You know times are interesting in crypto when some of the most enthusiastic founders and developers are wholeheartedly agreeing with criticism. At EthCC, the community-led Ethereum conference held in Paris, France this year, I gave a speech titled “Crypto is a Theater Right Now,” breaking down the many ways decentralized finance and other crypto efforts have gone awry. A version of the talk reposted on Twitter also seems to have struck a nerve.

Camila Russo is the founder of The Defiant and author of “The Infinite Machine: How an Army of Crypto-hackers Is Building the Next Internet with Ethereum.”

In short, I’m seeing people in crypto putting on a show. A facade. And after 10 years in the industry, first covering crypto for Bloomberg, writing The Infinite Machine, then founding The Defiant, it’s left me wondering if the magic is still here.

Through all the booms and busts I always stood adamant that the hype would ultimately fade and “real” use cases would prevail, like Argentines seeking financial freedom, which is what originally drew me in the space.

But it doesn’t seem like we’re further along on that front. In some ways, the theater has gotten more surreal.

Of course, much happened during the recent bull market beginning in 2020 and the resulting bearish turn that’s followed us into 2023 that has moved the space forward and should be celebrated.

Decentralized autonomous organizations (DAOs) helped organize individuals across the world towards working towards the same goal. Non-fungible tokens (NFTs) inspired a new wave of users to be excited about owning digital property. Ethereum transitioned to proof-of-stake, a massive undertaking that showcased the possibilities of decentralized development. Layer 2s started actually delivering on a more scalable blockchain infrastructure and real world assets (RWA) emerged as a potential bridge to non-speculative use cases.

But at the same time the failings of DeFi and Web3 have become more and more apparent, with different forms of theater emerging: decentralization theater, governance theater, community theater, all surrounded by a game of TVL musical chairs.

Developers are portraying so-called decentralized apps as immutable protocols, removing intermediaries and controlled fairly via pre-written rules embedded in smart contracts. They’re said to be unstoppable and censorship-resistant. That is the whole point of blockchains after all.

But, in reality, most DeFi projects can be controlled, censored and stopped by a bunch of dudes in a room. Whether it’s via control of the project’s admin keys or because a handful of people control all the validators or nodes. The vast majority of DeFi projects retain the ability to enter “God Mode” and unilaterally make changes to the protocol.

Decentralization theater matters because it reduces censorship-resistance, and also gives leverage to regulators or police enforcers to coerce developers into making changes, revealing information, or simply shutting the thing down. How can people trust that this can be a feasible infrastructure for the future of finance, how can institutions trust they can move trillions of dollars in the system, if it can be arbitrarily changed?

Also, when DAOs and Anon Founders are really a facade for centralized teams, it puts user funds at risk because individuals can be hacked or they can steal the project funds themselves.

Likewise, crypto’s governance systems are also theater. Another promise of Web3 was that users would be owners of the internet; of the applications they interact with and the financial services they use. They’d be able to have a say on how things are run, and on what decisions are made and this would be done through holding the protocols’ native tokens .

The truth is that most people are buying governance tokens because they treat them as a proxy to owning a stock in a protocol or Dapp. Data shows the vast majority of holders don’t care about governance — very few actually participate in it — they care about making money. Projects often perpetuate this trend by treating governance tokens as part of their marketing and customer acquisition strategies.

This is to say nothing of the obscene concentration of governance tokens by founding teams and their investors. In a democracy, everyone has a voice and a vote. In DeFi, one token equals one vote which equals plutocracy. In a real sense, community votes are symbolic as nominally independent development teams and their financial backer VCs make all the decisions in DeFi.

While DeFi is indeed largely owned and operated by a few massive whales, the entire ecosystem subsists thanks to a relatively small number of degens who cycle through liquidity pools, looking for the best “APY.”

In the past year, DeFi’s total TVL moved between $40 billion and $60 billion, while monthly users never topped three million. It’s the same money that’s being cycled between the same wallets.

Again, crypto is disconnected from real economic activity and almost all of the millions of dollars in funds that look very impressive on paper is used for speculation. And given the hurdles of getting involved in DeFi — from the UX to Ethereum’s transaction fees and that fact you’re competing against whales — it’s really only useful for technically savvy traders with high risk tolerance.

So why is this ecosystem putting on this show? Most people don’t have bad intentions. If you’re in crypto, it’s because you believe in a better future. You’re an idealist. You want to change the world.

Why are founders putting on this show of airdrops, and governance forums and DAOs? In most cases, it’s not because the projects need any of this. It’s not because the project is actually decentralized enough. They’re doing this because they think it’s what regulators want to see.

To a large extent, protocol teams are responding to a hostile regulatory environment where the top agency involved hasn’t been clear about what is and isn’t in violation of U.S. laws. There are a million unknowns about something even as simple as an airdrop.

So DeFi’s founders and builders set up non-profit organizations, go pseudo-anonymous and try to pass off “valueless” tokens. But they’re not fooling anyone. Regulators know this is decentralized theater.

Regulators, especially in the U.S., have already started coming after crypto and DeFi. That includes supposedly community-run DAOs like Ooki and actually decentralized protocols like Tornado Cash.

So what’s the answer? If you believe in what crypto is trying to achieve then keep after it. Chase the goal. Build the things that need to be built.

And it’s not illegal or immoral to make money along the way; early adopter degens pave the way for mass adoption, and speculation provides initial liquidity and allows projects to battle test. The game of TVL musical chairs among degens is actually fine and healthy at this early stage.

But let’s lift the curtain on decentralization theater, and cut the B.S. Starting out more centralized is often necessary, but save everyone’s time and be transparent about it. Don’t pretend it’s your “community” running things when it’s not. Don’t portray your application or protocol as decentralized when it’s not.

Decentralize only when you mean it, or just don’t.

A connection to the “real world” where DeFi can be used by everyday people and businesses to transact freely and more efficiently is coming. As I said before, there’s a lot to already be proud of in DeFi and crypto more broadly.

Coming back to those users in Argentina, people in emerging markets are increasingly using DeFi, for example to hold and earn yield on stablecoins. Build for them. Build for the artist that came starry-eyed into the space last year. Build for your friends still using dinosaur banks. But just please, stop building for Gary Gensler.

As told to Dan Kuhn.