It's a mistake to equate speculation with gambling. Speculation is an inseparable part of crypto, it is the main compute engine of markets and a propellant force of the civilization.

I. The Role of Speculation

Unlike the sub-atomic scale which as suggested by quantum mechanics is probabilistic, the universe at the scale that we humans interact with is actually deterministic. This means that if we had a perfect understanding of all inputs we could perfectly compute the future. In practice, we do not have perfect and complete inputs or the computation needed to calculate the future. As such, we find ourselves approaching the future in probabilistic terms. Speculation is not a degeneration but a tool that allows individuals to reason about the future state of the world in probabilities. In other word, speculation is a low-computation method for dealing with uncertainties. It has been an essential tool in human survival and progress.

II. The Role of Markets

Markets are the evolution of individual level speculation, allowing a collective to hypothesize about future in the presence of information entropy, chaos of complex systems and reflexivity introduced by inclusion of many agents.

As the number of inputs and complexity of the relationship of these inputs increase the difficulty of speculation about the outcomes also increase. On the other hand, by increasing the number of speculative agents who all put skin in the game based on their own set of information and computation as nodes, the accuracy of the collective increases. The price reflects the collective speculation of all agents (market participants), each contributing their piece of information, however imperfect or incomplete.

This collective speculation is the market. With full acknowledgement of claims that “real communism hasn’t been tried before”, I am going to go on a limb and say that our civilization cannot coordinate without markets.

Thus, speculation is a net-positive at the civilizational level. Even though an order book is a zero-sum where gains one side of the book are losses of the other, at a magnitude of scale higher than the order book itself, the speculation is net-positive for the collective. Without these speculative agents we will not be able to have accurate pricing, universal pricing (as opposed to local), or enough liquidity to transact in meaningful quantities. As unholy as it sounds, traders, hedge funds and speculators at large provide irreplaceable value to our civilization.

III. The Role of Gambling

Equating speculation and gambling is to equate Football to 1700s-style line-infantry battles. One is the real thing, the other is made to scratch the itch that appears in the absence of the real thing. At the individual scale, battles and football might equate, but at the collective scale they affect the populace differently. The same way, at the individual scale, gambling feels similar to market participation subjectively for an individual, but at the collective scale market participation is a net-positive while gambling is zero-sum at best. Equating the two is caused when we evaluate the acts in the wrong scale.

Equating speculation with gambling and condemning both is common practice in Keynesian and Marxist schools of economics. Where as, Austrians and Neoclassical economists emphasis the importance and positive force of speculation.

There is quite a bit of gambling that is optimized for as “usage” within the crypto industry. It is fair to discourage this optimization function — after all, gambling is not positive-sum. Though, equating speculation with degenerate gambling would argue against the main value proposition of crypto.

IV. The Role of Crypto

Others have spoken at length about shortfalls of “blockchain not crypto” in solving any civilization scale problems, so I will not. Crypto is a coordination tool and its largest meta-application is solving the issue of digital-native ownership. Crypto assets represent value, ownership and transfer of it. It’s through digital-native ownership that crypto and web3 create any of their sub-applications.

Ownership without speculation is a confused oxymoron at best, and a maligned marxist take at worst. Speculation is an inseparable part of crypto.

V. The Role of Finance

Finance and financial instruments are the set of tools and pipelines facilitating efficient market-wide speculation.

Finance and financial instruments are not inherently useful in and of themselves. The value is derived from the economic activity that they facilitate, akin to a set of pipelines or transportation infrastructure that facilitates activity of a city but does not cause it. The Wall Street facilitates the financing and pricing of the Western economy.

Decentralized Finance (DeFi), similar to Wall Street and traditional finance are just a set of tools, pipeline and infrastructure that facilitate efficient financing and speculation over crypto assets. DeFi provides a set of tools to operate markets on top of crypto-native infrastructure.

Today we have the infrastructure but no economy to service.

Today, crypto is a ghost town. A city with transport and water infrastructure that has no people and no economic movement. Ghosts towns aren’t uncommon in top-down, centrally planned systems. The infrastructure-first approach to funding and building in crypto is the equivalent of top-down, centrally planned building of cities. The more natural approach is the app-infrastructure cycle approach. Infra first is waterfall. App-infrastructure is agile development.

There are two forerunner arguments for what will be the economies that DeFi will be the financial infrastructure for. Some believe DeFi to a more transparent and efficient replacement for the pipelines of the old economy (TradFi). Others, myself included think that DeFi is a financial infrastructure for net-new web3-native economies — economies that never existed or were even possible prior to this technology. I have in the past discussed the dual path for adaptation of technologies in societies, either streamlining old economies or allowing creation of new ones. For example, the internet brought along things like Expedia which are streamlining of brick and mortar travel agents. The internet also brought along innovations like Airbnb which are expansion of both supply-side and demand-side of short-term personal home rentals, creating markets that weren’t possible at scale before: a net new economy. Other examples of streamlining is digitized news papers and radios while blogging and podcasts were net-new phenomena.

VI. The Role of Gambling in Crypto

I am biased towards net-new economies but I find pursuit of streamlining Wall Street to also be a noble aspiration. What’s left us with degenerate gambling isn’t which one of these two we choose to build. But rather the fact that we have built a financial infrastructure layer that has not found an economy atop it to service.

Speculation is not a 'casino phase' that crypto is going through -- it's an inseparable property of ownership. It's gambling that is not inevitable a result of top-down gonzo investments, bad measurement metrics and early liquidity. The Casino is simply what appears if we build pipelines that do not have an economy to facilitate.

Instead of subsidizing growing economies we’ve incentivized usage of our financial infrastructure without measuring the sum of the equation, only looking at our terms and minuend and mistaking them for addends. When DeFi Summer first kicked-off, folks used “subsidies” and “incentives” to describe the yield farming phenomena. In retrospect it’s clear that we did not subsidize a positive sum but, just incentivized a zero sum.

VII. The Path forward

Speculation is an inherent part of crypto. Gambling is not inherent. Gambling is what we’re left with in absence building real economies on top of our infrastructure.

The path forward is:

• To not incentivize but subsidize where achieving scale is not possible without such subsidies. The difference is that incentives are concerned with the left-hand side of an equation while subsidies care about the right hand side. If the right-hand side is remaining zero-sum, it’s not subsidy — it’s not speculation, it’s gambling.

• To use the correct metrics. TVL is a left-side-of-the-equation metric. It is agnostic of the economic value of an application, merely obsessing about sheer usage, perhaps fallaciously assuming all usage is positive-sum.

• To break the top-down gonzo investments based on the infrastructure myth and embrace the app-infrastructure cycle.