Web3 under the outbreak of large-scale applications, which tracks have new opportunities

Author: MetaPi

Recently, the cryptocurrency market has entered a very "turbulent" era. On one hand, the crypto industry is gradually entering a deep bear market, but on the other hand, the concept of Web3, closely related to blockchain, has successfully gained mainstream attention. What is Web3? Who is laying out Web3? What stage is Web3 currently in? What is the basic situation of the Web3 track? Understanding these questions is essential for uncovering wealth opportunities within Web3.

1: Who is laying out Web3?

Web3 is the next generation of the value internet. According to reports, a16z, which has invested in several star companies like Facebook, Twitter, Instagram, and Github, began laying out in the Web3 field as early as ten years ago.

In 2013, a16z bought shares of Coinbase (the largest cryptocurrency exchange in the U.S.) at a price of $1 per share and subsequently participated in eight rounds of financing for Coinbase. After starting its investment in Coinbase, a16z became more aggressive in its bets on the Web3 field. Since raising its first crypto fund in 2018, a16z has launched four crypto funds. Additionally, it recently established a $600 million fund focused on Web3.0/blockchain gaming called "GAMES FUND ONE," further expanding its investment footprint in the Web3.0 space.

Capital is keenly searching for leverage to disrupt the old world, and other venture capital giants are not falling behind. A report from the foreign research agency Crunchbase indicates that in 2021 alone, 152 venture capital firms invested in Web3.0 unicorn companies. Among them, Coinbase Ventures (19 deals), Digital Currency Group (14 deals), Andreessen Horowitz (12 deals), Ribbit Capital, and Pantera Capital (both 9 deals) ranked in the top five.

For domestic capital, the true Web3 era may still be far from arriving, but the giants have already met again at this table.

In March 2022, Tencent and several capital institutions, including Singapore's Temasek, completed a new round of financing for the Australian NFT gaming company Immutable. This was Tencent's first investment in Web3.

In October 2022, TikTok launched its first NFT project, TikTok Top Moments, which features six "culturally significant TikTok videos." This project was completed in collaboration with six of the platform's most popular creators and several well-known NFT artists.

It is not difficult to see that ByteDance and Tencent's layouts in Web3 are built on their existing businesses and are focused on overseas markets, while Alibaba has chosen to carve out a new path, attempting to localize Web3 in China. In July 2021, Alibaba's Hong Kong newspaper South China Morning Post launched an NFT platform plan called "ARTIFACT," which can NFT-ize factual narratives or real historical assets. Additionally, Alibaba has launched the Whale Explorer NFT issuance platform using "Ant Chain," modeled after foreign NFT products.

It cannot be denied that the signals released by the outside world about the imminent arrival of Web3.0 may contain a certain degree of bubble. However, the integration of internet companies with Web3 has become an irreversible development trend, even subtly changing people's online lifestyles. The influx of participants is betting on a bright future; they are not afraid of bubbles but are concerned about entering the market too late.

2: What stage is Web3 currently in?

Web3.0 is currently at a stage similar to the DeFi boom in the second half of 2019, which is in its nascent phase and has a certain level of heat.

From the perspective of market awareness, a large portion of people still do not understand what Web3.0 is and do not recognize the differences between Web3.0 and blockchain.

From the perspective of ecological products, the infrastructure of Web3.0 has reached a certain level of maturity, such as Ethereum's upcoming transition to POS consensus; the gradually thriving Layer 2 networks; the steadily developing BSC; and the innovative developments in Solana… Decentralized storage can also complete the storage of NFT files. However, the development of top-level applications is still very immature.

First, the vast majority of Web3 applications are still motivated by xxx to earn, providing users with more opportunities to make money rather than leveraging decentralization to enhance user experience.

Second, many applications still belong to quasi-Web3 applications. The funds and NFTs of these applications are stored on the blockchain, but the specific data of the applications is still stored on centralized servers of developers. For example, Stepn's sports data, user activity trajectories, and frequency data remain centralized.

Therefore, Web3 is still in its early nascent stage. Looking at web3 project tags, we find that the vast majority of projects are underlying infrastructure, with very few true Web3 applications.

Thus, I firmly believe that we are on the eve of a large-scale application explosion in Web3. The next cycle will surely see the emergence of true Web3 products with tens of millions of daily active users—products that will spread the concept of the next generation of the internet to every corner of the globe, just like the iPhone and Facebook.

3: What is the basic situation of the Web3 track?

If we determine that a large-scale application explosion is what will happen next in Web3, then where are the opportunity points? Will it explode in fields like NFTFi, GameFi, DeFi, or SocialFi?

Observing the hotspots from the last bull market, we can find that the concepts leading the trend in each cycle have already appeared in the previous cycle. For example, NFTs gained popularity back in 2017 with CryptoKitties, but it wasn't until 2021 that they truly broke into the mainstream. Therefore, the concepts leading the next cycle may already be emerging now.

With positive expectations for 2023, here are my shared expectations for the development of Web3-related tracks.

1. NFTs as core assets will revive and strengthen, and the related infrastructure NFTFi will face explosive demand;

2. SocialFi and GameFi are attracting significant attention from Web3 users, and the next generation of leading social applications will break Web3 into the mainstream;

3. DeFi applications with validated business models will capture greater value, achieving organic growth in cash flow;

Part.1 NFTFi

It is undeniable that NFTs are becoming a key guiding factor for "new user onboarding" in Web3. As the core asset of Web3, NFTs will continue to gain attention and strength over time and with increased exposure. However, the current NFT market also faces two major issues: 1) The practicality and functionality of NFTs are limited, making it difficult to link with the mainstream crypto market, and they can only be used for small-scale dissemination; 2) The value assessment of NFTs relies on market liquidity, and the lack of rich and multidimensional value assessment methods reduces the discovery of NFT value and liquidity.

Therefore, in the NFT field, I am more focused on mainstream narratives that can stimulate the NFT financial market and enhance liquidity service modules, such as trading, collateral lending, fragmentation, options, and other innovative applications, as well as management tools for NFT assets, and SDKs that bring Web2.0 IP fans into Web3.0.

With the evolution of NFT assets, many interesting NFTFi projects have come into view, such as Sudoswap, which provides instant liquidity for NFT transactions through an AMM approach; BendDAO, which addresses the immediate lending needs of blue-chip NFT holders through a peer-to-pool model; META PIONEERS, which distributes mainstream currency earnings from issued NFTs to a compound interest pool and uses a peer-to-pool interest calculation NFT staking lending protocol to enhance NFT liquidity, automatically helping users with NFT lending positions repay interest and reduce the risk of liquidation; these are all considered breakthrough products in the current NFTFi track.

Although NFTs are still in their early stages and face issues and risks related to liquidity dispersion, I still believe that NFTs will gain far greater influence in the next cycle. NFTs will play important roles in community governance, development incentives, and user asset management, and the gap between the total market value of NFTs and that of homogeneous tokens may narrow or even reverse, leading to increased demand for NFTFi. Therefore, laying out innovative NFTFi products at this stage will have the opportunity to gain greater value appreciation in the next cycle as NFTs break into the mainstream.

Part.2 GameFi

The basic concept of GameFi originates from blockchain, giving GameFi a distributed advantage that traditional industries do not possess.

Every player in the game can fully control their game characters, assets, and items, and can guide the development direction of the blockchain game through governance tokens. Players can vote to upgrade and improve the blockchain game.

The decentralized structure of blockchain games has operational advantages, allowing players to participate in the operation and maintenance of the game. The higher the game's popularity, the better the player experience. The more players there are, the greater the benefits for early players.

Currently, GameFi widely uses the Play to Earn economic model, where real money earned while playing guarantees player enthusiasm and loyalty. However, its Ponzi logic still needs to be broken: how can the prosperity of the ecosystem break free from reliance on incremental funds provided by subsequent users?

GameFi has become one of the most promising fields in the industry. With the popularization of the metaverse concept, GameFi will gain more attention and participation. Although GameFi has cooled down during the bear market, considering the breadth of the entire market and its advantages in asset interaction, the potential of GameFi has yet to be fully unleashed. After all, it has only been a few years since the concept of GameFi was proposed, and as GameFi is still in its early stages, its future development and prospects are undoubtedly worth looking forward to.

Part.3 DeFi

DeFi, or decentralized finance, can be said to be the main use case of blockchain. Although the total locked value (TVL) of DeFi shrank continuously in 2022 due to declining cryptocurrency prices, from a historical peak of $180 billion in December 2021 to $38.5 billion on December 31 of this year, a drop of about 78%, the number of DeFi users is increasing, and the number of wallet users is also rising.

We see many DeFi cases with clear business models continuously growing in user numbers and transaction volumes even during the bear market. For example, Uniswap continues to maintain around 50% of the trading volume, Curve's share has steadily climbed from 12.9% to 19.6%, and Ethereum-focused liquidity staking projects like Lido/Rocket Pool have seen their staking amounts grow by 85% compared to the beginning of the year. The decentralized perpetual exchange GMX on Arbitrum has seen its market share grow from 9% to around 15% over the past six months, and there were even days when its revenue exceeded that of Uniswap.

The future of DeFi will belong to those with solid track logic, real applications with complete endogenous demand, and application products with strong value support, such as on-chain order books, derivatives protocols, and innovative applications like liquidity pools that carry endogenous leverage, which are worth paying attention to.

Part.4 SocialFi

Social naturally represents the strongest network effect track and product form, ultimately carrying the largest user base and the stickiest user behaviors. Its close connection with privacy ensures that the value proposition of decentralization will receive attention.

In the Web2 world, social products can only participate in creation and dissemination, and users do not have ownership of their data. Whether it's overseas platforms like Facebook and Twitter or domestic platforms like Weibo and WeChat, the platforms utilize user behavior data and profile data to iterate feed algorithms, thereby empowering advertising revenue, which essentially amounts to the uncompensated appropriation of users' digital assets.

Social (Web3 social) addresses issues of data ownership, privacy rights, and revenue rights, while focusing on traffic, attention, and control over users. This dual narrative aligns well with the new era's advocacy for equality, freedom, and an open virtual social vision.

However, the current challenge in the development of the SocialFi track lies in the insufficient scale of mobile Web3 users. But as the specific product directions mentioned above continue to mature, the contours of this track will become increasingly clear.