Web2 rested on a simple bargain: surrender agency and receive coordination.
Platforms captured most of the value their users produced. Exit was nearly impossible.

Web3 promised a new arrangement. Users would retain ownership, preserve exit rights, and coordinate through open protocols instead of privately-owned platforms. But Web3’s aspirational architecture runs directly into the reality of early-stage funding. Real systems require capital. Capital requires returns. Returns require capture.

Across 2021–2025, a surprising number of independent research efforts converged on this tension. The Bank for International Settlements (BIS) described it as the “decentralization illusion”: control concentrates wherever economic pressure rewards it, even in open systems. Delphi Digital showed that regulatory and compliance costs push token projects toward centralized operational models. Academic work on Web3 platformization argues that innovation systems dominated by capital-rich actors inevitably produce elite capture, regardless of how permissionless the underlying protocol is. Pantera’s post-ICO analysis revealed the same drift: VC-funded smart contract networks tended to consolidate governance around founders, investors, and key infra providers despite the rhetoric of trustlessness.

Different methodologies. Same conclusion.
Permissionless networks resist capture; the capital stack reintroduces it.

The Base ecosystem surfaced this contradiction with unusual clarity.

On November 13, Vitalik published the Trustless Manifesto, pointing out how centralization creeps in through default decisions rather than grand failures. Four days later, an analysis of coordination power made the point concrete: whoever controls the coordination layer controls the ecosystem, even if the protocol remains technically open. The next day, Cloudflare went down—and “decentralized” applications built on Base followed it offline.

By November 21, Skycastle’s Basil described Web3’s recent trajectory bluntly: “We built a casino… capital first, product last.” The same day, Bracket’s Tim Reilly noted that Coinbase was building internal equivalents of ecosystem apps—an entirely rational move given its distribution power.

None of these moments was orchestrated. Together, they revealed a structural truth: when a platform owns distribution, liquidity, and trust, its incentives dominate the system. Every actor is rational. The emergent system isn’t.

Taken together, the research paints a picture of recurring structural traps—not failures of intention, but consequences of incentive alignment.

The first trap appears at inception. BIS research shows that early centralization, introduced to move fast, meet regulatory obligations, or satisfy investors, tends to harden into permanent governance. Protocols decentralize on paper; control remains concentrated in practice.

A second trap emerges from measurement. Delphi Digital found that platform KPIs often diverge from ecosystem health, and once they diverge, the business metrics win. What a platform measures becomes what the platform optimizes for—even if it weakens the broader network.

The third trap is the coordination layer itself. Power doesn’t reside in the protocol. It resides in the unforkable layers users rely on: sequencers, RPCs, front-ends, custody services, and wallets. BIS documented how these layers become chokepoints in DeFi. Delphi has shown they serve as the natural home for rent extraction. Academic platformization research describes this as open infrastructure wrapped in closed coordination.

The fourth trap is accumulation. Innovation-systems theory explains how early decisions—centralized infra, trusted intermediaries, founder-controlled multisigs—become path dependencies. Each choice is harmless in isolation. Together, they produce irreversible lock-in.

Even exit, Web3’s signature mechanism, becomes one of these traps. Platformization scholars show that once network effects crystallize, exit becomes theoretical, not practical. A system can be technically forkable but socially and economically immovable.

Base reveals the final trap in real time: vertical integration. Coinbase controls the sequencer, the user funnel, major clients, onramps, and much of the liquidity. Builders are free to deploy permissionless apps, but the platform owns the distribution rails. Delphi has argued that this dynamic is turning Web3 into blockchain plumbing for Web2 landlords.

These aren’t anomalies. They’re systemic outputs.

The bigger mistake is treating agency and coordination as opposing forces. They are interdependent.

High agency strengthens coordination: if users can exit credibly, platforms must align their incentives. High coordination strengthens agency: interoperable systems expand a user’s ability to act.

The binary appears only when capital structures introduce it.

Pantera’s analysis makes the tension explicit. Venture capital depends on switching costs, proprietary moats, and governance chokepoints—the exact mechanisms permissionless-ness dissolves. BIS arrives at the same conclusion from the regulatory side: credible exit obliterates rent extraction. Critical Web3 theorists refer to this as “agency asymmetry”: capital reintroduces hierarchy into systems designed to prevent it.

This is why progressive decentralization almost always fails. The centralized early stage—necessary for investor alignment and legal risk management—creates power structures that cannot be unwound later. By the time decentralization becomes feasible, the system’s real coordination surfaces are already captured.

This is the essence of Web 2.5: decentralized infrastructure, centralized power.

The path forward isn’t a list of prescriptions but a set of structural questions we haven’t yet answered:

How do you fund systems intended to distribute power using capital structures designed to concentrate it?
How do you create investor returns that don’t rely on user lock-in or coordination capture?
Can exit remain credible in networks with strong network effects?
What does an aligned metric look like—one that merges platform success with ecosystem vitality?
And is it possible to reward contribution without creating governance chokepoints?

Different groups are exploring slices of this puzzle. Delphi Digital has pushed for compliance-light primitives and ecosystem-aligned metrics. Vitalik emphasizes credible neutrality as a design constraint. Innovation-systems researchers explore non-extractive coordination architectures. Pantera gestures toward network-native capital—MEV redistribution, public-goods treasuries—as alternatives to traditional venture structures.

None of these is complete. All points in the same direction: the capital stack must evolve alongside the protocol stack.

What’s clear is simple: Capital markets reward capture, permissionless networks resist it.
VC-funded Web3 projects tend to recreate Web2’s control surfaces.

What remains uncertain is whether the transition beyond Web 2.5 will be fast or slow, whether structural change will come as a sharp break or accumulate gradually, and whether capital innovation can keep pace with protocol innovation.

If Web 2.5 is a waystation, we should focus on enabling the transition. If it’s an equilibrium, we need to design our way out of it.

Technically, we are ready.
99%+ cost reductions.
100x scaling.
Stablecoin volumes growing 87–106% year-over-year.
But only 6–10% of crypto owners use Web3 monthly.

This is no longer a throughput problem.
It is a structural one.

BIS points to re-centralization through governance and infra.
Delphi shows regulatory cost pushing projects into centralized models.
Innovation systems research describes how early choices can lock in power.
Pantera illustrates how VC incentives reshape trustless systems.
And Base provides the real-time demonstration: permissionless edges, centralized coordination core.

Web 2.5 isn’t a crisis. It’s the artifact of our current incentive stack.

Whether it becomes a dead end or the foundation for something better depends on whether we can innovate not just technologically, but structurally. Scaling solves throughput. Account abstraction solves UX.
Neither solves the central question:

How do you fund systems designed to distribute power using systems designed to concentrate it?

Eight days on Base weren’t a warning. They were the data we needed.

The question now isn’t whether Web 2.5 is good or bad. It’s what it teaches us about the structures we need next.