The next version of the internet, known as Web3, will completely change how we use the internet today. Web3 is building the foundation for a user-owned and controlled internet by utilizing distributed ledger and cryptography technology. The emergence of a wave of Web3 initiatives has opened up new doors for a number of sectors, including financial services, gaming, esports, media, entertainment, retail, and more.
The amount of venture capital money pouring into the Web3 ecosystem is now growing significantly. Whether it’s DeFi protocols, NFTs, decentralized autonomous organizations (DAOs), play-to-earn (P2E) games, data storage, or social networking platforms, the number of Web3 startups is constantly growing.
In the first quarter of 2022 alone, venture capital firms and investors reportedly invested more than $2.5 billion on blockchain gaming and associated infrastructure, according to a research by DappRadar. Compared to the $4 billion invested overall in 2021 and the $80 million in 2020, that is a significant increase. And this is only a small portion of the vast Web3 ecosystem.
According to a different statistic on GitHub, there are over 18,000 active engineers in the Web3 ecosystem who at least once a month commit their code to open-source blockchain projects. The report makes it clear that the real amount is probably greater because it disregards the effort done on exclusive Web3 initiatives.
The expansion of Web3 has been unprecedented by all measurements. However, there is still a long way to go before it reaches the stage of widespread adoption. Although there is growing user and investor interest in Web3 products and services, there are a number of issues that need to be resolved in order to speed up the current shift.
Investors, developers, and users all need to focus on these three key areas for Web3 to actually take off.
1. The users must adopt a “user-owned” mentality
Users effectively have no influence over the future course of the goods or services they use in the current Web2, “as-a-service” iteration of the internet. Users and owners of the platform or service are typically kept apart until the platform or service is listed on a public stock exchange, which enables wider user access to ownership.
Although shareholders are given the opportunity to vote on specific initiatives, regular investors are not typically the ones who push for corporate change. Smaller shareholders are not allowed to sit at the table with institutional investors or funds that have greater influence over business decisions since even after purchasing shares, the amount of decision-making power afforded to them through ownership is very little.
On the other hand, the Web3 approach provides genuine ownership. With the use of tokens, people can take early and decentralized control of the platform or service they use. The obligations of ownership and governance must be understood by current customers who previously compromised on having almost no ownership in private enterprises. They must understand the strength of this “ownership” and the extent to which they may contribute to and shape the direction in which a good or service is developed.
By making an early investment, even the average person can join the project’s governing body and influence the product path alongside the community.
2. Community-driven, collaborative and participative
Investors must adopt a “community-driven, collaborative and participative” approach to make decisions that are transparent, inclusive, and fair – qualities that are unusual in the Web2 environment.
Investors compete for board seats and control percentages under the Web2 paradigm to assure value capture and governance supervision.
See Also:(Best Practices for Startups in Communicating with Investors)
This strategy, though, performs worse in Web3. One of Web3’s main tenets at its inception is decentralized ownership. The greatest way to speed up the network effect is through decentralized ownership among community members who can play a variety of roles within the ecosystem (such as service users, investors, suppliers, and business partners).
3. Projects must consider how to draw consumers in a sustainable way
Typically, projects with token incentives create a lot of hype in a short amount of time. Without a doubt, such advertisements attract customers and liquidity providers quickly, which drives up the important KPIs that everyone assesses.
This approach does have certain disadvantages, though. It frequently pulls in mercenary funding and token hunters who have little regard for the platform’s mission or long-term goals. Second, crucial measures that are artificially inflated and motivated by short-term rewards often obfuscate a true assessment of product-market fit. Third, spending too much on the token reserve amounts to wasting market money on things that won’t be important in the long term, giving the projects much less “ammunition” to use as a weapon in the future.
Instead, every project should carefully plan its tokenomics. It is wise to wait to distribute tokens until projects have identified the relevant audience and have established common objectives.
Web3 is still in its first inning. Despite being overused, the line “We’re still early” is not a stereotype. We are still in the early stages, despite the fact that it seems cliche. For those of us who are working diligently to develop the next iteration of the internet, I hope that I have given them some food for thought.