There is a phased pattern in the way new risks and opportunities (and new things in general) become acceptable over time:
- Experimentation > 2. Stabilization > 3. Adoption > 4. Absorption
Keep this pattern in mind when crafting enterprise roadmaps that include the exploration or adoption of emerging technologies, or when thinking about the level of risks facing a new capabilities - say web3 - and the timing of risks and opportunities in that emergence.
2 Key points:
- The kinds of risks and the levels of risk change for investors and other participants as this pattern moves from one phase to the next.
- Likewise the rewards also change as the phases progress.
The following will help you think about what kind of participant or investor you want to be, and how and when you want to get involved.
Phase I: Experimentation
The new thing is not well understood, even by its most diehard practitioners.
- Risk is high and its magnitude and implications are very unclear.
- Reward is low, over-stated, or unclear.
Players with the ability to accept risk have a slight chance of gaining significant rewards. This is the domain of pioneers who are intrinsically motivated to blaze new trails regardless of risk. This Phase for cryptocurrency (and the emerging financial ecosystem it is spawning), in my estimation, was something like 2009-2019.
Phase 2: Stabilization
The new thing is becoming more understood by those who focus on it, and they understand it well enough to sometimes eek out good results for themselves or for a narrow group of stakeholders, but its broader impacts to other stakeholders or the broader community is still not fully understood.
- Risk is significant, and its implications (what could go wrong, how bad it would be) are still not fully understood.
- Rewards are becoming clearer, and are significantly better than what is available in the status quo.
Players with the ability to accept higher risk have a reasonable chance at gaining significant rewards. This is the domain of the risk seeking investor. This Phase may have been 2017-to present, and yes, maybe phases overlap.
Phase 3: Adoption
In this phase the new thing is becoming more commonly understood and accessible, easier to use.
- Risks are tapering to be more in line with risks present in the existing status quo.
- Rewards are commonly recognized as significantly better than what is available from the status quo, and there is enough of a track record to give consumers and regulators confidence on this point.
This is the domain of the early adopters. They may not have the resources and risk appetite of the risk seeking investors, but they will participate if they perceive that the risks inherent in the new financial ecosystem are becoming similar in magnitude to the risks presents in the existing financial ecosystem.
Phase 4: Absorption
The new thing is no longer new. It has become the status quo, and its adherents may resist whatever new things are now emerging.
- Rewards are no longer significantly better than what is available in the status quo.
- Risks are not significantly different/worse than what is available in the status quo.
This can become the domain of laggards, the inertia class, those who are comfortable, soaking in the receding glow of past successes.