A realistic view of web3
A few years after the concept of web3 was coined, it's time for an objective look into the sector. Let's look back at how the web3 broke to the general public, how the bubble burst, and where do we go from there.
It's time to draw honest conclusions about web3. Its loss of momentum is pretty undebatable. Volumes are plummeting, opportunistic builders escaped throughout 2023, drawn by AI craze. Many projects died while some others raised big enough amounts of money to allow them to play zombie for a little longer. Yet, a lot is moving under the hood, and good things will come.
The response to Covid by monetary institutions and governments at large was to open the floodgates to unlimited money printing. As a result of dramatically low interest rates, finance people started doing what they do, which is to explore riskier asset classes until they find yield.
The rest was the perfect reflection of human greed, as a lot of people followed and started to invest in anything that looked like a smart contract-defined asset.
Craziness begins when you start believing your own lies
Countless "projects" started to emerge, all shaped around some sort of storytelling. Promises rebranded as "community roadmaps". Use cases started to be invented, star dust started to be sold. At some point, the whole industry began to believe its own narrative: the art world as a whole would become irrelevant unless they had proof of ownership, so would any luxury items from watches to shoes; magical yield could be found even in zero-risk stablecoins; any game studio that didn't embrace inter-operability of metaverses would fail miserably.
The sad truth is that this narrative was largely carried by "experts" at major venture capital firms, whose emphasis on anything crypto was only equal to their deafening silence since mid 2022 when the narrative lost steam. The fact that typical VC deals included a "token warrant", which gave them access to quick and considerable returns on token price surge makes it quite cringey.
In hindsight we all have a 10/10 vision: on one hand, people fell for the promise of magical effort-less money.
On the other hand, the benefits of using a product have to overcome the pain of learning how to use it. In the case of web3, the overhead of signing transactions with a wallet is immense, as it completely breaks the flow of "native internet". Unless there was an exceptional benefit to it, the adoption curve would inevitably fall flat.
As the money printing bubble burst with inflation, interest rates soared and financial institutions consequently moved their money back to more stable asset classes, causing the demise of tens of thousands of retail investors.
More than ever, web3 needs to be further defined by its underlying concepts
DeFi remains the category with the loudest heartbeat. The fit between decentralised technology and financial tactics is real.
Indeed, DeFi is particularly convenient to run collateral-based operations easily, which paves the way to leveraged operations, or simple arbitrage operations financed by a flash loan. Transparent access to the mempool alongside blockchain transactions transparency opened the door to aggregators and dedicated algorithmic protocols that leverage all that complexity for the end user. Even the validation of blocks is prone to arbitrage.
For practical reasons ("easy" money is worth the pain of learning), and the fact that a lot of wealth is still "locked" in cryptos (think unrealised profits), this segment of activity will not go down as fast as the others.
The state of NFT market is quite gloomy. Volumes have plummeted. The narrative ran out of steam. The promises were not kept, and are not believed anymore. Part of the space is holding on to the "utilities" hope, which will work only when they're not a gimmick. A more interesting hopeful trend is to aim at lowering the complexity of use for most users. A growing number of wallet abstractions are emerging, letting the user perform a traditional web2 transaction and processing the chain-specific things behind the scenes.
I maintain that the underlying primitive has a lot of value. We are talking of programmable loyalty programs, advanced customer intelligence. Large use-cases in the future will happen in NFT-powered marketing, as it's an obvious response to the technical and regulatory limits of doing advertising in a post cookie-less + GDPR world.
In a world where the main social platforms belong to ad giants, the defiance of users is legitimate enough to support this case study. The tremendous progress made by these protocols also help drive adoption. In a way, the true essence of web3 is embraced, as token-based initiatives are the logical extension of what is seen in the creator economy at large, and as the overall space is driven by community-led initiatives, which is paramount for organic growth, and a natural fit with web3 adopters.
The Metaverse as it was sold by shallow tech companies like the Sandbox is brain dead. Yet, there is more to it. Clunky land-based experiences are not revolutionary enough for gaming users to produce sustained engagement.
Yet, here again, the primitive of interoperability can certainly be a driver for tomorrow, at a moment where VR/AR is about to get its own "ChatGPT" moment, probably in the shape of Apple Glasses.
Opportunistic actors have left the space for the most part (opportunistic VCs will too after incompressible inertia). The necessary collapses will keep happening, especially in those niches where the gap between the narrative and the value generated was the deepest.
Nevertheless, there are strong reasons for hope. The fundamental infrastructural changes undertaken years ago with zero knowledge technology are coming to a stage of maturation. Eventually, writing transactions to a distributed ledger will be seamless and free, broadening a wide range of use cases, both online, and offline (think captors, IoT etc.). By its nature of needing to store large amounts of data with low marginal value, gaming will certainly be a main beneficiary of it (and will be further boosted by AR/VR).
Entire industries could be disrupted by a mature and seamless blockchain technology. Imagine an edge-native cloud computing platform. Tokenomics would make a lot of sense to reward hosts and charge customers, and the benefit of having websites hosted in a way that directs the user to the closest cache location is indisputable.
As previously discussed, the use of NFTs for marketing makes a lot of sense too. New evolution in token standards will drive the emergence of new use cases, like rentable NFTs (library cards anyone?). Seamless transaction signing experiences (like Magic) will also hide the technicalities from the user.
The need for privacy and the growing skepticism around AI and deepfakes might be sa strong driver for verified decentralised ID and privacy-first replacements for web2 use-cases, which will keep benefiting web3 social.
The way "web3" broke into the world was absolutely unprecedented and created untenable expectations. Short term disappointments should not hide structural and foundational benefits to a large number of industries, that will reveal over time.
There won't be another spark as impressive as in 2021. Rather, along the years, elements of decentralisation will slowly start to power a growing number of experiences. With enough time and trust, it might even start to power traditional financial institutions, or public administrative services.
To truly unlock, two shifts need to happen: the conversation will need to move away from asset prices and DeFi (which has more to do with finance than to decentralisation technology really), and the inflexion point where the benefits overcome the added UX complexity for end users will need to be reached: ultimately, blockchain technology will be seamless, invisible, and everywhere.