How Crypto Builders Could Pave an Alternative Path to Generational Wealth
One thing cryptocurrency and traditional finance have in common: Many people are wary of them.
After the 2008 financial crisis, thousands lost their ability to build wealth through homeownership, which had previously been considered a reliable investment by financial experts. Many people perceived the follow-up policy to prioritize the needs of banks and the wealthy over the needs of everyday people. As wealth inequality continues to grow, opportunities to build wealth have narrowed, and systemic barriers and shocks (such as financial crises) create circumstances beyond people’s control that can impact their ability to build lasting wealth.
Against the backdrop of mistrust of these experiences, people in the U.S. have sought other options to build wealth — both short- and long-term. In response to perceptions of a financial system that is unfair or inaccessible, some people have come to see cryptocurrencies as an appealing (albeit risky) alternative.
This context is critical for understanding why people are interested in alternative financial tools and services, despite the risks and volatility. While criticism of the conditions that led to the FTX collapse and prior crypto crashes is warranted, millions continue to engage with these new financial tools and services and remain active in the space.
To create more equitable access to wealth-building opportunities and a safer Web3 for all, it is critical to move beyond critique of those participating in cryptocurrencies or building crypto tools. Instead, the priority is to reach a clear understanding of the needs of those engaging with the space and the problems that builders should be attempting to address.
Our report, Investigating Generational Wealth, thoroughly explores how current systems prevent some people from building wealth while providing wealth-building accelerants for others. It identifies areas where crypto may offer more accessible solutions and highlights the problems builders should be solving for.
Shifting from markets to problems
Many Web3 founders are quick to say, “We want to serve the unbanked.” These founders may believe that a new financial ecosystem can in and of itself offer more accessible products and services to the traditional financial system. However, this statement falls short of providing potential customers with clarity on how these projects might support them. People prefer to know how a solution will address their actual problems before they adopt it.
For example, within the nearly 6 million households in the U.S. without a checking or savings account, many people may face barriers to opening or maintaining a bank account due to account requirements, high fees, lack of physical or digital access, fear of engagement with systems, and other systemic and cultural barriers. If someone faces barriers to opening a bank account, they’re likely looking for a solution that improves their day-to-day stability and resilience to irregular income and surprises that may arise. That solution might look like a bank account with minimal deposit requirements and low fees, more accessible and non-predatory lines of credit that can help to smooth over irregular income, and tools and services that are easily accessible.
Entrepreneurs often launch their businesses around a total addressable market (TAM), which is the number of people who may be interested in buying their product. “The unbanked” is the TAM for the example above. However, before exploring their TAM, founders would benefit from understanding the total addressable problem (TAP). Unlike TAM, TAP focuses on the pressing and identifiable needs of people. In the example above, the TAP is a lack of day-to-day stability.
Addressing the problem and marketing the product is just the start. Human-centric builders ensure that people don’t just want to use their solutions, but also feel safe and comfortable using them. We explore these issues further in our UX in Cryptocurrency report, but for now, this article will focus on addressing the problem before creating the solution.
As a builder, your problems may not be everyone else’s problems
An understanding of the current (and historic) systemic challenges that people face can be used to ground emerging crypto solutions. While not intentional, the reality is that most teams in tech (and in Web3) do not reflect the people for whom they are building. Despite good intentions and a genuine belief that technology can solve real problems, the disconnect between builders and the people using their products can have significant implications for these teams and the products they build and real-world impacts for the people affected by them.
For example, the growing wealth gap in the U.S. negatively affects Black and Latino households more than other demographics. These communities have faced numerous (and intentional) injustices that have prevented families from accumulating generational wealth.
These disparities also exist within the workforce across many industries — including in tech. While Black and Latino workers make up 29% of U.S. workers, they make up only 14% of tech jobs overall and 9% of developer jobs. Most teams in tech (and in Web3) are predominately white and Asian, reflecting systemic challenges to accessing economic opportunity for all communities.
Many tech teams also reflect socioeconomic status divides. In the U.S., most people consider themselves to be middle class — both those with higher and lower than average wealth. In actuality, those with higher-than-average wealth (often called “the 9%” in terms of the total share of U.S. wealth they hold) usually have more influence and power than those who are truly middle class — while continuing to consider themselves “average.”
This 9%, which ranks just below the top 1% of wealthiest households, represents a “New Elite” that tends to work in management roles in white-collar fields. The tech industry — with its emphasis on credentials, social connections, and risk-taking that requires significant financial stability — is no exception.
Unfortunately, this means less socioeconomic, racial, and gender diversity within organizations and teams. So while a crypto builder might create a solution to address what they perceive as the needs of the middle class, they may not have a realistic idea of who makes up the middle class or what problems they need to solve.
As a result, many well-intentioned crypto wealth-building solutions don’t often reflect the experiences of the people who need them most.
The problem for the remaining 90% of people in the U.S.: Building wealth has more obstacles than popular narratives suggest
The average person in the U.S. struggles to build wealth, and not because “nobody wants to work,” as some corporate leaders claim.
Instead, they struggle because they lack two prerequisites to wealth-building: day-to-day stability and financial resilience to shocks and unanticipated events. Without day-to-day stability, people deprioritize investing in stocks or real estate, especially if their take-home income barely covers their living costs. Shocks can move people backward, depleting wealth and their resilience. Without resilience, people may never recover financially from shocks and unanticipated events (e.g., an unexpected hospitalization, unemployment).
Achieving financial stability and resilience differs from the transition between financial resilience and building wealth, partly because each requires access to different tools and services. Bridging both gaps may become even harder depending on the socioeconomic class (with strong correlations for different racial and ethnic communities).
In contrast, those who already have wealth can typically access the financial tools and services needed to build more wealth. Compounding this issue, U.S. regulatory and tax policy tends to benefit the already wealthy, which creates even greater barriers to wealth-building opportunities for everyone else.
The other problem: The majority of the population holds the minority of the wealth
While 37% of the nation’s wealth is held by just 1% of the population, 1% of the nation’s wealth is held by 50% of households. Put differently:
- 610,000 households have 37% of the country’s money and assets
- 73,200,000 households have just 1% of the country’s money and assets.
That difference has grown over the past 30 years, with the wealthiest 10% absorbing more and more from the middle class and bottom 50% of households — reflecting systemic and policy barriers that have contributed to a growing concentration of wealth among a minority of households. As Najah Roberts of Crypto Blockchain Plug puts it, “At the end of the day, everything that we do winds up back in the hands of those individuals that have systematically set this up for us not to win.”
As wealth becomes harder to build, many people in the U.S. are looking for banking and investing options that better serve their needs.
A potential solution: Understand how crypto can address gaps in legacy systems that enforce barriers to wealth
There is no shortage of optimism around cryptocurrency as a mechanism to address current financial system shortcomings. If the next generation of crypto solutions focuses on bridging people from day-to-day security to resilience, more households may consider taking steps toward actively building wealth. In many ways, crypto solutions are already removing certain barriers to wealth-building:
- ID requirements: Many crypto apps offer more accessible means of verifying identity
- Minimum balance requirements: Most crypto apps don’t require minimum balances
- Bank deserts: A digitally-native financial system can make loans and credit lines more accessible without in-person requirements
- Access to credit: DeFi applications may offer alternative approaches to underwriting that increase access to reasonably priced credit
- Lower transaction costs: Blockchain can increase the ease and accessibility of cash transfers
However, creating a solution in itself is not enough to make resilience and stability more accessible. To encourage widespread adoption of their wealth-building solutions, crypto builders might consider taking the following steps:
- Design infrastructure and solutions that don’t require a mastery of technical concepts
- Collaborate with community leaders to ensure the needs of their community members are addressed, such as those highlighted in our Onboarding report
- Explore new, novel, or more stable mechanisms for building and growing wealth afforded by blockchain-enabled tech
- Advocate for new and different regulation of Web3 products so that the challenges of past policies are not replicated in this financial ecosystem
Crypto builders have a unique opportunity to create collaborative solutions with communities. These solutions have the potential to address financial obstacles directly, making them compelling tools for wealth-building.
Read our report on Investigating Generational Wealth to learn more about the complexities of wealth building in the U.S. and how crypto industry players might build better solutions.
