Why do crypto projects have such a high failure rate?

Why do blockchain and crypto startups have high failure rates? The answer may lie in various factors beyond funding. Mario Nawfal spoke exclusively with BeInCrypto to share his thoughts.

Blockchain and crypto startups have witnessed a significant rise over the years. But only a few projects become success stories. It’s no secret that starting and successfully launching a blockchain project is challenging.

When it comes to ever-evolving and complex technology, it takes more than just a great idea to get a project off the ground – it takes a dedicated team with vision, expertise and resources to succeed.

Startups have a high failure rate

Blockchain and crypto startups have gained a lot of attention in recent years as they offer a new way of doing things in the financial world. These startups operate in a complex and rapidly changing environment and face unique challenges that traditional businesses may need to address. As a result, the failure rate of blockchain and crypto startups tends to be higher than other businesses.

In fact, 9 out of 10 startups in the traditional or decentralized finance domain are seeing the exit route.

According to a Deloitte report, less than 10% of all blockchain startups succeed, and the average lifespan of a blockchain project is about one year. BeInCrypto conducted an investigation on Reddit regarding the bug. Although there were many answers, one of the answers reads:

– The reason for this is not a lack of money. Many blockchain startups fail because they take too long to build. We need to do a better job of getting companies on the right track to succeed quickly before they lose momentum. Money can help startups get off the ground, but it dries up eventually, and this is directly correlated to how long it takes a project to get off the ground. If projects had engineering resources and expertise from day one, they could focus on building their product and save precious time and resources.”

Here are some of the main reasons blockchain and crypto startups have high failure rates:

Lack of regulation

One of the main challenges facing blockchain and crypto startups is the need for more regulation in the industry. Since the industry is relatively new, companies must follow a few established rules and regulations. This creates uncertainty and makes it difficult for companies to know how to navigate the regulatory landscape.

Blockchain and crypto startups face legal and compliance issues without clear rules, leading to fines or even closure. In addition, investors may hesitate to invest in a company that operates in a regulatory gray area, making it more difficult for startups to raise funds.

High competition

Another reason for the high failure rate of blockchain and crypto startups is the industry’s high level of competition. As the industry has grown, more and more companies have entered the market, making it harder for new startups to gain traction.

Competition is not only limited to other blockchain and crypto startups, but also traditional financial institutions, such as banks and credit card companies. These incumbents are also looking to enter the blockchain and crypto space, which could make it even more challenging for startups to compete.

Lack of adoption

Blockchain and crypto startups often need help with adoption, as the technology is still in its early stages. While blockchain and crypto offer many advantages, such as transparency and security, they have yet to be widely adopted by the general public.

This lack of adoption can make it difficult for blockchain and crypto startups to generate revenue, as they may need help finding customers willing to use their products or services.

In addition, the lack of adoption can make it more challenging for startups to raise funds, as investors may be hesitant to invest in a technology that has not yet been widely adopted.

Technical challenges

Blockchain and crypto startups face various technical challenges such as scalability and security. Blockchain technology is still in its early stages, and developers are still figuring out how to make it more efficient and secure.

These technical challenges can make it more difficult for startups to create products or services that are reliable and secure. Additionally, fixing technical issues can be time-consuming and expensive, which can drain a startup’s resources.

Lack of talent

Blockchain and crypto startups often need help finding the talent they need to succeed. The industry is still relatively new, which means that only a few experienced professionals have the necessary skills to work there.

In addition, the industry is highly competitive, making it more challenging for startups to attract top talent. This can especially apply to startups that can offer additional compensation or benefits compared to more established companies.

Finally, blockchain and crypto startups face the challenge of market volatility. The price of cryptocurrencies can fluctuate wildly, making it difficult for startups to plan and budget.

Market volatility can also affect demand for blockchain and crypto products and services. For example, during a downturn, customers may be less willing to invest in blockchain and crypto startups, making it more challenging for these companies to generate revenue.

Concluding; blockchain and crypto startups have high failure rates due to various factors including lack of regulation, increased competition, lack of adoption, technical challenges, lack of talent and market volatility.

To elaborate further, Mario Nawfal, the host of Twitter’s largest room and CEO of IBCgroup, spoke to BeInCrypto. Nawfal exclusively shared quotes regarding the stated scenario, claiming that he was not surprised by the failure rate. Considering that crypto is a risky asset, the failure rate is high. We asked Nawfal why, and he cited the basic rule of supply and demand.

“We don’t need a million games right now. There are not enough players. There are more bets than players in the bear market. It is capitalism; let the fittest survive. So you have different games trying to do the same thing. You have different DeFi projects trying to do the same thing. You have to accept it. You must fail.”

Further added:

“I will never start a crypto project because I’m too scared, considering the odds are against me. I’d rather invest in many (projects).”

Although these challenges are significant, startups still have opportunities to succeed in the industry. Several factors can help boost startups in the ecosystem, as covered by BeInCrypto in a January 31 report.