The three frontier topics of Web3 in 2022: NFT, Metaverse, and DAO

Source: ADN Community

Author: Shi Khai, WEI

The fundamental elements of DeFi, namely stablecoins, lending, and decentralized exchanges, have become the three essential components supporting minimal viability, unleashing innovation and growth, while driving the asset value in this field to surpass $200 billion. Today, the meteoric rise of DeFi has somewhat leveled off, and further growth catalysts, such as institutional participation and regulatory clarity, seem no longer out of reach.

At the same time, new innovations have emerged like a spring. The debates around NFTs and the "metaverse" have not only become major topics in the industry but have also permeated casual conversations. Various reflections on DAOs have made headlines in The New York Times and Time Magazine, evoking both skepticism and curiosity. As a venture capital firm, it is clear that these new phenomena will form the foundation for the next stage of building Web3. But how exactly will this develop?

Amidst the wave of Web3 experimentation, each day feels like standing on the edge of an abyss, wavering between bold innovation and cautious prudence. Ultimately, we need to choose our stance. Therefore, this article serves as both a candid personal analysis and reflection, as well as a call to action for entrepreneurs and investors.

1. Making NFTs More Useful

The potential of NFTs can even overshadow tokens, as they inherently better reflect asset value without the feeling of "printing your own currency." It is no wonder that NFTs have set high records at auctions, attracting mainstream attention with their charming or, at times, less charming images.

However, today, the primary use of most NFTs is speculation. The market is pricing future uses or values. Even the currently prominent leading project, Bored Ape Yacht Club, which raised $450 million, acquired Larva Labs (the company behind CryptoPunks and Meebits), and launched ApeCoin, still derives its main value from optimism about its potential. We should be more sensitive to true value creation—whether intrinsic value or utility value.

Intrinsic Value

NFTs can represent art, music, videos, 3D environments, or blueprints, much like privately owned public goods. Everyone can appreciate exhibited artworks for free, but the items themselves have clear ownership records. Tokenizing these valuable assets (rather than simply generating art) helps creators connect with their thousands of true fans. For example, in the case of music NFTs, some investors have expressed similar views (such as Delphi Digital and Coopahtroopa), and there are already cases like Audius and Royal. Given the mainstream familiarity with NFTs and widespread experimentation, the timing for adopting NFTs may be very close. We are looking for infrastructure, such as platforms and DAOs, that have clear advantages in target markets and can attract a sufficient number of creators and collectors.

Utility Value

Utility NFTs are more akin to privately owned private goods—games, communities, events, or any crypto products/services that require access rights. Ownership and usage rights of these NFTs enable individuals to establish direct loyalty relationships with brands or businesses, which can also be transferred as the user base or community grows. As a basic start, almost every PFP NFT project has established token-gated Discord servers, where only verified holders can join. We have invested in infrastructure capable of enabling various use cases, such as smart token labs, Grape Protocol, and Lit Protocol. These projects are positioned to serve any project issuing NFTs.

NFT Outlook

As these utility NFTs proliferate, datasets naturally emerge through ownership and usage rights, allowing the purchases and interactions of users and collectors to be verified. This social graph will be invaluable for derived use cases such as assessment, reputation, and personalized experiences.

2. Empowering More Creators in Games/Metaverse

By now, the explosion of Axie Infinity has made one thing clear: Web3 gaming has taken root. Returning ownership to players and allowing them to enjoy the profits from game development creates a powerful feedback loop that drives value creation and enhances user stickiness. Of course, to ensure long-term sustainability, projects still need to improve token mechanisms, such as realizing participation monetization and using free models to lower barriers to entry. Meanwhile, in recent years, a large influx of players, developers, and capital into this field will yield rich results, as many highly anticipated games are set to launch in 2022, such as Ember Sword, Illuvium, and Guild of Guardians.

However, Web3 gaming currently overemphasizes the importance of AAA titles. These projects often require longer development times and more funding, thus carrying higher risks. Instead, we hope to find alternative products with faster iteration cycles.

Casual Games

Casual games are easier to deliver, can attract a broader audience, and have already generated significant profits in web2. Especially mobile games, which lead in revenue and growth. Web3 games will still primarily focus on browser-based games, which represent the smallest segment of gaming. This is partly due to official scrutiny in the console and mobile game markets, while Web3 games are sometimes completely blocked due to some bad actors (see Steam). This presents opportunities for new platforms and markets to capture the long tail of Web3 casual gaming. We are looking for platforms with extensive networks and experience in gaming and Web3. An example in our portfolio is OPGames, which provides an SDK and aggregator. Existing game projects and publishers can also expand into a broader ecosystem, such as Gala Games.

Metaverse Games

The metaverse leverages community to drive large-scale innovation. In Web2, sandbox games like Minecraft and Roblox became popular because they unleashed creativity. Similarly, open-world or MMO games with active modding or role-playing communities attract large numbers of loyal players, such as GTA V, The Elder Scrolls, and World of Warcraft. In Web3, these games are referred to as the metaverse—a persistent virtual reality where assets can be truly owned, creating a real economy with real business through open integration. These worlds largely rely on strong initial momentum, often driven by founding developers, before clearly transitioning to community-led content creation. We have already seen some initial successes in Decentraland, Sandbox, Cryptovoxels, and Somnium Space. We will continue to invest in teams with clear advantages in target markets, such as Realy within the Solana ecosystem, Mona Gallery within the Filecoin ecosystem, and Bitcountry within the Polkadot ecosystem.

Metaverse Outlook

As Web3 gaming matures, a so-called metaverse-native economy is emerging. Players organize into guilds, developers gather to establish DAOs, and tools developed for Web3 characteristics are coming to fruition. Coupled with immersive digital experiences brought by hardware innovations, such as VR, AR, and mixed reality, the world is approaching a critical point that leads us toward a social and work life based on the metaverse.

3. Empowering DAOs with Purpose and Scaling

With digital assets in the form of NFTs and digital experiences in the metaverse, digital organizations and work methods naturally emerge. The concept of DAOs can be traced back to the Ethereum white paper and has evolved into more contemporary forms in recent years, including regulated investment DAOs like The Lao, product-focused DAOs like MakerDAO, or purpose-built DAOs like ConstitutionDAO—which raised $47 million to bid for the U.S. Constitution. The rise of DAOs coincides with the emergence of the gig economy and the Great Resignation, which is no coincidence; people are seeking more flexible, fair, and personalized work opportunities. Clearly, the disruption of work forms is already underway.

DAOs often operate well when there is a clear purpose and mission, as seen in the aforementioned examples of investment, product development, or crowdfunding. However, these DAOs have not yet reached a global scale, which is where the true potential of DAO coordination lies. There are a few DAOs with grander visions, such as GitcoinDAO, which aims to build and fund public goods, but we still need mechanisms to recognize large-scale contributions and contributors.

"Proof of Contribution" Infrastructure

We need to standardize and gamify DAO activities, creating new prototypes for the new economy in the process. At the individual and project level, existing implementations include liquidity mining in DeFi or social tokens that incentivize participation and consumption of products/services—such as Roll. In terms of infrastructure, there are also some strong examples. For instance, Bitcoin's proof-of-work mechanism, despite various trade-offs, is a fair measure of contributions made for security. Filecoin's proof-of-storage has accumulated an incredible 15 million TB of storage space. A newer experiment is the move-to-earn model adopted by Genopets and Stepn, which can attract sponsorship from governments, employers, and insurance companies to improve health through exercise.

Imagine experiments like "carbon capture proof" or "research replication proof." Each could spawn massive industries. These use cases can start as smart contract applications and eventually evolve into independent chains using flexible infrastructure, such as Polkadot's Substrate or Cosmos SDK. From this perspective, the attention economy that continues to power internet giants today largely rests on discovering a simple fundamental principle—namely, "proof of clicks."

Governance Mechanisms

On the other hand, targeted governance fills the gap left by unstandardized interactions or strategic contributions. In Web3, the immutability of blockchain often leaves little room for legal recourse, meaning governance mechanisms related to code execution become crucial infrastructure. An early example in our portfolio is Snapshot X, which links voting to on-chain execution. Additionally, as DAOs evolve and decentralization efforts progress, the demand for governance will change over time. Here, upgradeable and modular tools like Zodiac provide a seamless experience for all stages of the DAO lifecycle. We need to fund more targeted infrastructure to improve the setup and operation of DAOs, thereby achieving the ultimate goal.

DAO Outlook

As we increasingly embed ourselves into digital tribes through clusters of DAOs, digital nation-states defined by culture are beginning to take shape around the security provided by underlying blockchains. It is not impossible to envision rights, benefits, and taxation (voluntary or mandatory) mechanisms tailored for each nation-state.

Conclusion

Venture capital is like this, and Web3 even more so; our understanding and outlook will continue to adjust as new pieces fall into place. At the same time, we must collaborate to play our respective roles, consciously planning the goals that Web3 should achieve—challenging and enhancing the existing order, moving toward a more open, transparent, and inclusive world.

This also applies to this article itself. We will focus on and promote the development of Web3 while updating our blog posts. If you have any feedback, feel free to contact me. If you are developing anything related to the topics mentioned above, you are also welcome to reach out to us, and let’s go further together.

We will succeed, friends.

P.S. Any small previews?

While it's not enough to write a complete article yet, as a Web3 user, I have always been unable to forget the questions in the following five areas, where there are still significant gaps. Perhaps we can discuss these in detail in the next article?

• Programmable Data --- Datasets based on Web3 storage as prototypes

• Identity --- Proofs in the form of NFTs and non-transferable identifiers

• Cross-Chain Infrastructure --- For building a seamless multi-chain world

• Privacy Layer --- Protecting personal privacy and opening up viable spaces for institutions in Web3

• Social Currency --- As a complement to social NFTs and DAOs