3 Use Cases for Web3 that Investors are Keeping an Eye on
2022 was a difficult year for the crypto owners and enthusiasts who were ready to embrace a world running on cryptocurrencies. With the collapse of FTX in November 2022, which was the third largest crypto exchange by trading volume in 2021, and the questions surrounding Binance, most crypto investors seem convinced that this "crypto winter" is about to turn into a "crypto ice age." The FTX story showed that crypto exchanges were no different from the conventional financial institutions they were supposed to bring down. They proved just as defenseless against bank runs as banks are. These organizations turned out to be as centralized as their more traditional counterparts and relied on the trust investors put in them despite all the talk about "zero trust."
That's because blockchain is still a relatively new technology that has not matured yet. The last few years have been a period of experimentation, looking for the best way of leveraging this new technology, and some people can't shake off old ways of doing business, preferring to apply this new technology to an old game. Giving up the obsession with the coin prices and going back to the basics will be key to the future success of Web3. The days of buying a crypto asset with the hope to turn it over to someone for a fortune in a few months are over.
Despite all the scams, unkept promises, and the doom and gloom surrounding crypto and the Web3, some venture capital (VC) firms still keep backing Web3 and blockchain projects. For example, Andreessen Horowitz's crypto fund led two series B rounds last fall, helping raise more than $90 million in funds. What is it that these institutional investors see but others don't? What still keeps the hope alive in the Web3 domain? It is worth taking a look at the most promising use cases in the Web3 domain.
Taking video games to mobile took a few years. That seems to be the case with blockchain, too, as game developers are still trying to find themselves in Web3. The first few years of Web3 gaming were dominated by play-to-earn games, in which players can make money by collecting cryptocurrencies or NFT tokens. These games have gone out of fashion, though. Chasing rewards cannot make up for the lack of a fun and immersive storyline in a game.
Today, there is a premium on gaming experience, which game developers in the Web3 domain have failed to provide so far. In the near future, Web3-native games will be expected to deliver the same quality in narrative and playability regular video games offer, and the chance to hoard crypto will not cut it.
The gaming market is a huge one with billions of potential participants. The investors are aware of the size of the total addressable market, and their hope is that the introduction of Web3-native games will win over at least part of the market. Will it be through adapting existing popular games to Web3? This is a possibility, but the real breakthrough will probably come from decentralized storytelling. This new concept will let fans add their own characters to a game and build out a universe around a central backbone. We are already familiar with modding and DLCs in video games. The decentralized and composable nature of Web3 will take modding to another level.
Regenerative finance refers to a rethinking of the current economic system and reallocating resources with a view to account for externalities (secondary or unintended consequences). It aims to put a price on negative externalities like CO2 emissions or water pollution. On the other hand, ReFi rewards economic activities that create positive externalities for humanity.
The good thing about ReFi is how it makes utility a core tenet of Web3 once again. ReFi platforms like Toucan already play a role in the carbon credits trade. What they do better than a Web2-based carbon credit system is the efficiency, transparency, and composability they introduce to the carbon credits. A ReFi company turns carbon credits into tokens, eliminates intermediaries that demand a sizable chunk of the money involved as a commission fee, and replaces those intermediaries with efficient smart contracts. Removing the brokers from the process saves customers a lot of time and money. Apparently, token-based carbon credits work rather beautifully for the folks who care about their carbon footprint, as Mark Cuban states in this short excerpt.
Hard tech companies that tackle real-world problems attract more interest from investors, who seek tobacco projects that can bring together public good and profitability. ReFi seems well-positioned to take advantage of this situation. As the fight against climate change intensifies and reducing carbon footprint becomes a bigger concern, what ReFi brings to the table will only get more pronounced, making it one of the engines of Web3.
For some technology to realize its full potential today, some form of mobile-friendliness is a must-have. If Web3 is to become mainstream one day, it won't happen without a plan to take it to mobile, considering that smartphones are much more common than computers in Africa and South Asia. Web3's future hinges on creating real user value, and smartphones have become the main channel for distributing that value. Web3's growth in the mobile market can catapult it from being a domain for tech geeks to becoming mainstream and the new version of the Internet.
Blockchain platform Polygon took a step in that direction in July 2022, announcing a partnership with tech startup Nothing to offer its NFTs on the Android-based Nothing Phone. With Polygon itself being a scalability solution for Ethereum, the project's success can help onboard millions of phone users to Web3, as the company's VP of Growth Arjun Kalsy envisions.
Polygon is not the first platform striving to bring together blockchain and smartphones. Just a few weeks before Polygon, Solana revealed its plans to develop its own blockchain phone called Saga. These two initiatives have the potential to facilitate crypto payments, turn DAOs into a bigger part of our lives, and bring artists closer to their fanbase through NFTs.
We are still early in the process, and there are problems to figure out, like how apps on different chains will be accessed. But judging by the potential, if there is one area that deserves pouring resources into, it has to be blockchain-mobile integration.
At the outset, blockchain owed its popularity to the promise of solving real-world problems like decentralizing the web and the ability to authenticate identity. The market diverged from those concepts and drifted toward crypto speculation, gaining a ponzi scheme-like character. For Web3 to arise from this crypto winter unscathed, utility has to regain its seat as the focal point for Web3 developers. Nail the use cases that solve real problems, and you will have no trouble finding endorsement from investors, be it winter or ice age.