Rumor has it that Web3 is dead. After the high growth of decentralized finance (DeFi) and with (non-fungible tokens) NFTs generating much hype for Web3 in the past couple of years, the market took a nosedive—-from high-profile collapse of Terra Luna, to steep price drops in NFTs, to the sharp decline in user activities for popular play-to-earn platforms such as Axie Infinity.
But is it really the end for the so-called Next Phase of the Internet? What’s to come for Web3?
At the upcoming Singapore Fintech Festival on November 2-4, we aim to address this pressing concern in a global context from the lens of stakeholders across the FinTech community. We already saw the beginnings of a new financial system through Web3 and there is a lot more to talk about as Web3 continues to empower individuals and communities to build a more inclusive and equitable global digital economy.
What Web3 is about
If I were to summarize the ethos of Web3 in one word, it is “ownership.” Web3 brings a series of innovations to organize an economy and distribute the value-added from that economy. This allows more ways for people to benefit from their contribution to that economy and owe a piece of the economic pie.
Because of the decentralized, permissionless nature of public blockchains, digital assets running on-chain are able to drastically lower the entry barrier to the ownership of capital in many parts of the world. Furthermore, a Web3 business model allows users of a product and its contributors of different types to have a stake in a project’s success. Think of it as the “co-op” ownership model – user-governed entities that operate for the benefit of its members – which is made many times more scalable because of technology. And when you have accessible ownership and participatory business models, it creates strong incentive alignment that continues to drive community and product growth in Web3.
All of this is made possible by tokenization – the primary workhorse tool for organizing Web3 economies. Tokens are of course nothing new. In the Web2 era, we already have things like airline miles and credit card points, which are essentially tokenization of values that are siloed within a particular platform. But when we combine tokenization with unified, interoperable token standards, permissionless networks with worldwide liquidity that public blockchains provide, as well as programmability and composability that Web3 technologies bring, this is where magic can happen.
This powerful combination can give expression to latent, hidden value-added in the economy, and generate new value-added through new industries and professions. All of that can create new layers of GDP (gross national products), which can be distributed to participants of that economy in innovative ways enabled by the Web3 economic model.
Finding the next big opportunities from Web3’s current challenges
Web3 today has many challenges. But today’s challenges are tomorrow’s opportunities. What may be the next big investment opportunities in Web3?
Last waves of Web3 adoption were triggered by innovations in smart contracts, DeFi and NFT. We are at a slower phase of adoption right now as many bottlenecks need to be resolved to unleash the next wave of Web3 growth.
For example, NFT tech today is primitive at best. One fundamental issue is the complexity of guaranteeing the one-on-one mapping between a hash token on-chain and the underlying asset it represents.
In DeFi, decentralized exchanges have made trading possible for a long tail of assets with a participatory business model where everyone can earn by providing liquidity. For an internet of values to grow, well-run and scalable decentralized exchange (DEX) are essential. But today’s DEXes are MVPs that suffer a host of problems such as impermanent loss and large slippage that result in poor user experience (UX). Many projects try to solve these problems with sporadic success so far.
High friction and poor security of cross-chain operations are also a current challenge. Cross-chain bridging or messaging has become a red-hot ocean of competition. Bridges are hacked almost weekly and yet are handling bigger and bigger transaction hash volumes. All are signs of a high-growth sector in an extremely early stage.
Projects and companies that help solve such major bottlenecks of the industry may become the next biggest investment opportunities of Web3.
On NFTs, this may require an entire rethinking of the NFT tech stack. But if this issue is solved, it would open the door to a thousandfold more use cases for NFTs. On DeFis, there may be an opportunity in projects that combine approaches of TradeFi exchanges & DEX business models to solve scaling and UX. Likewise, for Web3 to scale, robust cross-chain operations are a key ingredient. A possible investment angle is to bet on medium-term market leaders without wedding to any protocol. New players keep coming in this sector and there is no entrenched market leader yet and the winner is unlikely to take it all.
Bottomline: Adapt to thrive
While there is a lot of unknown surrounding Web3, there is no denying that this is a powerful paradigm shift that will change the economy in profound ways. But like the cycle of life, initial innovations trigger a surge of adaptation. The impact of those innovations subsides over time and growth flattens. Newer innovations then fix bottlenecks to enable further adoption, giving birth to a new wave of growth. It is up to businesses and policymakers to learn to catch the waves, be open to change, and adapt to thrive in the fast-moving digital economy.
Tascha Che is a Macroeconomist, Web3 Startup Advisor, Angel Investor, and the Founder of Tascha Labs. More information on Tascha Che’s global plenary session at the Singapore Fintech Festival 2022 – 8 Global Web3 Insights – can be found here.
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