Introduction
The original blockchain trilemma posed a challenge: developers had to prioritize two out of three critical attributes—decentralization, scalability, and security. Today, the landscape has evolved. The new trilemma focuses on products, customers, and regulatory approval—where achieving all three simultaneously remains elusive.
The Shift from Technical to Strategic Trade-Offs
Ethereum’s Evolution
Ethereum’s transition from Proof of Work (PoW) to Proof of Stake (PoS), coupled with the rise of Layer 2 solutions, mitigated scalability issues while preserving security and decentralization. Most users now consider these trade-offs "good enough."
Regulatory Milestones
Key events reshaped the market:
- Bitcoin and Ethereum ETF approvals in the U.S.
- MiCA (Markets in Crypto-Assets Regulation) implementation in Europe.
These developments marked a pivot toward regulatory clarity, creating a new trilemma for businesses.
The Three Faces of the New Trilemma
1. Products + Customers – Regulatory Gaps
- Offshore Dominance: Over 70% of crypto trading occurs offshore.
- Challenge: Crypto-native firms (e.g., exchanges) lack licenses in major markets, limiting onshore expansion.
👉 Explore how regulatory shifts impact crypto businesses
2. Products + Regulation – Missing Customers
- Regulated Innovators: Firms like compliant DeFi platforms have approved products but lack legacy customer bases.
- Example: Digital asset custodians with limited retail adoption.
3. Customers + Regulation – No Products
- Traditional Banks: Hold vast customer networks and regulatory compliance but offer few digital assets.
Obstacles to Harmonization
Regulatory Hesitation
Regulators prioritize consumer protection:
- Volatility Concerns: Crypto deemed high-risk for mass-market users.
- Segmented Offerings: Differentiation between products for retail vs. institutional investors.
Cultural Clashes
- Crypto-Native vs. Traditional Finance: Agile, risk-tolerant crypto firms contrast with conservative banking cultures.
👉 Learn how to bridge the gap between crypto and traditional finance
The Path Forward
A "Good Enough" Market Maturity
- Risk-Takers: Will access regulated high-risk products (e.g., leveraged tokens).
- Mainstream Users: Offered curated, low-risk digital asset exposure (e.g., ETFs).
Collaboration Models
- Partnerships: Banks may white-label crypto services from licensed providers.
- Acquisitions: Traditional firms could absorb compliant crypto startups.
FAQs
1. What is the new blockchain trilemma?
It’s the challenge of balancing product offerings, customer acquisition, and regulatory compliance—choosing two at the expense of the third.
2. Why is regulatory approval so difficult?
Regulators prioritize consumer safety, often restricting high-risk crypto products for retail investors.
3. Can traditional banks compete in crypto?
Yes, but they must overcome cultural inertia and either develop in-house expertise or partner with crypto-native firms.
4. Will MiCA standardize crypto regulation globally?
MiCA sets a European benchmark, but global harmonization remains distant due to divergent national policies.
Conclusion
The new trilemma reflects crypto’s maturation—from technical hurdles to strategic business decisions. While perfect alignment is unlikely, the market will adapt through niche solutions, partnerships, and incremental regulatory progress.
Disclaimer: Views expressed are the author’s and do not reflect those of CoinDesk or EY.