There’s been much talk about the “bear market”. We have all heard many perspectives. From the alarmist ones that cry gloom and doom, to the optimistic ones that tell you it’s a golden time to build. Like most things, the truth lies somewhere in the middle. Here’s some learnings from running Gnosis Safe, a project that exists since 2017.

(Below is an internal memo that we communicated to the Gnosis Safe team in May 2022, slightly adapted so it better applies to other projects as well.)

Some industry and macro challenges that we need to brace ourselves for.

• Less funding available for projects: Especially late-stage investments for Web3 projects will become harder with lesser buoyant VCs and unfavorable conditions.

• Wider market slow-down: Liquidity in secondary markets will decrease across all crypto-assets. High volatility across all asset classes (way beyond just crypto-assets), making effective treasury management difficult.

• Failing projects: Some dApps, blockchain networks and other players might not be able to sustain themselves, either through a lack of funding, internal challenges or unsustainable economics.

• Increasing regulation: The regulatory net around crypto assets may tighten. While this has been a long-time coming, recent events drastically increased the pressure on regulators to take action.

Knowing the risks and seeing them clearly helps you mitigate them. Here are some that you could be facing.

• Too high burn-rate: Burn through cash too soon will pose risk to further funding and future growth.

• Adoption stagnation: Due to general usage of Web3 decreasing, we might see the current exponential user and usage growth slow down.

• Treasury devaluation / inflation: Due to very volatile asset markets it will be challenging to effectively diversify a treasury to maintain runway. Even high cash holdings may be at risk of inflation pressures.

• Over-shooting regulation: Increasing scrutiny might lead regulators to over-reach and adversely impacteven quality long-term projects. There may be much higher compliance costs associated with operating Web3 projects in the future.

Even in this environment and especially as knock-on effects of the risks and challenges play out, here are some opportunities that may arise.

• Hiring and investment opportunities: Current market conditions may cool down the war for talent and open up exciting investment opportunities. The dissolution and downsizing of some projects will allow easier recruitment for Web3 native positions. Besides, there will be opportunities to invest strategically in crypto assets, ecosystem projects or IP rights.

• Infrastructure’s right to win: While trendy applications are getting most of the attention in bull markets, bear markets are usually the time for infrastructure projects to shine.

• Better products win in bear markets: The usage of Web3 projects in recent months was mainly fueled by unsustainable token incentives attracting users to projects that might not have a clear product-market fit. Long term builders will find takers for better and fairer products in bear markets when each dollar is being counted and solving real user problems is key.

• Ecosystem Building: The “bear market” is time to refocus on core products for most builders and not chase the hot new fad integration. This allows for more meaningful partnerships that are driven by strategy, not hype.

• Refocus on EVM and ETH: With non-EVM chains under scrutiny, users might prioritize security over scalability and the market share of EVM chains and specifically Ethereum L1 might increase again.

• Reduced noise / focus on building: A slow down in the overall ecosystem noise will allow us to focus again more on building and refactoring teams, processes and systems. Preparing us for the next wave of users and builders entering the space.

• Competition by innovation: During the bull run it was easy for end-user applications and DeFi protocols to grow with the market. In a bear market, these applications/protocols will need to become more differentiated in order to attract usage.

Now more than ever, here are some actions you can take for your project to navigate the bear market.

• Stay stingy: Rebalancing talent costs with fairer and not hype driven salaries and external spends like agency, media, events etc.

• Stay committed: Communicate long-term missions internally to reinforce commitment of team members.

• Hire carefully: Don’t scale without full justification and hire prudently to current but also future needs. Skip the convenience hires and instead hire only for roles that really make an impact.

• Focus on tokenomics: Build token utility and incentives that align on sustainable value creation for your community and project.

• Set clear objectives and act upon them: May sound like a truism but never has there been a better time to get the basics right. Set goals, take actions and measure them. It’s easy to just go with the flow in “up-only” times, but in bear markets planning becomes more crucial.

• Prepare for the next market uptrend: Create hypotheses of how and where the next wave of growth will come from. Explore growth in a more regulated environment and how that looks like.

There’s been much talk about the “bear market”. We have all heard many perspectives. From the alarmist ones that cry gloom and doom, to the optimistic ones that tell you it’s a golden time to build. Like most things, the truth lies somewhere in the middle. Here’s some learnings from running Gnosis Safe, a project that exists since 2017.

(Below is an internal memo that we communicated to the Gnosis Safe team in May 2022, slightly adapted so it better applies to other projects as well.)

Some industry and macro challenges that we need to brace ourselves for.

• Less funding available for projects: Especially late-stage investments for Web3 projects will become harder with lesser buoyant VCs and unfavorable conditions.

• Wider market slow-down: Liquidity in secondary markets will decrease across all crypto-assets. High volatility across all asset classes (way beyond just crypto-assets), making effective treasury management difficult.

• Failing projects: Some dApps, blockchain networks and other players might not be able to sustain themselves, either through a lack of funding, internal challenges or unsustainable economics.

• Increasing regulation: The regulatory net around crypto assets may tighten. While this has been a long-time coming, recent events drastically increased the pressure on regulators to take action.

Knowing the risks and seeing them clearly helps you mitigate them. Here are some that you could be facing.

• Too high burn-rate: Burn through cash too soon will pose risk to further funding and future growth.

• Adoption stagnation: Due to general usage of Web3 decreasing, we might see the current exponential user and usage growth slow down.

• Treasury devaluation / inflation: Due to very volatile asset markets it will be challenging to effectively diversify a treasury to maintain runway. Even high cash holdings may be at risk of inflation pressures.

• Over-shooting regulation: Increasing scrutiny might lead regulators to over-reach and adversely impacteven quality long-term projects. There may be much higher compliance costs associated with operating Web3 projects in the future.

Even in this environment and especially as knock-on effects of the risks and challenges play out, here are some opportunities that may arise.

• Hiring and investment opportunities: Current market conditions may cool down the war for talent and open up exciting investment opportunities. The dissolution and downsizing of some projects will allow easier recruitment for Web3 native positions. Besides, there will be opportunities to invest strategically in crypto assets, ecosystem projects or IP rights.

• Infrastructure’s right to win: While trendy applications are getting most of the attention in bull markets, bear markets are usually the time for infrastructure projects to shine.

• Better products win in bear markets: The usage of Web3 projects in recent months was mainly fueled by unsustainable token incentives attracting users to projects that might not have a clear product-market fit. Long term builders will find takers for better and fairer products in bear markets when each dollar is being counted and solving real user problems is key.

• Ecosystem Building: The “bear market” is time to refocus on core products for most builders and not chase the hot new fad integration. This allows for more meaningful partnerships that are driven by strategy, not hype.

• Refocus on EVM and ETH: With non-EVM chains under scrutiny, users might prioritize security over scalability and the market share of EVM chains and specifically Ethereum L1 might increase again.

• Reduced noise / focus on building: A slow down in the overall ecosystem noise will allow us to focus again more on building and refactoring teams, processes and systems. Preparing us for the next wave of users and builders entering the space.

• Competition by innovation: During the bull run it was easy for end-user applications and DeFi protocols to grow with the market. In a bear market, these applications/protocols will need to become more differentiated in order to attract usage.

Now more than ever, here are some actions you can take for your project to navigate the bear market.

• Stay stingy: Rebalancing talent costs with fairer and not hype driven salaries and external spends like agency, media, events etc.

• Stay committed: Communicate long-term missions internally to reinforce commitment of team members.

• Hire carefully: Don’t scale without full justification and hire prudently to current but also future needs. Skip the convenience hires and instead hire only for roles that really make an impact.

• Focus on tokenomics: Build token utility and incentives that align on sustainable value creation for your community and project.

• Set clear objectives and act upon them: May sound like a truism but never has there been a better time to get the basics right. Set goals, take actions and measure them. It’s easy to just go with the flow in “up-only” times, but in bear markets planning becomes more crucial.

• Prepare for the next market uptrend: Create hypotheses of how and where the next wave of growth will come from. Explore growth in a more regulated environment and how that looks like.