A New Blockchain Conundrum Emerges, Shifting Focus from Technology to Business

The original blockchain trilemma posited that users had to compromise on decentralization, scalability, or security, with the best outcome being two out of three. Today, a new trilemma has emerged, centered on the trade-offs between products, customers, and regulatory approval. Once again, entities can only realistically choose two out of these three aspects. The technological advancements in blockchain have significantly improved, making the original trilemma less relevant. For instance, Ethereum's transition from Proof of Work to Proof of Stake, combined with the launch of layer 2 networks, has addressed the scalability issue while maintaining security and decentralization. This shift towards a new trilemma was catalyzed by recent regulatory developments, including the approval of Bitcoin and Ethereum ETFs in the US and the implementation of the Markets in Crypto Assets regulation in Europe. As a result, major companies in the digital asset space are faced with a new challenge. Many possess products and customer bases but lack regulatory approval, with over 70% of crypto transactions occurring offshore. Conversely, some digital-asset native firms have products and regulatory approvals but struggle to acquire customers. Meanwhile, established financial institutions have large customer bases and robust regulatory compliance but often lack digital asset offerings. The absence of a perfect solution to reconcile these aspects is due in part to regulatory hurdles, as authorities distinguish between offerings suitable for mass market customers and those geared towards sophisticated investors. Cultural differences between entities also pose a significant obstacle, as the values and operational models of crypto-native companies and traditional banks are often incompatible. Ultimately, it is anticipated that the market will mature to a point where most customers and offerings will be 'good enough,' with risk-tolerant individuals able to access regulated ecosystems and conservative entities providing curated, lower-risk access to digital assets.