Outlook for Web3: Tracks that are Worth Paying Attention to in 2022
1. The meaning of Web3 to users
Web3 is a term with broad definitions and one of the mainstream statements is that, based on Web2, blockchain technology is used to achieve decentralization, and users have ownership and autonomy over their own data. Previously, in Web2, those centralized platforms hold the user’s data and content, and there is a risk of data leakage; the data between platforms cannot be interconnected; users may also be subject to centralized censorship, blocking and other penalties; and users cannot take part in the revenue sharing of the centralized platforms. Therefore, Web3 is seen to be the solution to these problems.
However, changing users’ habits is not an easy task. In order to attract more users into Web3, there must be tangible benefits for the users. In this process, cryptocurrency will play an important role at the incentive level. The introduction of cryptocurrency can change the benefit distribution mechanism, allocating the platform revenue to both creators and users, meanwhile breaking the boundaries of the centralized platform, and re-establishing the permission rights of user data.
2. Which Web3 sectors are worth watching?
We believe that as the value and the time spent by the users accumulate in the Web2 platform, it is better to be remade through the Web3 paradigm. Take the Gamefi project as an example, the Play to Earn model distributes revenues that traditionally belong to gaming companies to players. Besides games, what other tracks can both take up a lot of user time and do not allow users to earn platform revenue?
This bar chart illustrates that the users spend the most time in applications like social media and entertainment apps, which also means that these tracks also show a big opportunity in Web3.
(I) SocialFi
Socialization is an indispensable attribute of human beings. In both the Web1 and Web2 era, socializing was a domain that started to develop relatively early and had the greatest influence on the development of the industry. Looking back at the history of Internet development, in the Web1 era (1993–2002), MSN appeared in 1995 and QQ in 1998; in the Web2 era (2002–2018), Facebook was established in 2004, Youtube in 2005, and Twitter in 2006. Social apps helped the emerging technologies to spread on a large scale.
SocialFi and the creator economy with socializing attributes are important directions for the crypto industry to go mainstream. In Web2, the centralized social platform gets user data and the vast majority of revenue, and the centralized platform has the problem of privacy leakage. Blockchain, as a tool with decentralized attributes, can truly empower the industry and revolutionize the production relationship.
Since the number of Web3 users is still fairly small, the infrastructure is not yet complete, and the product experience is far from perfect, SocialFi and creator economy apps are not yet in a position to boom on a large scale. It will still take a long time for the industry leader to manifest itself. The social concept of Web3 may be a hot topic in the short term, but the construction of the infrastructure is still more important.
In Web2, it’s only considered to be a globally used app when the number of users reached 1 billion, we hereby estimate that there will be mass adoption of users worldwide in Web3 by 2024. The infrastructures of Web3 are still incapable of supporting tremendous content posted by users as well as the circulation of cryptocurrency. At the moment, for common users in DApp, the barriers to entry and the usage cost are relatively high; moreover, it’s also not quite user-friendly and the process is lengthy.
Graph 3:Adoption rate of Crypto vs The internet (source:REVIX)
The application layer of Web3 can only be better developed when the infrastructure is perfected, and in 2022, SocialFi’s infrastructure is likely to be the first to be developed. Current infrastructures to focus on include: public chains (Ether, Dfinity and Polkadot, etc.), DID (ENS, Handshake, etc.), portals such as browsers and wallets (BRAVE, Phantom, etc.), distributed storage (Arweave, etc.), data retrieval (Graph, etc.), creator platforms (Mirror, Rally, etc.).
Although it is still too early to talk about track leaders, some social applications may act as early pioneers. Replication of traditional social media in Web3 is exceptionally difficult because it takes a lot of sacrifices to do so, requiring the concession of significant benefits and a lower barrier to entry to actually convert users from Web2 to Web3. Centralized social platforms, such as Facebook and Twitter, are also actively exploring the construction of Web3, but will likely not adopt Web3 entirely due to their vested interests and path dependencies.
Web3 social projects need to change the model of existing social platforms, satisfy true user needs and improve the overall user experience of existing social projects. We are bullish on innovative social models based on cryptocurrencies, AR technology, etc., such as social-based games or sociable virtual content (GameFi, NFT, meta-universe, etc. with social attributes), or a combination of social and DAO.
We believe that high-quality projects should meet the following criteria:
- Firstly, low cost of use, weak UGC attributes, clear task objectives, and no need for a large number of ordinary users as content creators.
- Secondly, easy operation and smooth experience.
- Thirdly, a balanced and reasonable token economy system, giving full play to the role of tokens.
- Fourthly, there are unique-selling points in the project that can spread quickly and acquire a large number of users at a low cost.
- Fifthly, the product has great sustainability, can provide a continuous incentive for users that can be realized.
(II) Music projects
In addition to social projects, music projects are among the creator economies that may have the potential to grow rapidly in the early days of Web3. The number of niche music creators is huge and there is no shortage of professional creators, but they are not very welcome in the Web2 platform. Besides that, music-based projects have relatively low infrastructure requirements. Therefore, music platforms may become an early bridge to convert more Web2 users into Web3 users. There are investment opportunities in this track, such as aggregated music platforms, music-based NFTs, etc.
The main problems faced by Web3 music platforms are unclear liquidity models and copyright issues. As a decentralized streaming platform, Audius, for example, has not subverted the traditional streaming model, nor has it played the role of its token well. The subsequent development of Audius will depend on the project’s next move.
In contrast, we believe that music-based NFT may have a breakthrough in 2022. On the one hand, after the boom of image-based NFT, users already have a good understanding of NFT projects, and the education cost of users has reduced. On the other hand, a number of leading investment institutions have already started to layout and will launch more music-based NFT projects in the future. The current core problem is that music NFT is dominated by niche musicians and it needs more famous musicians to expand its influence.
(III) Fan economy
In the entertainment field including music, the model combining NFT and fan economy has a wide scope for development. Fan economy does not work well in the Web2 era. However, in Web3, by introducing NFT, the fan economy can better realize the economic benefits driven by community, fan enthusiasm and ownership.
Specifically, Web3 can provide the following advantages.
- First of all, the price tier. In the existing advertising and subscription-based models, most of them implement uniform pricing; however, in Web3, different products and services can be made into different NFTs, and the charging model is very flexible.
- Secondly, fans and stars are able to do direct interaction, and intermediaries (such as record companies) can no longer take a percentage from them.
- Thirdly, while users spend time and money, they can also get the corresponding economic benefits and discourse right, thus increasing their enthusiasm for participation.
The focus of the fan economy is on the fans, and a key concern for 2022 is whether the fan economy can bring a ripple effect to the NFT or cryptocurrency industry. As Web3 grows and with the increase of users in some leading platforms, stars native to the cryptocurrency sector will gradually emerge.
The artworks of big-name stars are subject to copyright issues, and it is quite difficult to release NFT directly. Therefore, the fan economy should not be limited to the stars’ artworks, and the asset carriers of NFT should have a larger scope, such as peripheral items of celebrity, meetups and concerts and other activities. The diversity of NFT carriers is likely to attract more influential celebrities to participate, thus attracting more fans.
3. Conclusion
Web3 is still in the early stage of development and infrastructure building is very important. In terms of applications, it needs the acceptance of cryptocurrency to increase to a certain amount before the applications will boom on a large scale; it also needs some early applications with mesmerizing features to attract a large number of users.
Social as a track to the mainstream deserves attention, and we are more optimistic about projects that can change the existing social play, have real user demand, and improve the existing experience of social interaction.
In addition to social networking, the creator economy is also a very promising sector in Web3. Music projects have relatively low infrastructure requirements and will probably boom in the early stage. In addition, fan economy is an important direction to have a breakthrough, and NFT can play an important role in it.
Regardless of the track, Web3 also needs to solve the commercialization problem. The token economy model would need the existence of capital revenue based on real claims to be sustainable. In Web2, the main revenue stream of social media is advertising revenue, which is the marketing input of many corporate clients based on business needs. Then in the Web3 era, a good revenue stream is also needed through a suitable business model.
Although there is no final answer yet, the commercialization problem will be solved with the development of Web3, just as no one could ever imagine the tremendous variety of commercialization models that exist today back in the early development of the Internet. In the wave of Web3, let’s stay optimistic and open-minded to learn and build.
Further Reading:
Crypto Industry Outlook: What Institutions are Optimistic about in 2022
Disclaimer: This research article is opinion/insights only, it should not be viewed as financial or investment advices in any form. Readers are advised to do their own research and analyze the market on their own.
