Is Web3 Going Great?

May 6, 2022May 14, 2022

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First let’s try defining “what’s web3”? Web3 is an idea for a new iteration of the World Wide Web based on blockchain technology, which incorporates concepts such as decentralization and token-based economics.

So what’s the big deal of Web3?

Let’s look around the world. Starbucks has announced plans to launch an NFT collection later this year. The NFTs will provide owners with access to exclusive content experiences and other benefits. NFTs will help Starbucks extend its ‘third place’ brand concept. Starbucks’ NFTs will likely be multi-chain or chain agnostic. The company is currently searching for a new CEO with an understanding of web3 technologies.

Oh.. got it.. another hype..

No Ser. Twitter’s Bluesky offshoot has released early code for a decentralized social network protocol. The Authenticated Data Experiment (ADX) will be developed semi-publicly. Data on the network will live in Personal Data Repositories owned by users. Platforms will be able to choose what content to index or show. While Bluesky is funded by Twitter, Twitter has no direct controlling interest as Bluesky be a Web3 compaby.

Ok.. Web3 is an early stage technology then…

Web3 has already made lot of progress. We’ve seen incredible new consumer behaviors emerge already from Web 3 initiatives, such as creators being able to sell their content as non-fungible tokens (NFT), play-to-earn games that have helped people make a livelihood playing games and a community-organized investing collective (ConstitutionDAO) mobilizing enough capital to bid for the U.S. Constitution at a Sotheby’s auction.

Is Web3 Going Great Then?

Before answering is web3 going great, evaluating the current state and progression of web3 on 5 key dimensions uncover the reality.

Momentum: Web3 is not the future, it has already arrived. Leading brands are not just leaning in, they are doubling down.
Talent: there is a one-way street for talent from traditional industries such as finance, consulting, and mature tech heading into Web3.
Regulation: policy-makers have taken notice, are peeling the onion, and getting smarter about the space. Many geographies are competing to take the crown of being “Web3-friendly.”
Investment: top Web3 funds are deploying capital fast, and non-Web3 funds, hedge-funds, and family offices, are carving out allocations to invest in the space.
Velocity: the space is moving at light-speed, staying out-of-sight means being out-of-mind. Having a presence digitally and physically builds relationships.

Now let’s deep dive in each of these dimensions of Web3. I leveraged the top highlights from the Crypto Bahamas conference held during the last week of April 2022 to sum up these thoughts…

Momentum

Web3 is not the future, it has already arrived. Leading brands are not just leaning in, they are doubling down.

Web3, only a few months ago, was a space most tier-1 brands and celebrities were hesitant to partner with. Now, that mindset has flipped and brands are doubling down to partner with leading Web3 projects. Companies like Mercedes-AMG Petronas Formula 1 team, Miami Heat, Major League Baseball, Tom Brady, and Bill Clinton, who historically have been very protective of their brand, are now wearing the Web3 badge on their chest.

They are not simply sponsors taking the money, they are joining boards, being part of strategy, leading the conversation, and opening doors. This is bringing in a lot of consumer and enterprise interest into the space, giving it the momentum it needs. From a traditional enterprise perspective, brands such as Mercedes-AMG Petronas Formula 1 mentioned that when so much capital was flowing from the Web3 space towards traditional companies, it was hard to say no. But, as they dug in more, they realized the opportunity is much larger in the innovation, technology, and the experiences that can be offered to their millions of fans through Web3. The Washington Nationals, for example, used a DAO to get their fans’ approval on a recent contract. As the space grows, all brands will unlock new and unique experiences through Web3 platforms. The question is not of if, it is of when.

Talent

There is a one-way street for talent from traditional industries such as finance, consulting, and mature tech heading into Web3.

Almost every person at the Crypto Bahamas conference came from a tier-1 traditional industry background. This was apparent across all sectors. Young and experienced professionals from leading tech companies to private equity and hedge funds, are all pouring into Web3 and not leaving. The mindset at the conference of joining Web3 wasn’t that of getting a better pay package, but leaned more towards the fact that this industry offered a better experience, a greater opportunity, unlimited growth, is borderless, and simply is just more fun to be in. During the 2000’s, the best places for people to work were firms like Goldman Sachs and McKinsey & Co., then, in the 2010’s it changed to companies like Google and Facebook. Now, in the 2020’s there is a new movement and it is all about joining Web3. We expect this flow of talent towards Web3 to grow faster than before, making it much harder for traditional tier-1 firms to attract and retain talent.

Regulation

Policy-makers have taken notice, are peeling the onion, and getting smarter about the space. Many geographies are competing to take the crown of being “Web3-friendly.”

The government of Bahamas made it very clear that they are primed to be the most Web3-friendly country in the world. Under the leadership of Philip Davis, the nation of Bahamas is ready today for the Web3 community and is already seeing large and small Web3 companies relocate their headquarters and majority of their teams to the island nation. Companies like FTX are investing in a small campus on the island and plan to move 200 of their main employees locally. Other leading projects, such as LayerZero, have already moved their teams there, and we forecast many more would follow. From a policy-makers perspective, Tony Blair, Bill Clinton, and Andrew Yang, are well-versed in the space and found the environment similar to when the world was getting introduced to eCommerce in the early 1990’s. There were a lot of unknowns and uncertainties about the new “internet,” but policy-makers leaned in with an open mindset and let the builders build. That mindset brought in favorable regulations that helped the industry move forward. Similarly, key players like Anthony Scaramucci and Kevin O’Leary are helping push the right people on Capitol Hill and helping them pass smaller, more focused, bills to help push the industry in the right direction.

Investment

Top Web3 funds are deploying capital fast, and non-Web3 funds, hedge-funds, and family offices, are carving out allocations to invest in the space.

Let’s turn to recent Crypto Bahamas conference to highlight Web3 investment focus from biggies in the space. All top venture firms in the space attended the event with their senior leadership on site. Leading investors like Su Zhu of Three Arrows Capital, Kyle Samani of Multicoin, and Katie Haun from Haun Ventures, were all in attendance. In addition, many traditional finance hedge-funds were present and in search of alpha, some who are deeply focused on the space, such as Cathy Wood from ARK Invest, and Ryan Barney from Pantera, while others who are transitioning traditional quantitative trading strategies to be applied to Web3, such as Mitchell Dong’s Pythagoras. These funds are not just taking a look at space, but deploying capital, coming up with creative no-loss strategies, and finding unique opportunities to partner with the top projects and also the “shitcoins.”

Katie Haun, who has raised one of the largest VC funds focused on crypto, and who was one of the pioneers in going after criminals in this space, mentioned that “criminals are the best beta testers for any new technology.” She and her team are focusing their efforts on digitally-scarce assets and the innovation happening in the NFT space. She believes in the technology and less in the current iteration of it. Another key investor viewpoint mentioned at the conference was that most people when they think of Bitcoin, they think of regions like Europe and the West, but the truth is “Bitcoin is for all the countries you cannot name.” From a fund allocation perspective, investors also believed that larger institutions such as Fidelity, family offices, and even enterprise treasuries, will first flow into Bitcoin, then into other digital assets. A strong, less-volatile, Bitcoin is a must-have to strengthen confidence in the space.

Velocity

Web3 is moving at light-speed, staying out-of-sight means being out-of-mind. Having a presence digitally and physically builds relationships.

Compared to Web2 and traditional tech conferences, Web3 conferences are unique and have a life of their own. Ideas are being generated consistently and there are no bad ideas, no small ideas, no ideas worth not discussing. Everyone at the conference is open-minded, leaning in to build, and thinking about problems at scale. Even though there are some gate-keepers and shillers roaming the floors, majority of the people interacted with were thoughtful and leaning in to do more for the greater good. There is an openness to meeting new people at a Web3 conference, and having a regular presence, both digitally and physically, matters. Given the high velocity of the space and how quickly new talent is coming in, consistently being present gives you an edge. Furthermore, even though companies like FTX are considered “mature” in the space, there is enough low-hanging fruit to be picked. Many of these companies are still figuring out their own core product and there is a ton of innovation, partnerships, or value-add services that can be provided to help propel them forward.

To Sum It Up..

“Web3” is the name given to the emerging blockchain protocols set to disrupt the traditional Internet companies.

Web 1.0: Connected the world and allowed everyone to share information.

Web 2.0: Brought everyone on major platforms where users could have more interactions, but the companies owned the platforms and all of the value got sucked up to the top.

Web 3.0: Allows individuals to capture more of the value they create, establishes private digital property rights, and forms a new asset class and emergent economies.

Grayscale calls this the evolution of Read, Write, Own.

Some call it a “revolution.” It’s not.

It’s an evolution.

Revolution implies a “turning around.” Revolutions are often reactionary and sudden.

Evolution is different.

Evolution is a set of developments and changes that bring a system to a higher level of complexity. Web3 is an evolution in the way we use money, think about money, and coordinate brainpower and capital. Web3 philosophy revolves around decentralization, individual empowerment and ownership. Web3 will be here to embrace.

Evolution takes time.

And one important metric to track is adoption.

One interesting point is that Web3 is roughly matching the adoption rate of the Internet. Crypto is the first big use case of Web3. As of 2021, crypto/web3 users have grown to 220 million. This puts adoption, roughly where the Internet was in 1999.