As an investor in emerging technology and a nascent observer of Web3, I’ve spent some time researching this phenomena that has brought many skeptics to the fore, in the midst of whales, and dare I say, a handful Crypto and NFT Kool-Aid drinkers, who have amassed fortunes in the process.
I get that the current web needs some serious fixing. If anything, Web2 has continued to tighten and centralize more control in the hands of Big Tech, governments, and financial institutions. The publishing industry is dying as FB and Google have all but severed the revenue streams for the Guardian, now Buzzfeed and New York Times, relegating these once-giants to plead for monthly donations to stay afloat.
The mortgage crash of 2008 gave rise to Bitcoin, with the promise to separate the financial system from the powers of a sovereign nation, effectively democratizing wealth and financial control for each individual on the planet. And while the last decade has seen an explosive growth in Bitcoin valuation, the extreme volatility within its expensive financial system has kept the mainstream at bay.
Now, enter Cryptocurrency, the rise of Decentralized Autonomous Organizations and Non-fungible tokens (NFTs) and the surge of the Metaverse fervor. The FOMO created by these emanations continues to make the average Joe question the viability or even sustainability of the next iteration of the Internet: Is Web3 to be or not to be?
Will Web3 prevail despite its current environment? And for that to happen, what factors will need to be in place to create a sustainable alternative for mainstream audiences?
I’ve consumed the views of the critics: Stephen Diehl, Dan Olson, Jacob Silverman, Professor Galloway, and proponents of Cryptocurrency (especially Bitcoin) like Alex Gladstein. I’ve also decided to bring in some experts on both sides of the aisle: tokenomics practitioners and crypto investors as well as security and privacy experts with healthy doses of skepticism to debate whether we, as a society, are ready for and will accept what some say will be an inevitable evolution to decentralize the web and finally bring more monetary opportunities to individuals and create truly human-centered, and human-controlled environments.
Definition: What is Web3?
According to Chris Dixon, Entrepreneur and Cofounder, AZ16, “Web3 is the internet owned by the builders and users, orchestrated with tokens.”
The Elements of Web3 = Read + Write + Owned
Web 3 is a response to Web2, the latter, in need of some serious fixing: Where advertising and platforms will cease to profit from personal information. Where equity, access and accountability occur within a shared governance and self-organizing ecosystem. Where creators can truly own what they produce and enable and control new value creation. And where a currency for the Web truly revolutionizes access for everyone.
Web3’s Centralization of Wealth
The panacea for the next version of the web is certainly enticing: A Web designed to “resist any attempts to centralize its architecture and services to ensure that no individual entity, be it government, corporation or individual controls it use.” This includes Google, Microsoft, Amazon, Facebook, IBM, Apple (G-MAFIA) and Baidu, Alibaba, Tencent. Collectively, If they all succeed and every online user in the world adopts their technologies, societies will change forever.
The quest to decentralize power, beyond Big Tech, is also a vilification against current centralized financial structures. Alex Gladstein, Chief Strategy Officer of Human Rights Foundation and writer for Bitcoin Magazine dubbed Bitcoin, “an alternative currency with its own network that rises above the entire political system”, that will serve the aims of many people with disparate views and political affiliations. Its value as a technology aims to resist financial control from current establishments with an objective to offer an improved alternative to existing “inequitable, inaccessible and inflationary” financial systems that currently lock out 2 billion people worldwide“.
However alluring this promise of democratized participation is, what we’re really witnessing is a concentration of this wealth among the hands of a very few: like Peter Thiel, Chris Dixon, Andreeson Horowitz aka the “Whales” within the system. The influx of venture capital from VCs like AZ16 has created another alternative of investment that can pay huge windfalls through Initial Coin Offerings or Initial DEX (Decentralized Exchange) Offerings (ICO/IDO), veritably within months compared to traditional VC window of 5 years or more. This is what Jacob Silverman, Crypto Writer from The Republic declared: Web3 is the “financialization of everything”.
Stephen Diehl, highly skeptical of the chaotic nature of Web3, said this: “The biggest issue with the system is it’s like capitalism with all the breaks and all of the controls basically just removed in this kind of complete anarchic system in which everybody has to be their own bank… By today’s standards, it’s not only difficult, it’s unrealistic.”
After a successful early career in traditional finance trading equity derivatives in the volatility/arbitrage space, Mark Xue, Director of Cryptocurrency Trading and Blockchain Initiatives at Kaiju Capital Management, now argues that while VCs/whales did make money in Crypto, “People who are first or build something will always take on asymmetric risks and will bear the asymmetric success/failures that result. The reward of being an early builder or adopter is the opportunity to become a whale or titan in the industry.”
Whales are indeed profiting. Since the start of 2022 the global market capitalization of cryptocurrency has fallen by 23+% (Coinmarketcap) but that volatility has yet to affect the fortunes of crypto companies seeking venture capital. Shortly after that announcement, a Crypto Exchange, FTX.US was able to raise $400 million increasing its valuation by $8 billion. In 2022, startups in the Crypto and Blockchain space received over $33 billion in VC funding, “forging at least 43 companies to valuations exceeding $1billion” according to Galaxy Research. In a recent article, investment strategist of JP Morgan, Michael Cembalest, attributed this market volatility as a byproduct of the “Bitcoin concentration where 2% of bitcoin holders own 72% of its value”. Prof Galloway, likewise noted, that the top 9% of accounts hold 80% of the $40Billion market value of NFTs on the Ethereum blockchain.
Mete Gultekin, a Tokenomics consultant, with 4 years of traditional finance in VC (fintech, gaming, crypto and SAAS), and family office, and now 15 months in crypto, admits we are still early days: “Concentration of wealth among the few is inevitable but Web3 DAOs such as MakerDAO, Uniswap, Sushiswap etc. give hard-working people an opportunity to participate and get recognized by their work regardless of their background.”
“We are not there yet with democratizing participation since there are still barriers against fiat to crypto on-ramp but there have been improvements over time. Axie Infinity (an NFT online game where players can collect and mint NFTs which represent creatures or Axies) is a great example of this: 50% of Axie scholars don’t have bank accounts but know how to use crypto. The problem here is that since they don’t have a bank account to withdraw their crypto and need to trust a friend with a bank account to withdraw capital for them. This creates additional centralization and trust issues. Those who buy or own crypto have the possibility to participate in DEXs (decentralized exchanges or peer-to-peer marketplaces), borrow/lend platforms, and NFTs that they didn’t previously have access to, however the majority of these platforms today are not solutions for the unbanked community’s challenges.” More on Axie Infinity later in their most recent fraud hack.
Val Bercovici, CEO of click2nft.com, and former CTO of NetApp/SolidFire, likewise does not dispute the early concentration of wealth:
“IMO wealth (measured by price) is independent of ownership ratios, and Crypto indeed suffers from a concentration of ownership in this early phase. However, the pace of new L1 protocols, DeFi protocols, GameFi (Play to Earn) and NFT projects is accelerating the breadth of both ownership and new wealth creation to a more diverse population on a daily basis.”
Roxana Nasoi, Managing Director, Board Advisor, Technologist and Privacy Advocate adds that all participation in crypto (Web3 included) is bound by regulations and governments, [some more advanced than others].
“There will always be individuals whose participation is subject to regulations, taxation and so forth. This means participation is not democratized but regulated, which implies a certain concentration of wealth in jurisdictions where regulations are more relaxed.”
To this end, recently the Biden administration issued an Executive Order to create a regulatory framework for digital currency. While this seems to affirm the potency of crypto, this EO contradicts decentralized purists’ position that the argument for cryptocurrency was to fend off government control. Jacob Silverman also theorizes that the declining retail interests in Crypto has prompted an influx of crypto advertising, exemplified in the Crypto-Bowl, to juice up the market and bring in “new suckers through the casino door”. The people left holding the bag are everyday people who have succumbed to the crypto bubble, and are getting scammed through rugpulls, washtrades and the like. More on this later.
In addition, the higher access fees have become significant impediments for users who would have migrated to Blockchain to mitigate these costs in the first place. Even early adopters must succumb to this point of friction.
Mark Xue argues that there is always a starting point for all things new and posits eventually there will be no limit to how high someone can climb in crypto as long as they are curious and eager.
“In the traditional finance world, people need to go to prestigious schools and network with established players to get employment and rise up the ranks. Grades and school names may not be the most effective heuristic to predict success. However, this heuristic is what most hiring managers would use, which excludes most of the world from the candidate pool for employment opportunities at Investment Banks or Hedge Funds. With crypto, access is certainly democratized.With strong problem solving skills and analytical abilities, new entrants don’t need an expensive Bloomberg terminal nor access to sell side research reports. Twitter, YouTube, Discord, Telegram channels are all highly accessible/free tools for the public to use to learn, research, and discuss crypto. This is access to free education content that helps you develop mental frameworks for your trading and investment decisions. This makes cryptos a more equitable game to build wealth for the long term, offering those who are not resource rich an opportunity.”
Bringing Accountability to Decentralized Structures
The promise of decentralization is really about disrupting the centralized structures; however, the nature of how Web3 scales requires the need to replace the various central authorities that require Know Your Client (KYC) structures, produce regulation to protect what is currently a largely deregulated environment that is rampant with deceit. Whether the current structure is sustainable is yet to be determined. I posed the following:
It’s known that every single transaction will consume vast amounts of computational power to confirm its validity because that’s part of the consensus algorithm – in essence, math puzzles compete for tokens. To what extent can DAOs scale given the cost of power required to maintain the infrastructure?
Hrid Biswas, also one of Kaiju Capital Management crypto traders with 4 years experience in crypto trading and research, conjectured how this plays out through time:
“The core builders of this space are trying to build censorship resistant technology and infrastructure, which is much easier said than done. What we’ve seen though is that this technology has survived through to this point as interest and usage has grown massively. We are seeing, overtime, that the economic incentives for running infrastructure nodes, servers, or computing power from these blockchains are very dynamic and have passed through a gauntlet of Black Swan events (exchange hacks, scams and government bannings).”
Mark Xue, also added,
“Game theory amongst jurisdictions will also be a huge factor in the viability of blockchain networks. While some countries may grow hostile attitudes and attack core infrastructure, other countries might see that as an opportunity to be a haven and this will attract skilled developers and professionals committed to building the space. If builders continue and the networks still run, it will be because these networks are sufficiently decentralized.”
Roxana Nasoi referenced Eleanor Ostrom (whose work on Socio-Ecological Systems and the Tragedy of the Commons received the Nobel Prize in Economics) who proposed 8 principles used in today’s DAO frameworks and, to some extent, can automate resource management:
“In order for a ‘decentralized organization’ to work, it needs to have, among others, a set of clear boundaries, rules adapted to local conditions, participatory decision making being a critical component, with sanctions applied, and conflicts resolved in a fast inexpensive manner. The ‘commons’, being a nested ecosystem within a larger commons. It is without say that automating commons would require a massive cost, with the ultimate outcome justifying the costs. In this sense, Bitcoin can be viewed as one of the biggest and most successful DAOs to date.”
The volatility in the variable cost of transaction fees is largely driven by the volume transactions within the system. Today, every transaction in Cryptocurrency, between your wallet and the exchange, or between two users results in high transaction fees, which alone is enough to dissuade people in the fringes from jumping into the fray.
The cost of gas on Ethereum, alone, makes it difficult for projects to run on its chain, enabling more risks of fraud. Mete Gultekin introduced Axie Infinity earlier. As of March 23rd, cryptocurrency valued at $625 million was stolen from the blockchain that powers Axie Infinity. This ‘play-to-earn’ game was built on a side chain, Ronin, instead of Ethereum, because of the sluggishness of the platform and the ensuing cost to run transactions on Ethereum. Using a Proof of Authority (PoA) where validators are “operated by known and trusted parties” revealed that there were only 9 validators (compared to the thousands of miners in Ethereum) and this increased the risk of the “51% attack”. The latter came to fruition as one of the validators indeed compromised 4 of the validators’ run, “used the 5 compromised validators” to eventually drain the $625 million equivalency from the chain. This is an unfortunate outcome when the majority of those players were from emerging countries like the Philippines, where the average wage equivalent was $41/day.
Val Bercovici, who was compelled to solve problems of Web2 including the adversarial web, surveillance capitalism and income inequality among creators, influencers, consumers and distributors says change is already happening:
“The Bitcoin Lightning network, combined with Ethereum sidechains (Polygon, …) and Layer 2 (L2) Optimistic Rollups (Arbitrum, Optimism, Starkware, …) have slashed transaction fees by a factor of 1000-10,000 while increasing transaction volume to match and exceed all traditional payment processing systems.”
Roxana Nasoi, with 10+ years in accelerating companies in the digital economy space, explained this volatility is a sign of emergence:
“The volatility in the variable cost of transaction fees is an abnormality of the Ethereum ecosystem, and proof that the technology behind Ethereum is yet to mature, and that the consensus is broken. The high transaction fees turn Ethereum into a gated product, affordable only to a select few. Bitcoin transaction fees have been generally stable even with Bitcoin’s rally to $70k. Monero transaction fees are entirely negligible as the preferred privacy coin. And Solana transaction fees are the same, which allows the onboarding of mainstream into the space.”
It’s clear that the consensus mechanism to validate that transactions have actually happened is onerous and taxing on the participants of the block. The limitations of Proof of Work created Proof of Stake, which reduced the wasted energy problems, however it introduced a bias that prioritized the wealthier participants (who buy out the staking pool) and have a say in the audit structure and who validates. Long term, can Proof of Work (PoW) or Proof of Stake (PoS) structures be maintained and at what cost to our systems?
Val Bercovici, who dedicated 2017 to Blockchain technologies, crypto, NFTs and DeFi, loved the objective data integrity of Distributed Ledgers, and concurred that PoW will go away:
“More than 2/3rds of all crypto transactions no longer use energy-intensive Proof of Work. That will further improve as Ethereum itself moves to Proof of Stake later this year, putting us into the 80/20 zone, with Bitcoin mostly the latter, using wasted / rejected energy at the end of the line for power distribution. Consequently Bitcoin is very sustainable, proving to be a net positive for energy grid stability and investment in renewables.”
Mete Gultekin described that PoW is a waste of energy and continues to make the industry look bad. “Existing PoW supporters are large Bitcoin whales/bag holders/miners. The shift to Proof of Stake (PoS) models should help eliminate the energy discussions. Ethereum [will get there but] has been losing market share to high-growth, alternative smart contract platforms like Avalanche, Solana, Polygon, Fantom, Immutable, Terra – all using PoS.”
What’s clear is that both PoW and PoS structures are constrained and for Proof of Stake to be the remedy is, in itself, a conflict of interest that turns to individuals with vested interest to also be the go-to authority who resolve forks or disagreements. Roxana Nasoi believes that these current models need to emerge to maintain these systems:
“I do not believe in Proof of Stake. As highlighted by some of my friends in the cryptolaw space, cryptocurrencies that use proof of stake as a consensus mechanism could be ruled out as securities. However, proof of work consensus deflects that assumption. There are around 2 million Bitcoin left to mine, with the halving of Bitcoin mining rewards coming up in 2-yrs time. With the active agenda of governments to regulate Bitcoin, and an increase in custodial services, there will be options for service providers to make money from transaction fees or services provided on top of the Bitcoin protocol. I believe the cost we will pay is more related to ownership (self-custody & privacy) than it is in consuming resources such as energy to maintain the security of the network.”
Crypto: The Market of Artificial Scarcity
This is the crux of what we’re seeing in Crypto activity today: Artificial Scarcity is the “purposeful imitation of an item’s supply” in order to promote demand for a product.
Increased demand = higher value on things that are deemed “limited” or exclusive.
This pervasive FOMO is what has driven massive activity in the NFT market. “Bitcoin, for example, will only ever have 21 million coins mined, which means that as long as demand increases, the price will rise because supply is fixed.”
There’s this multi-level marketing scheme to create this illusion of demand that time after time shows that demand is not really there and its masked through these tactics: pre-ICO private sales, token burning, airdrops, wash-trading
- Pre-ICO Private Sales – investors/VCs with early access will pay a premium with the belief that later investors will come in at higher investments, more often than not mean that early investors can capitalize much sooner than traditional VC (5+ year IPO periods)
- Token Burning – the destroying of remaining tokens not sold to raise the price by reducing the supply
- Airdrops – are campaigns that give away tokens for free for the purpose of awareness building. Holders can receive bonus coins in proportion to the amount they hold, further incentivizing people to purchase more coins to get the larger portion of free coins
- Washtrading – investors can buy and sell the coins simultaneously to artificially inflate the value of the coins
Mark Xue, of Kaiju Capital Management agrees these are massive problems plaguing the industry and the reason why fraud is prevalent:
“Most people do not have a deep technical understanding of how these distribution and incentive schedules work (tokenomics). They are trying to either hit the lottery, or are investing with minimal research, relying on influencers or social media for suggestions, chasing the next pump and hoping they don’t get dumped on.”
“Most mainstream media also barely spend any time learning or objectively representing the crypto space. Lack of education and the newness of crypto really poses issues in understanding and perception. What will be reported and read will be the most salacious, eye-catching, and easy to understand news about crypto like hacks, shitcoins, and NFTs. Tokenomics really is a difficult issue to resolve and has many different methods of distribution. What is fair? How do you distribute between creators, investors, users and at what stages?”
Hrid Biswas adds that while most projects crash and burn because of misaligned incentives, the ones that show real traction, usage and demand will rise and have staying power and become the standard through value creation:
“We are still very early, but not learning how to play the game is the biggest risk. Staying on the sideline is the biggest risk. In this new paradigm, money will be lost but also tremendous wealth will be made. The question for investors is to really assess what projects are trying to innovate, what services are they providing, and are they able to build an organic and sustainable community.”
Val Bercovici contends that Crypto Token Economics will continue to push the boundaries of old micro and macro economic theories by enabling previously impossible real-world currency design implementations at unprecedented pace and scale.
“Like most experiments, many examples of failures (bad ICOs, AirDrop rug pulls, etc…) exist, yet the surviving tokens (such as Bitcoin and Ethereum, DAI, USDC, … ) have spawned hundreds of legitimate, successful new businesses, across dozens of old and new industries.”
Mete Gultekin realizes this is a big problem:
“99% of the projects have this feature and cause innocent gambling-loving retail investors to lose their life savings and influencers/promoters/developers to get away with no punishment. However, it’s also important to realize the pace of innovation within the 1% of the projects are extremely faster than what it was in the traditional web2 industries. Codes are open-source; teams are global; products are permission-less and payments are executed instantly. This creates an incredibly exciting and rewarding playground for hard-working entrepreneurs… As better DeFi models survive and the bad ones fail, finance is able to innovate without having the “too-big to fail” case that was emblematic of the 2008 mortgage crisis.”
Roxana Nasoi argues that the behavior we’re witnessing in the early days of Crypto is not largely different than what we see traditional investment:
“The same could be said about a startup doing multiple equity rounds, at different valuations – the only difference is only accredited or professional investors get to take part in them. We live in times when people will want to buy Tesla shares not because they believe in Tesla as a product, but because they want to own a portion of the “Elon Musk” brand. There are very few stocks that do not play an artificial scarcity game, with hedge funds taking part in it. See GameStop (GME) story from last year. What I believe is lacking in most of the projects raising funds in crypto is execution, and the ability to deliver products that people could use.
Adoption is very hard to attract when building FOSS (free open source software). Most of the applications are built on top of open source code, with a buggy UI, and a high barrier to entry on the UX side. Projects in this space don’t have years to build good products; they rarely have months when the markets are in the green. Execution is faulty. Expectations are high. Most projects overpromise and underdeliver, to the disadvantage of those who enter the later rounds. This is a reality of any industry.
You mentioned airdrops and token burns: while they have been used for the purpose of inflating prices or creating demand, both are mechanisms to “give back” to the community / user base. Traditional startups may say they’re re-investing % of their revenue in expanding or advancing a product. The token is a product for a startup in the crypto space, so essentially, they are advancing or expanding it by giving it (airdropping it) for free (although in most cases, there is a fee cost paid by the receiving party if they stake-to-earn tokens), or by reducing the token supply (burning the tokens in their treasury or the tokens they buy back on the market).”
Utopia = Web3?
I asked our experts to respond to this statement:
“Decentralized web has aimed to move away from corporate greed, and control by the rich in a structure that was unequal. It aimed to create an environment to empowers everyone, regardless of financial status, and change the systems and social structures to benefit everyone?”
Hrid Biswas and Mark Xue concur this is the main ethos of the movement. Mark Xue proclaims that he believes people that are here for the long run have this in mind in guiding them through all the uncertainty.
Hrid Biswas maintains, “There’s this general approach by the government to “protect” people by enforcing what they can or cannot do with their money. This comes in the form of accredited investor status and other wealth limit prerequisites to invest. At the same time [the system] allows students to be in hundreds of thousands of dollars of debt before they’re 21 and take decades to pay off.”
However the benefits of this evolving space cannot be realized without education and resources to bring more familiarity to DeFi, which is severely lacking. Mark Xue says that to date, the decentralized web forces individuals to ‘do their own research’ and engage with their own finances by giving everyone more options and the freedom to choose what to do with their own money, not just the wealthy.
Val Bercovici pointed to this statement as a vision of most Web3 developers, who are delivering privacy-oriented permissionless DApps (decentralized apps) for “an ever-increasing array of industries and use cases. It is mostly inertia of legacy institutions, regulations and concentration of wealth from traditional finance that is stalling the pace of Web3 delivering on this vision.”
For Roxana Nasoi, this is still a premature statement:
“We expect to solve all the problems of the world with what is essentially an experiment, in which a small group of people take a risk, while the world watches on the sidelines. There is potential to have it as an alternative. But remember, there is no technology without community backing it up. Pioneers, early adopters, the masses. We have one foot in the Pioneers’ club, and one in the Early Adopters’ club. It could go down to zero. Or it could fly. It’s possible that some geographies that aren’t embedded in the traditional financial system could benefit more from it, the moment the whole “decentralized web” goes mobile. How many years? Who will be first? When, if ever? I don’t know, but I have the patience to wait and see.
What I do know is that a younger generation than the ‘80s I was born in is more minimalist, consumes digital goods, digital entertainment, like social tokens and NFTs, and wants to be part of the cool tribe. That’s what Web3 is offering them, in a very modest setup (for now). You may find it funny when I say this, but there’s no identity in blockchain (it’s just pseudonymous addresses), but Web3 is kind of giving an identity via NFTs and these in-community currencies.”
The early frenzy of NFTs have been as exciting as they have been scary. Everyone’s jumping on the bandwagon. If there’s money to be made, why not? The NFT has promised creators to finally truly own and control their own content. Tokenizing music, art, Tweets, etc. will create a verifiable record on the blockchain of each piece of media’s ownership and provenance. The downstream promise is one that allows creators to make a living, without relying on ad platforms and aggregators, a business model that disproportionately favored those with larger fan bases. However, this kind of scarcity to bring true ownership to creators and allow them to monetize is yet to truly materialize. Rampant washtrading is common with the same traders selling the same NFTs back and forth at least a dozen times artificially increasing the value. In one instance, a group of 110 alleged NFT wash traders made off with roughly $8.9 million in profit. While there have been winners, there are more than a handful of scams from the deceived Investors who spent millions on Evolved Apes to a collector losing a Bored Ape to a phishing scam. Check out Web3IsGoingGreat which catalogs a timeline of the hoaxes and the missteps of Web3 thus far.
We’re seeing Salesforce, which just announced a cloud-based software for artists to create content and release it into marketplaces like OpenSea. OpenSea, which raised $300M with a $13.3 B valuation, was a huge influence on this bandwagon effect from Mark Cuban, Tom Brady etc. Yet OpenSeas also announced that over 80% of the NFTs minted for free on its platform “were plagiarized works, fake collections and spam“. Despite this, fraud events have not deterred those who have become directly affected by these rampant rug pull and pump and dump schemes, like the developer, who ran away with $Millions from a collaboration project Evil Ape. I question whether fraud is an early indication of market readiness.
And while Vitalik Buterin intended for Ethereum as a way to leverage the blockchain technology for many uses beyond currency, it has become the “bedrock layer” of the new open-source decentralized internet. He recently voiced his concerns:
“Buterin worries about the dangers to overeager investors, the soaring transaction fees, and the shameless displays of wealth that have come to dominate public perception of crypto. ‘The peril is you have these $3 million monkeys and it becomes a different kind of gambling.’”
But he acknowledges that his vision for the transformative power of Ethereum is at risk of being overtaken by greed… “If we don’t exercise our voice, the only things that get built are the things that are immediately profitable… And those are often far from what’s actually the best for the world.”
Recent headlines announced the soaring prices of ETH, Ethereum, BNB, XRP, Solana And Cardano. The current Russian invasion of Ukraine has revealed a turning point in the demand for crypto currency: A Credit Suisse analyst said the Russian war in Ukraine will create a new world financial order that could boost the price of bitcoin and other cryptocurrencies:
“We are witnessing the birth of Bretton Woods III—a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the Eurodollar system and also contribute to inflationary forces in the West.”
Will Web3 Scale to Mass Adoption?
In its current form, the above consensus is that we are witnessing an industry still learning, still figuring things out. Monkees, Frogs and Apes are the earliest iterations of the NFTs but should not be the example of what will be the inherent value to creators, who have been ripped off their just due in Web2. Like it or not, this decentralized web continues to attract record investment, pulling in $30 B in VC investment in 2021, with a total market cap exceeding $3 T.
Pure decentralization without proper oversight is impossible, especially in the short term. However, as a wise colleague pointed out, no one entity governs the TCP/IP protocols, the communication standard that governs the internet. Some form of central authority is required to legitimize the industry while scrutinizing its methods for fair access. This needs to happen while creating guardrails to protect the creators, end consumers and investors in the process. Current governance structures, protocol bias and more pervasive user education need addressing to move mainstream FOMO into informed adoption. Those who’ve jumped in with both feet have experienced polarized wins/losses. It’s less likely that more often, than not, those driven by FOMO would have been more vulnerable to artificial scarcity schemes, or NFT counterfeiting.
But if this Web3 were to subsist through mainstream adoption, it must take on lessons from its previous iterations. The promise of privacy guarantees through decentralization and global participation are constrained by the nascency of use cases on the Blockchain as well as Web2 infrastructures that have yet to be afforded to the unbanked populations. Systems will need to evolve to enable this.
I spoke to Ryan Pannell, Founder and Chief Investment Officer of Kaiju Capital Management and he explains why his company is pivoting in this direction:
“I think the time to consider this entire asset class as a “phase”, or “fad”, has long passed. You’re seeing the most conservative, risk-averse Sell Side institutions now taking their first meaningful positions in tokenized assets, with capital and resource commitments commensurate with what you’d expect to see in a class they intend to take seriously.
On the fund management side, we’re receiving an ever-growing number of requests from sophisticated investors, looking for increased access to the digital asset universe, and to us to provide an institutional-grade offering within that universe. To serve those needs, it’s been necessary for us to build out robust offerings across multiple opportunity layers to capture as much torsion-related alpha as we can, in an emerging class that’s in a near-constant state of exponential evolution. It’s not an easy task by any stretch, but the weight, importance, and potential of this new collective class is so great that any responsible manager must take meaningful steps to engage. Resistance can no longer be marketed as “caution”; investors are increasingly seeing it instead as “ignorance”.
For Alaric Aloor, an engineer, cryptography and security practitioner, CEO of Archonsec, and General Partner at MATR Ventures, a venture capital investment company, he understands the vulnerability of current infrastructures and reflects on the promise of this new web:
“The vision of “democratized services and information” was actually the same for Web 1.0. Back in 1996, John Perry Barlow wrote A Declaration of the Independence of CyberSpace, which spoke of the internet as an independent and equal realm of free thought and ideas.
It is always interesting to read any piece with the benefit of hindsight.
Such reflection might also put us in mind of science fiction writer William Gibson’s now very famous quip that ‘the future is already here — it’s just not very evenly distributed.’
I don’t know that Web3 will change all that and catalyze a great leveling when it comes to the uneven terrain of technological power. The jury is most definitely out, but given the ethical kinks to address and its current “lo-fi” image it feels like the mass adoption of Web3 could be a long way off yet. I think in the short term, the main use case will be Web 3 allowing small vendors to make direct transactions. I think that this is only the start of Web3 chatter, but until something more substantive materializes in the tech world, I will continue to “watch this (cyber) space.”
Alaric Aloor and Ryan Pannell are two of many investors whose attentions have turned to Web3 and these are the signs of things much larger than a passing fad that will continue to drive this attention.
Utopia is far from reachable but as rampant are the missteps of this young Web3 trying to figure things out, is the increasing demand for a far more equitable web that promises greater control and prosperity for everyone.
This article was first published on Forbes.
About Hessie Jones
Hessie Jones is a Strategist and Venture Partner advocating for human-centred AI, education and the ethical distribution of AI in this era of transformation. As a Venture Partner at MATR Ventures, she seeks to power the underestimated founder through capital and connectivity. As COO of Beacon Trust Network, she aims to advance the quality of human-computer experiences through values-based technology education and innovation. As a seasoned digital strategist, author, tech geek and data junkie, she has spent the last 18 years on the internet at Yahoo!, Aegis Media, CIBC, and Citi, as well as tech startups including Cerebri, OverlayTV and Jugnoo. Hessie saw things change rapidly when search and social started to change the game for advertising and decided to figure out the way new market dynamics would change corporate environments forever: in process, in culture and in mindset. She launched her own business, ArCompany in social intelligence, AI readiness and research. Through the weekly think tank discussions her team curated, she surfaced the generational divide in this changing technology landscape across a multitude of topics. Hessie also co-founded MyData Canada, and is a board member with Technology for Good Canada. She is also part of the Women in AI Ethics Collective, a contributor/editor to Towards Data Science and GritDaily.