Yet the short-term “effectiveness” of this monetary shield continues to tempt governments — driving more and more of them toward the edge of the abyss.

3.3 Currency Devaluation: A Desperate Lifeline

In today’s tariff war, nations once again find themselves teetering on the edge of competitive currency devaluation. Faced with plummeting exports and the looming threat of mass unemployment, devaluing the currency has become a “lifeline” that many governments feel compelled to grasp. Yet history makes it clear: this lifeline is no salvation — it is an accelerant for economic deterioration.

Take the most recent data: after the new tariff measures announced in April 2025, the Chinese yuan depreciated sharply from 7.05 to 7.20 against the U.S. dollar — a two-year low. The Vietnamese dong followed closely, falling more than 6% against the dollar. Other currencies such as the Korean won, the New Taiwan dollar, the Malaysian ringgit, and even the euro also shifted toward more accommodative monetary policies.

The logic behind competitive devaluation is simple but brutal: when a country’s currency depreciates, its exports become cheaper in the international market, thus temporarily boosting trade.

But behind this short-term boost lies a ticking time bomb. Once devaluation becomes persistent, the real value of domestic assets inevitably shrinks. Foreign investors, driven by risk aversion, will rush to withdraw their capital.

A stark example: in 2024, the Turkish lira lost over 40% of its value in a single year. The result was a massive flight of foreign capital, the rapid depletion of foreign exchange reserves, and an inflation rate that soared above 85%. Living costs surged, and the Turkish economy was pushed to the brink of collapse.

Even more troubling is the fact that once currency devaluation becomes a universal defense strategy, the global capital markets fall into a state of panic. Investors stampede into dollar-denominated assets, triggering massive capital flows into the U.S. But this creates a “dollar trap” of its own: the surging dollar cripples American manufacturing, drains global liquidity, and guarantees a lose-lose outcome for all involved.

The truth is, for any other country, proposing reciprocal tariffs may be a reasonable response to unfair trade terms. But the United States is not just any country. Because of dollar hegemony, its trade deficit is not as unfair as it claims — or at least, that’s only part of the story.

4. Trade Deficits Under Dollar Hegemony

To understand dollar hegemony, we must go back to the post-World War II era. The Bretton Woods system established the U.S. dollar’s peg to gold, making it the world’s primary reserve and settlement currency. However, this system collapsed in 1971 when the Nixon administration unilaterally severed the dollar’s link to gold.

So, how did the dollar manage to maintain its dominant position after the collapse of the gold standard?

4.1 The Formation of Dollar Hegemony

A key reason lies in the creation of the Petrodollar system. In the 1970s, the United States reached a landmark agreement with Saudi Arabia: Saudi Arabia would price and settle all of its oil exports exclusively in U.S. dollars, and in return, the U.S. would provide military protection.

Because oil is the lifeblood of the global economy, this agreement effectively meant that almost all oil transactions worldwide had to be settled in dollars.

Imagine this: every country needs oil to keep its economy running. And the only way to purchase oil is with U.S. dollars. It is as if there is a massive international marketplace where the only universally accepted admission ticket is the dollar. To get that ticket, countries must export goods and services to the United States or hold dollar-denominated assets.

Beyond the petrodollar, the dollar’s status as the primary global reserve currency further solidified its dominance. Central banks around the world hold foreign exchange reserves for trade settlement, currency intervention, and as a store of national wealth. Given the size, maturity, and relative stability of the U.S. economy and its financial markets, the dollar naturally became the top choice.

According to data from the International Monetary Fund (IMF), as of the end of 2024, the U.S. dollar still accounted for approximately 57.8% of global foreign exchange reserves — far ahead of the euro, yen, and pound.

This means that more than half of all foreign reserves in the world exist in dollar form. If you are interested in how this dollar hegemony came to be, I recommend reading “Escape the Inflation Trap, Return to a Time Standard” goes beyond just the dollar and provides a historical overview of nearly all major currencies.

4.2 The Privileges of Dollar Hegemony: Cheap Financing and Seigniorage

Because of the U.S. dollar’s special status, the United States enjoys a range of unique economic privileges that no other country can match. Two of the most significant are:

1. Cheap Financing

Due to the global demand for dollar-denominated assets — especially U.S. Treasury bonds — the United States can borrow at lower interest rates than most countries. It is similar to a company with an excellent credit rating: it can obtain loans at much lower costs than its peers.

In contrast, when other countries run trade deficits, they often face currency depreciation and higher borrowing costs. But thanks to dollar hegemony, the U.S. is largely shielded from this pressure.

For instance, despite the U.S. government’s soaring debt levels, global investors continue to buy U.S. Treasury bonds, which keeps borrowing costs down. Imagine if any other country carried such an enormous debt burden — its bond yields would likely skyrocket.

2. Seigniorage

Seigniorage refers to the profit made from issuing currency — the difference between the face value of money and the cost to produce it. For the United States, since the dollar is the world’s main reserve currency, many countries need to hold it.

This effectively allows the U.S. to extract real wealth from other countries at virtually no cost. Why? Because in order to hold dollars, other nations must export goods and services to the U.S., or purchase U.S. assets, in exchange for pieces of paper (or digital dollars) that the U.S. can create at will.

Think of the U.S. as a kind of global central banker — by simply printing money, it gains access to the world’s goods and services. While the process is not quite so literal in modern monetary policy, the underlying mechanism remains the same: the dollar’s global dominance grants the U.S. vast seigniorage revenues.

4.3 Trade Deficits: Only Part of the Story

When we talk about trade deficits, the focus is usually on the imbalance between a country’s imports and exports of goods and services. But in reality, international trade also includes capital flows, and under dollar hegemony, the U.S. trade deficit is accompanied by large net capital inflows.

Here’s how it works:

When the United States purchases goods and services from other countries, dollars flow outward. But these same dollars often flow back into the U.S., as foreign governments and investors use them to buy U.S. financial assets — such as Treasury bonds, stocks, and real estate.

You can think of this like a massive shopping mall: other countries shop in American stores (sell goods to the U.S.), then take their earnings and deposit them back into the mall’s bank (the U.S. financial system).

According to data from the U.S. Department of Commerce, the U.S. has run persistent trade deficits for decades. Yet, at the same time, its financial account has shown consistent surpluses, meaning more capital flows into the U.S. than flows out.

This dynamic helps explain why the United States can sustain long-term trade deficits without suffering a severe economic crisis. The outflow of dollars through trade is continuously balanced by their return via capital inflows. This is only possible because the U.S. issues the world’s primary reserve currency — a privilege no other nation holds.

4.4 The Triffin Dilemma: An Internal Contradiction of Dollar Hegemony

The U.S. dollar’s status as the global reserve currency comes with a built-in contradiction — one that economist Robert Triffin famously identified in the 1960s. It is now known as the Triffin Dilemma.

Triffin pointed out that to meet the growing global demand for U.S. dollars, the United States must continually export dollars to the rest of the world. This inevitably requires the U.S. to run persistent trade deficits, because only through those deficits can dollars be distributed globally and function as reserve and settlement currency.

However, persistent trade deficits over time lead to the accumulation of massive debt and raise doubts about the U.S.’s ability to maintain the value of the dollar. Once confidence in the dollar begins to erode, other countries may reduce their dollar holdings or seek alternative reserve currencies — undermining the very foundation of dollar hegemony.

This creates a fundamental paradox:

• To maintain global liquidity, the U.S. must continue running trade deficits.
• But prolonged deficits undermine confidence in the dollar’s long-term value, threatening its hegemonic status.

In other words, you cannot be both the global banker and a solvent debtor forever. The longer this imbalance persists, the more fragile the system becomes.

To put it bluntly: being the boss of the global financial system is no easy job.

4.5 Summary: Trade Deficits Under Dollar Hegemony

In summary, under the framework of dollar hegemony, America’s trade deficit is not a simple imbalance of imports and exports. Instead, it is deeply intertwined with the U.S. dollar’s role as the global reserve and settlement currency.

This hegemonic status grants the United States a range of economic privileges — from cheap financing to seigniorage — but it also comes with structural contradictions and long-term risks.

Returning to the current tariff war: President Trump claims that raising tariffs will reduce America’s trade deficit and protect domestic industries and jobs. But from the perspective of dollar hegemony, this logic may only reflect part of the truth.

Many analysts believe that the real motive behind the U.S. tariff offensive is not merely to shrink the trade gap. Instead, it is about preserving America’s leadership in the global economic and technological order.

By exerting tariff pressure on specific countries and sectors, the United States may be aiming to force concessions in areas such as trade rules, intellectual property protection, and technology transfer.

Furthermore, tariffs have become a geopolitical weapon — a tool for the U.S. to reshape its political and economic relationships with key nations.

Simply put, because of dollar hegemony, tariffs are being weaponized.

And for the rest of the world, the only real solution to the weaponization of tariffs is to solve the problem of dollar hegemony itself.

5. The Achilles’ Heel of Dollar Hegemony

The dominance of the U.S. dollar resembles the mythical Greek hero Achilles — formidable on the outside, yet ultimately vulnerable at a fatal point. Behind the power and privilege of dollar hegemony lie several economic and political vulnerabilities. If these weak points are pierced by market forces or geopolitical shifts, the result could be an unprecedented upheaval in both the U.S. and the global economy.

5.1 Unsustainable Debt: The Ticking Time Bomb

To understand the risk embedded in dollar hegemony, we must first look at the numbers.

As of March 2025, the total U.S. federal debt has exceeded $36.56 trillion, accounting for more than 124% of its GDP. What does this mean in plain terms? It means that the U.S. government’s annual borrowing now exceeds the total value of everything produced in its economy in a year.

What’s strange, however, is that this enormous debt burden has not led to proportionately higher borrowing costs. On the contrary, over the past few decades, the U.S. has relied on the international status of the dollar to suppress interest rates, making its debt cheaper to sustain.

For example, between 2020 and 2024, the average yield on U.S. 10-year Treasury bonds remained around 2%, while countries with similarly high or even lower debt levels — like Brazil — faced yields of 10% or more.

This combination of massive debt and artificially low financing costs may look sustainable on the surface, but in reality, it is a fragile economic illusion. Should global investors begin to question America’s ability to repay its debt, borrowing costs could rise sharply and shake confidence in the dollar itself.

The 2008 subprime mortgage crisis was the first serious moment when dollar hegemony came under global scrutiny. The U.S. Federal Reserve stepped in with unprecedented quantitative easing (QE) to prevent a collapse, but this solution sowed the seeds for deeper inflationary and debt risks.

Since the COVID-19 pandemic began in 2020, the U.S. government and the Fed have injected over $4.5 trillion in liquidity through further QE programs. This “money printer” strategy — used to rescue the economy — has also pushed the dollar’s credibility closer to the edge.

5.2 The Growing Global Backlash Against the Dollar System

For years, the United States has used the dollar-based financial system as a tool to impose economic sanctions and trade restrictions. This has led to deep dissatisfaction among many countries, triggering a wave of efforts to reduce dependence on the dollar.

According to public data, between 2010 and 2024, the U.S. Treasury carried out over 20,000 financial sanctions and asset freezes on foreign governments, companies, and individuals — all through the dollar clearing system.

A recent and telling example occurred during the Russia–Ukraine conflict in 2022. In response to the war, the U.S. imposed the harshest financial sanctions in history on Russia, including freezing $300 billion in Russian foreign exchange reserves and cutting off major Russian banks from the SWIFT dollar-clearing system.

This move sent a chilling signal to the rest of the world: the dollar is no longer a neutral trade instrument, but rather a tool of geopolitical enforcement.

In response, many countries began actively seeking alternatives to the dollar system. For example, the BRICS countries — Brazil, Russia, India, China, and South Africa — have in recent years accelerated the development of non-dollar settlement agreements.

By 2024:

• Over 70% of trade between China and Russia was settled in currencies other than the dollar.
• India signed an agreement with the United Arab Emirates to settle bilateral trade in rupees.
• Brazil and Argentina have also launched local currency trading mechanisms to reduce dollar reliance.

Most notably, in August 2024, the BRICS summit formally proposed the establishment of a “BRICS Common Currency.” Though still in the exploratory phase, this proposal reflects a clear signal: global de-dollarization is gaining momentum.

5.3 The Challenge from Decentralized Currencies

While de-dollarization efforts among nation-states are still in their early stages, the explosive growth of digital currencies has already opened a new front in the global financial battlefield.

Leading the charge are decentralized cryptocurrencies like Bitcoin, which are not issued or controlled by any single government or institution. Their decentralized nature has attracted growing interest from investors, corporations, and even governments around the world.

According to a 2024 study by the University of Cambridge, more than 300 million people globally now own or have used cryptocurrencies.

Bitcoin may not yet be capable of replacing the U.S. dollar as the world’s reserve currency, but it has already introduced a completely new model for storing wealth and making cross-border payments — one that operates outside the reach of centralized financial authorities.

In 2021, El Salvador became the first country in the world to adopt Bitcoin as legal tender. The Central African Republic followed suit in 2022. While these are small economies, their actions have sent a clear message to the world:

Monetary sovereignty does not have to depend on the U.S. dollar system.

The emergence of decentralized currencies marks a structural challenge to the very foundation of dollar hegemony — not through military conflict or diplomatic negotiations, but by providing alternatives built on technology and consensus.

5.4 Possible Paths Toward the End of Dollar Hegemony

History has shown us that no currency hegemony lasts forever. The Spanish silver dollar, the Dutch guilder, and the British pound all once dominated the global stage — only to fade with time.

Although the U.S. dollar remains powerful today, it is not immune to the same fate. Experts generally point to three major pathways that could bring about the eventual collapse of dollar hegemony:

1. The Rise of a Multipolar World

As global power continues to shift, the U.S.’s relative economic influence may decline. With the economic center of gravity moving toward East Asia, South Asia, and the Middle East, more countries may begin to pursue non-dollar settlement mechanisms based on their own national interests.

If the adoption of alternative settlement systems becomes widespread, the demand for the dollar as a reserve currency will gradually weaken, and its hegemonic status will erode naturally.

2. A Crisis of Confidence in U.S. Debt

Should the market lose faith in America’s ability to manage its ballooning national debt, interest rates on U.S. debt could spike sharply. This would trigger a government debt crisis and call into question the reliability of U.S. Treasury bonds — currently seen as the world’s safest asset.

If such a crisis occurs, global investors may begin dumping dollar-denominated assets en masse, leading to a collapse in dollar credibility and a rapid breakdown of the dollar-based financial system.

3. The Globalization of Digital Currencies

If decentralized digital currencies like Bitcoin, or central bank digital currencies (CBDCs) like China’s digital yuan, become widely used for cross-border trade, the need to rely on the U.S. dollar and its clearing infrastructure (such as SWIFT) would diminish significantly.

In such a scenario, the dollar would no longer possess the exclusive “financial weapon” status it enjoys today. Its ability to dominate trade, sanction adversaries, or extract global seigniorage would vanish by default.

However, the true contenders for replacing the dollar might not be state-backed CBDCs, but rather decentralized stablecoins, especially those untethered from dollar-based assets.

6. Decentralized Stablecoins: The Endgame for Dollar Hegemony

Over the past decade, the meteoric rise of cryptocurrencies has shown the world that the monetary system does not have to be built on traditional fiat currencies. Among them, stablecoins — thanks to their relatively stable value, efficient cross-border payment capabilities, and decentralized potential — are emerging as a serious force capable of reshaping the global monetary order.

But not all stablecoins are created equal. Not every stablecoin has what it takes to become the successor to the U.S. dollar or to truly disrupt dollar hegemony.

6.1 Categories of Stablecoins and Their Operating Mechanisms

To understand which stablecoins hold the greatest potential, we must first classify them into three main types:

1. Fiat-Collateralized Stablecoins

These stablecoins are backed 1:1 by fiat currencies such as the U.S. dollar or the euro. Notable examples include USDT (Tether) and USDC (USD Coin). As of April 9, 2025, USDT has a market capitalization of $140 billion, while USDC stands at $60 billion. Together, they account for over 85% of the total stablecoin market (see chart below).

Their greatest advantage lies in simplicity and low volatility — as long as the issuing entity holds equivalent fiat reserves, the peg remains intact. However, their reliability is entirely dependent on centralized institutions like Tether and Circle.

And herein lies the problem: centralized institutions are inherently vulnerable to political pressure, legal jurisdiction, and financial regulation.

2. Crypto-Collateralized Stablecoins

These are backed not by fiat, but by other crypto assets like ETH or BTC. They rely on overcollateralization and smart contract-based mechanisms to maintain price stability. Examples include DAI (from MakerDAO) and LUSD (from Liquity).

In August 2024, MakerDAO underwent a major rebranding, changing its name to Sky and renaming DAI to USDS. For clarity, we will continue to refer to the stablecoin as DAI in this article.

As of March 2025, the combined market capitalization of DAI and USDS exceeds $10.8 billion, making them the clear leader in crypto-backed decentralized stablecoins.

This type of stablecoin has a far higher degree of decentralization. Their collateral is decentralized, their issuance and liquidation processes are fully automated via smart contracts, and theoretically, they are resistant to human interference or censorship.

3. Algorithmic (Non-Collateralized) Stablecoins

These rely on complex algorithmic mechanisms to expand or contract token supply to maintain a price peg — typically to the U.S. dollar — without holding any underlying collateral.

Early examples like Basis and TerraUSD (UST) pioneered the model, but the catastrophic collapse of Terra in 2022 caused severe market disruptions and eroded public trust in algorithmic stablecoins.

Newer experiments such as Frax and Reflexer have slowly regained some confidence, but skepticism remains. The long-term stability of non-collateralized models is still unproven.

6.2 Why USDT and USDC Cannot End Dollar Hegemony

Now we arrive at the core question of this section: Why can stablecoins like USDT and USDC — despite their dominance — never truly replace the U.S. dollar as the next hegemonic currency?

The fundamental reason is this:

Their value is still entirely pegged to, and dependent on, U.S. dollar assets.The control over those assets ultimately lies in the hands of the U.S. government and its regulatory agencies.

Let us look at real-world examples that clearly illustrate this vulnerability:

During the Russia–Ukraine conflict in 2022, the U.S. launched an unprecedented wave of financial sanctions against Russia, including freezing more than $300 billion of its foreign exchange reserves — much of which was held in dollar-denominated instruments.

In tandem, the U.S. Treasury issued directives to all dollar-linked stablecoin issuers to comply. Circle, the issuer of USDC, immediately froze millions of dollars’ worth of USDC associated with Russian entities.

This single event proved one key fact:

USDC is essentially just a blockchain-based extension of the U.S. dollar — its core nature remains unchanged. Its underlying assets are regulated and controlled by U.S. authorities.

Now consider USDT. Between 2021 and 2024, USDT issuer Tether was repeatedly pressured by U.S. agencies such as the Department of Justice (DOJ) and the New York Attorney General (NYAG). In response, Tether froze dozens of addresses, totaling hundreds of millions of dollars in locked funds.

Even though Tether claims to be registered in the British Virgin Islands and outside U.S. legal reach, it still had no choice but to comply — because it operates within the global dollar settlement network, which remains under American jurisdiction.

In essence, this centralized control mechanism is no different from the traditional SWIFT system:All the U.S. needs to do is issue a legal order, and any stablecoin issuer tied to dollar assets must obey — freeze accounts, block transfers, or cut off access.

This means that fiat-collateralized stablecoins can never escape the gravitational pull of dollar hegemony, and therefore can never truly replace it.

6.3 The Real Challenger: Decentralized Stablecoins Without Dollar Collateral

To truly break the grip of dollar hegemony, a stablecoin must be fully detached from dollar-based assets, immune to censorship, and radically decentralized in both structure and governance.

So, what would such a stablecoin look like?

Let us take MakerDAO’s DAI as a starting point to imagine the blueprint of an ideal post-dollar, decentralized stablecoin:

✅ 1. Diversified, Decentralized Collateral Assets

The stablecoin should not rely on fiat or dollar-linked securities. Instead, it should be backed by decentralized assets like BTC, ETH, or even tokenized versions of gold or other non-dollar resources. This breaks the dependency on U.S. financial systems.

✅ 2. Fully Decentralized Governance

Every step — from collateral management to issuance and liquidation — must be executed via smart contracts, without any centralized administrator. No single institution or government should have the ability to freeze, modify, or block transactions.

✅ 3. No Single Point of Regulatory Failure

Collateral and governance operations should be globally distributed across a decentralized network. This ensures that no single government or agency can seize, restrict, or shut down the system.

In such a model, the U.S. is effectively removed from the monetary equation. The seigniorage it has long enjoyed through dollar dominance would begin to evaporate.

Let us not forget:

Seigniorage is the hidden economic advantage that the U.S. extracts by printing dollars, which the world then uses and stores as reserves.For example, in 2023 alone, the U.S. government saved over $250 billion in interest costs thanks to global demand for Treasury bonds — a direct benefit of dollar hegemony.

But once stablecoins begin using non-dollar assets like BTC or ETH as collateral, there will be no need for central banks and institutions to hold U.S. dollars or dollar-denominated debt.

That means the U.S. would lose its privilege to issue “paper promises” and exchange them for real global wealth.

From that moment on, the U.S. Treasury would no longer be able to issue debt backed by the dollar’s global dominance to easily attract global capital at low cost. In effect, decentralized stablecoins would act like a dagger to the heart of the current system, severing the invisible pipeline through which America quietly harvested global wealth.

6.4 Summary: Decentralized Stablecoins as the Key to Ending Fiat Hegemony

Once a truly decentralized stablecoin, completely untethered from the U.S. dollar, gains widespread adoption, it will fundamentally transform the global financial landscape.

Such a shift would bring several profound changes:

✅ 1. Global Trade Without Dollar Settlement

Nations and corporations would no longer need to rely on the SWIFT system or dollar-based intermediaries to settle cross-border trade. This eliminates the risk of arbitrary sanctions, asset freezes, and weaponized finance.

✅ 2. Radically Improved Capital Freedom

Capital would be able to flow securely and freely across borders, without fear of censorship or seizure. No central authority could weaponize monetary infrastructure for political or strategic gain.

✅ 3. Lower Global Financial Costs

Without having to pay the hidden “dollar tax” or “seigniorage fee,” global capital costs would drop significantly. Countries, companies, and individuals would no longer be forced to subsidize dollar dominance just to participate in global trade.

As blockchain infrastructure and decentralized governance continue to evolve, the global economy may begin to break free from the shadow of dollar hegemony, ushering in a new financial era defined by openness, neutrality, and sovereignty.

Decentralized, non-dollar stablecoins will not be just another form of money — they could become the first truly global currency that does not give rise to new forms of hegemony.

Conclusion

The era of the U.S. dollar may be drawing to a close — not because the United States is no longer powerful, but because the rest of the world is no longer willing to entrust its fate to a piece of paper that can be weaponized at any moment.

History reminds us again and again:

Money is never just a number — it is a reflection of trust, and a vessel of human freedom.

As the U.S. continues to leverage its monetary dominance to plunge the world into fragmentation and stagflation, a new financial order is quietly taking shape.

The emergence of decentralized stablecoins represents not just a technological breakthrough, but a moral awakening — an assertion that true financial safety does not come from coercive power, but from technological transparency and collective consensus.

In the future, the global economy may belong to currencies that cannot be censored, confiscated, or controlled.

Once stablecoins are no longer backed by dollar-based assets, dollar hegemony will inevitably fade into history.

We now stand at the turning point of an era. What we are witnessing is not merely the outcome of a tariff war — but the historic unraveling of monetary dominance.

So then, what should ordinary people do in the face of this great transformation?

The answer is now self-evident:

Start now. Set aside living expenses, and begin dollar-cost averaging (DCA) into Bitcoin.

For more, see: “Bitcoin: The Ultimate Hedge for Long-Term Thinkers?” .

Perhaps many years from now, when people look back on this moment, they will marvel:

It was in the silence of an invisible war that the dawn of monetary freedom first appeared.

It may not have been loud or dramatic — But it will profoundly reshape the world.

Tariffs Are the Sword, Currency Is the Shield: An Opportunity for the Disintegration of Dollar… was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.